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Ma Bell Remodels For Internet

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Ma Bell Remodels For Internet
Telephone Company To Drop Old Technology

December 18, 2003

By Tyler Hamilton

An aging Ma Bell is getting a 21st century makeover.
BCE Inc., Canada's largest telecom company, announced an ambitious plan yesterday to convert all of its network traffic to an Internet-based infrastructure within three years.

The Montreal-based company said 90 per cent of its customers will be able to access a number of Internet protocol services that treat phone calls and video as "packets" of data, similar to the way we send e-mail and access Web sites through the Internet.

By moving a number of different voice, video and data networks on to a single IP infrastructure, the company said, it will lower capital costs by as much as 25 per cent, simplify the way it deals with customers and be able to offer new multimedia services - including TV and video messaging - that older circuit-switched technologies can't deliver.

"We're embarking here on the remaking, the repositioning, of one of Canada's great companies," said BCE chief executive Michael Sabia, speaking to reporters after the company's annual business review conference in Toronto.

"There aren't that many telecoms in the world undertaking those kinds of commitments in the time frame we are."
Sabia said the company will gradually stop selling certain products and retire older networks, such as Frame Relay, that are showing no growth.

As the plan unfolds, it will prompt "modest" job cuts in 2004 and a reshuffling of about 1,000 staff.

BCE also announced it would spend $650 million in cash to take full control of western-based venture Bell West. Manitoba Telecom Services Inc. will sell BCE its 40 per cent stake in Bell West, a company with $500 million a year in revenue that competes directly against Telus Corp. in the West.

But the focus was on Bell's transformation. Calling the plan a "new chapter" in Bell's 120-year history, Sabia said the changes will touch every aspect of the company and will set a standard by which other carriers will measure themselves.

"Our objective is not to be in the pack - it's to lead the pack," he said. "Every corner of this company is now engaged in what is a very substantial process of change."
Eamon Hoey, a Toronto-based telecom consultant, said BCE will have a difficult time making the transition in less than five years, let alone three.

"I think his major challenge is getting his people on board," said Hoey. "You better have the troops following you, and I think there's a certain amount of uncertainty surrounding that."

BCE's announcement comes as phone carriers across North America face increased competition from cable companies and upstart service providers using IP technology to gain a foothold on phone-company turf.

Telus began its transition to Internet protocol this year. South of the border, AT&T, BellSouth, SBC and Verizon all have plans to offer voice over Internet protocol, or VoIP, telephone service.

Cable companies also have joined the IP race, including Time Warner Cable and Cablevision Systems. Comcast and Cox Communications are conducting residential IP telephone trials, which are being closely watched by Toronto-based Rogers Cable Inc.

Meanwhile, IP telephone newcomers such as Vonage Holdings Group could announce their entry into Canada as early as this week.

Sabia said BCE's plan is to offer the most reliable residential Internet telephone service in the market, not the first. He said the service will be tested rigorously in technical and market trials early next year and a product is expected to be ready in 2005, when Rogers is likely to become a serious threat. The company has asked the telephone regulator to clarify the rules for offering Voip services in Canada.

Among other announcements:

Bell Mobility will launch a push-to-talk "walkie talkie" service before the summer to compete against Telus's Mike service. President Michael Neuman predicted the service will capture 50 per cent of "net activations" within two years.

Services will be introduced next year that let mobile phone customers roam between cellular and Wi-Fi public "hotspots."

Bell will begin an IP television trial with Microsoft Corp. in 2004. It will launch video on demand and more high-definition TV channels through ExpressVu. It will begin supplying a TV service to 300 apartment buildings next year using "very high-speed DSL" technology.

One analyst attending the conference, who asked not to be named, said BCE's IP strategy is a "must do" move that doesn't equate to a long-term growth strategy and will lead to higher capital expenses next year.

"Sabia is setting up the right defences, but they're not offences," he said, adding that BCE will merely be replacing older circuit-switched products with newer IP-based services. "I don't see where the additional revenues are coming from. They're going to cannibalize themselves."

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