Despite Public Opinion, Canadian VoIP Regulation Likely to Stay

Should the price of VoIP services be federally regulated or not? That’s a question that Canadians are currently grappling with. The CRTC (Canada’s version of the FCC) has already fired the first volley, but Canada’s major telcos, backed by a public opinion poll, are fighting back. According to at least one analyst however, the telcos’ riposte is unlikely to get the regulation repealed outright.

The ruling
On May 12, the CRTC issued a ruling that places regulations on the country’s major telcos. The CRTC ruled that the telcos would not be allowed to set their own VoIP services pricing. The rationale behind the ruling was to create a level playing field for all VoIP services by preventing the telcos from pricing new players out the market. VoIP services offered by non-telcos, such as Vonage’s Canadian offering, will not have their prices regulated under the CRTC ruling.

Canada’s major telcos which include Bell Canada, Telus, Aliant, and SaskTel opposed the decision, arguing that other internet applications are unregulated and VoIP services should be no different. At the end of July, the telcos held a joint press conference asking the CRTC to rescind the regulations, which they view as creating an un-level playing field that is bad for Canadian consumers.

Public opinion
In support of their contention, the telcos sponsored a new survey by pollster Ipsos-Reid about Canadians opinion on the issue. The survey which polled 1,200 adult Canadians by telephone between July 15th and July 17th, 2005 found that 94 percent of respondents believe that all VoIP service providers should be subject to the same regulatory rules.

Canadians were also apparently receptive to the telcos potentially offering cheaper VoIP services than their competitors. 75 percent said that they believe the telcos should be allowed to offer lower prices than their competitors without being blocked by the CRTC. Bundling communications services together—including VoIP—without the need for CRTC approval was also something that respondents (68 percent of them) agreed with.

If the traditional telcos do in fact offer better VoIP prices and services Canadians may very well be likely to switch to them . A strong majority (75 percent) of Ipsos-Reid’s poll respondents indicated that they would have no hesitation in switching providers if the price or service was not competitive with other market offers.

What’s at stake?
“What is at stake is nothing less than the future of the telephony market in Canada,” Info-Tech Research Analyst Carmi Levy told “If the incumbents succeed in blocking the CRTC and having these restrictions lifted, I see a higher attrition rate for some of the newer, smaller players. They simply won’t have the depth of resources to compete against established vendors that can afford to sell VoIP service at a loss by redirecting profits from other sectors of their operations.”

Vonage however would not likely suffer the same fate according to Levy as it is already well established in markets outside of Canada. If the CRTC decision were to be reversed (allowing the Telcos to set their own unregulated prices for VoIP services) the worst that would happen to Vonage is likely that their growth in Canada could be slowed.

Levy however is quick to note the CRTC has made it clear that its ruling is strictly temporary and that it has no interest in maintaining a long-term regulatory presence in the VoIP services market.

“In a way, it’s a bit of a temporary injustice that’s designed to correct for decades of similar injustices against potential newcomers,” Levy said. “Is it completely fair to the incumbents? No. But it will equalize the market over time and leave more competitors standing than would have otherwise been the case.”

Regulations likely to stay
The impact of the public opinion poll and the telcos arguments against regulations are still not definitely known. A decision on the appeal is expected before the end of the year.

Info-Tech’s Levy does not believe the CRTC decision will be reversed outright. “Government agencies aren’t too keen on being proven wrong by industry—especially members who have long enjoyed near-monopoly status,” Levy said. “If anything comes of the incumbent telcos’ action, it will be a shortening of the period of regulation.”

According to Levy, removing the regulations outright would result in a continuation of Canadian market history with relatively few companies following their own agenda in making a limited range of services available to a captive market. “No one wants that, or the artificially elevated pricing structures that result,” Levy explained. “If innovation is to take root in the Canadian telephony market, the incumbent telcos will have to live with the inconvenience for a little while—at least until the competitive landscape is somewhat more evolved and defined.”

“Survey results notwithstanding, that will represent an optimal outcome for Canadian consumers and businesses.”

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