Cogeco 2013 Annual Report Download - page 22

Management's discussion and analysis (“MD&A”) COGECO CABLE INC. 2013 21
Some of our competitors have longer operating histories, significantly greater financial, technical, marketing and other resources, greater brand
recognition and a larger base of customers. These competitors may be able to adapt more quickly to new or emerging technologies, changes in
customer requirements, and may also be able to develop services comparable or superior to those offered by us at more competitive prices. To
the extent that we are unable to retain our existing customers and grow our customer base while maintaining and growing our operating margins,
our businesses and results of operations could be adversely affected.
In the Canadian cable services segment, we currently face competition in our service areas mainly from a few large integrated electronic
communications service providers:
• BCE Inc. (“Bell”), our largest competitor, which offers a full range of competitive voice, data and television services to residential
as well as to business customers in the Provinces of Quebec and Ontario through a combination of fixed wireline, mobile terrestrial
wireless and satellite platforms;
• TELUS Communications Company (“TELUS”) which competes with all of our services in the Lower St. Lawrence area of the
Province of Quebec;
• Shaw Direct, the direct-to-home satellite service of Shaw Communications Inc. (“Shaw”) which competes for television customers
throughout Cogeco Cable’s footprint;
• Rogers Wireless Communications Inc., an operator of a mobile telecommunications network in Ontario and Quebec and the owner
of a broadband wireless network with Bell; and
• Vidéotron Ltd. (“Vidéotron”), an indirect subsidiary of Québecor Inc., which offers competitive telecommunications services in our
Quebec footprint and is actively marketing its mobile telecommunications services in Quebec.
Other advanced wireless service mobile telecommunications service operators, such as Wind and Public Mobile, are also operating in the market
in Ontario and Quebec. We also compete within our network footprint with other telecommunications service providers, including third parties
that use our own wireline network facilities pursuant to our third party Internet access tariff. Furthermore, the Canadian federal government intends
to make additional spectrum available across Canada in 2014 with a view to increasing the level of competition in mobile telecommunications
services, including telephony and Internet access services.
Although we provide “double-play” and “triple-play” service bundles in Canada, with various combinations of television, HSI and telephony services
being offered at bundle prices, we do not offer “quadruple-play” service bundles that include mobile communications, since we do not offer mobile
telephone or Internet services. As markets evolve and mobility becomes a more cost-effective substitute to wireline communications, we may
need to add mobility components to our service offerings, through suitable mobile virtual network (“MVNO”) arrangements with existing or future
mobile operators, or otherwise through new alternatives. We may not be able to secure on a timely basis the appropriate MVNO arrangements
or mobile alternatives that may be required for competitive reasons in the future. Also, the capital and operating expenditures eventually required
to offer quadruple-play service bundles and mobile services may not be offset by the incremental revenue that such new bundles or mobile
services would generate, thus resulting in downward pressure on operating margins.
In the American cable services segment, the competition is fragmented and varies by geographical area. Our principal competitor for television
services is Direct Broadcast Satellite (“DBS”) and our principal competitor for HSI services is Direct Subscriber Line (“DSL”). Intensive marketing
efforts and aggressive pricing from our competitors and an increase in the presence of local telephone companies and electric utilities competing
in our markets may have an adverse impact on our ability to retain customers. Our phone service faces competition from the incumbent local
exchange carriers (“ILEC”), as well as other providers such as cellular and alternative data communications services and VoIP providers such
as Vonage.
We also currently face competition in both the Canadian and American cable services segments from over-the-top (“OTT”) services such as
Netflix, Google TV, Apple TV, Hulu and Samsung, which are gaining increased interest by consumers. The availability of these and other OTT
services may cause our television service customers to view television content increasingly through their broadband connection rather than
through their traditional video service connection, and view less On-demand television content of cable television service providers. We may not
be able to make up for the loss of revenue associated with this migration.
In the Enterprise services segment, we compete directly with managed and dedicated server and cloud providers, as well as a number of smaller
local and regional providers. We also face competition in relation to network services from a number of traditional telecommunications carriers
including Bell, Rogers, TELUS and MTS Allstream, all of whom offer a similar suite of services as those offered by us. To a lesser extent, we also
compete with regional, national and international colocation and related managed services providers in addition to full services outsourcing
providers. In connection with the managed IT and infrastructure services, we face competition from both larger integrators and smaller specialized
firms. Although management considers that competition in the Enterprise services segment is currently considered to be less intense than the
competition for cable, HSI and telephony services, we may not be successful in meeting demand or differentiating ourselves from our competitors
in this market segment. Increased supply for these services in excess of demand could also exert downward pressure on prices which could
harm our operating margins.
We may not be able to pass on the incremental increases in costs of programming to our customers. This could have a material adverse
effect on our operating margins and our businesses.
The financial performance of our businesses depends in large part on our ability to drive continued operating margin by tightly controlling operating
costs. The largest driver of such operating costs is the network fees we pay to audio and television programming service suppliers. Future
increases or volatility in these fee arrangements could adversely affect our operating costs. Our business and results of operations could thus
be adversely affected in the future as affiliation agreements must be renewed.