If you're in Western Canada and your chief rival is a self-styled cowboy, there's little left to do but saddle up and try to beat him at his own game.
For wireless giant Telus Corp., that meant getting into the TV game - a racket thoroughly dominated by Jim Shaw, chief executive officer and vice-chairman of Shaw Communications Inc. Although Vancouver-based Telus might be a gunslinger on the wireless front, it is just learning the ropes in the TV business. And it faces the prospect of a very tough slog ahead.
Even as Telus loses market share in its core phone business, it is going up against a formidable rival that practically owns Western Canada's TV market - the arena now crucial for Telus. And it gets worse: Shaw is going to launch cellphone service right in Telus's backyard, having already launched a competing land-line service. Telus's challenge now lies in gaining enough TV subscribers and selling them on a bundled package that keeps them with Telus even as Shaw gets more aggressive.
"Whether it's Shaw or other competitors, we're mature enough to understand that they're going to obtain subscribers in the marketplace," said Robert McFarlane, Telus's chief financial officer. "But they better be mature enough to understand that we're one heck of a competitor."
But Telus TV's footprint, several years after launch, is still small. The company expects its Internet-based TV offering to crack 200,000 subscribers by the end of the year. For a company that owns about 25.8 per cent of Canada's $16-billion cellphone industry, that's a tiny number. "We're still at a nascent point," Mr. McFarlane said of Telus TV.
After launching in Edmonton and Calgary in 2005, the service has spread only gradually to other markets. The company is restricted by the capacity of its "pipes": Since Internet Protocol TV, or IPTV, needs to be delivered over Telus's broadband Internet network, the company can only offer service where the network has been upgraded to handle the huge bandwidth required to transmit a high-definition channel.
It is essential for Telus to cement TV as the fourth component of the critical "quadruple play": cellphone service, home phone, TV and Internet. People tend to like one bill. And as Shaw draws up a wireless strategy, an aggressive bundling price is likely to be a key part of it. Telecom stalwart BCE Inc. faces the same threat in Quebec, where Quebecor Inc.'s Vidéotron Ltée will launch wireless service this summer.
This past week, Telus said it would spend $650-million on its network in Alberta this year, allowing it to roll IPTV into more homes. It is part of a race to offset declines in traditional revenue sources, like home phone, by investing in telecommunications infrastructure for the next generation of products.
"They've stumbled a number of times before they got it right," said Greg MacDonald, a telecom analyst at National Bank Financial. Delivering content through an Internet infrastructure is the future of the television business for both telecom and cable companies, he says.
Mr. McFarlane characterizes Telus's TV strategy as partly offensive and partly defensive: Bundling allows Telus to attract new customers, he says, but also to make sure existing subscribers pay for additional services, which in turn means they are less likely to leave the company.
"We will hopefully garner an increased share of wallet, if you will," Mr. McFarlane said.
But will Telus get enough of a foothold in TV before Shaw launches its wireless offensive? In Western Canada, Shaw owns an estimated 90 per cent of the TV market.
When weighed up against Shaw, Telus TV subscriber numbers are puny. And some of these subscribers, as many as 20,000, are the result of Telus reselling Bell's satellite TV service. Telus does this to reach rural customers who can't get IPTV, though these customers are likely less profitable over the long term.
For Telus, TV is "more strategically important than profitably important," Mr. MacDonald added.
"With Shaw entering the wireless game, it's going to be even harsher for Telus out West. They're going to have to battle," says Brahm Eiley, who heads Toronto-based Convergence Consulting Group Ltd.
"What's the future of Telus in its own Alberta and B.C. markets when Shaw begins to offer wireless? And this is the big question. The answer isn't good for Telus. Bet on Shaw."