Cogeco 2015 Annual Report Download - page 45

44 COGECO CABLE INC. 2015 MD&A
• Vidéotron Ltd. (“Vidéotron”), an indirect subsidiary of Québecor Inc., and Wind which are actively marketing their mobile
telecommunications services within our network footprint.
We also compete within our network footprint with several other telecommunications service providers, including third parties that use our own
wireline network facilities pursuant to our third party Internet access tariff. Furthermore, consolidation of new entrants in the mobile
telecommunications space in Canada may lead to more vigorous competition for voice telephony, Internet access and data services within our
network footprints.
Although we provide “double-play” and “triple-play” service bundles in Canada, with various combinations of video, Internet and telephony services
being offered at bundled 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 expenses 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 video
services is Direct Broadcast Satellite (“DBS”) from two providers, DirecTV, Inc. and Dish Network, and our principal competitor for Internet services
is Direct Subscriber Line (“DSL”) from a variety of service providers. In our Maryland/Delaware market, Verizon has built a FiOS (fiber-to-the-
home or "FTTH") network that offers Internet, voice and video services. In our recently-acquired Connecticut market, Frontier provides video,
Internet and voice services. AT&T U-verse currently provides service in our Miami and Aiken, South Carolina markets. Additionally, we face limited
competition from Comcast in Aventura and the southern section of Miami-Dade County where Atlantic Broadband has "overbuilt" the incumbent
Comcast systems. 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 telephony services
face 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.
The ILECs in the territories where we operate, notably Bell and TELUS in Canada and Verizon and AT&T in the United States, are building fibre
optic networks to deploy IP television services in substantial portions of their service areas. The fibre optic technologies they are using are capable
of carrying two-way video, Internet with substantial bandwidth and telephony services, each of which is comparable to the services Cogeco Cable
Canada and Atlantic Broadband offer. The ILECs also have the ability to bundle wireless services provided by owned or affiliated companies. In
Canada, we are already facing aggressive competition from Bell Fibe and TELUS Optik services, and Bell has announced earlier this year a
program to further deploy its FTTH network in our service areas. As a result, we may not be in position to match on a timely basis the technical
capability of Bell’s FTTH network throughout our network footprint.
We also currently face competition in both the Canadian and American cable services segments from over-the-top (“OTT”) services with services
that are gaining increased interest from consumers such as Netflix, Google TV, Apple TV, Hulu, Roku and Samsung, in addition to several
programming networks making their services available on an OTT basis. The availability of these services and other OTT services may cause
our video service customers to view video content increasingly through their broadband connection rather than through their traditional video
service connection, and view less On-demand video content from cable service providers. We may not be able to make up for the loss of revenue
associated with this migration.
The markets in which our Enterprise data services segment operate are highly competitive, constantly changing and fragmented. Competition
includes local and regional, in addition to national and international competitors. We face competition in relation with colocation, network
connectivity, managed hosting, cloud services and managed IT services from Canadian networks service providers (e.g., Bell, Telus, Rogers),
international managed services providers (e.g., Century Link, Rackspace), small regional and local specialized firms (Beanfield, Cogent) and in
some cases from very large system integrators (e.g., IBM, CGI). The principal competitive differentiators include providing our customers with
access to a comprehensive suite of services that empower them to scale and grow for the future.
Competition in the Enterprise data services segment is intense and 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. Also we have announced earlier this year our decision to combine the operations of Cogeco Data
Services and Peer 1 Hosting (hereinafter "Cogeco Peer 1"). Combining the management, operations, customers, systems and processes of
Cogeco Peer 1 involves various strategic choices and execution risks that may materially affect the performance of this sector.
We could be adversely impacted by our customers’ switch from landline telephony to mobile telephony.
The recent trend towards mobile substitution or “cord-cutting” (when users cancel their landline telephony services and opt for mobile telephony
services only) is largely the result of the increasing mobile penetration rate in North America and the various unlimited offers launched by mobile
operators. We do not currently offer mobile services and, therefore, further migration towards mobile solutions could have a material adverse
effect on our businesses, financial condition, prospects and results of operations due to that migration.
We could be adversely impacted by our customers’ switch from cable services to programming content available over the Internet
through fixed and mobile broadband connections.
The growing trend towards the use of programming content available over the Internet through fixed and mobile broadband connections causes
substitution with our cable services or “cord-shaving” (when users cancel certain pay television and other discretionary linear or on-demand
television services). This trend is accelerating as Canadian consumers increasingly subscribe to over-the-top ("OTT") services such as Netflix,
which are not currently regulated under the Broadcasting Act in Canada (the “Broadcasting Act”) and do not pay consumer and other taxes in
Canada for their Internet-delivered programming services. In the United States, we expect the trend of increasing viewership of Internet delivered
programming to continue as well.