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David Hatton
Business Edge
Apr 14, 2005
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Talk is going to be cheap this year as
Canada's cable and telephone companies fight for market share using
a new weapon - Internet-based telephony.
Voice over Internet protocol, or VoIP, allows users to make telephone
calls through lines normally used for data.
Traditionally, analog phone service has used copper wire. But the new
technology transmits calls digitally and can send them over virtually
any kind of data cable.
"This is really going to give phone companies a run for their money,"
says Kaan Yigit, president of Solutions Research Group in Toronto.
"VoIP is definitely impressive. The consumer is going to come out
a winner here when they realize how much they're saving on long distance."
VoIP-info.org lists 26 Internet telephony companies in Canada. AOL Canada
became the latest entrant into the VoIP market, announcing last week
that it was expanding its Internet phone service from Toronto, where
it was in trials, to the rest of Canada in the coming few weeks.
This past Valentine's Day, Calgary-based Shaw Com-munications Inc. began
offering consumers digital phone service that included unlimited long-distance
calling across North America, as well as other call features.
Bundled together with cable and high-speed Internet, Shaw's digital
phone service was priced at $55 a month. Anyone who did not want the
other services could still sign up for $65 per month.
But it wasn't love at first sight for Shaw and Telus Corp., Western
Canada's largest telephone company. Late last month, Telus filed an
application with the federal regulatory body insisting Shaw play by
the rules for competitive local exchange carriers, or CLEC.
Telus officials told the Canadian Radio-television and Telecommunications
Com- mission (CRTC) that Shaw had not completely met federal obligations
before launching its VoIP service. Shaw applied for CLEC status last
year, but the request is still in the regulatory procedure.
In the application, Telus said Shaw went ahead with its launch before
being able to provide equal access to inter-exchange service providers.
That access would allow Shaw subscribers to choose a different long-distance
provider.
Industry analysts say that while VoIP has been available for several
years, earlier problems that dogged the industry - such as call quality
- have been resolved.
"I was at the Shaw offices and saw a demonstration of the unit
for myself," Yigit says. "There was almost no difference in
the quality. It was excellent."
Yigit says it will still take time for VoIP to catch on with consumers
and it may not happen this year. "Right now you have the early
adopters or the low- hanging fruit within the market," he says.
"But you will certainly see a ramping-up this year as more people
start to embrace the technology."
Joe Parent, however, hopes to change that. The vice-president of marketing
and business development for Vonage Canada says this is going to be
the year for VoIP.
Vonage bills itself as North America's fastest-growing VoIP company,
adding 20,000 new customers a week to its current subscriber base of
about 500,000. The company predicts it will have one million subscribers
by yearend.
Vonage, which introduced its service in 14 local markets in April 2004,
has packages beginning at $19.99 per month. Its Province Unlimited plan
allows unlimited long-distance calling within Ontario and 500 minutes
of out-of-province calls for $34.99 a month.
An analyst with international research firm Frost & Sullivan predicted
last year that 1.6 million Canadians will be using VoIP by 2008.
In most Canadian markets, cable companies are pitted against telephone
companies in the fight for VoIP market share. Most of them are marketing
the new technology as part of a bundle of services - Internet, cable
television and telephone.
In late March, Bell Canada announced it would introduce its Digital
Voice VoIP package for customers in three Quebec cities: Sherbrooke,
Quebec City and Trois Rivieres. Bell customers will be able to choose
from three packages including unlimited long-distance calling throughout
Canada and the U.S. for $45 per month.
Bell argues it does not need CRTC approval because its VoIP system is
an Internet application rather than traditional telephone service.
"We are aware of that situation and it's certainly one of the questions
we will be examining," CRTC spokesman Denis Carmel says. He adds
that while the regulator does not have the power to levy fines it can,
if it thinks it is appropriate, go through the court system for a cease-and-desist
order against a company.
In e-mail answers to questions from Business Edge, Bell spokeswoman
Daniela Pizzuto says the company has known for some time that long-distance
markets - also known as legacy services - were declining. The company
began moving away from traditional telephone services two years ago,
she adds.
Currently, 60 per cent of Bell's revenue comes from the legacy services.
By next year, officials hope that will change to 45 per cent traditional
legacy services, and the other 55 per cent will come from new services
such as VoIP, she says.
BCE Inc. CEO Michael Sabia surprised many at an industry conference
last year when he announced a cut-rate long-distance offer: 1,000 minutes
anywhere in North America for only $5.
Ronald Gruia, a senior telecom analyst with Frost & Sullivan in
Toronto, says essentially Sabia announced he was prepared to take on
any competitors.
"It raised the bar for anyone who was thinking of coming into the
VoIP market," Gruia says. "Bell has been watching this for
quite some time. I think they're just waiting for the right moment to
get into the business," he says.
But the introduction of any VoIP service does help telephone companies
such as Bell increase their stickiness, or client-retention rates, Gruia
adds.
Rogers Cable has already announced it will be launching a VoIP offer
of its own in Ontario just after the Canada Day holiday. A company spokesperson
refused to say what their offer would include.
Most analysts expect Rogers will come out with an attractive bundle
of services.
"Think of it as bundle versus bundle," Gruia says. "They
are going to look at new revenue opportunities to make it up on the
video side or something.
"There's going to be a lot of competition over the next couple
of years, but you won't see nearly the same level as the United States
where some companies are in fierce battles. It's an entirely different
market here," he says.
Because Canada has a geographically dispersed population, Gruia says,
markets don't overlap as much as in the U.S. Canada also does not have
the same "churn rates" - an industry term for customers who
sign up and unsubscribe each month - as they do south of the border,
he adds.
Vonage's Parent says he is not worried about cable or telephone companies
entering the VoIP market. "I think the arrival of other competitors
will only be better for the industry. They will educate the consumer
about how VoIP works.
"Once people look at the offers that are available and do their
research, I'm convinced they will come to us," Parent says. "This
is such a value proposition for the consumer."
VoIP also is attracting attention from business owners, especially those
who work from home.
An Environics Research Group survey last fall showed 59 per cent of
managers believe telecom prices need to be improved.
In the same survey, 69 per cent said they would be likely to switch
over to VoIP if it offered a 25-per-cent savings over their current
provider.
"This is definitely good for small business," Parent says.
"Not so much for corporate networks because of their complex structure,
but it's a very compelling offer for small business. We offer an excellent
value proposition."
At the Calgary offices of Shift Networks, president and CEO Trent Johnsen
says his small-business customers have noticed savings of between 20
and 30 per cent from switching to VoIP.
"They also have a feature-rich environment that's five, 10 and
even 20 times more powerful," he says.
Johnsen says those features can include caller ID, three-way calling
and call forwarding. Companies also can integrate their phone system
with billing records.
"Our customers also like the idea that you can easily add users
on to a system or change the features they have," Johnsen says.
"They tell me it's like having their own phone company."
Shift Networks has a growing customer base in Alberta and plans to launch
in Ontario later this year.
Everything could change, however, when the CRTC releases its next ruling.
The federal regulator ruled in 1999 that it did not need to set guidelines
for the Internet. Last year, it said it sees almost no difference now
between regular phone service and Internet-based telephony.
The latest ruling is expected midway through next month, but opinions
vary on where the CRTC is going to come down with its regulatory powers.
CRTC spokesman Carmel says the big question is whether the technology
is an Internet application or a regular phone service.
"We would have been able to act on this much sooner, but we wanted
to hear from all the parties involved and give them a chance to give
their input," Carmel says.
Earlier this month, the CRTC ruled that companies that sell Internet
telephone service to the public must provide at least basic 911 service.
"It's quite a sweeping decision that says 911 is fundamental to
telephone service in Canada and if you're going to offer phone service
here, you must offer it," says telecom industry consultant Ian
Angus.
"Personally, I think they've done a pretty good job here,"
he says. "They got very strong representation from the emergency-response
services community at their hearings."
The CRTC also is examining which government agency is responsible for
Internet-based telephone applications, Carmel says.
Industry Canada is currently responsible for telephone companies under
the federal Telecommunications Act, while Heritage Canada looks after
cable companies under the Broadcasting Act. Officials have been frustrated
for several years over who has jurisdiction.
"Never a dull moment around here, that's for sure," Carmel
says.
Analysts and industry executives are not sure on which side of the fence
the CRTC decision will land.
"This has got to be one of the biggest files the CRTC has had to
deal with in quite some time," says Yigit. "I don't believe
they will be too harsh, but it's hard to know."
At Vonage, Parent says he would be surprised if the CRTC came down hard
on the industry. "Right now you have everything working well with
lots of healthy competition. Why would the CRTC want to interfere with
that?" Says Gruia: "One thing is for certain, though. This
is going to be an interesting year."
- with files from The Canadian Press
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