TORONTO – Even in bad economic times, consumers will keep paying for cable, Internet and phone services, and choose to compromise in other purchase areas instead, according to Cogeco Cable’s president and CEO, Louis Audet.
“This has been our experience for the last 36 years – people tend to keep their television service (during difficult economic times),” Audet said. “And the Internet, of course, has become a necessity for households…and, of course, the phone.
“But on the other hand, what you do see is a slower rate of growth, or you might see a bit higher bad debt come in. But all in all, we believe we will continue growing this year, perhaps just a bit slower,” he said.
Audet made his comments Thursday afternoon during a media briefing held prior to the company’s annual general meeting in Toronto. The Montreal-based cable company reported 2008 revenue of $1.08 billion, an increase of 14.7% over its 2007 revenue. Consolidated operating income before amortization reached $445.4 million in 2008, with consolidated net income amounting to $133.3 million.
Cogeco Cable’s most recent fiscal 2009 financial guidelines, issued at the end of October, project the company’s revenue will total $1.2 billion next year, with operating income before amortization growing to $508 million.
When asked if his company sees a need to revise its 2009 revenue outlook, in light of the increasingly dismal economic picture, Audet responded: “No, we have taken cost-containment measures, so we’re still aiming on that target.”
He went on to explain Cogeco Cable will make any necessary cost-reduction adjustments in the areas of capital spending or operating expenditures. “You adapt to the reality of the sales you’re enjoying,” Audet said. “To date, we do not feel the need to change this forecast.”
While acquisitions – particularly in the broadband data networking market – were a key contributor to Cogeco Cable’s successful growth pattern in 2008, Audet said he does not see that trend continuing in the 2009 fiscal year.
“If people were to invite us to bid on their businesses, we would,” Audet said. “But the fact of the matter is, right now, because of the state of the financial markets, sellers are unwilling to put their properties up for sale, because they fear there won’t be enough participants in a given auction.
“So this is a very, very quiet acquisition market,” Audet said. “But this is something that we can accommodate ourselves with very well. We’ll just insist on developing our existing properties better and, in particular, Cogeco Data Services.”
Cogeco Data Services was created through the acquisition of Toronto Hydro Telecom in July 2008, which followed the earlier acquisitions of MaXess Networx of Windsor, Ont., and FibreWired Burlington Hydro Communications in April 2008 and June 2008, respectively.
All three acquisitions have been integrated into the Cogeco Data Services business unit, which is now able to cater to “a small number of large businesses with tailor-made service profiles that bring in large monthly revenue,” Audet said.
According to Audet, Cogeco Data Services is currently using only about 5% of its broadband data network’s capacity to serve its business customers. “So 95% of the network is, in fact, free to serve new customers,” Audet said. ”A lot of emphasis will be placed on building our business customer base in the year to come.”
Similarly, the focus for Cogeco Cable’s television, Internet and telephony services in 2009 will be to increase penetration in existing markets, Audet said, rather than concentrating on expansion into new market areas.
As it stands now, about 30% of Cogeco Cable subscribers also use the company’s telephony service, and 58% of its subscribers use its Internet service.
“I would say, in principle, there’s room for more growth in those areas in the years to come,” Audet said. “But up to what point, it’s difficult to tell.”
He added that roughly 10% of Canadian households still do not have a television service provider. With the advent of the digital television switchover, due to occur in 2011, Audet said he expects those customers to become cable subscribers. “That’s not a certainty, but we feel confident about that,” he said.
In addition, with the U.S. digital television switchover scheduled for February 2009, there are some immediate opportunities in terms of acquiring new cable customers in communities close to the Ontario-U.S. and Quebec-U.S. borders, Audet said.
“Undoubtedly, there will be gains there. But I think the full gain will happen when the Canadian stations switch their signals over to digital in 2011,” Audet said. Currently, 50% of Cogeco’s cable subscribers in Ontario and Quebec are analog customers.
When asked if 2009 could be the year that Cogeco Cable finally adds mobile telephone services to its bundled offering, Audet was equivocal, saying, “This could be, or not, I don’t know.”
He added: “If it ever becomes clear that our customers want a fourth service in their bundle, then we will be happy to enter into a relationship with one of the current service providers that offer it… Our decision was not a dogmatic one at all.”
Cogeco Cable currently operates in Portugal, through its Cabovisao division, which accounts for 19% of the parent company’s annual operating income before amortization.
“It has been a significant investment, one which we do not regret,” Audet said. “Our opinion is the Portuguese market is still a low-penetration market. About only 50% of Portuguese households have a service provider for television. So there’s a lot of room for growth.”
Audet did not want to comment on any specific plans his company might have to invest in other European markets.
“Let’s say we investigated 15 countries in total, so we have a good understanding of the telecom market in Europe today,” Audet said. “But there’s nothing happening. It’s very simple – we’re going to concentrate on doing what we do well, where we already are.”
Linda Stuart is a Toronto based freelance writer and editor.
