Cogeco shifting data centre strategy due to Amazon, Microsoft: Audet

MONTREAL — Moves by Amazon.com Inc. and Microsoft Corp. into the Canadian data centre business won’t compete directly with Cogeco Inc., which is changing its data centre strategy by focusing on a different type of client, CEO Louis Audet told reporters Thursday. In response to a question about how Cogeco would compete given the opening of a data centre by Amazon in Montreal in December and Microsoft’s opening of centres in Toronto and Quebec City, Audet said “we sell to bigger companies who are looking for a more sophisticated service.” He said the company hasn’t seen a significant increase in competition given Amazon and Microsoft’s plans, and that it’s adjusting to the new offers by targeting other clients. “We shouldn’t be looking at the type of client who would be susceptible to the type of offers Amazon and Microsoft have,” Audet said in French, such as clients who may only be looking for a few hundred dollars per month’s worth of services. Instead, the customers Cogeco is targeting have more-complicated needs and are looking for multiple services, such as security, backup or, for instance, help building an ecommerce platform. The company’s data centres in Quebec and Ontario meet the requirements for a Tier 3 data centre, he said. Tier 3 is the second-most stringent classification for data centres. “Customers who go to Microsoft aren’t the type of customers who are looking for those types of services. They’re looking for a very basic service, we’re more upmarket,” he said in French. Given the change in strategy, the company is taking a break from opening any new data centres, he said, noting that the challenge with this type of clientele is that it takes as long as a year to reach a deal. Audet answered a range of questions from reporters in Montreal, speaking primarily in French, ahead of Cogeco’s annual general meeting and coinciding with the release of its quarterly results. That included addressing increased competition from BCE Inc.’s rollout of fibre-to-the-home (FTTH). He said there was “no doubt” that Cogeco’s network could compete, and that its existing infrastructure can offer speeds of 1 GB and up to 10 GB in the future. “The notion that fibre is superior is irrelevant, because clients don’t want to know how their service is delivered… it’s not about fibre, it’s about the service,” including quality of video and Internet speeds, he said. Bell has to invest billions into its network to be able to offer the same speeds, Audet noted. “For their shareholders, it’s a disaster. For us, it’s miraculous.” In response to a question about how the election of Donald Trump would affect the environment in which the company’s American business operates, Audet said a less-interventionist Federal Communications Commission (FCC) would make doing business easier. “But there are a lot of other factors, which I’ll leave to your imagination, that have to be taken into account,” he said. He was also asked about the cord-cutting phenomenon. Audet responded that the company sees more of a threat from its competitor TV providers than from cord-cutting, and that the company is seeing cord-cutters return to TV service as they start families. “We see it as a phase in life of a young person, who will eventually want a different experience with their family,” he said. In response to a question about imposing additional financial obligations on foreign streaming services like Netflix Inc. to support Canadian content, something that’s been debated as part of Heritage Canada’s ongoing review, Audet said it would be difficult for the government, given its relationship with the American government, to justify a “Netflix tax.” What would be easier and what they should do, however, is make such services subject to sales tax, and to direct those revenues to Canadian content, he said. The idea of a tax on Internet Service Providers (ISPs) to fund CanCon, which has also been floated as part of a review, would be in “direct contradiction to what is saying… to make sure that is available everywhere at the lowest possible price. So if you come and say, ‘we’ll add a tax,’ it’s not helping at all.” He said the company wants to see an “equitable” approach in which the government taxes all goods and services in the same manner and then directs those funds where it wants. In its quarterly results Thursday, Cogeco reported $583.1 million in revenue in the three-month period ended Nov. 30, compared to $582.9 million it earned in the same quarter a year earlier. The company said in a press release those numbers were “driven by growth in the Communications segment, partly offset by lower revenue in the media activities attributable to the sale of Métromédia CMR Plus Inc” in January 2016. In the company’s communications division, which includes all of its telecom operations, revenue was $549.1 million, which the company noted in its shareholders report was “an increase of $8.8 million … compared to the same period of the prior year driven by growths of 7.0 in the American broadband services operations and 1.0 in the Canadian broadband services operations, partly offset by a decrease of 6.3 in the Business ICT services operations.” It reported $82 million in profit, up from $66.8 million in the first quarter of 2016. “The increase is mainly due to the improvement of adjusted EBITDA combined with the decrease in depreciation and amortization,” Cogeco said in the press release. Overall, the company’s subscribers were up, to 1.93 million total in Canada and 596,693 in the United States. It lost 2,712 Canadian and American TV service subscribers in the quarter, ending the three-month period with 740,855 TV customers in Canada and 240,827 in the U.S. However, it added 19,437 Internet subscribers, for a total of 749,275 in Canada and 258,335 in the U.S. The shareholders’ document noted that the loss of 2,712 TV customers was smaller than the loss of 5,563 the company experienced a year earlier. “The loss reduction resulted mainly from the customers' ongoing interest in TiVo's digital advanced video services both in Canada and in the United States, partly offset by competitive offers in the industry, service category maturity in Canada, the changing video consumption environment combined with a higher churn in the United States mostly resulting from the rate increases implemented in September 2016,” it said. — With reporting by Anja Karadeglija at akarad@thewirereport.ca and editing by Charelle Evelyn at cevelyn@thewirereport.ca

Cogeco shifting data centre strategy due to Amazon, Microsoft: Audet

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