Copyright 2004 Toronto Star Newspapers, Ltd.

The Toronto Star

December 3, 2004 Friday

From Lexis Nexis

Cogeco Cable has been testing its Internet telephone service in preparation for a 2005 launch date and believes economics for the technology are on its side as it battles Bell Canada for customers, Cogeco CEO Louis Audet said yesterday.

"We have satisfied ourselves that this works well, we're in discussions with suppliers as we speak and we're preparing for a launch in calendar 2005," Audet told reporters ahead of Cogeco Cable's annual meeting.

Cogeco will have "huge cost advantages" in a two-way battle with Bell Canada, which is preparing to offer video services over its phone networks as Canadian cable companies prepare to offer telephony over their cable systems.

The cable company will be able to offer voice service to its customers by spending about $250 per additional customer, with minimal upgrades to its existing network, Audet said.

In contrast, the phone company will have to spend $1,000 for every customer getting video over very high-speed digital subscriber lines, or VDSL, and faces high up-front costs, Audet added.

"So I think the economics favour us. And I don't mean to say we don't take our competitor seriously. Quite the contrary," he said.

"But it's going to cost them a lot of money. And I think it's going to be detrimental to their return on equity. And in the final analysis, that's the fundamental rule of the game - return on equity."

That's an accounting term that refers to the amount of money available to common shareholders after the company pays its taxes and dividends to preferred shareholders. Cogeco doesn't expect to spend "much more than $5 million" in fiscal 2005, which began Sept. 1, in capital spending on telephony.

In contrast, Cogeco will spend between $100 million and $110 million a year on all capital projects for the foreseeable future.