Cable companies should lay fibre for IPTV, analysts say

Cable companies should upgrade their network infrastructure to fibre so they can offer Internet protocol television (IPTV) and keep up with telcos now offering the technology, analysts say. “For the first time, cable is the incumbent, telcos are the insurgent, and arguably they have a better technology,” Dvai Ghose, a telecom analyst with Canaccord Genuity, said in an interview. Experts say cable networks can continue to compete with fibre for up to another 10 years, but at some point the major cablecos are expected to upgrade to fibre. The most obvious advantage of fibre over cable is its bandwidth capacity and speed. Australia is building out a national fibre network that will offer a 100 Mbps fibre-to-the-home Internet service. But another advantage of fibre is the features that come with IPTV. On Jan. 13, Shaw Communications Inc. CEO Brad Shaw told analysts during a conference call that by May the cable company will offer a more flexible and advanced television distribution platform. Shaw said the new service, which has yet to be announced, will help compete with Telus Corp.'s Optik TV, an IPTV service that runs on the Microsoft Mediaroom platform. Optik TV, launched in June, helped Telus grow its television customer base during November by 94 per cent, year-over-year, to 266,000 subscribers. In June, Canaccord estimated that 85 per cent of Telus' new customers crossed over from Shaw Cable. Mediaroom, which BCE Inc., SaskTel and MTS Allstream also use in their IPTV services, offers several features that traditional cable cannot, including using one personal video recorder (PVR) for up to six television sets and the possibility of pausing a show and picking it up on a screen in another room. “Telcos used to be horribly fragmented. Now they’re using the same Microsoft product when it comes to IPTV, whereas the cable companies are fragmented,” Ghose said. Ghose said Shaw is adopting the new technology in a defensive move to compete with new television offerings from the telcos, but added that the move isn't enough. “I would call that a bit of a patchwork solution in as much as you still don't have ... IPTV capabilities,” he said. Ghose said that in order to compete in the future, cable companies will need to offer IPTV—and the only way to do that is to make the financially draining move of replacing their legacy cable networks with fibre. “It's expensive. It takes a lot of time, and there's no obvious incremental revenue. So why do it? Because if you don't, I think you'll lose customers and revenues. It's a very defensive play, which is not nearly as attractive as the stuff they've done in the past,” he said. Still, no Canadian cable company has announced intentions to move to a fibre network or an IPTV product. “None of the Canadians have said about going to IPTV at the moment, and I think they have to,” Ghose said. “If you go to Shaw, Rogers , Videotron or Cogeco , and ask, 'Are you going to go IPTV?' They'll tell you, 'Well, eventually.' But when? How? How much? They don't know.” Jeff Kagan, an independent communications industry analyst in Atlanta, Ga., said there's no right answer as to when is the best time for cable companies to upgrade to fibre. “Some people think you should do things sooner, and some people think you should do things later. We've seen companies do both, and companies have both succeeded and failed,” he said. “It's not like there's a clear path to take.” Kagan said cable companies can continue to operate on cable until customer demand for speed and IPTV services grows too strong. “Some cable companies aren't rushing to install all of these new services,” he said. “Others are. Others are rushing to deliver these high-speed services, and some of them have to upgrade their cable, but eventually they're all going to have to ... Otherwise customers will leave them.” Kagan said cable companies will be pushed to upgrade their services sooner rather than later due to competitive pressures from telcos, which are also beginning to offer video on mobile services. Each company will follow its own timeline, he said, and it's probable that large companies will begin the move by rolling out fibre market-by-market, starting with urban areas. Ghose said that, in addition to the cost of upgrading cable infrastructure to fibre, cable companies may also be reluctant to move to IPTV because they'll have to charge less for their offerings. “The problem there is once you go full on-demand ... IPTV services, the days of spending $250 on cable come to an end. Essentially, will start downloading on an on-demand basis, and I doubt very much we're going to spend as much, historically, as we have on cable,” he said. But IPTV comes with advantages. It uses much less bandwidth than regular cable TV. “Only the channels that are being streamed through IP to our homes are actually taking up bandwidth. The problem with legacy cable is—yes you have a much bigger pipe—but if I have 300 channels registered from Rogers, they're broadcasting the 300 channels simultaneously, whether I'm at home or not,” Ghose said. Maher Yaghi, a telecom analyst at Desjardins Securities, said companies like Shaw, which are looking to improve their product without replacing their infrastructure, are making the right choice. “What you're seeing is that the IPTV product offering, at this point in time, is a little bit more advanced in terms of user-interface and the whole customer experience,” he said. “The cable guys are probably going to have to invest more in upgrading the consumer side and ... the set-top boxes to make it more efficient and more user-friendly.” Yaghi said cable companies will continue to have an upper-hand in the television market over the next few years because they can offer more high-definition channels at the same time. But Yaghi added that competition will grow increasingly fierce as telcos continue to build out their fibre networks. “The playing field is being cut down and made very open to everybody to come in and compete, even over-the-top video products that are coming on the market,” he said. “As it stands right now, video is still not as fierce in terms of competition. The Internet is more fierce. But I'm expecting that, as the telcos broaden their use of broadband technology, will become as fierce as the Internet is right now in a year or two.” kfournier@thewirereport.ca

Cable companies should lay fibre for IPTV, analysts say

Broadcast | January 26, 2011

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