Canada Sizes Up VOIP Regulation

Like their U.S. counterparts, startup Canadian VOIP providers expect a light regulatory touch. But they want the communications commission to keep tight reins on incumbents launching VOIP.

The Canadian Radio-television and Telecommunications Commission on Tuesday begins a three-day hearing on the regulation of VOIP (voice over IP) services, finding itself at a crossroads familiar to the parallel organizations of the U.S. Federal Communications Commission and the European Commission.

A total of 33 parties, including major, incumbent Canadian telcos Bell Canada Enterprises Inc. and Telus Corp., will present their positions, hoping to sway the CRTC from a preliminary opinion.

CRTC chairman Charles Dalfen said in an April public notice that VOIP should be treated like any other local phone service, meaning that those incumbents in a position to bundle VOIP with broadband would have to file tariffs and wait for CRTC approval. New entrants, however, would be free of such regulation.

Applying current regulation to VOIP services would act as a brake on the incumbent telcos, VOIP challengers say. If left unregulated, incumbents could kill off the VOIP threat by aggressively bundling an artificially low-priced phone service with broadband Internet access and wireless service.

This fear has been most clearly articulated by Ken Engelhart, regulatory vice president of Canadian cable company Rogers Communications Inc. Another company, Primus Telecommunications Canada Inc., and more than a dozen others are among the challengers, and Rogers will join them if the regulatory climate proves favorable, the company says.

Bell Canada and Telus have the same reasons to be concerned as U.S. incumbent local exchange carriers. Ron Gruia, an analyst at Frost & Sullivan, said it was precisely to counter the VOIP threat that Bell Canada came up with a consumer offer of 1,000 monthly North American minutes for $5.

/zimages/1/28571.gifRead more here about VOIP regulation in the United States.

But Gruia said he doesnt think the CRTC should or would tolerate an ILEC (Incumbent Local Exchange Carrier) underpricing strategy, and that the commission would make it clear to Bell and Telus that subsequent rate hikes would not win approval. He sees the commissions role as promoting competition between market entrants and incumbents entering VOIP.

In his opinion, this would require extending equal freedom from VOIP regulation in exchange for unfettered access to their network for competing VOIP players.

"They [the CTRC] should say look, well keep this open now, but well be watching you carefully. If we see that you do anything harmful to competition like lower price, well see to it that you keep that price low for a long, long time."

"Ideally, what you want to create is the perfectly competitive market," he said. "But at a minimum, the CRTC has to make sure that the duopolistic marketplace between MSO [multiple service operator] and ILEC survives. The MSOs are a little behind their counterparts in the U.S., but eventually each has to compete, bundle for bundle.

The MSOs have the advantage of video, but theyre missing the wireless service component. The ILECs have wireless, but theyre satellite video service–Bell Express Vu–is not the technology of choice going into the future."

Another wrinkle to the puzzle concerns U.S.-based VOIP providers operating on the bring-your-own broadband model, such as Vonage Holdings Corp. and 8x8 Inc. These would be outside the reach of Canadian regulation.

Canadas Rogers Communications already has announced its intentions to introduce a VOIP service by mid-2005, but CEO Ted Rogers said the plans are contingent on keeping regulatory reins on Bell Canadas bundling power.

According to Seaboard Group Research in Toronto, 15,000 Canadians subscribe to VOIP plans. Telus, the No. 2 Canadian telco, launched its VOIP service last October.

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