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The May 31, 2004 Issue Provided by System Dynamics Inc.
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Telco TV in Manitoba

While cable operators are moving quickly to compete in telephony, telephone companies have moved cautiously to compete by entering the video services market. Manitoba Telephone Services (MTS) is an exception--it is far along in offering video services in competition with cable.

We first met Roy Sherbo of MTS four years ago when he attended our first Broadband Home conference. MTS is a full-service communications company and the primary telecommunications provider in Manitoba, offering local, long distance, wireless and data services. We've previously written about the video services trial MTS started in May 2002 with 200 participants. Their goal was to find additional ways to grow their business.

Roy Sherbo of MTS at NCTA --> Click for larger pictureRoy was at the NCTA show, where we had the opportunity to meet with him to catch up on how MTS's video business is progressing. The MTS video license is only for the city of Winnipeg, where Manitoba's population is concentrated. MTS has progressively rolled out the coverage of the city, with 9% covered at the start of 2003 and 42% at the end of 2003. They expect 70% coverage by the end of 2004 and complete coverage in 2005. As they prepare the plant, they remove taps and load coils, and they have been pleased with the network performance. They do not run further than 900 meters over copper.

MTS TV is an all-digital television service, offering three streams of video run over the telephone line through a single set-top box in the home. They offer approximately 240 channels, but their offering, unlike typical cable packages, is "a la carte". They offer a basic package for $24.95, with individual channels mostly priced at $1.99 per month. Most customers select one or more of the multi-channel "theme groups" or a "six-pack" at significantly lower rates. See details of the theme groups and pricing at the MTS TV website.

The service includes an interactive program guide and TV-based call waiting indicator. A customer subscribing to both DSL and TV gets a $5 reduction on each. Average TV revenue is C$48 per household for their TV homes.

Roy said the consumer response to their offering was so strong that they temporarily stopped marketing last summer. They had expected 6300 customers by the end of 2003 but ended up with 8700. This year so far they have doubled the number of subscribers and expect about 28,000 by year-end. The large take rate has been their biggest surprise. He said that customers do not switch from the incumbent cable operator to get a lower price; in fact, they often end up paying a little more. However, their level of satisfaction is very high, presumably because of the strong element of choice.

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