Business

Stalled on the launchpad

Canada's satellite-TV business stmggles to get off the ground

TOM FENNELL June 9 1997
Business

Stalled on the launchpad

Canada's satellite-TV business stmggles to get off the ground

TOM FENNELL June 9 1997

Stalled on the launchpad

Business

Canada's satellite-TV business stmggles to get off the ground

TOM FENNELL

Linda Reid can still recall how excited she was in 1961 when she bought her first television. What followed, though, were 36 years of frustration. While her friends in Halifax could choose from dozens of channels, Reid, who lives in a rural area of central Nova Scotia that is not served by cable TV, was stuck with two, one of which would often turn fuzzy and disappear. She finally caught up with her friends in March by subscribing to AlphaStar Canada Inc., the first Canadian company to offer direct-to-home satellite-TV. But just as she was beginning to enjoy AlphaStar’s 60-channel service, the company, owned by Tee-Comm Electronics Inc. of Milton, Ont., went into receivership, burdened by a $ 145-million debt. If Tee-Comm fails to secure new financing, AlphaStar will shut down—and Reid will become another victim of Canada’s star-crossed efforts to foster a domestic satellite-TV industry. “After getting used to all those channels,” she says, “it would be hard to go back to practically nothing at all.”

After years of false starts and failed attempts by Ottawa to rein in a thriving “grey market” for U.S. satellite services, the Canadian industry is still struggling. Of the two companies now offering service, AlphaStar is the largest, with a mere 6,200 customers. Its rival, Star Choice Television Network Inc. of Fredericton, recruited its first customer in early May, but declines to reveal the current number of subscribers. Although both firms are initially targeting rural Canadians who live beyond the reach of cable TV, the industry’s future will depend on its success in urban markets, where more than 80 per cent of households already have cable. To make matters worse, a host of competing services—including socalled wireless cable TV, which transmits signals via radio waves— are waiting in the wings. The Canadian Radio-television and Telecommunications Commission held licensing hearings for wireless cable last week aimed at carving up the lucrative southern Ontario market. ‘There will be formidable competition—only the strongest will survive,” says Michael Neuman, president of Mississauga, Ont.-based ExpressVu Inc. Backed by Bell Canada Enterprises Inc., the country’s second-largest corporation, ExpressVu is preparing to launch its service this summer with a saturation advertising campaign.

The sputtering satellite-TV industry suffered yet another blow last month when Justice John Klebuc of Saskatchewan Queen’s

DOING THE DISHES

Unfortunately for consumers, the dish antennas and set-top boxes required for direct-to-home satellite-TV are not interchangeable without costly modifications. If Tee-Comm’s AlphaStar service shuts down, for example, subscribers who switch to a different provider will likely have to buy or rent new equipment. Prices do not include installation.

AlphaStar

29-inch dish, set-top box programmed to decode AlphaStar signals. Price: $499

Star Choice

24-inch dish and specially programmed set-top box.

Price: $999

ExpressVu

Plans to begin operations this summer with its own set-top box and a 24-inch dish, switching to an 18-inch dish next year when the company begins using a more advanced satellite.

Price: $500-$700 (est.)

SOURCE: COMPANY DATA

Bench ruled that consumers who sign up with U.S. satellite companies are not violating any law. Industry executives estimate that as many as 350,000 households have already purchased dishes and set-top boxes that allow them to receive signals from U.S.-based satellite broadcasters. Under the Radiocommunication Act, it is illegal for foreign satellite operators to beam their signals into Canada without a Canadian broadcast licence, which is why Canadians who do subscribe must obtain a U.S. mailing address. But until now, Ottawa has suggested that individual Canadians who subscribe to U.S. satellite services were also running the risk of prosecution.

Canadian satellite firms are partly responsible for the flourishing grey market because they took so long to offer service, says telecommunications consultant Ian Angus. But analyst Eamon Hoey blames the federal government for the sorry state of the Canadian satellite-TV business, arguing that policies that were designed to protect Canadian culture have actually hampered the industry and encouraged many Canadians to look south for service. While the federal government has attempted to slow the spread of the grey market by taking firms that sell U.S. satellite-TV equipment to court, Klebuc ruled that there is no theft of TV signals “unless the telecommunications service is authorized” by Canadian law. That means, in effect, that consumers who have bought U.S. equipment have done nothing wrong.

Satellite equipment suppliers believe the grey market will continue to grow in the wake of Klebuc’s decision and in the absence of what consumers see as a viable Canadian service. But Jim Shaw, president of Calgary-based Shaw Communications Inc., believes the flight to U.S. services could be stemmed if the CRTC allowed firms such as Star Choice to offer the same mix of channels that is available from U.S. satellite firms, rather than restricting them to channels currently licensed by the CRTC. That way, for example, a consumer wanting several channels of U.S. football could find it from a Canadian service. (Currently, American cable or satellite subscribers can choose from hundreds of specialized channels, including such arcane offerings as the Anti-Aging Network, Therapy Channel Network and Chop TV, a channel devoted to martial arts.) “People are leaving the Canadian system because they want more product,” says Shaw. “Let’s not drive them away because we can’t offer them what they want.”

Many consumers would be happy to subscribe to any Canadian satellite-TV service at all, but have become frustrated by the long wait and the absence of an established company. Richard Kowalski, owner of Trinity Communications Group Inc., an electronics retailer

in Fredericton, said he has more than 400 clients on a waiting list for Canadian satellite-TV service, yet he is cautioning them to wait a little longer. He says he worries they may lose money if they buy equipment from a firm that subsequently goes out of business. “We have a lot of people who walk in here with $1,000 ready to buy a package,” said Kowalski, “but you have to let them walk out again.”

Ultimately, satellite-TV firms will have to find a way to win over those customers if they hope to stay aloft. Once the rural market has been exploited, says Brian Neill, chairman and chief executive officer of Star Choice, the industry will turn its attention to towns and small cities, where cable is often expensive and limited to about 20 channels. “There are three million subscribers in the smaller cable markets,” says Neill. ‘They do not get as much programming as we can deliver to them at a cheaper price.”

As competition intensifies, prices are bound to fall—making it difficult to predict when or if Canadian satellite firms will ever be profitable. AlphaStar, which is still operating as it searches for a new owner, is charging $499 for a set-top box and a 29-inch receiver dish, and $300 a year for a 60-channel package. Meanwhile, prices in the United States have been tumbling, with some firms charging as little as $199 for the hardware. Analysts expect that in the future, the industry will be forced to give the g equipment away to attract customers—just as cel§ lular telephone companies now routinely hand out I free phones to new subscribers.

I Satellite providers will need every advantage ^ they can muster when the battle ultimately shifts to £ major cities, where the choice of channels on cable is greater and prices are generally lower. Before AlphaStar’s major lender, the Bank of Montreal, pushed it into interim receivership, company president David Lewis was bullish on the industry’s chances. He argues that, in spite of the current troubles, satellite-TV firms are poised to cut deeply into the cable companies’ profits provided they can capture the cream of the urban market—the 10 per cent of customers who are willing to pay for virtually every programming option available.

Cable TV executives are clearly nervous. At last month’s Canadian Cable Television Association convention in Toronto, Canadian cable pioneer Ted Rogers, chairman of Rogers Communications Inc. (which owns Maclean’s), predicted that ExpressVu will use Bell Canada’s enormous cash resources to subsidize the cost of satellite hardware to consumers—allowing it to undercut Rogers’ rates. “BCE’s policy,” he said, “is to try to bankrupt other people.”

Cable executives have called on the CRTC to block Bell from subsidizing ExpressVu or mining Bell’s vast customer database for its marketing campaign. But ExpressVu’s Neuman says the federal regulator is not inclined to stand in the way. “BCE was permitted to take control of ExpressVu,” he says. “There were no conditions attached, so we are free to cross-market with anyone we wish.” He says the company has not decided whether it will undercut cable prices in urban areas or simply try to lure customers away with attractive programming.

Neuman is clearly hoping to capitalize on the resentment many Canadians feel toward the cable TV giants. “There will be a significant number of people,” he says, “who will want to have a look at satellite-TV simply because they are disenchanted with the monopoly tactics of big-city cable—the lack of trust.” But before that theory can be tested, the Canadian satellite-TV industry will have to prove that it can stay in orbit. □