Copyright 2005 Toronto Star Newspapers, Ltd.
The Toronto Star
May 13, 2005 Friday
Traditional telephone services and those based on Internet technology serve the same purpose and should face the same regulation, the federal telecom watchdog said in a controversial ruling that Bell Canada and Telus vowed to appeal.
In a 7-to-2 panel ruling, the Canadian Radio-television and Telecommunications Commission didn't buy the arguments of Bell and other phone giants that so-called Voice-over-Internet Protocol service, or VoIP, is just another Internet application - like e-mail or instant messaging - and should be exempt from regulation. Instead, the CRTC said any residential or business voice product assigned a phone number that at some point connects to the public phone network is a regulated local service, though services that run purely over the Internet, such as Skype, are exempt.
Commission chairman Charles Dalfen, citing the established phone companies' 98-per-cent grip on the residential telephone market, said without price regulation it would be too tempting for carriers such as Bell and Telus to engage in predatory pricing tactics aimed at killing new VoIP services before they take root. The whole goal is to prevent the dominant phone providers, in the words of Dalfen, "from nipping competition in the bud."
"The major risk to that new competition is the power of the incumbents to price VoIP below their cost of providing it. That would make it impossible for new competitors to make the investments they need and to gain a foothold in the market."
The outcome was widely expected, and echoes a preliminary view that the CRTC expressed in April 2004. It means the established phone companies would have to get approval from the regulator when they want to introduce or change the price of a VoIP service, but would be unregulated if they offered such services outside of their incumbent territories.
The Canadian Cable Telecommunications Association, representing cable companies that have started rolling out phone-over-cable services, called it a "balanced" ruling that safeguards consumers against anti-competitive behaviour.
Under the decision, cable companies and independent VoIP providers would face no price regulation, though they do have to work towards offering number portability, directory listings, privacy safeguards, and service for hearing-impaired customers. They also have to offer basic or enhanced 911 service by the first week of July.
Lawson Hunter, executive vice-president of regulatory affairs at Bell parent BCE Inc., said the regulator made a "historic mistake" by restricting the phone companies. It was a view shared by Telus Corp., the country's second-largest phone company, as well as two dissenting CRTC commissioners.
"We intend to appeal this decision to cabinet and intend to look at other avenues of appeal," Hunter said. Other options include an appeal directly to the CRTC or a challenge at the Federal Court of Appeal. "We're at the cusp of tremendous change in technology and this is setting it back. There are 19 countries around the world that have looked at VoIP, and none of them except Singapore - which regulates the price of chewing gum - is regulating prices for VoIP services, yet Canada is."
The decision means Bell will have to file a price tariff for the Bell Digital Voice service it launched in three Quebec cities in March. Bell's unveiling of the service two months before the regulator's decision was viewed as a direct challenge to the CRTC's authority.
Executives from VoIP providers Primus Canada, Comwave and Vonage Canada called it a great day for consumers, a view surprisingly supported by Manitoba Telecom.
"It allows us to grow our company, to keep going in the same direction," said Bill Rainey, president of Vonage, the largest independent VoIP provider in Canada. "It's really the first step of a much bigger step, where we get to a point where you can eliminate regulation altogether."
Dalfen said it's the CRTC's job to deregulate local services - VoIP or traditional - once it sees evidence of sustainable competition. On April 28, the commission announced it would hold a public hearing into the issue, and hopes to set criteria by the end of next March deeming certain geographic markets competitive enough to deregulate.
With VoIP, "Canada has the opportunity to experience real competition in local telephone service," said Dalfen. "That day is not here yet."
One small VoIP provider that didn't like the decision was Montreal-based BabyTel. "Bell and Telus will be partially self-regulated in that they will be restrained in VoIP offerings to avoid cannibalizing legacy telephone business, whereas cable companies have no such constraints and can be predatory in order to take market share," said Stephen Dorsey, president and CEO of BabyTel.
Montreal-based Videotron, which in January launched a phone-over-cable service in Montreal's South Shore, said Wednesday that nearly 15,000 households had signed up, a result experts said was impressive considering the limited geography and the fact Videotron didn't heavily market the service.
On Wednesday, Toronto-based Rogers Communications Inc. announced plans to use $330 million in stock to buy Call-Net Enterprises Inc., parent of local phone provider Sprint Canada. The deal will bolster Rogers' plan to offer phone-over-cable service in July.