The Calgary-based firm said its loss widened to C$90.9 million ($59.8 million), or 44 Canadian cents a share, in the quarter ended May 31, from a loss of C$8.74 million, or 8 Canadian cents a share, for the same period last year.

by ISP-Planet Staff [June 28, 2002]

Canada's second-largest cable company, Shaw Communications Inc., reported a third-quarter loss on this week after taking a C$269 million ($178 million) write-down on its stake in GT Group Telecom Inc.

Shaw provides cable television services, broadband Internet access, satellite services and Internet infrastructure services. All of these operating segments are located in Canada except for two small cable television systems located in the U.S.

The write-down of the stake in the financially fraught telecom group is part of Shaw's overall reorganization plan. Earlier this month the company announced it would consider any and all possible financing alternatives for GT, because it expects to violate the terms of its debt covenant.

On the upside, revenues for the quarter rose nearly 12.5 percent. The company said cable and Internet divisions were the major contributors to revenue increases, helped along by Internet customer growth, rate increases, and a decrease in free promotions.

All divisions, with the exception of satellite services, recorded sequential growth in operating income before amortization. Price increases, cost cutting measures and the non-occurrence of one-time costs of the previous quarter, such as the C$4.6 million restructuring provision and the C$3 million cost of converting e-mail from Excite@Home to Shaw.ca, all contributed to the operating income before amortization surpassing revenue growth.

The company said the number of Internet subscribers increased by 26,000 from the second quarter to 757,731. On May 1, Shaw increased fees for its high-speed Internet access packages by $3. As a result, Shaw did exceed targets related to its primary goal of becoming cash flow positive. But only after excluding the one-time capital expenditure related to the purchase of the northern route from 360networks.

During the third quarter, Shaw implemented fundamental changes to its operations. In addition to other cost-cutting measures, the company reduced capital expenditure and also cut operating costs through staff cuts. Since May 31, Shaw has terminated approximately 400 employees.

As a result of these changes, Shaw contends that it is on track to exceed the previous estimate of free cash flow for the cable, Internet, and Big Pipe divisions by approximately C$20 million. Big Pipe, Shaw's all-fiber optic initiative, increased its customer base by 16, ending the quarter with 87 customers.

Great expectations
In related news, Shaw Internet customers in Calgary who also have digital cable service will be able to access a broad range of programming content through their High-Speed or Lite-Speed Internet connection and digital set-top box beginning on September 4, 2002. Shaw's VOD service (i.e. video-on-demand) enables customers to select programming from a library of titles through an online ordering system and view the programming on their television at a time of their choosing. The system allows full VCR/DVD functionality including pause, rewind, and fast-forward, through the use of a remote control.

This is a value-added service that could provide Shaw with a competitive advantage over satellite video services.

Many analysts believe that video-on-demand is one of the most significant advances in television technology and will usher in a new era of interactive and customer-controlled television viewing. VOD could also prove to be an effective retention tool, providing further revenue opportunities.

As part of this initial deployment, Shaw has entered into a long-term licensing arrangement with Hallmark Interactive for VOD content. Over the coming months, more content will be added including major Hollywood films, television series, children's programming, documentaries, educational programming, music and videos, as well as adult content.

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