Thursday, May 12, 2005

Big Day for VoIP in Canada

Today will likely be marked as the inflection point for VoIP's arrival in Canada, and perhaps more importantly, the end of the ILEC's monopoly hold on local service.

Later this afternoon, the CRTC will announce their long awaited decision on VoIP, and it's widely expected to favor the competitors, and not the incumbents. I've commented on this already in last week's postings, and won't rehash the basic issues here.

Presuming it goes that way, the public hearings from last September will have been for naught, and effectively delayed the market by about a year. In hindsight, I'm sure the competitors don't really mind, as they needed that time anyway to get their offerings right, and to properly complete their trials. And it seems to be paying off.

Not surprisingly, there has been lots of news leading up to today's decision. Two in particular....

First is the Rogers acquisition of Call Net for $330 million. Ted Rogers has always been his own man, and he continues to confound Bell Canada, his main rival here in Ontario.

Call Net is a mixed bag, and in Canada, they carry the Sprint name. Financially they're not in great shape, and about 40% of their revenues come from the declining long distance market. So, why buy, and why now?

Well, the timing lines up nicely with the CRTC date. Presuming it goes as expected, this will be good news for Rogers, and what better way to announce "I'm ready to go" than with this acquisition? Call Net has about 500,000 subscribers, so that puts them into the telecom business right away. Furthermore, they have a good presence in the business market, where Rogers does not yet play. So, this opens up another market, where they'll be going up against Bell again, as well as the likes of Telus and Allstream.

Another interesting twist is that Call Net gives them customers in markets they don't serve with cable. So, now they can be an irritant to cable competitors like Shaw or Videotron - or possibly make a deal with them.

And one cannot overlook the simple fact that acquiring Call Net further consolidates the market, and keeps it out of competitor hands. And really, in the telecom market, a $330 million buyout is not that big of a deal. So, Rogers may be acquiring a good business in decline, but at a manageable cost, and probably little downside risk.

For those not familiar with Rogers, this just adds one more piece to their growing presence in telecom. With their recent Microcell acquisition, they became the number 1 wireless provider in Canada. And with VoIP coming, Call Net will help jump start them on the wireline path. I can't think of any cableco that has this kind of reach, and you have to admire what they're doing. No doubt, Bell is not happy, especially since they could have locked up market leadership in wireless if they had taken Microcell. And here comes Rogers, again, putting another stake in Bell's sandbox.

Second is the Videotron's growing VoIP traction. Today they are reporting about 23,000 subscribers, again, timed nicely for the CRTC ruling. Considering their service is only available in parts of Montreal, and it's only been on the market a few months, their numbers look very positive. In fact, as they report, demand is so strong they can't keep up in terms of providing the hardware and getting technicians onsite to cutover the phone lines from Bell to Videotron.

I still find their pricing plans complicated, and once you add up all the costs, I'm not so sure the savings are that great. However, they clearly seemed to have struck a chord, although it's hard to tell if people are buying on price or they just want an alternative to Bell. I doubt Videotron is making money with VoIP, but they certainly seem to be taking away access lines from Bell, which is a new thing. Bell has experienced a minor loss in access lines - about 150,000 - which is really nothing compared to what the RBOCs are experiencing. To date, Bell's line losses have been to wireless, but I'd say the Videotron numbers are the first notable dent to their wireline numbers from another wireline source. Of course, Vonage and Primus are eating into this as well, but their numbers are not public, so it's harder to say how much pain they really are causing Bell.

So, on this day in particular, Bell no doubt has a lot of cable on its mind. Between Rogers in Ontario and Videotron in Quebec, the future looks anything but simple for Bell. I couldn't resist saying that! Bell has a nice ad campaign running now celeberating 125 years in Canada, and "simplicity" is their key theme.

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