Toronto Investment Dealers Association. August 29th, 1980
This is the first time I’ve had the opportunity to speak to the investment community as part of the Canadian Cablesystems group. I would like to tell you how genuinely pleased we all were at Premier when the CRTC allowed the two companies to combine. The bringing together of the two companies gives us the unique opportunity to combine human, financial and technical resources to create a base unequaled in this industry in North America. The integration of the two companies is already well underway. I will have operating responsibility for the Western systems, including Calgary, while, as Colin mentioned, he will handle the East. Both of us will operate within a common framework of policies and guidelines.
The integration of CCL and Premier means the joining of two pioneering companies in the cable communications field. Premier started nearly thirty years ago cabling a part of the Vancouver area. The company went public in 1971 and has demonstrated a track record of steady progress in the years since then.
In the year ending August 31st, 1980 we anticipate showing reasonable progress in earnings per share over the prior year.
As Graham Savage mentioned, CCL has completed over sixty years in the film and cable business. I emphasise this because together we are not only the world’s largest cable company, but combine more experience and demonstrated track record than any other company I know of in our industry.
Colin pointed out that the integrated Toronto operations of CCL are now the world’s single largest system. I am pleased to say that Vancouver, which held that title for many years, is the second largest. Vancouver has over 90% penetration in its service area. It is a stable system providing a good quality service although limited in scope.
Now, however, the system does need upgrading so that it will be ready to present to the Vancouver public the many new applications we have planned. We expect to expend about $30 million in the Vancouver rebuild alone over the next five years, but with this expenditure we will have a system that will provide high revenue earning capacity into the mid-1990’s.
This expenditure will allow us to increase our capacity from approximately 17 channels to a minimum of 35. We expect that many of these new channels will be used for services for which we can charge premium amounts.
We need this expansion of channels, not only for the direct revenue they will produce, but also to encourage our clients to lease converters. We have already proposed to the CRTC a number of new services with this in mind. Converter leasing is a significant new source of unregulated revenue to Premier.
It is our intention to develop Vancouver into a model system for Canada. We will then use the experience and the techniques developed to expand our systems in Victoria and in the Fraser Valley.
Victoria is also an established system with over 90% penetration. Again, it is a mature system which paradoxically has one of the lowest monthly rates in Canada. We view this as an opportunity because, with the expanded services that we can provide, there is maximum room for future rate increases.
Here is a good example of where we can capitalize on the experience of CCL creating a true economy of scale. For example, we plan to implement a Parliamentary Bureau in Victoria along the lines pioneered by CCL in Ontario. We are going to add new alpha-numeric services, again leaning on CCL’s experience. It is this shared development that should give us maximum leverage in the Western systems.
Fortunately, Victoria is already partially upgraded to accommodate two-way services. In part of the City already converted we have an experiment underway in cable security systems. This we believe to be a significant new revenue source, and one which has been authorized already by the CRTC.
I mentioned that Toronto is now the largest cable system in the world. Fraser Cablevision is the world’s longest. It covers many of the communities stretching up the Fraser River Valley, covering about 200 square miles and including six municipalities. The Fraser system is already partly at 35 channel capacity, but will also be fully upgraded to be able to take the new services proposed.
The Fraser system has recently been granted a rate increase and we have just applied for another one. The Fraser area is one of significant growth potential.
Premier has a 45% interest in Western Cablevision. Western covers the Surrey area of B.C. which is one of the fastest growing areas in the province.
As we develop new services, it is our intention to feed these systems from Vancouver, hence reducing the cost.
We were very pleased to learn a couple of weeks ago that Premier had been awarded the contract to build the Knowledge Network of the West, (KNOW). This is a unique institutional network linking the universities, teaching hospitals and other institutions in British Columbia. It will be a shared cost project with the provincial government. We were particularly pleased because this represented a win over the local telephone company. We believe this demonstrates the ‘know how’ of Premier’s engineering group, and the respect it has in the province. This will also give us additional channel capacity on a shared cost basis.
Another significant advantage brought to Premier by the CCL/Premier association is that CBS will no longer be a shareholder of Premier. As you may be aware, this is the reason that Premier was unable to participate in cable franchising in the United States. It is now our hope to assist the CCL group in their franchising activities as will be described in a few moments.
In the meantime, however, Premier has been aggressive in the over-the-air pay television business in the United States. We have opened up operations, either alone or on a partnerships basis, in Seattle, Portland, San Francisco and Sacramento. Because this does not require cable, this is giving us experience and exposure which may be particularly valuable in developing inexpensive methods of servicing smaller communities. This could be of significance in Canada’s Western provinces in particular.
These MDS operations as they are called may also be helpful in pre-selling markets such as Portland, where we are also endeavouring to obtain cable licenses. An MDS operation may also allow us to serve peripheral areas that are not initially economic to cable.
As has been described, Colin will be responsible for operations in Eastern Canada, including some former Premier companies, and Premier will become responsible for the CCL-owned operation in Calgary. As you know, Calgary offers unusually high household penetration and disposable income, and is another area of good growth potential.
However, Premier/CCL is not restricting its opportunities to North America. Premier already has two cable systems in Ireland – Dublin and Waterford. We believe there is significant growth potential in the Dublin area, and are also investigating Cork, Limerick and Galway.
The Irish government has a mature approach to granting rate increases as these are essentially indexed. We recently received a substantial increase in Waterford and expect to get the same in Dublin. Our partner in Ireland is the Allied Irish Bank.
While it is our intention to stay primarily in the cable business which we know best, we have also launched an interesting experiment in the linking of a radio paging service with cable through our Irish operations.
We also believe that there is significant potential for pay television development in the United Kingdom. We are well positioned with our base in Ireland to expand to the UK, and with our wholly owned subsidiary in Amsterdam we are expanding our contacts on the continent.
While the management of these operations may move to Colin in due course, Premier is looking at expansion around the Pacific Rim. Australia is now showing great interest in cable television and may couple this with pay television in the early stages. Our experience in working with United Kingdom technical standards will stand us in good stead in these areas.
Premier is well financed to carry out its expansion plans. We have a 9 1/8% loan arrangement with the Mutual Life Insurance Company of New York in the amount of about $13 million, and another with Chemco Canada Limited at 10% for $5 million. With our strong cash flow and healthy cash balances we will be able to reinvest in the future capacity for new revenue creating services.
Finally, I would like to comment once again on one of the greatest benefits that we have already found from putting together these two companies. This comes from the cross-pollenization of ideas between the two management groups. Even during the first four weeks the two managements and staffs are working extraordinarily well together. We had lots of practice leading up to the CRTC hearing and this is continuing.
The combined operation just has a good feel about it!
I will now turn the meeting over to Phil Lind who will discuss some aspects of our operations in the U.S.