DID YOU HEAR THE ONE about the telephone company delivering TV over its wireline system that’s now one of the top 10 BDUs in Canada?
No? Well, in less than three years, Manitoba Telecom Services’ MTS TV has become a very meaningful presence in the city of Winnipeg. With 260,000 total households, MTS TV has captured nearly a quarter of the market.
While many on the cable side of the equation often dismiss the telcos’ ability to provide TV over their “limited” or “skinny” pipe, citing bandwidth constraints in comparison to the “fat cable pipe”, it seems consumers like this service nonetheless.
With flexible functionality like voice-mail and call-display on the TV screen, the ability for customers to customize their own interactive program guide, the high speed modem inside the set top, and more interactive options than the incumbent, Shaw Cable, customers have come to MTS TV in droves in the Manitoba capital.
To get a better handle on how this happened, www.cartt.ca editor and publisher Greg O’Brien last week chatted with the company’s vice-president, TV services, Roy Sherbo (right). What follows is an edited transcript.
Greg O’Brien: When you talk to the larger telcos on both sides of the border, they’ll admit that the video services they are coming to market with are more about overall churn reduction than making money or anything else. But (with 50,000 customers now) I was thinking that with the subscriber numbers that MTS now has, that maybe it’ll be more than a churn reducer for you and perhaps a profit centre.
Roy Sherbo: The initial business model talked about two things. One, was that is was going to give us an additional growth vehicle. We saw back then – and when we were making these early business decisions it was four or five years ago – that entertainment as a segment was growing faster than telecom, although both were healthy.
So we thought, “where are we going to invest in growth that makes sense… but we needed something else to grow faster than the (Manitoba) economy did. So, we saw this as being one part of it.
The other part is there are synergies because we leveraged certain technologies which were already working for those same customers (with high speed Internet, for example) and we have relationships with all those customers.
And then the final one was churn reduction because at that time we didn’t know for sure when, but we knew it would be inevitable the cable company would be into voice service.
So, there’s really three areas. Primary – growth. Secondary – defend. And tertiary, just leverage synergies we already had.
GOB: Is it fair to say that the uptake of MTS TV has outstripped your expectations?
RS: Yes. Our customer acquisition is tracking ahead of our original business plan.
GOB: what are some of the reasons you see in your market as to why uptake has been so strong?
RS: It’s a great service. It’s simple. Customers have the ability to get everything they want, everything they get from their TV service provider, off of one set top box to every TV in your house (plus high speed Internet through the modem in the set top box), the ability to pay for what you want to watch more than you can with any other TV provider.
And, the ability now to integrate television with our other telco offerings, so you get your simplicity of billing there.
Now we have bundles, too, and for some of the features and capabilities, it depends on which customer you talk to about what they like because they all have different reasons for using them. Some say call line display on your TV, but probably the most commonly cited reasons are the simplicity – everything on one set top – as well as picture quality and choice.
GOB: Do you offer everything on one bill as well?
RS: TV is billed on your wireline bill.
GOB: Do you bundle in wireless as well?
RS: Yeah, you can bundle TV with high speed, you can bundle TV with wireless and if you have all three you can have bundle discounts.
GOB: But, you’re prevented from bundling-in, by regulation, traditional wireline though.
RS: Right. There’s nothing you can do on wireline than carry TV on the same bill.
GOB: Have you benefited at all from any sort of backlash from the Shaw purchase of Moffat (in 2001), or a sense of malaise when it comes to the opinion of Shaw in the market?
RS: I’d flip it around differently. I don’t really want to comment on the perception of our competitors in the market. We have a strong brand franchise in our market and strong loyalty from our customers and I think the strength from that helps us.
GOB: You took on more than a few Videon employees when you launched this as well, right?
RS: Yes, there’s a few. What happened was that when Shaw purchased the Moffat franchise here, it did let go a lot of people and we happened to be hiring at the same time. So, it was just kind of fortuitous for us.
GOB: How have your video on demand buy rates progressed so far?
RS: We’re quite pleased with it. It’s still early in the game. We have a couple of major studios at this point only and we’re quite pleased with the take-up we’re seeing.
GOB: You’ve got Alliance Atlantis and Fox, I think?
RS: That’s right. We have others that we’re working with and will be announcing which we’re in the final phases of negotiation with. It has to do with encryption and so on.
GOB: Were you ever able to sort out the pay per view situation or is that still something that’s pending? (Shaw, which owns the western Canada PPV license, did not come to an agreement with MTS or SaskTel for PPV distribution for their TV customers.)
RS: It’s still out there. Our view now is that pay-per-view for movies is not going to be required because VOD releases are coming very close to pay per view and that if people can get a movie when they want it and treat it like a rental and have the ability to fast-forward and pause and everything else, they’re not going to buy the pay per view version.
So, pay per view for movies for us is neither necessary nor required. But, pay per view is still important for events and we’re looking at some options there, but we don’t have them sorted out yet.
GOB: That’s been a tripping point for a couple of years now because Shaw owns the pay per view license for the west and I guess you and them still haven’t been able to come to an agreement on that. So you’ve abandoned that option then?
RS: Right. It’s a strange world when your competitor is also your supplier.
GOB: What about high definition? Is that coming in ’06 or coming soon?
RS: We expect to. We’re watching the market at this point because as you know, there’s still no off-air HD in Winnipeg. There’s a growing availability of HD content in Canada but it’s still slower than the U.S. market so our hope is that some time in ’06, we will introduce high definition – and our thinking is that we would package that with PVR functionality at the same time.
I don’t have a specific date yet – we’re trying to gauge that working with our technology partners (Motorola – formerly NextLevel) to get that happening.
The good news is that we’ve got plenty of bandwidth in our access networks to allow us to do it.
GOB: What is the bandwidth like now?
RS: Currently our access lines are pegged at around 18 megabits. We’re in an overbuild mode right now, going back and turning that to about 26 meg.
GOB: Is there a deadline for that?
RS: Our build plan is to have that complete by the end of next year (2006).
GOB: So, how deep does the fibre go right now?
RS: Our initial build plan was to 900 metres of copper. For 26-meg it’s 650. That would be the maximum.
GOB: So how many homes (per DSLAM “node”) would that type of plant serve?
RS: It depends on the area. If you’re beside a condo, for example, there are too many variables in that to answer accurately. Currently, we’re able to serve just over 87% of Winnipeg and our initial build plan said that we would be at 85% at the end of this year and we actually got to 87 by the end of August.
And this plan we’re working on right now will take us well beyond that.
GOB: Up past 90, I guess?
RS: Yes. Mid-nineties.
GOB: Any plans to move into other markets, like Brandon, for example?
RS: None at this time.
GOB: I hate to say it because it’s the “big-city” point of view, but the overall market in Manitoba is mainly Winnipeg, correct? There aren’t a lot of other large centres there.
RS: Yes. In Winnipeg there are 260,000 households and in Brandon, it’s 10% to 15% of that.
GOB: When it comes to the bundled customers, how many do you have?
RS: The trend is more towards bundles for sure. Bear in mind it’s just over a year where we started bundling TV with high speed and sometime this year we added wireless, so it’s still relatively new but yes, the trend is towards more bundling.
GOB: In terms of the programming, what are the other points of difference between you and Shaw with the channels you carry?
RS: We carry a number of channels that they don’t and I’m sure they have some that we don’t. I’m not sure it’s hugely material. It’s more the choice of programming. Our basic package gives you the access to video on demand right away – you don’t have to buy into a digital mode like in cable. All of our customers are digital and they all have access to that.
They all have access to the interactive program guide and to Galaxie music channels and the whole interactive space we created for the MTS Centre.
GOB: Tell me a little more about that.
RS: We’ve given the MTS Centre tools to create, manage and populate their own database so they can add on their own architecture to the look and feel that we jointly developed.
We think the future of this space is to put more data and more interactive things on TV. People are becoming more and more exposed to the Internet but PCs are not “always-on” where TV is a more easily-on device where it’s easier to get basic information.
GOB: Do you envision selling event tickets through that interface?
RS: It’s all possible. At this point, we’ve given them the ability to call customers back. So if I were a customer I could say I want some information on an event and the MTS Centre will call.
We haven’t yet taken that (transactional) step. We’re trying to learn what people will do and appreciate in this space and we’ve done focus group tests and so on, so we think we have an idea. Our move into the interactive TV space is measured in how we’re engaging reaction and seeing what’s working and what’s not working and then adjusting.
But certainly I can see down the road us moving into some TV-commerce… we’re working on a number of things in that space. For example, we see some merit in being able to look at your e-mail on your TV so we’re looking at putting that on there in the next while.
Again, it’s about giving things to our customers to see what works and what has additional benefit and really to learn first-hand. That’s been our approach to TV – we try things and if it’s working we strengthen it and if not, we adjust it.
