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A Eureka Moment At The CRTC

September 27, 2004

By Tyler Hamilton

There's no better cure for insomnia than slapping on computer headphones and listening to a CRTC hearing via Webcast.

The jargon is mind-numbing and a new layer of glaze coats the eyes with each acronym spoken — SIP, PSTN, NANP, ILEC, CLEC, to name just a few.

Last week's hearing on VoIP, which stands for Voice over Internet Protocol, was no exception. The country's telecom watchdog is trying to figure out whether it should regulate Voip "Internet phone" services, and if so, what's the best way to go about it.

"VoIP! VoIP!" As one industry colleague recently said, "Isn't that the noise made by the wee spitting dinosaurs who ate Newman in Jurassic Park?" I think he's confusing the T-Rex for the smaller, but no less lethal velociraptors.

Despite the jargon and acronyms, this was an important hearing. Voip services might only be a consumer curiosity today, but the underlying technology will likely touch every phone call we make by the next decade.

As an Internet-based technology, Voip changes the game. Geographic boundaries no longer matter. Area codes become nomadic. There's nothing "long" about long distance, and "local" becomes harder to define. Telephones are just another Web appliance plugged into any high-speed Internet connection, no different than your computer or laptop.

More than that, you don't need to spend hundreds of millions of dollars building your own national telephone network. A few good software programmers, some key wholesale partnerships and a few million dollars are the only building blocks to creating a next-generation phone company.

"What it's going to do is start to weaken the foundations of the way we've done things for 100 years," Michael Powell, chairman of the U.S. Federal Communications Commission, said earlier this year.

Based on that prediction, our own Canadian Radio-television and Telecommunications Commission is under pressure to get it right.

Voip technology essentially breaks down our voices into packets of data, allowing them to be sent through the Internet or a private network much the same way we send e-mail messages or request Web pages.

There are many different ways of using Voip technology. But the flavour of Voip getting the most attention is often referred to in the consumer realm as broadband telephone service.

Vonage and Primus Canada are among eight or so companies today already offering broadband telephone service to Canadian consumers who, using their regular phone, can place calls through their high-speed Internet connections.
Voip service, largely software-driven, is much more feature-rich and cheaper than traditional local service. You can manage your calls through a Web-based account and even listen to voicemail as e-mail attachments.

If you're going to school in Toronto but typically only call family and friends in Vancouver, you can get a 604 area code so all calls are treated as local calls — i.e. no long-distance charges.

You can also take your phone service with you when you travel. Simply plug your phone adapter into your hotel room's high-speed connection in Munich or Seoul, and you're placing calls virtually from Toronto.

Most broadband phone services include advanced features such as caller I.D., call waiting, voicemail and call forwarding, whereas Bell charges several dollars each month for often inferior versions.

The technology is so compelling that cable companies such as Rogers and phone giants such as Bell — motivated both by survival and opportunity — have plans to introduce their own broadband telephone services next year.

Considering all of this, should the regulator set rules on how Voip is priced and sold? Can it? If so, should those rules apply to some and not others?

The CRTC said in April it is inclined to treat Voip phone services like any other local phone service. This means established phone companies such as Bell and Telus wouldn't be allowed to bundle Voip services with other products and must get approval for all price changes.

Competitors — new entrants such as Vonage, and eventually cable companies such as Rogers — would face virtually no restrictions under this scenario. The idea here is that without holding back the big phone companies, new entrants would be stomped on before getting off the ground.

But, as Powell of the FCC pointed out, if the technology is poised to "weaken" the existing foundation, aren't the established phone companies already up against the wall? The T-Rex might be big, but the king of dinosaurs isn't so tough when facing a gang of hungry and nimble velociraptors.

The commission's final decision, expected early next year, will be controversial no matter what position it takes. Listening to the hearing last week, most wanted to have the rules extended, twisted or eliminated to serve their own profit motive.

Of 33 presentations to the CRTC, there were five basic views expressed:
1) The cable companies are trying to group themselves along with other small start-ups. They say the dominant telephone companies, in addition to being marketing powerhouses with a huge customer base to leverage, can unfairly bundle Voip with other products and undercut the competition through cross-subsidization.

Without regulating the telcos, everybody else will be crushed, they say.

"Make no mistake about it, your framework is under attack," Quebecor Inc., owner of Montreal-based cable company Videotron, warned the commission. Bell's "real objective is to secure the pricing and bundling powers necessary to kill competition."

Bell, Telus and their ilk should not be allowed to bundle and should be forced to get approval from the CRTC before changing prices for Voip offers, the disadvantaged cable alliance argues. This, of course, ignores the fact that the cable companies are themselves big billion-dollar companies with huge marketing budgets, a broad customer reach, and an ability to bundle multiple product offerings.

It's hard to be sympathetic with the cable guys on this one.
2) Most of the established phone giants — no surprise — say Voip shouldn't be treated as traditional local service because the barriers to entering the market are low and there are already a number of competitors. Sure we're big, they say, but forcing the telcos to file for price changes and preventing them from bundling isn't necessary in the case of VoIP.

"This is not telecom as usual," said Lawson Hunter, executive vice-president of regulatory affairs at BCE Inc., parent of Bell.

They also argue that putting shackles on the telcos, while forcing them to let competing services piggyback on their own high-speed lines, doesn't give them a way to protect their investment or motivate them to keep investing in infrastructure and innovation.

3) There were some Voip startups, such as U.S.-based Vonage and Jeff Pulver's Free World Dialup, who argued that the CRTC should leave everybody and the marketplace alone — even the phone giants. Besides, the borderless nature of the Internet and Voip services will make it difficult to enforce the rules, they said.

So long as Bell, Rogers and other gatekeepers of high-speed onramps don't try to block or disrupt Vonage-type services, new rules shouldn't be placed on anybody and the customer should be left to choose in an open, free market.
4) But not all Voip startups supported the hands-off approach. Local firm Comwave Telecom Inc. agreed with the CRTC's preliminary view that Voip should be regulated like traditional local service and the phone giants should be regulated so new competitors have a chance to flourish and become established.

The flaw with this argument is that it assumes Voip providers are spending hundreds of millions of dollars on their own network facilities, which they're not. Current regulation of traditional local service has been aimed at giving a break to those new competitors, such as Sprint Canada, that are saddled with huge investments in networks. Absent of that burden, why do newcomers deserve the same break?

5) The final view that stood out was the one taken by Telus Corp., Canada's second-largest phone company and the incumbent in Alberta and British Columbia.

Telus stressed that a distinction should be made between a Voip service that is sold by a telco as part of their high-speed Internet service, versus what it calls an "access-independent" Voip service, which is essentially a software application that can ride over any high-speed connection from any service provider from Canada or around the world.
Telus, by offering an access-independent Voip service, argued that it would be on "equal footing" with Vonage or Primus.

"We tried to make a very simple, very clear point — in that space we don't have market power," Janet Yale, executive vice-president of regulatory affairs at Telus, told the Star.

She seemed to catch the attention of the commissioners on the hearing panel. After Telus made its presentation, many of the questions asked of other companies were directed at this concept of access-independent VoIP.
"When you're reasonable, people tend to listen to you," said one CRTC insider.

Personally, I don't see any harm in letting the phone giants sell Voip applications in an unrestricted way as long as they're not tightly bound to their own high-speed Internet services, and as long they don't try to block competing Voip applications from operating over their high-speed lines.

As a software application that's not closely tied to access, one Voip service might have a more appealing design than another. I may buy high-speed service from Bell but hate the Web interface or the features or sound quality of its Voip application.

On the other hand, Vonage — or some other company yet to enter the market — might better suit my tastes and needs. I have a choice to go there as long as Bell is not allowed to penalize me for leaving.

When I view Voip from an access-independent perspective, the cable companies may even have a greater advantage than the phone companies. Rogers isn't in the phone business and doesn't have a local service to cannibalize, so any revenue gained from a Voip service represents a gain and heavy discounting is easier to swallow.

Bell and Telus, on the other hand, see Voip as a direct threat to their existing local services, which take in well over $20 each month from a huge base of Canadian households. Neither company wants to sell a Voip for much less than that $20 range for fear of eating into existing revenues.

The state has no business in the packets of the nation, a Net-savvy Trudeau might say. I think the CRTC needs to seriously consider what Telus is saying, and not unfairly tie down the big bad phone company without determining what's so bad about someone big selling a service that anyone — large or small — can offer with relatively little investment and risk.

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