Regulating VoIP

On May 12, the CRTC decided that Voice over Internet Protocol (VoIP) would be regulated like local public switched telephone network (PSTN) calls. The incumbent telecom companies — most of them — howled like wounded dogs. The competitive local exchange carriers (CLECs) — most of them — popped champagne corks. The cable companies — all of them — sat quietly in the corner looking like the fat cats that drank the cream. Canadian businesses acted as if the CRTC had become the Grinch who stole Christmas.

To “foster competition,” the Canadian Radio-television and Telecommunications Commission (CRTC) decided on “limited regulation” for VoIP telephone services. The CRTC determined that it would regulate VoIP service only when it is used as a local telephone service, not long distance, and decided that incumbent local exchange carriers (ILECs) could not price VoIP services below cost when offering the service in their local markets.

The CRTC rejected arguments by Bell and Telus that VoIP-based local telephone services should be excluded from regulation. With two Commissioners dissenting, the CRTC ruled that VoIP comes under the same regulatory framework as circuit-switched services so ILECs must file tariffs for in-territory local VoIP services, at rates that at least cover costs, and must comply with existing rules on bundling and win-back promotions. Competitors to Bell and Telus had feared that if VoIP were unregulated, Bell and Telus would charge rock-bottom prices in order to discourage competitors from entering the market.

Enterprise impact

Bell and Telus already have tariffed the IP-Centrex services that they provide to enterprise customers. If the Commission had decided against regulating local VoIP, their current IP-Centrex tariffs would no longer apply. The ILECs would be free “to provide any VoIP services to enterprise customers, negotiate any prices and bundle it any way they want,” said Lis Angus, a principal with Angus TeleManagement Group, Inc. in Kemptville, Ontario. “So the ILECs are more constrained than they wanted to be, in offering in-territory local VoIP to both consumer and enterprise customers.”

Having said that, Angus notes that two factors should be kept in mind:

• Long distance VoIP is not regulated (it is forborne) unless it is part of a “tariffable bundle” (such as a bundle that includes an in-territory local service)

• The CRTC now responds to most tariff filings in 10 days, so the inherent delays of the tariffing process should be less than before.

However, she acknowledges that the ILECs’ concerns with tariffing are only partly due to delays, as they also would like to price VoIP below cost if they want to deal with competitive situations.

The ILECs — Bell, Telus, Aliant and SaskTel — wanted no restrictions on VoIP pricing.

This is “an historic mistake,” said Lawson Hunter, executive vice-president of BCE Inc.

Janet Yale, Telus executive vice-president of corporate affairs, said the CRTC “chose to look backward and to impose restrictions from the past that are no longer relevant.”

However, MTS Allstream Inc., the incumbent telco in Manitoba, was pleased with the CRTC’s ruling as MTS is now allowed to offer VoIP in all provinces but Manitoba with no pricing restrictions.

“The CRTC is to be commended for recognizing that dominant providers like Bell Canada have an incentive to pre-empt competition with targeted, unregulated pricing designed to stamp out their smaller rivals,” said Chris Peirce, MTS executive vice-president, government and regulatory affairs. “With this decision, the CRTC removes an important barrier to competitive entry in the near-monopoly local market”

CLECs such as Primus and Vonage, which offer VoIP to consumers and small businesses, said the ruling prevents ILECs from introducing cutthroat VoIP pricing in territories where they dominate the local market. However, Montreal-based CLEC, BabyTel, said the CRTC should have also regulated VoIP services offered by the cable companies as there is nothing preventing them from offering cut-throat VoIP pricing to convert their broadband Internet customers to VoIP.

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Sounding like the little telco folks, the cable industry said the CRTC’s decision would prevent the large telcos from crushing new entrants in the VoIP local telecom market. However, the day before the CRTC handed down its ruling, Rogers Communications Inc. demonstrated it was anything but a small fry as it announced plans to buy Call-Net Enterprises Inc., parent company of Sprint Canada, for about $330-million. This move, industry analysts said, would allow Canada’s largest wireless and cable TV company to quickly enter the local phone market — without pricing restrictions.

Businesses not thrilled

So, what do businesses think about a decision that was made to foster competition, which should, ostensibly, lead to greater choice and more competitive pricing and service offerings?

The Coalition for Competitive Telecommunications expressed deep disappointment the CRTC decided to regulate VoIP communications technology. The Coalition, established in late 2003, is comprised of 10 industry associations, represents over 12,000 Canadian companies and Qu

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