Business

CONVERGING ON YOUR LIVING ROOM

A New Brunswick firm is leading the highly competitive, global charge to combine the Internet, television and telephone in one place

DANYLO HAWALESHKA August 6 2001
Business

CONVERGING ON YOUR LIVING ROOM

A New Brunswick firm is leading the highly competitive, global charge to combine the Internet, television and telephone in one place

DANYLO HAWALESHKA August 6 2001

CONVERGING ON YOUR LIVING ROOM

Business

A New Brunswick firm is leading the highly competitive, global charge to combine the Internet, television and telephone in one place

DANYLO HAWALESHKA

Saint John

First impressions can be deceiving. Approaching Saint John, N.B., the pilot of the small commuter jet draws passengers’ attention to the “Reversing Falls” on the Saint John River where it empties into the Bay of Fundy. The falls are actually a stretch of foaming, roiling current that changes direction as the river’s flow yields to the highest tides in the world. Along the shoreline, a smelly pulp mill spews thick white smoke. Landing at the airport, a 20-minute drive outside town, is a little like landing at a rustic northern fishing camp: a couple of buildings, a few lakes and streams, a lot of trees. But Saint John is no blue-collar backwater. This onetime hub of shipbuilding is now at the heart of a global telecommunications sea change that promises to dramatically transform how we watch TV, place phone calls and use computers.

At the heart of this fundamental realignment is a small company with powerful backers called iMagicTV Inc. Headed by chief executive and co-founder Marcel LeBrun, it makes software to send television signals over ordinary copper telephone lines. It’s an Internet-based technology

that has cable competitors at Rogers Communications Inc. (which owns Macleans), Shaw Communications Inc. and others sitting up to pay attention, while phone companies salivate. No wonder: iMagic’s software is the first of its kind in the world to be commercially deployed. The company is hot—but unfortunately, so are its uptown Saint John offices. The building’s air conditioning can’t keep pace with the

heat rising from several banks of computer servers powering iMagic’s research and development lab, fittingly nicknamed The Sauna.

Hot as it is, LeBrun seems cool. The boyish 31-year-old father of three is eyeing the future and video-on-demand. Not just full-length movies, which iMagic can already deliver with the click of an icon, but perhaps three-minute comedies or eight-

minute dramas that viewers will be able to summon whenever they like, and soon. He’s not alone in his thinking. In April, a Forrester Research Inc. report predicted 40 per cent of all cable TV viewing will be video-on-demand by 2006. Television viewers, it said, are poised to take greater control of what they watch, and when.

Video-on-demand beyond movies, says LeBrun, will probably work something like this: for an extra $ 10 a month on their regular TV bill, parents could get, say, the Crayola Kids channel, a prototype demonstrated last year. In addition to regular programming, they would be able to call up videos with colouring exercises and instructions on how to make Play-Doh figures. Every few weeks, as part of the service, subscribers would get more crayons and Play-Doh in the mail. Hopefully, everybody’s happy: parents get suitable programming for their children, while merchandisers and signal providers cash in. Crayola TV would be educational, says LeBrun. “And guess what? It’s a lot more revenue than just a TV channel.”

And that’s what it’s all about—more revenue. In a word, it’s called convergence, the massive, multimillion-dollar push by telcos and cabléeos to get more services

into your home over a single network under a single bill. Many consider it essential to bundle television, high-speed Internet access and what’s known as telephonydigitized voice signals—into one convenient, discounted package. Plus, once the homeowner buys the package, more esoteric services for more money can be tacked on, such as security and climate control for the home.

Atlantic Canada, in many respects, is ground zero in the convergence war for consumers’ hearts and wallets. Aliant Inc., the region’s dominant telecommunications holding company, is in the thick of the battle. Aliant was formed with the 1999 amalgamation of New Brunswickbased Bruncor Inc. (NBTel s parent company), Nova Scotia’s Maritime Telegraph ¿¿Telephone Co. Ltd. (MTT), P.E.I.’s Island Telecom Inc. and NewTel Enterprises Ltd. in Newfoundland. Aliant, which holds a 29-per-cent stake in iMagic, used iMagic’s software to launch its NBTel VibeVision service 18 months ago. Today, 2,700 subscribers in Saint John and Moncton receive 170 television and radio channels, high-speed Net access and digital telephone service over their phone lines, for a bundled price of between $55 and

$110 a month. All that’s required is a free set-top box.

There are, however, limitations. One is VibeVision’s inability to support more than one television per household due to constraints on capacity, known as bandwidth. Another requires subscribers to live within 2.5 km of one of the phone company’s distribution nodes. And a third prevents viewers from taping a show while watching another. Still, Bob Neal, Aliant’s vicepresident of emerging business, says video-compression technology has improved significantly in the past six months, while at the same time Aliant has been testing faster connection speeds. Neal expects software upgrades will permit customers to hook up two, and possibly three TVs by year end. Even as is, VibeVision has captured six per cent of the market where it is available. “If you look at digital satellite TV,” says Neal, “six-per-cent penetration probably took six years.”

Expanding VibeVision’s reach through Aliant’s four telcos continues to be the priority. Aliant executive vice-president Gerry Pond, who oversees the telcos and emerging business, notes that MTT is now rolling out VibeVision in Halifax. (This time, though, the set-top boxes will cost users $299.) Five more Adantic cities will get VibeVision over the next year. Pond, too, sees video-on-demand as part of Aliant’s future repertoire of services, but he isn’t about to tip his hand in a highly competitive market. “We’re not ready to say what’s coming next,” says Pond. “It could be VibeVideo-on-demand; we have the capability to do that. Whether that’s the next service to put in this market, I haven’t decided yet.”

IMagic’s LeBrun and Allan Cameron, its vice-president of technology, were at NBTel when they helped spin off iMagicTV Inc. in 1998. They went public last November, at $ 17.15 a share. The offering on the Nasdaq and Toronto exchanges raised $84 million, but the share price was hit hard by the tech meltdown, says LeBrun, and now trades in the $ 1 range. The

company, with 210 employees, most in Saint John, has $86 million in cash reserves, and LeBrun predicts profitability before that money is spent.

But turning a profit will not be accomplished solely in Canada, where the market is too small.

SaskTel in Regina is currently trying out iMagic’s system in a few hundred households. “We cover Canada,” says LeBrun, “with one salesperson.”

To expand, LeBrun is looking abroad. In Europe, iMagic has joined with Kingston Communications PLC, based in Hull, England, where 9,400 paying customers get television, Net access and video-on-demand over their phone lines. In the United States, it has teamed with Monroe, La.-based CenturyTel, which operates in 21 states. The deal is in its early stages, and CenturyTel has yet to conduct market trials. Seeking credibility in Asia, iMagic in June announced a market trial for up to 300 clients of tech-mad Singapore’s SingTel.

There is no shortage of competitors to challenge LeBrun. In fact, he has one in his own corporate backyard. Montreal-based BCE Inc. holds a controlling 53-per-cent stake in Aliant, which in turn is iMagic’s biggest shareholder. In February, BCE announced plans to develop a similar product, called ComboBox. The device is expected to combine Bell Express Vu satellite TV, Sympatico high-speed Internet access and Bell Globemedia content. The plan also calls for a built-in hard drive for a personal digital video recorder. Lab tests start this fall, with consumer trials set for early next year. But since the announcement five months ago, says Elroy Jopling, a principal analyst at Gartner Inc. in Toronto, there has been no further word from Bell Globemedia’s chief executive. “If you look and say, how much strategy have we seen from Ivan Fecan?” says Jopling, “As an analyst, boy, you sure haven’t seen much.”

Being visible is part of the game. Toronto-based Rogers Cable last month drew attention with its prototype Triple Play service, which links the home’s telephone, television and PC. In a trial of 50 suburban homes just east of Toronto, Rogers is testing a home-based, Com-

boBox-like computer made by Maynard, Mass.-based Ucentric Systems. With Triple Play, users can get call display and voice mail on their television, redirect MP3 music files from the PC to their stereo or any radio, and see high-speed Internet access, e-mail and instant messaging on the tube as well as their PC.

On the commercial front, Rogers Interactive TV now has about 4,000 paying

Not all the cable guys want

to add phone service.

Shaw’s Bissonnette sees it as

a financial nonstarter.

customers, mostly in southern Ontario. The service is a modest offering, with limited Web TV capabilities in a set-top box and wireless keyboard. It has been criticized for its slow download times and an inability to read e-mail attachments. But Michael Lee, vice-president of interactive services at Rogers Cable, says Interactive TV was never meant for hard-core surfers and caters to people who likely do not own a PC. Lee—a self-described “aggressive consumer of media” who lives alone yet owns four television sets—says there’s nothing wrong with different service levels for Web access. “I personally believe that it’s going to be about Internet access everywhere,” says Lee, “but you will use it for different things in different places.”

In this world of convergence, Shaw Communications in Calgary is, in one sense, divergent. Unlike Rogers, which

plans to bundle telephony with television and Net access in 2003, Shaw for the moment believes telephone service over the Internet is a financial nonstarter. Shaw president Peter Bissonnette says he would rather increase shareholder value by adding subscribers who want digital cable TV or high-speed Net access rather than telephony. “Chasing a very low-margin business which isn’t differentiated,” says Bissonnette, “doesn’t make sense to us at this time.”

The trick, of course, is to find out what does make sense. Joe Mosher, general manager at Innovada Inc., Aliant’s year-old researchand-development arm, oversees the Living Lab, where banks of computers aid in developing the 30 or so projects that are on the go at any one time. Mosher is excited about delivering video-on-demand. But like LeBrun and Pond, he recognizes a problem that has absolutely nothing to do with the technology.

Over the steady background hum of lab computers, Mosher says a number of companies—from the National Football League to the World Wrestling Federation—refuse to give Aliant access to content for on-demand distribution. “They haven’t figured out how to make money from that yet,” he says. Mosher hopes the problem will take care of itself, as the concept of a vast video archive gets better known and public demand rises. He also hopes Aliant’s system will prevail in getting it to consumers, but on that critical question, there is still no convergence. EH