Red Nova News

CRTC's Voice Over IP Ruling Has Incumbents Crying Foul

Primus pleased, but Bell and Telus plan to appeal recent decision to regulate emerging services

THE CRTC HAS ISSUED ITS FINAL decision on voice over Internet protocol earlier this month, upholding its preliminary view to regulate the technology similar to other types of phone service currently available in Canada.

Under the CRTC ruling, incumbents such as Bell and Telus would have to get regulator approval for pricing their own VoIP services. Incumbents are free to offer such services, but must charge fair prices and not run them at a loss. This is similar to the way traditional phone sendee is regulated. The decision favours cable companies like Rogers, which is expected to launch an Internet- based phone service to the Greater Toronto Area by mid-2005 - as it defines them as competitors and not incumbents like Bell Canada and Telus.

"Why did we find that VoIP is a telephone service? Because Canadians use it as a telephone service, it's being sold as a telephone service and it functions as a telephone service," Canadian Radio-television and Telecommunications commission chairman Charles Dalfen said in a statement. Dalfen said the decision is consistent with the Telecommunications Act's emphasis on services over technologies.

Primus Canada offers a VoIP service called TalkBroadband over cable and DSL modems. Ted Chislett, Primus Canada president, said the CRTC ruling bodes well for competition in the marketplace.

"It's the right decision," Chislett said in an interview following the announcement. "The decision encourages healthy competition. Within a couple of years, in many communities consumers will have choice between a telco, a cableco, Primus and other providers."

Incumbent carriers Telus and Bell Canada, however, both said they intend to appeal the CRTC's decision.

Can't compete

The decision fails to take full advantage of the Internet's capabilities, argued Janet Yale, Telus executive vice-president of corporate affairs.

"We think it's the wrong decision at the wrong time from a public policy perspective," said Yale. "We're in a situation now where we have over 20 voice over IP providers offering Internet-based VoIP services and the companies that brought IP technology to the Canadian marketplace are the only ones that can't compete on an unregulated basis."

In a statement following the decision, Bell Canada also expressed its concern.

"There is no incumbency in VoIP," concluded Lawson Hunter, vice- president of regulatory affairs at Bell Canada. "In a new market where barriers to entry are virtually non-existent, no one - including foreign companies - should have a regulatory advantage."

The CRTC's decision leaves Bell and Telus, as well as competitive local exchange carriers, with limited means to protect their local residential market share, according to a UBS Securities Canada Inc. report. Released May 2, the report was based on the commission's VoIP decision preview.

UBS estimates that incumbents account for approximately 97 per cent of local residential market share today. CRTC data pegs incumbents' share at 98 per cent in 2003 in terms of revenue and lines - down two per cent from 1999 levels. This loss is in part due to new competitors such as Allstream and Call-Net, which Rogers Communications recently acquired for $330 million, entering the market, said Jeffrey Fan, UBS Investment Research analyst, who authored the report.

For incumbents such as Bell and Telus, UBS estimates that the revenue at risk, which includes residential local access, call features and long distance, stands at between 15 to 20 per cent of total revenue. Given the high profitability of that segment, however, the earnings before interest, tax, depreciation and amortization (EBITDA) at risk is 30 to 35 per cent, according to the report.

"The decision provides more competition in the local residential landscape and in the residential long-distance segment," said Fan. "If you're the market share leader in that area, you're probably going to see some erosion."

The CRTC has also announced it would "accelerate its response to applications for retail tariffs on local service by incumbents, so they can respond more quickly to customer demand." In response to incumbent's lobbying efforts, the CRTC responded by reducing the tariff application process from 55 days to 10 business days, allowing incumbents to react more quickly.

By Sarah Lysecki

IT Busines Staff

Copyright Plesman Publications Ltd. May 27, 2005

Source: Computing Canada

Reprinted from Red Nova News.

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