Race to connect

Rogers announces big spend on digital upgrade.

TORONTO • ‘Tis the season for telecom companies to unveil pricey, multi-year and arduous IT infrastructure projects.

In June, Telus Corp. said it would spend $1 billion over the next six years to connect homes and businesses in Edmonton directly to its fibre optic network. BCE Inc. said a week later it would spend $1.14 billion over the next three years to do the same in Toronto to power a new product it calls Gigabit Fibe, which will soon deliver download speeds of up to one gigabit, or one billion bits, a second. On Friday, Telus said it’ll spend $1 billion over the next five years to build out its network of fibre optic cables in Vancouver, where it’s based.

Now Rogers Communications Inc. is unveiling a capital spending program that, by the end of 2016, will connect its cable footprint of roughly four million homes to the Internet at a speed of up to one gigabit per second.

In an announcement Monday, it said it will begin in Toronto, where it will face off against Bell, and in smaller cities in the Greater Toronto Area such as Vaughan, Markham, Richmond Hill, Ajax, Pickering and Whitby. By the end of 2015, Rogers will offer the people who live in these cities access to new service it calls Ignite Gigabit.

Canada’s largest broadband providers are in a mad dash to upgrade the legacy cable or telephone networks that have brought them to this point, but will no longer be enough to satisfy people’s insatiable demand for ultrafast, reliable and robust access to the Internet at home, work and everywhere in between. Canadians are connecting more devices to the same modem and streaming more data-heavy videos than ever before.

Rogers has two million Internet subscribers, Bell has 3.3 million, Telus has 1.5 million and West Coast rival Shaw Communications Inc. has 1.9 million, according to each company’s latest quarterly financial results. The company that can own broadband can, often times, bundle other services around it and try to own the connected home. But exactly how the cablecos and telcos go about this and how much it will cost will vary.

A Scotia Capital Inc. report in August says the data-transfer technology, known as DOCSIS, employed by cable companies such as Rogers, Quebecor Inc. and Shaw Communications Inc. will result in “a meaningful cost advantage” over the telcos to build the tracks that can supply gigabit speeds. The reason is because cablecos can service more subscribers per headend facility, which is where the cable signal originates. Also, the latest version of DOCSIS software is able to use more of the capacity of a cable television system for data.

The Scotia analysts estimate it will take cablecos four months, should the Internet provider charge $51 per month, to recoup the costs of connecting a home to the latest version of DOCSIS. This compares to a whopping 45 months for telcos when fibre to the last mile of a home is wired aerially, which is much cheaper to do than a sub-surface build.

“Assuming similar pricing between telcos and cablecos, we believe cablecos can generate a higher return on broadband than telcos,” the Scotia report states. Maintaining predictive, higher-margin monthly revenues is critical to limit the dilution of returns for telcos, which is a rigidity that “limits telcos’ pricing flexibility.”

With billions in upfront costs already committed to hire crews, build lines and load subscribers, the stakes for telcos Bell and Telus couldn’t be any higher: A delay or hiccup could put pressure on free-cash flow, guidance, valuation or market share in key regions, said a recent RBC Capital Markets report. Telus calls it a “generational” investment. RBC said this could be the last of the sector’s “leapfrog” technologies.