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The Battle for the Canadian Couch Potato: Bundling, Television , ,

April 2013

This document contains valuable confidential information of The Convergence Consulting Group Limited (TCCG), which is licensed to TCCG licensees for internal review only.

© 2013, The Convergence Consulting Group Limited. All rights reserved.

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OTHER REPORTS FROM TCCG

• The Battle for the North American (US/) Couch Potato: Online & Traditional TV and Movie Distribution, April 2013

In addition to publishing reports, The Convergence Consulting Group solves strategic business and technology issues for companies in the Content, High-Tech, Internet, and Telecom sectors. For more information on how we can assist your company, give us a call at (416) 513-9444, email us at [email protected], or visit our website at www.convergenceonline.com.

Contents

COMMENTARY ...... 8 SECTION ONE: CANADIAN TV MARKET BATTLE ...... 10 Estimated Canadian Total TV Subscribers by Basic Cable, , Satellite, Telco, 2011-2015 ...... 10 Canadian Cable Versus Satellite Versus Telco Subscribers: Estimated TV Market Share, 2011-2015 ...... 10 Estimated Canadian Cable, Satellite, and Telco TV Subscriber Additions and Growth, 2011-2015 ...... 11 Estimated Canadian TV Subscribers by the Twelve Leading Providers, 2011-2015 ...... 11 Estimated Canadian Cable Digital TV Subscribers & Digital Penetration by the 4 Leading Cable Providers, 2012 & 2013 ...... 12 Estimated Canadian Cable and Telco, TV, Internet, Wireline Telephone Subscriber Overlap, 2012-2015 ...... 12 Estimated Canadian TV Revenue by Cable, Satellite, Telco, 2011-2015 ...... 13 Estimated TV Revenue by Rogers, Shaw, Videotron, , Bell Satellite TV, , 2011-2015 ...... 13 Estimated TV ARPU by Rogers, Shaw, Videotron, Cogeco, Bell Satellite TV, Shaw Direct, 2011-2015 ...... 14 Canadian Cord Cutting: Statistically Small But Growing ...... 15 Canadian TV Subscriber Cord Cutter Model, 2011-2014 ...... 15 Bell Satellite TV & Shaw Direct: Subscriber Declines & Competition, Price Increases, High ARPU, HD & PVR Penetration ...... 20 Canadian Cable TV: Annual TV Subscriber Losses Accelerate, Losses Now Baked in Going Forward ...... 22 Rogers, Shaw, Videotron, Cogeco, : TV Price Increases, Bundles, Digital/DOCSIS ...... 23 Canadian Telco TV Analysis: Bell, , MTS, SaskTel, ...... 25 Estimated Total Canadian Telco TV Subscribers Broken Out by Bell, Bell Aliant, MTS, SaskTel, Telus, Other, 2011-2015 ...... 25 Bell & IPTV: Overall Subscriber Gains ...... 26 Bell Aliant: More Fibre, Subscriber Gains ...... 29 MTS TV: Steady Gains, Fibre ...... 31 SaskTel TV: Steady Gains, Fibre ...... 33 Telus TV Traction, Internet Subscriber Gains, Lower NAS Losses ...... 34 Canadian Online, VOD, PVR, HD ...... 36 Cable, Satellite, Telco TV Access Provider’s Online & Mobile Offerings ...... 36 Estimated Canadian Cable/Satellite/Telco TV VOD Revenue, 2011- 2015 ...... 39 Canadian PVR: Half of TV Subscribers by Mid-2014…Satellite, Cable & Telco TV Pricing by Provider ...... 42

© 2013, THE CONVERGENCE CONSULTING GROUP LIMITED. ALL RIGHTS RESERVED. COUCH POTATO 3 This document contains confidential information, and is only for internal review by licensed users. No other use or disclosure is permitted.

Estimated Canadian PVR Subscribers by Cable, Satellite, Telco, and as Percentage of Total TV Subs, 2011-2015 ...... 42 Estimated Canadian PVR Penetration by Cable, Satellite, Telco, 2011- 2015 ...... 42 Estimated PVR Subscribers and Penetration by Bell Satellite TV, Bell Telco TV, Rogers, Shaw Cable, Shaw Direct, Telus, 2012 and 2013 ...... 42 Canadian HD: Strong Subscriber Growth…Pricing, Channel Counts by Cable, Satellite, Telco Provider ...... 45 Estimated HD TV Subscribers by Cable, Satellite, Telco, and as Percentage of Total TV Subscribers, 2011-2015 ...... 45 Estimated Canadian HD TV Penetration by Cable, Satellite, Telco, 2011-2015 ...... 45 Estimated HD TV Subscribers and Penetration by Bell Satellite TV, Bell Telco TV, Rogers, Shaw Cable, Shaw Direct, Telus, 2012 & 2013 ...... 45 SECTION TWO: CANADIAN INTERNET ACCESS BATTLE ...... 49 Estimated Canadian Residential Internet Subscribers by High Speed Cable, Telco, Other , Dial, & Residential Internet Subscribers as a Percentage of All Canadian Residences, 2011-2015 .... 49 Canadian Residential Cable Versus Telco Versus Other Broadband Subscribers: Estimated Market Share, 2011-2015 ...... 50 Canadian Residential Cable Versus Telco Broadband Subscribers: Estimated Market Share, 2011-2015 ...... 50 Estimated Canadian Residential Cable, Telco, Other Net High Speed Internet Subscriber Additions and Growth, 2011-2015 ...... 51 Estimated Share of Canadian Residential High Speed Internet Subscriber Additions by Cable, Telco, Other, 2011-2015 ...... 51 Top 4 Canadian Cable Companies by Estimated Residential High- Speed Access Subscribers, 2011-2014, and TV Subscriber Overlap, 2012-2014 ...... 52 Top 4 Canadian Telcos by Estimated Residential High-Speed Access Subscribers, 2011-2014, and Residential Telephone Subscriber Overlap, 2012-2014 ...... 52 Estimated Business Internet Subscribers by Bell/Bell Aliant, MTS, SaskTel, Telus, Cogeco, Rogers, Shaw, Videotron, 2011-2013 ...... 53 Estimated Canadian Residential Internet Access Revenue by Total High Speed, Cable, Telco, Other Broadband, Dial, 2011-2015 ...... 54 Estimated Residential Broadband Internet Access Revenue by Rogers, Shaw, Videotron, Cogeco, Bell/Bell Aliant, MTS, SaskTel, Telus, 2011- 2015 ...... 54 Canadian Cablecos Versus Telcos: Forecasting Cable Residential Market Share Dominance Will Essentially Hold Steady, But Telcos Have Narrowed Annual Residential Broadband Additions Versus Cable, Increasing TV Coverage and Broadband Speed Are Key ...... 55 Bell Versus Rogers, Videotron, Cogeco: Price, Speed, Caps/Overage, Bundle Offers, Network Enhancements ...... 57 Shaw Versus Telus, SaskTel, MTS: Price, Speed, Caps/Overage, Bundle Offers, Network Enhancements ...... 63

© 2013, THE CONVERGENCE CONSULTING GROUP LIMITED. ALL RIGHTS RESERVED. COUCH POTATO 4 This document contains confidential information, and is only for internal review by licensed users. No other use or disclosure is permitted.

Bell Aliant Versus EastLink & Rogers: Price, Speed, Caps/Overage, Bundle Offers, Network Enhancements ...... 71 SECTION THREE: CANADIAN WIRELINE TELEPHONE BATTLE .... 74 Estimated Canadian Cable Telephone, Residential Cable Telephone, Residential Telco, Total Residential Telephone Subscribers, Cable Residential Telephone Market Share, 2011-2015 ...... 74 Estimated Telephone Subscribers by Cogeco, Rogers, Shaw, Videotron, 2011-2015 ...... 74 Estimated Cable Telephone Subscriber/Cable TV Overlap by Cogeco, Rogers, Shaw, Videotron, Total Cable, 2011-2015 ...... 75 Estimated Residential Lines and Line Loss by Bell/Bell Aliant, MTS, SaskTel, Telus, Other Telco, and Percentage Loss, 2011-2015 ...... 75 Estimated Residential Lines, Line Loss & Percentage Loss by Bell/Bell Aliant, Bell, Bell Aliant, Bell/Bell Aliant Ontario/QC, Bell Aliant Ontario/QC, Bell Aliant Atlantic, 2011-2015 ...... 76 Estimated Canadian Telco Residential Subscriber Loss to Cable Telephone, Wireless Substitution, 2011-2015 ...... 77 Estimated Canadian Wireless-Only Household Penetration, 2011-2015 ...... 77 Canadian Telephone: Consistent Residential NAS Losses, Accelerating Wireless Substitution, Cable Telephone Market Share Increases Even With Moderating Cable Telephone Additions ...... 78 Rogers Versus Bell Offers/Prices ...... 80 Videotron Versus Bell Offers/Prices ...... 81 Cogeco Versus Bell Offers/Prices ...... 83 Shaw Versus Telus, SaskTel, MTS Offers/Prices ...... 84 Bell Aliant Versus EastLink & Rogers Offers/Prices ...... 87 SECTION FOUR: CANADIAN WIRELESS TELEPHONE BATTLE ...... 89 Estimated Canadian Wireless Subscribers, Net Additions, Subscriber Growth, Population, Penetration of Population, 2011-2014 ...... 89 Estimated Canadian Wireless Subscribers by Videotron, EastLink, , Public, Wind, and by Total New Entrants, and by Total Incumbents, 2011-2014 ...... 90 Estimated Net Subscriber Additions by Videotron, EastLink, Mobilicity, Public, Wind, and by Total New Entrants, and by Incumbents, 2011-2014 ...... 90 Estimated Subscriber Market Share by Videotron, EastLink, Mobilicity, , Wind, Total New Entrants, and Incumbents, 2011-2014 ...... 91 Estimated Subscribers and Market Share by Bell, MTS, Rogers, SaskTel, Telus, 2011-2013 ...... 92 Estimated Net Subscriber Additions by Bell, MTS, Rogers, SaskTel, Telus, 2011-2013 ...... 92 Estimated Bell, Rogers, Telus Subscribers by Postpaid and Prepaid, 2011-2013 ...... 92

© 2013, THE CONVERGENCE CONSULTING GROUP LIMITED. ALL RIGHTS RESERVED. COUCH POTATO 5 This document contains confidential information, and is only for internal review by licensed users. No other use or disclosure is permitted.

Estimated Service Revenue by Videotron, EastLink, Mobilicity, Public, Wind, Total New Entrants, Incumbents and Share of Service Revenue by Total New Entrants and by Incumbents, 2011-2014 ...... 93 Estimated Service Revenue and Share of Total Service Revenue by Bell, SaskTel/MTS, Rogers, Telus, New Entrants, 2011-2013 ...... 94 Estimated Service/Equipment Revenue by Bell, MTS/SaskTel, Rogers, Telus, New Entrants 2011-2013 ...... 94 Estimated Data Revenue and Percentage of Service Revenue from Data by Bell, Rogers, Telus, 2011-2013 ...... 95 Estimated Voice Revenue and Percentage of Service Revenue from Voice by Bell, Rogers, Telus, 2011-2013 ...... 95 Estimated ARPU by Videotron, EastLink, Mobilicity, Public Mobile, Wind, Total Weighted Average New Entrants, Incumbents, and Incumbents/New Entrants, and Growth Rates, 2011-2014 ...... 95 Estimated Voice, Data, and Total Service ARPU by Bell, Rogers, Telus, Percent of Service ARPU from Voice and Data, and Weighted Average Total, Voice, Data, 2009-2013 ...... 96 Estimated EBITDA Margin as % of Service Revenue, by Bell, Rogers, Telus, 2011-2013 ...... 96 Estimated MOU, COA, Churn (Blended), by Bell, Rogers, Telus, 2011- 2013 ...... 97 Estimated Canadian Wireless Subscriber Penetration, 2011-2015, and Estimated Smartphone Penetration by Bell, Rogers, Telus, 2011-2013 ...... 97 ARPU Growth Now A Reality: Data & Rising Smartphone Penetration, Less Voice ARPU Decline, Detailing & Comparing Pricing Changes by Player & Offer ...... 98 Comparing New Entrant and Incumbent & Incumbent Discount Brand Offers/Prices ...... 109 Comparing New Entrant Local & LD Voice, Features, Text Plans and Incumbent & Incumbent Discount Brands ...... 110 Comparing New Entrant Data Plans and Incumbent & Incumbent Discount Brands Data Plans ...... 115 Comparing New Entrant Voice/Feature/Data/Text Plans and Incumbent & Incumbent Discount Brands Voice/Feature/Data/Text Plans ...... 118 Lower Wireless Pricing Accelerates Wireless Substitution ...... 121 Estimated Canadian Wireless-Only Household Penetration, 2011-2015 ...... 121 Estimated Canadian Telco Residential Subscriber Loss to Cable Telephone, Wireless Substitution, 2011-2015 ...... 122 Estimated Residential Lines and Line Loss by Bell/Bell Aliant, MTS, SaskTel, Telus, Other Telco, and Percentage Loss, 2011-2015 ...... 122 New Entrants Have Altered the Pricing Landscape But Market Share Impact Modest and a Long Way From Profitability, 700 MHz Auction & Foreign Ownership ...... 123 SECTION FIVE: CANADIAN BUNDLE BATTLE BOTTOM LINE ...... 128

© 2013, THE CONVERGENCE CONSULTING GROUP LIMITED. ALL RIGHTS RESERVED. COUCH POTATO 6 This document contains confidential information, and is only for internal review by licensed users. No other use or disclosure is permitted.

SECTION SIX: PROFILES ...... 130 BCE Inc.//Bell Aliant ...... 131 Cogeco ...... 139 EastLink ...... 141 Telecom Services Inc...... 144 Mobilicity ...... 147 Public Mobile Inc...... 150 Inc...... 153 ...... 157 Inc./Shaw Direct ...... 159 Telus Corp...... 163 Videotron/ Inc...... 166 Wind Mobile ...... 170

© 2013, THE CONVERGENCE CONSULTING GROUP LIMITED. ALL RIGHTS RESERVED. COUCH POTATO 7 This document contains confidential information, and is only for internal review by licensed users. No other use or disclosure is permitted.

Commentary

Now in its eleventh year of publication, The Battle for the Canadian Couch Potato: Bundling, TV, Internet, Telephone, Wireless (April 2013, 172 pages) contains analysis of product offers (including price comparisons), strategy, and subscriber/financial performance metrics by Company & Market. In addition to Convergence analysis, sources include Company interviews, annual/quarterly reports & presentations. Please see Table of Contents for what is included in this Report:

Led by Bell & Telus, we forecast Telcos’ Canadian TV market share at 14.5% YE2013 (YE is year-end), up from 11.3% YE2012, whereas Cable had 66% and Satellite 22.7% YE2012 and we forecast 63.8% and 21.7% YE2013; both Cable and Satellite saw significant TV subscriber loss in 2012. We estimate 2012 Canadian Cable, Satellite, Telco access provider TV subscription revenue grew 4% to $9.1 billion. At YE2012, we estimate 40% of Canadian TV subscribers had PVR & 59% had HD; highly competitive pricing (including ) is driving penetration.

We estimate 47,000 Canadian TV subscribers were added in 2012, down from 233,000 in 2011, and forecast 70,000 TV sub additions for 2013. 2007-2011 annual Canadian TV subscriber additions averaged 220,000. Based on our TV Cord Cutting Model (which takes into account annual subscriber additions, economic conditions, and the digital transition), we estimate 255,000 (2.2%) Canadian TV subscribers cut their TV subscriptions 2011-2012 to rely solely on , Over the Air, Online, etc, 183,000 (1.6%) in 2012 alone (hence Canadian TV cord cutting accelerated in 2012). We forecast Canadian TV cord cutter households will reach 390,000 (3.3%) by year-end 2013.

2012 Canadian residential broadband sub additions were we estimate 359,000 & revenue grew 8% to $5.49 billion. Although Telcos have narrowed the gap on annual residential broadband sub additions, we forecast Cable will only see its residential broadband subscriber market share versus the Telcos through 2015 decline by .6% to just over 58%. The Cablecos in cases (except in certain instances, especially where Telcos have deployed FTTH) offer more & more speed for the price than the Telcos. The Telcos ongoing residential telephone line loss creates a declining base to gain or retain broadband subs.

© 2013, THE CONVERGENCE CONSULTING GROUP LIMITED. ALL RIGHTS RESERVED. COUCH POTATO 8 This document contains confidential information, and is only for internal review by licensed users. No other use or disclosure is permitted.

2012 Canadian Telco residential wireline telephone line loss we estimate was 8.2%, up from 7.5% in 2011, and we forecast 8.7% for 2013. Wireless substitution was responsible for we estimate 62% of the 2012 loss. We estimate Canadian wireless-only households at 18.2% YE2012 (growth accelerated in 2012 & 2011), up from 14.4% YE2011 and we forecast 22% YE2013 and 29.4% YE2015. Cable represented 38% of residential wireline telephone subs YE2012, and we forecast 41.5% YE2013.

We estimate Canadian wireless service (weighted) ARPU grew .4% in 2012 (2011 saw a 1.2% decline, 2010 2.2%). 2012 growth was driven by Data, but also less Voice ARPU decline than 2011. We forecast positive ARPU growth for 2013 & 2014. We estimate Canadian wireless subscriber smartphone penetration at 55% YE2012 and forecast 66% YE2013.

When not taking into account promotional pricing, Independent New Entrants can undercut Incumbents and their discount brands by up to 50% on combined voice/data packages. Based on our subscriber models we forecast New Entrants’ will have 7.6% (2.18 million) of Canadian wireless subscribers year-end 2013, up from 6% (1.64 million) year-end 2012.

© 2013, THE CONVERGENCE CONSULTING GROUP LIMITED. ALL RIGHTS RESERVED. COUCH POTATO 9 This document contains confidential information, and is only for internal review by licensed users. No other use or disclosure is permitted.