Cogeco CEO says cable TV bills face yearly inflation mostly due to program costs

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MONTREAL - Cable TV bills usually go up about three per cent a year and consumers can expect smaller package offerings to avoid paying for channels they don't watch, says the CEO of Cogeco Inc.

The rising cost of licensing programs is passed directly to consumers, Louis Audet said Tuesday in an interview.

"What we have been saying now for a while is that essentially the industry will likely evolve towards smaller packages so that people are not locked into buying a big swath at a time for things they don't always watch," Audet said.

Audet is the head of parent company Cogeco Inc. (TSX:CGO) and its main subsidiary Cogeco Cable (TSX:CCA), the fourth largest cable TV company in Canada.

"It's going to be an evolution but the way we see it, it's going to be an evolution toward smaller packages. Cable increases are about three per cent a year," Audet said after Cogeco's annual shareholder meeting.

Cable inflation is a concern not only in Canada but the United States as well, he said.

"It's primarily program licences, but we also have our own cost increases," Audet said, noting there are also costs associated with specialty cable channels.

The Canadian Radio-television and Telecommunications Commission has already asked cable, satellite and Internet protocol TV providers for ways to give Canadians more flexibility in choosing channels they want in their TV packages.

No decision has been given yet by the CRTC about how Canadians will be able to have more choice on channel selection.

Audet said consumers have been asking for this.

"There's a limit as to how small it can get, but there is still room to build smaller packages, undoubtedly."

There are about 20 channels that TV distributors must carry, including the CBC and Radio-Canada.

Audet also said Cogeco will not participate in the federal government's next auction for wireless spectrum, radio waves over which cellphone networks operate.

But Audet said Cogeco is rolling out a WiFi network for short-range wireless communication to allow its customers to use their laptop computers to connect to the Internet outside their homes.

Unlike its chief rivals in the Ontario and Quebec cable markets — Toronto-based Rogers Communications Inc. (TSX:RCI.B) and Quebecor's Videotron (TSX:QBR.B) — Cogeco hasn't built a wireless network for cellphone traffic.

Cogeco's mobile broadband WiFi network is free for its Internet customers in the cities in which it operates and for a small fee for non-customers, Audet said.

Calgary-based Shaw Communications (TSX:SJR.B) has also adopted a WiFi strategy, after ditching a plan to move into the cellular phone sector. Shaw is selling spectrum it acquired in a previous auction to Rogers as part of a series of transactions announced Monday.

"We're rolling it out, but in a more modest fashion than Shaw is," Audet said.

Cogeco Inc. also will focus on reducing debt and integrating the recent acquisitions of a U.S.-based cable company and a Canadian Internet infrastructure provider.

Audet said Cogeco has no further acquisition plans at this time.

"We're taking a pause right now."

Cogeco Cable purchased the Atlantic Broadband cable company last summer for US$1.36-billion, its first big acquisition since its failed venture into Portugal. Cogeco followed that purchase with a friendly $526-million deal in December to buy Peer 1 Network Enterprises, a Vancouver-based Internet infrastructure provider.

Cogeco Cable announced Monday that it had a net profit of $42.2 million, or 86 cents per share, for the quarter ended Nov. 30, compared to a profit of $43 million, or 88 cents per share, a year earlier.

The company also revised its financial guidelines for fiscal 2013, saying profit for the year is expected to be $225 million — $35 million higher than projections it issued on Nov. 1 last year, largely due to its Atlantic Broadband acquisition.

Revenue for fiscal 2013 is expected to reach $1.6 billion, an increase of $240 million when compared to the company's previous projections.

Parent company Cogeco Inc. recorded a profit of $47.1 million for the first quarter, compared with $47.9 million in the previous fiscal year.

Shares in Cogeco Inc. were up 55 cents to $35.54 and shares in Cogeco Cable were up 15 cents to $38.90 in afternoon trading on the Toronto Stock Exchange.