Thoughts on the Canadian TV and Internet market.


For this post I am deviating a bit from the general theme to talk about something I am faced with on a daily basis in my line of work and something that I think is worth understanding and talking about.

Working in the T.V/internet industry in the position that I work in I understand and hear that consumers in this country are not happy with the cost of service. In some cases they are getting outright angry over it and feel they are being robbed, ripped off etc. I could tell you all the cliché answers about demand, network investment, T.V. production cost etc. but ultimately it all falls on deaf ears all to often no matter how true and accurate those answers may be. Consumers in general, simply put, do not care about any of that and are getting tired of hearing the same old excuses, reasoning and story lines every time their bills go up.

Because so much of what goes on is not immediately visible to consumers, most do not see any additional benefit or value, only being billed more for the same. (That at least is the perception and for many perception is reality for those consumers, which is where my job comes in to help them understand the value and reasons for increasing cost.) When new channels are added it does not matter to so many because they did not ask for it or they do not watch them. When a new HD channel comes out it is not new to them because they had it in standard definition or they feel since they were paying for the channel anyway, why should they be paying more just because they have it in HD now. While consumers are using more internet every year, the access and user experience does not change much. How they access and what they are accessing does but from a consumer perspective the unseen invisible reality of just keeping the internet on from their view-point simply does not warrant an increase in cost because keeping it working is not an added value, but is exactly what they pay a bill for. This perception is understandable. The problem is as demand increases, ISP’s must continue to invest billions in their networks to support increasing demands. Breaking down the individual cost to each consumer and assessing rate changes to meet that demand on a individual basis is just not practical.

Costs continue to rise and I can’t help but wonder how high costs have to go to break the industry. Consumers will continue to cut back on how much they are buying or canceling services all together. This is most notable in the cable T.V. service side of things. When people cancel cable service, often enough it is not to change T.V. providers, but cutting the cord all together because the cost is just not worth it to them any more. Cancelling internet becomes a game of where can you get a promotional price and for how long. How high of a price will the market bear before there is a revolt. I hear you, I hear your frustrations every day. I understand your frustrations. Internet has rapidly become a near essential services such as water, electricity, and other such utilities and because of this people are frustrated with how much it costs. Like other utilities, inflation, maintenance and delivery cost are causing it to rise while their incomes are not going up nearly as fast and their buying power is diminishing. Those who work in the industry often take the brunt of such concerns and frustrations.

From my personal view-point, the single biggest contributor to this problem is promotions. When you first sign up for a service you get a discount for 3,6 or 12 months or what ever the promo term is for. When that is over your bill increases usually anywhere from 40-100% more than what you were paying on promo. When you have been used to paying low prices, then your bill goes up it is no wonder why you would want to cancel unless you get a discounted rate again. This leads to the classic promo hopper situation where you have a group of people who will just hop from provider to provider, always taking a promo and never paying full price. I do not blame them at all for doing this. While I fully understand the value of the service and the benefits, I also understands the desire to pay less for service ongoing rather than paying full price. I can also understand how consumers do not see the value in the higher rate when all to often they are offered promo rates for signing up, and discounts for keeping the services on after the promo is over. This has created a unrealistic perception of actual value.

Inevitably anytime a customer calls into their providers retention departments they will be offered some kind of promo or discount on their service in an effort to avoid cancellation of the accounts because of the promo being offered by the other guy, or to alleviate their feelings of the serviced being over priced. This however, has the effect of re-enforcing the idea that the internet and T.V services is not worth the prices billed in the first place. What it does is sends a message to consumers that the services can be sold at a lower price to begin with. It drives un-healthy market realities for service providers who find themselves in a constant battle over regular vs promo pricing on services. This reality of how the market works in this country I believe is the single largest contributor to consumer churn and is also the most preventable type of churn in the industry. The problem is no one is willing to implement the solution (I will get to my proposed solution shortly) because the first one to do so will be handing over a huge advantage to their competitors who will likely milk it for all its worth thus perpetuating a cycle of unhealthy customer acquisition and loss and I believe in part contributes to higher prices in services, even if only to a small extent. While consumers may benefit to a degree, business can only benefit in the short-term. The cost of retaining customer in this way is inflated dramatically both in terms of marketing dollars (the cost of acquisition) and the hundreds of millions of dollars a year in lost revenue via discounts and promotional rates to maintain customers with no guarantee of retaining business when the offer is over. Calculated risk maybe, but nonsensical from my perspective.

The solution for what I feel would be healthier competition is really quite simple. This industry could take a lesson or 2 from the cell phone industry. While I do realize the cell phone rates are quite expensive in Canada, the overall churn rates are quite a bit lower, while I have not confirmed this as fact, it is certainly my perception. When you sign up with a cell phone plan, you have a few choices. Pay full price for your phone on a month to month contract or get a discount on your phone for a service contract that is typically 2 years. What you do not get is promo rate on your service plan. You pay the full price on that from day 1 for as long as you have the plan. Rate increases are virtually un heard of, at least in my experience my rate has not changed till I choose to change plans. I tend to change providers when my contract is up, but only because I am shopping around for the best service plan on the market at the time. I do not expect a promo rate on my plan nor is one ever offered. If no other company has a better plan, then I stay where I am and either go month to month or re-sign with new phones with my current cell phone provider. I can trust and rely on my monthly bill to stay the same every month, year after year,  till I choose to make a change. Cell phone providers in Canada compete on the merits of the full, regular priced service rather than constant promo hopping discounting service. The result is cell phone provides must compete on network size, features, capacity, quality of service, customer service, hardware offerings etc…

When I talk to people in a professional or casual capacity, they almost never complain about their cell phone plan price, but almost always complain about their home internet and T.V. service rates. Why is this despite significantly higher internet rates and voice plan costs? I would argue that this is because when it comes to cell phones, people know what to expect and accept the regular prices because they are never, or at the least very rarely ever offered anything but regular pricing, while on home internet and T.V. services they are almost always offered a promo rate, and other discounts both when they start with the service or when they call to cancel the service.  How can the industry as a whole end this kind of churn, simply put, stop offering promo rates and focus on selling the product at an overall lower regular price. Offer discounted hardware for service contracts, charge full price from the start. Perhaps this way consumers can save a couple of bucks a month on each service while changing the way people think about the service. Think about what is being provided rather than how cheap can you get it. Perhaps then we will see less churn, healthier retention rates for all players in this game, happier customers and more realistic expectations for everyone involved. By doing this service providers will have to provide excellent high quality service consistently in order to maintain customers, rather than short-term discounts which all to often only delay the inevitable.

I know this is wishful thinking, however fellow consumers, perhaps you can do yourself a favor and just refuse to accept temp intro rates, only ever discuss regular rates and make a choice based on reg prices and included service and features. If you won’t pay full price for that product or service, perhaps you should consider if it is worth having at all?

P.S. Sorry if there are spelling or grammar errors in this one. I wrote this after being tired working late and likely missed some key grammar and spelling errors. Thanks for your understanding