Wednesday, May 4, 2005

Canada's VoIP Regulations Update - Calling Michael Powell....

May 12 is the magic date for the CRTC's ruling on the status of VoIP, and the telecom and cable operators are all waiting anxiously. The ruling could come any time before the 12th - or maybe not until after. Regardless, the consensus is that this has gone on too long, and these delays have no doubt held back the progress of VoIP for Canadian consumers.

There are a variety of reasons as to why VoIP in Canada lags the US, and this is certainly one of them. This scenario may seem odd to Americans - and most other countries for that matter - as the trend just about everywhere has been to not regulate, and just use a "light touch" as the FCC would say.

I don't pretend to have all the answers, and no one knows for sure how the rulings will go. Over the past few days, I've been talking to others about it - analysts, carriers, vendors - and am seeing a fairly consistent picture. Unfortunately, it's not one that Michael Powell would have drawn.

My sense is that the status quo will prevail from the CRTC, and that's the story I'm hearing from others as well. Essentially, this means that the Canadian ILECs will be held to a different set of rules and regs than everyone else, which ultimately makes it impossible for them to be competitive in offering VoIP to consumers.

So while everyone else can offer unregulated VoIP - cablecos, virtual operators, ISPs - the incumbents will have to offer VoIP on the same basis they offer POTS to consumers. This means they have to file tariffs in advance to make pricing changes, they have to provide carrier grade QoS, they have to provide 911, and they would be regulated on winback promotions to re-capture subscribers recently lost to competitors.

Because the ILECs are so dominant in Canada, regulatory policy here is largely driven by the need to support competition and choice for the consumer. Like the US, Canada has a handful of big ILECs, with Bell, Telus and Aliant accounting for most of the market. Competition has existed here for some time, but the impact has been negligible as the incumbents still control something like 98% of access lines. In that context, it's understandable why the CRTC wants to support competition.

The incumbents would argue that their market power in POTS does not necessarily translate to VoIP, and it's unfair to give everyone else an advantage - especially when most of them are large cablecos, ISPs or carriers, namely Rogers, Shaw, Videotron, AOL Canada and Call Net (Sprint Canada). And among the pure play virtual operators, Vonage and Primus are the leading players, and are not fledgling startups. All of these operators can market VoIP any way they choose, and they all have the capability to take a piece of the incumbent's market.

If the regulations stand, it would appear that the cablecos stand to gain the most, and the incumbents stand to lose the most. Rogers will probably emerge as the strongest competitor, simply because they play in the largest, richest market, and they're the only cableco I know who can truly offer the Quad Play. In fact, Rogers is the largest wireless operator in Canada. I don't think any US MSO can compete as well as Rogers in this regard. Of course, execution is another story, and it remains to be seen who has the best game plan and value proposition.

So, what's a Bell or a Telus to do in this scenario? On paper, they could just go out of region and offer unregulated VoIP in each other's markets. That's not likely to happen, and it would never be economical. More likely, they will focus on the brand and reinforce that consumers know what they're getting with them. And of course, they'll tinker with the bundles, and try make LD as inexpensive as possible to offset VoIP's natural price advantage. But will they offer VoIP as a POTS replacement? The economics wouldn't be there, but maybe they could offer it as a cheap second line that's really feature rich, with cool applications that are ahead of what everyone else has. Of course, we don't know what those cool apps will be, but if anyone has the resources to find out, it's the incumbents. Maybe they should also see what advice Michael Powell might have for them - I think they're going to need it.

Stay tuned.

1 comment:

ipcom said...

Posted by: Aswath

Alternatively, the incumbents can offer the "rich features" to POTS along the lines of Verizon's iobi service.