CRTC Reins in Major Carriers on VoIP

Worth A Look, Regulation, Frontier Centre

Canada’s telecommunications regulator ruled Thursday that the country’s dominant phone companies will not be able to set their own prices for on-line telephone services, part of its effort to create more competition and lower prices in the budding market.

The Canadian Radio-television and Telecommunications Commission rejected the arguments of the country’s largest telephone companies — Bell Canada and Telus Corp. — who had argued that voice over Internet protocol (VoIP) should be left unregulated like other Internet applications.

Instead, the commission decided that it would regulate the large phone companies’ prices in the VoIP market, preventing them from cutting rates to keep out rivals — at least until there is legitimate competition in local phone services. The large phone companies’ challengers, however, such as upstarts and cable companies, will not have their VoIP prices regulated, as The Globe and Mail reported last week.

CRTC chairman Charles Dalfen said the market could reach an acceptable level of competition within the next two years. “This is precisely the moment when Canada needs a regulatory framework that will provide the quickest road to competition,” Mr. Dalfen said.

Bell and Telus reacted harshly to the ruling, and they plan to appeal the decision to the federal cabinet and may launch legal challenges.

Lawson Hunter, executive vice-president of regulatory affairs for BCE Inc., which owns Bell Canada, called the decision “a historic mistake for Canada and for our consumers.” He also said the commission was “retarding investment and choice,” and said the CRTC “doesn’t understand where technology is heading.”

Janet Yale, executive vice-president of government and regulatory affairs at Telus, called the ruling a “missed opportunity,” and added that Internet applications should not be regulated.
The country’s largest cable companies had told the CRTC last fall during VoIP hearings that prices had to be regulated, or the big phone companies would temporarily lower prices in the budding market in a bid to thwart competitors.

Peter Bissonnette of Shaw Communications Inc. said the decision will allow his company’s recently announced telephone service to prosper.

He added that it would have been “very, very, very difficult” for Shaw and “virtually impossible” for smaller firms to enter the sector if the CRTC had not imposed price regulations on the incumbents. “They clearly would be pricing in a Machiavellian way to make it economically unviable for us to get into that business.”

VoIP is a technology that allows for telephone services over the Internet and the ruling is expected to be a key in determining which industry — and which companies — gain the early edge. It is estimated that about 25,000 Canadians use VoIP services, although some analysts expect that number to increase dramatically in the coming years.

Analysts also say the battle over VoIP is part of a larger conflict between two converging sectors: cable and telephone. Technological change is creating a collision between the two industries, allowing them to roll out similar products using different methods.

Mr. Dalfen said the ruling is part of a broader attempt to make the local phone market more competitive. Seven years after the market was technically opened for competition, the large incumbents still control 97 per cent of the market.

The decision opens the VoIP market — and therefore the core of the large phone companies’ businesses — to smaller players such as Primus Telecommunications Canada Inc. and Vonage Holdings Corp. and to cable companies such as Shaw, Rogers Communications Inc. and Vidéotron Ltée.

Bill Rainey from Vonage said the ruling will be good for consumers. “The customer now has real, real choice because the decision ultimately has supported real pro-competition,” he said. “This decision is kind of like a dawn of real competition for local services. It opens up that door.”

The cable industry, which is making massive investments in VoIP products, sees a big opportunity.

Ken Engelhart, vice-president of regulatory affairs for Rogers, said the ruling was in line with what the company expected, given that VoIP services are bought and sold as phone services. “It’s something we were counting on.” Rogers plans to begin offering its VoIP services this summer, part of a wave of cable offerings in the market.

The phone companies are also in the early states of entering the VoIP market. Telus and Bell have both unveiled VoIP products in the corporate market, and Bell also launched VoIP services for consumers in three Quebec markets earlier this year.

The CRTC’s effort to increase competition in local phone services has also included recent announcements to:

  • Respond more quickly to phone companies’ applications for changes to the prices they can charge customers.
  • -Set new rules in about a year that would outline at what point the CRTC won’t regulate the local phone services market.
  • Allow regulated phone companies to offer promotions to customers in local markets.
  • The local phone services market remains the final piece of the telecommunications services market where the CRTC still regulates price.

    Two commissioners, including vice-chair of broadcasting Andrée Wylie, issued dissenting views, saying they thought VoIP should have been treated as an Internet service. Ms. Wylie said the commission should have allowed market forces to rule, instead of issuing “static” restraints on some VoIP providers and not on others.

    Commissioner Andrée Noël said VoIP is “still an Internet service.”

    With files from reporters Catherine McLean and Patrick Brethour