Cogeco 2008 Annual Report Download - page 15

14 COGECO CABLE INC. 2008 Management’s Discussion and Analysis
are liable to have a major impact on the Corporation’s financial situation, revenue or activities, and to mitigate such risks proactively
as may be reasonable and appropriate in the circumstances. This section reflects management’s current views on uncertainties and
the main risk factors.
RISKS PERTAINING TO MARKETS AND COMPETITION
Electronic communications markets continue to evolve rapidly and are increasingly competitive in both Canada and Portugal.
Competitors offer video distribution, broadband HSI access, fixed telephone, mobile telephone and data services through various
means of telecommunications facilities including terrestrial wireline and wireless networks as well as satellite. Rivalry extends over
several elements, including the features of individual services, the composition of service bundles, prices and perceived value,
promotional or introductory offers, duration of the commitment by the customer, terminal devices and customer service. Service
bundles offered by competitors include double, triple or even quadruple-play offers combining television, HSI, fixed and/or mobile
telecommunications to residential and commercial customers.
Cogeco Cable provides “double-play” and “triple-play” service bundles both in Canada and in Portugal, with various combinations of
Telephony, HSI and Television distribution services being offered at attractive bundle prices, but does not offer “quadruple-play”
service bundles that include mobile communications. Cogeco Cable continues to focus on its existing lines of service with a view to
capturing the remaining growth opportunities for HSI, Digital Television and Telephony services in its footprint, making the most
efficient use of its own hybrid fibre-coaxial (“HFC”) plant. As markets evolve and mobility becomes a more cost-effective substitute
to wireline communications, Cogeco Cable may need to add mobility components to its service bundles, through suitable mobile
virtual network (“MVNO”) arrangements with existing or future mobile operators, or otherwise through new wireless alternatives. The
capital and operating expenditures eventually required to offer quadruple-play service bundles may not be offset by the incremental
revenue that such new bundles would generate, thus resulting in downward pressure on operating margins.
In Canada, Cogeco Cable faces competition in its service areas mainly from a few large integrated telecommunications service
providers. The largest, BCE Inc., offers through its various subsidiaries, income trusts and partnerships a full range of competitive
voice, data and video services to residential, as well as to business customers in the Provinces of Ontario and Québec through a
combination of fixed wireline (Bell Canada, Télébec), mobile wireless (Bell Mobility) and satellite (Bell TV) platforms. BCE Inc. is in
the process of being acquired by a group of institutional investors led by the Ontario Teachers’ Pension Plan, with closing of the
transaction expected to take place by the end of December 2008. It is not known at this time to what extent the changes in the
ownership and management of this major competitor will affect market dynamics in the two Provinces, notably with respect to the
anticipated rollout of IPTV services over its fixed wireline platform. Telus Communications Company competes with all of Cogeco
Cable’s services in the Lower St. Lawrence area of the Province of Québec through the use of its wireline network, and throughout
Cogeco Cable’s Canadian footprint through the use of its mobile telecommunications network. However, Cogeco Cable’s Telephony
service is provided with the assistance of certain Telus carrier services through a long-term contractual arrangement. Star Choice
Television Network Incorporated, an indirect subsidiary of Shaw Communications Inc., competes for video and audio distribution
services throughout Cogeco Cable’s Canadian footprint. Rogers Wireless Communications Inc., a subsidiary of Rogers
Communications Inc., operates a mobile telecommunications network in Ontario and Québec and is the owner of the Inukshuk
broadband wireless network in partnership with Bell Mobility. Rogers Cablesystems Inc., the cable subsidiary of Rogers
Communications Inc., is now licensed to extend its services in the Burlington, Oakville and Milton areas, which are part of Cogeco
Cable’s footprint in Ontario, although there has not been any significant cable overwiring to date. Videotron Ltd., an indirect
subsidiary of Quebecor Inc., offers competitive mobile telecommunications services in Cogeco Cable’s Québec footprint. Cogeco
Cable also competes with other telecommunications service providers, including Vonage, Primus and Rogers Home Phone
(formerly known as Sprint), with alternative service providers that use resale or third-party access arrangements in effect, and with
smaller facilities-based competitors such as Maskatel in certain local markets within its network footprint. It is anticipated that, as a
result of the advanced wireless spectrum (“AWS”) auction completed earlier this year, there will be several new entrants in the
wireless telecommunications markets in Canada on a national, regional or local basis with advanced wireless voice, HSI, data and
video services, and that incumbent wireless carriers will use the new spectrum to provide such advanced wireless services in
competition with the new entrants, thus resulting in increased competition for the fixed Telephony, HSI, data and Television services
of Cogeco Cable.
In Portugal, Cogeco Cable’s indirect subsidiary Cabovisão faces tough competition for all its lines of business mainly from
incumbent telecommunications carrier Portugal Telecom, SGPS, S.A. (“PT”), Zon Multimedia, SGPS, S.A. (“Zon”), as well as from
Sonaecom, SGPS, S.A. (“Sonaecom”), a subsidiary of diversified Portuguese conglomerate Sonae, SGPS, S.A. (“Sonae”). Zon
owns TV Cabo, the largest cable telecommunications operator in Portugal, and also offers a direct-to-home satellite distribution
service to the Portuguese market. Zon’s cable plant overlaps the major part of Cabovisão’s footprint in Portugal. Zon will be adding
mobile voice and data services as well as VOD and HD to its service offering starting in the fall of 2008. PT’s national telephone
network, PT Communicações, which offers a full range of fixed wireline and mobile wireless telecommunications services
throughout Portugal, is aggressively pursuing the rollout of Meo, its competitive IPTV service over its telephone plant, and is offering
its own direct-to-home satellite service launched earlier this year. In addition, PT has been selected by Portuguese regulatory
authorities to offer a new digital terrestrial television service throughout Portugal which may have an adverse effect on subscriptions