Mark Evans, Financial Post
Thursday, July 01, 2004
Like many new consumer-oriented technologies, video-on-demand has experienced a number of growing pains. Among the challenges are getting people aware the service exists; making sure it is user-friendly; and offering consumers enough quality titles — movies, children's shows, documentaries — to make it attractive and, more important, worth paying for.
In Canada, Rogers Cable Inc., Videotron Ltee, Shaw Communications Inc. and Cogeco Cable Inc. have been busy over the past year or so with VOD strategies. Rogers, for example, now has more than 1,400 titles available. Many of them, however, are more filler than fulfilling, and the on-screen menu is difficult to navigate.
Rogers has made VOD, which lets people request an available title whenever they want, accessible to 1.9 million of its 3.2 million customers. It expects to have 90% of its network footprint covered by year-end.
Mike Lee, vice-president of product development, said Rogers has seen “pretty decent” pick up, with 30% to 35% of subscribers using VOD each month. “The numbers are where we expected them [to be],” he said.
“We have a pretty optimistic perspective in terms of what it would contribute to the business. If loyalty is a measure of the effectiveness of a product, 85% to 90% of the people who bought [VOD] before, bought it the next month. Like Alexander Keith's beer, people who like it, like it a lot.”
Clearly, content is going to be a crucial part of VOD's success. When it comes to movies, consumers will likely be not too enthused buying something months after it has appeared in theatres and retail outlets such as Rogers Video and Blockbuster. At the same time, consumers will not settle for movies that are second-rate — even if they are relatively new.
This explains why Rogers, et al have moved into children's programming, documentaries and television series until they can get access to first-rate movies. Videotron, for example, has been offering Star Academie — the French version of American Idol.
The VOD market's growth could get a jump-start with the recent introduction of subscription video on demand (SVOD) service. Unlike VOD, which works on a pay-as-you-go basis and requires consumers to watch a title within a short period of time; SVOD allows users to buy a monthly subscription so they can view titles whenever they want.
Earlier this month, Rogers unveiled its first SVOD movie service with The Movie Network. Rogers' customers can choose from 40 movies at any time of the day and as many times as they want. Like a VCR or DVD player, movies can be stopped, paused, rewound, fast-forwarded, or replayed at no additional cost.
For many people, a SVOD movie service is appealing. Couples with young children, for example, will appreciate the ability to watch a movie later when they finally get a few hours of quiet time.
SVOD will really get interesting when it gives consumers the ability watch popular television shows around the clock. What would you pay to instantly access The Sopranos or Six Feet Under? This would be a popular option for people who do not want to go through the bother of taping shows, or borrowing tapes from co-workers.
For VOD service providers, SVOD of prime-time television shows would be the “holy grail”. Unfortunately, it will probably be some time before this service materializes because VOD has to gain a much bigger foothold, and the financial arrangements between service and content providers needs to be worked out.
“It is hard to predict exactly how far we are away but every broadcaster group is talking to us and interested in how they can make it available on the on-demand service,” said David Purdy, a senior director, digital television products with Rogers Cable. “Global, CHUM and Astral are probably the three most active with us, and the ones doing the most experimental work today.”
As VOD and SVOD become more popular and the programming improves, there is little doubt it will change when and how we watch movies, documentaries and television shows. It is enough to make couch potatoes everywhere kiss their remote controls.

Canadians have been slow to adopt Internet telephony but a sea change is coming
Mark Evans, Financial Post
June 24, 2004
According to a recent poll by Ipsos-Reid, Canadians have been slow to embrace Internet telephony and there appears to be little demand for the service among consumers.
However, this has not stopped an increasing number of companies from jumping into the market. The playing field now includes Primus Telecommunications Canada Inc., Comwave Telecom Inc., Vonage Holdings Corp., Nicer Technologies Inc. and BabyTel. Telus Corp., AOL Canada Inc., Saskatchewan Telecommunications Holding Corp. and Yak Communications Inc. plan to launch services later this year.
Jon Arnold, an analyst with Frost & Sullivan, said the Canadian Internet telephony market will be slower to develop than in the United States because telephony service in Canada is high-quality and relatively inexpensive.
“There is not a lot of inertia to push people to look at new alternatives. We're just spoiled,” he said. “For consumers, price will attract them but I don't see enough margin for Voice over Internet Protocol providers in Canada to drop prices to get a lot of [customer] migration.”
Frost & Sullivan estimates there will be 128,000 Canadian Internet telephony customers by the end of this year; 375,000 in 2005; 713,000 in 2006; 1.15 million in 2007; and 1.58 million in 2008. In the United States, subscriber growth is expect to jump to 1.16 million this year from 100,000 in 2003. By 2008, Frost & Sullivan forecasts there will be 16.5 million subscribers in the United States.
Among the biggest challenges facing many competitors is making consumers aware that the service, which uses VoIP technology, is available, and educating them on how it works. This is tough, grunt work that must be undertaken by market pioneers. The reward for being first to market is they will be viable companies when the market eventually gains mainstream momentum.
Ted Chislett, president with Primus Canada, said the education process has taken more resources than the company expected when its Internet telephony service was launched in January.
“We spent a fair bit of money when we launched with radio campaigns, and our call centre spends a lot of time educating customers about the details about VOIP and how it works,” he said. “We are seeing people are intrigued with competition and choice. They call in and you have to explain things like they need high-speed Internet.”
Ipsos-Reid said educating consumers about the benefits and features of Internet telephony will be crucial because only 23% of Canadians are aware of the term VoIP, while 20% are aware of the term IP telephony. Of those who are aware of VOIP or IP telephony, only 13% admit to understands a “great deal” about the technology. Until consumer awareness grows, Mark Laver, a senior research manager with Ipsos-Reid, said “VOIP will likely only be a niche service found in the households of Canadian technology enthusiasts.”
However, the Internet telephony market could be jump-started by the entry of major telecom carriers and cable firms. While Telus will start offering a service this year, Bell Canada has no immediate Internet telephony plans and Rogers Cable Inc. will not get into the market until at least mid-2005.
In the meantime, Primus should be a market leader because it has a well-known brand name and 900,000 long-distance customers, while Vonage has established itself as an industry pioneer after raising more than US$100-million in private equity.
There is no doubt price will play an important role, particularly among smaller competitors. Comwave, for example, is selling a basic package, which includes 411 and 911 service, for $14.95 a month, while BabyTel is offering a package that includes 500 minutes of long-distance in Canada and the United States for $16.95 a month.
Yuval Barzakay, vice-president of Canadian sales at Comwave, said his company is always battling on price as a market bottom feeder. “We are the value proposition,” he said, adding the real competitive threat will be the entry of cable companies and their use of product bundles. Another marketing tool will be value-added services such as Web portals to check your voice message — with the same look and feel as e-mail.

It looks like we'll get a much better picture of Nortel's financial health in a couple months. The company said yesterday it will be able to release its 2003 and 2004 first and second-quarter numbers by the end of August, as well as updates on how much its financial statements will be affected after an independent audit committee completes its work. The question is whether/if Nortel will provide information about why CEO Frank Dunn, chief financial officer Doug Beatty and controller Michael Gollogly were fired “with cause” in April. It has become clear the audit committee – headed by ex-Royal Bank of Canada CEO John Cleghorn – had done a fair bit of work before it came to the conclusion that Dunn, Beatty and Gollogly had to be shoved out the door. If the magnitude of Nortel's accounting problems are relatively minor, it wil be interesting to see how Nortel paints its decision to clean house.

In the wake of Canada's federal election, the folks at the Canadian Radio-television and Telecommunications Commission must be relieved the Conservative Party came up disappointingly short of seats. If the Conservatives had won the most seats in the House of Parliament, they would have gutted the CRTC, while introducing more U.S. programming and allowing U.S. satellite providers to operate north of the border. For anyone in favour of protecting Canada's culture and identity, the Conservative's plans were heresy. It was just another one of the Conservative's flawed ideas that clearly caused many Canadians to pause when they got to the polls yesterday. For the telecom industry, the election means regulation will remain an important element under the leadership of Charles Dalfen. As a result, competition will be encouraged but the incumbents carriers will be closely supervised.

Mitel Networks filed a 6-K earlier this week with the U.S. Securities and Exchange Commission with some interesting numbers. While revenue dropped 15% in the year ended April 30, 2004 to $461-million,a growing amount of the company's sales are coming from IP equipment rather than older PBX technology. To a large extent, Mitel's success depends on how aggressively corporate customers move to IP technology. There is good momentum in the PBX market as older PBX equipment is replaced by IP-PBX technology. It is more difficult, however, to find strong growth in other sectors. In a recent meeting, Avaya Canada president Mario Belanger said much of the IP action is happening at the edge rather than the core. Many companies, he said, are looking to leverage what they already have with some new IP technology. It is supplement rather than rip and replace. If this trend continues the IP revolution could be a very quiet evolution – rather than a revolution. Based on the SuperComm show last week in Chicago, IP is really happening in the network core as carriers move to make their systems more efficient. As carriers such as Bell Canada and Telus moved to offer managed service, the corporate market could slowly move along in parallel. IP is where it's at, but it's a long-term development.

So what does Darren Entwistle do today about Microcell, which refuses to play nice with Telus' hostile $1.1 billion takeover offer. A likely scenario is Telus maintains its $29 a share bid, thereby forcing Microcell's hand. Microcell would then have to search for a white knight or begrudgingly accept Telus' entreaties. The wildcard could be Craig McCaw, who is launching a national fixed wireless network in the U.S. McCaw also has a stake in a fixed wireless initiative in Canada through Microcell's participation in a joint venture with Allstream and N2 Communications. It could be that McCaw will do a deal with Microcell or talk to Telus about splitting off the fixed wireless entity. Despite Microcell's claims it has been talking with other bidders, the reality is CEO Andre Tremblay appears to have come up short in his efforts to keep the company independent.