Consumers could see Internet bills rise in light of CRTC ruling, analysts say

TORONTO – Consumers could see Internet costs edge higher as cable companies look to maintain profits in light of a ruling that forces them to unbundle television channels.

Desjardins Securities analyst Maher Yaghi predicts that television providers will look to make up some of the lost revenue by increasing the cost of Internet services.

“Because we’re moving into a more online environment where you get your TV signal through the Internet rather than through your regular cable connection, the value that the consumer puts on that Internet connection will increase,” Yaghi said.

“Hence, we believe that companies will be able to charge more for Internet than what they’re charging right now.”

The CRTC ruled Thursday that television distributors will have to offer customers a “skinny basic” cable package for no more than $25 per month.

Customers will also have the freedom to add on individual channels or small bundles of channels under a “pick-and-pay” model.

The CRTC made its ruling following a series of public hearings last fall called Let’s Talk TV, which asked Canadians for their input on the future of television.

Most customers will see some cost savings overall, as they will no longer need to pay for as many television channels as they have in the past, Yaghi said.

He also noted that Internet is a higher-margin business, so companies like Bell (TSX:BCE), Rogers (TSX:RCI.B) and Telus (TSX:T) don’t need to replace each dollar of lost television revenue with a dollar of Internet revenue. That means cost increases on Internet bills will not be too dramatic.

“It’s not a dollar for a dollar in terms of the bill for the consumer,” Yaghi said.

However, experts say consumers could be left with fewer viewing options, as a number of specialty channels that once benefited from being bundled with more popular products may be forced out of business.

“Consumers will have more options as to how to acquire content, but they may not actually have more choice,” said Lawson Hunter, a regulatory lawyer at Stikeman Elliott and a former executive at BCE.

If Canadian channels start disappearing, providers may also have to stop offering some non-Canadian programming as well in order to maintain the mandatory ratio, Hunter said.

Broadcasters will be hit hardest by the new regulations, as they don’t have alternate ways of making up the lost revenue, analysts say.

“For broadcast assets, regulated unbundling is not positive, although difficult to measure directly,” CIBC analysts Robert Bek said in a note he co-authored with two others.

Corus Entertainment Inc. (TSX:CJR.B) will be most affected because of its reliance on television assets, the analysts noted. DHX is also at risk, but broadcast assets represent a smaller portion of the company’s revenues.

Eventually, the matter will end up back in front of the CRTC, Hunter predicts.

“Two years from now we’ll be back at this again, in my view. Because what does reasonable price mean for these small bundles? There are going to be lots of fights about what the arrangements are going to be between the distributors and the programmers.”

— With files from Terry Pedwell