General

SaskTel's Max IPTV Service

In many areas, regional ILECs are ahead of the nationals, and one such is in Canada's prairie land.

by Gerry Blackwell [September 15, 2006]

IPTV may be happening faster in some overseas markets than it is in North America, but one of the first IPTV successes happened right here more than four years ago—or rather, just up there, in a quiet corner of Canada's prairie provinces. SaskTel, the incumbent phone company in Saskatchewan, launched its Max service—pay TV bundled with high-speed internet—in 2002. Max has more than met the company's expectations.

As of March of this year, with the service reaching about 225,000 homes in nine communities, it had 44,000 subscribers. SaskTel saw rapid growth last year with 16,000 net new subscribers. It expects to add another 10,000 or so in 2006. "Things have slowed a little," says Brian Eltom, the company's director of marketing, business development and content management. "But we think we'll get pretty close to 23 percent or 24 percent [penetration] by the end of this year. And we now feel we can exceed our original expectation of 25 percent penetration."

SaskTel designed and integrated its own IPTV system using components from eight different suppliers. It initially invested about $123 million in the DSL network, or $407 per home passed. Half of that went for the high-performance upgrade needed to enable IPTV. Now the company is upgrading again, to ADSL2+, so it can offer faster internet service, more video streams and HDTV service—which it will introduce this fall.

The service today includes high-speed internet, up to 151 broadcast television channels, 45 music channels, 32 Local Radio Stations, plus Max Front Row, SaskTel's video on demand (VOD) service with over 430 movie, kids video, adult, and free titles.

Basic service, with 1.5 Mbps internet, 20 TV channels, the music channels, radio stations, and VOD costs about $44. A "full" package with all the TV channels, including movie channels, sells for about $95.

Both packages include Max Caller ID, which displays name and phone number for incoming phone calls on your TV screen. Max also offers a package of 12 interactive games including Solitaire, video poker, and Reversi for an additional $4.40 a month.

SaskTel got into IPTV for all the usual reasons: to generate new revenues, as a defense against cable TV companies offering competitive local telephone service, and to complete a churn-busting triple-play offering—actually, a quintuple play in SaskTel's case since it offers cellular phone and home security services as well as the usual phone, internet and TV.

Working for a living
So how has the strategy worked so far?

Eltom won't reveal how much revenue the Max service generates, other than to say it now surpasses what the company earns from internet services across the province. (SaskTel offers voice and internet services, but not TV, in more than 40 other, smaller communities.) Cableco competitors—Shaw Communications in the north and Access Communications in the south—have yet to introduce local phone service, but Shaw, the bigger of the two, is already offering it in neighboring provinces, and will eventually offer it in Saskatchewan as well. "We think it will be sooner rather than later," Eltom says.

Until that happens, SaskTel really has no way of measuring the effectiveness of the triple play for reducing customer churn. Even for long distance, it still retains about 90 percent of the market. The company has already had some success luring customers with discounts for bundling multiple services, however. Subscribers get a 15 percent discount for taking cellular or long distance service along with Max, which brings the monthly cost for the basic package down to about $31 a month.

"Over 70 percent [of Max customers] have long distance or cellular bundling," Eltom says. "So it's pretty important to our overall marketing, and it was certainly a key part of the thinking when we did the marketing strategy [for Max]."

Keeping cutting edge innovation simple
SaskTel never believed it could wow customers with the kind of fancy new viewing experiences some IPTV vendors have promised—instant channel changing, multimedia electronic program guides (EPGs), multiple picture in picture, etc. The notion of instant channel changing in particular, something that Microsoft has touted as a benefit of its IPTV platform, is a red herring, Eltom believes. It's only people switching from analog that even notice a difference, he says, and they will decline as a percentage of new customers going forward.

"They are great applications and if there's an opportunity down the road, we will offer them," he says. "But we don't offer any of those now. In fact, there isn't anybody out there offering them, and whether they would be real difference makers I don't think is proven. What's important is being able to attract and retain customers, and our experience is that to do that, you need to get the core product working properly first."

Which is why the company has focused mainly on insuring solid, reliable service with something approaching "five nines" (99.999 percent) of uptime. As Eltom says, "People will be willing to wait if their phone isn't working, they're less willing to wait if the internet is down, and they're even less willing to be patient if the TV isn't working."

Max is able to offer some services that are more difficult for cable and satellite providers to match, such as the interactive games, a walled-garden internet portal with local information, VOD, and on-screen caller ID.

And the company is looking at introducing some others in the future. They include network security software built into a gateway/router device that new ADSL2+ customers will receive, voice-to-text conversion for voice mail so viewers can read messages on the screen while continuing to watch TV and the ability to program a Max PVR remotely from your mobile phone. But SaskTel isn't pinning all its marketing on such advanced features.

"People aren't asking for a different way to watch television," Eltom argues. "Our research is not showing that customers are saying, 'Gee, this is something we really want.' Mostly they just want to sit back and relax."

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