The telecommunications industry is moving at lightning speed – literally and figuratively. New technology is constantly disrupting the way we get our information and entertainment. John Hanna knows this better than most.
The chief financial officer for Vecima Networks (TSX:VCM), a Victoria-based company that provides hardware for the cable industry, has seen a 180-degree spin when it comes to services provided through its hardware.
Vecima’s products include set-top cable boxes that are much more powerful than the standard ones that sit below the average TV screen.
“What we do is kind of provide those boxes on steroids,” Hanna said, explaining that the devices fit into a rack that services condos or apartment properties. “You just need to put one of our boxes in the basement and it can provision 50 to 500 units in a building.”
Vecima works with cable operators like Shaw (TSX:SJR.B; NYSE:SJR) and Telus (TSX:T), which have service-provider deals with building owners. Hanna said Vecima is in the “last-mile business” meaning his company is responsible for the actual hookup with the box that brings the digital feed into the building and then distributes it to individual units. The benefit that companies like Vecima offer, said Hanna, is they forgo the “truck roll,” as it’s known in the industry. That is, every time a new tenant comes or leaves, there is no need for a technician to come in and individually install cable services.
He added that the primary service offered by Vecima is video, though with the advent of Netflix (Nasdaq;NFLX) and Apple TV (Nasdaq:AAPL), traditional cable service has been turned on its head in the blink of an eye.
“Historically we’ve been in that video segment for the last 10 years, and the technical term is QAM [quadrature amplitude modulation]. Prior to the last 10 years, the company started on the data side, so when the cable companies were originally allowing you to get your internet through your cable operator. And now it’s coming full circle and getting integrated so that the products that people are watching is going back to data. So all the videos that people are watching are getting pushed through that data pipe.”
Helping propel change in the sector are consumers “cutting the cord” – forgoing traditional cable TV services and cobbling together various technologies to get their information and entertainment. This could mean a Wi-Fi connection but no cable hookup, or a cable hookup with no TV subscription, or simply a TV with an HDMI cable plugged into a laptop. The options are virtually endless, but cable remains the go-to when it comes to data speed.
A study by Convergence Research Group Ltd. estimates that there was a decline of 220,000 traditional TV subscribers in Canada in 2016 and another 247,000 in 2017. Now almost 30% of Canadian households don’t have a traditional TV subscription, a proportion that has been rising by three percentage points every year. Hanna said Vecima is not worried.
“There’s no question there is a dramatic change going on within the industry,” he said. “But the reality is … our customers, they have such a huge investment in the installed networks that they have, that they are already finding a way to keep those customers even in the wake of over-the-top technologies like Netflix, Hulu and Crave.
“If you look at the published metrics of the industry, they’re losing traditional video subscribers, but invariably people tend to need the big broadband pipe, the internet side of it, and so that’s what we’ve seen over the last few years, those losses being offset by the gains in the broadband side.”
What all this means is a bandwidth crunch within the telecommunications industry. The volume of data traffic and the use of applications over multiple devices, as well as new bandwidth-intensive applications such as HDTV, VOD (video on demand), IPTV (internet protocol television) and VoIP (voice-over-internet protocol), have made bandwidth the new industry currency.
“So now you need that broadband pipe so you can put it all together – my Netflix, my Hulu, my subscription to TSN streaming, and get everything that I want,” he said. Customers can say, “‘I’ll do it cafeteria style, and what I need from you, Rogers [TSX:RCI.A], is a 75-megabyte internet service, then I’ll cobble it together myself.’”
Anne-Marie DeSouza, head of investor relations at Vecima, said Hanna’s expertise lies in understanding and explaining the sometimes mystifying complexity of the telecommunications landscape.
“As a designer and manufacturer of complex cable networking hardware, the details of our business can be a challenge to explain to the investment community,” DeSouza said. “John’s ability to distil and articulate our technology has been invaluable as we try to position our company in the right lens for our stakeholders.”
Business in Vancouver and the Chartered Professional Accountants of British Columbia will honour the province’s top CFOs at the BC CFO Awards gala dinner, being held June 7 at the Fairmont Waterfront Hotel. For more information or to register, go to biv.com/bc-cfo-awards.