Telecom price war could bring unseen expenses

While observers agree that the telecommunications industry is on the rocks today, they diverge widely in their opinions of the future.

Network World Canada canvassed for crystal-ball insight: just where is Canadian telecom going? Will we witness further carrier carnage? Have we halted the pendulum swinging between fervent competition and monopoly? And just how is the enterprise to prepare for what may come?

The answers depend on whom you ask.

Warren Chaisatien, an analyst with IDC Canada Ltd., posits a future that looks good at first but ends in nastiness. He said certain service providers once left for dead would rise again, fuelling the capacity glut and giving rise to a price war.

On the surface, this is good news for enterprises. “In the short term, they will benefit,” Chaisatien said. “In the long term, though…it tends to inhibit new services.”

Innovation would suffer as a result of this skirmish, Chaisatien warned. For example, Bell Canada would reduce spending on new technology and network upgrades in favour of winning the price war with, say, 360Networks, the Vancouver-based service provider that recently announced resurrection plans.

In Chaisatien’s scenario, while incumbents like Bell pour money into the battle, innovation languishes. As 360Networks and competitors like Group Telecom Inc. (GT) claw their way back from the brink, other players already weakened by the capacity glut grow even weaker as they lower rates to compete.

The result: another round of shakeout and consolidation.

“I don’t know if we will ever see sustained competition,” Chaisatien said. “We’re swinging back and forth between competition and a virtual monopoly.”

What’s an enterprise to do in the face of such gloom?

“They have to take a serious look and make decisions to ensure all of their essential telecom services remain available,” Chaisatien said. That’s not to say companies should cut ties with new carriers and retreat to the incumbents, he said, but they should source the most sound infrastructure available, be it service from an incumbent or a newcomer with a solid track record.

As well, companies should think in terms of “infrastructure for the time being,” Chaisatien said. Prepare to move to new service platforms by testing the latest offerings, such as voice over IP and MPLS. At the same time, don’t hold your breath waiting for the next big thing. Thanks to the ensuing price war-cum-innovation chill, “service providers will have difficulty rolling [new services] out…. It may not come as fast as some people wish.”

Brownlee Thomas, a Montreal-based analyst with Giga Information Group Inc., agreed that now is the time for companies to test new services – although she offered a more positive opinion of the future.

As far as Thomas is concerned, “people are getting realistic” about the industry’s prospects. Carriers are learning to listen to the enterprise’s wishes before charging into new services, she said, so if service providers are pulling back on innovation, it’s because the enterprise told them to do so.

Which isn’t to say innovation will stall completely. It behoves the telco to keep abreast of clients’ needs regarding new technology, because “the more services [a carrier] can offer you, the less likely you are to walk away,” Thomas said.

Unlike Chaisatien, Thomas does not foresee a price war. “[Companies] can’t assume there’s going to be much more competition and prices are going to go down,” she said, adding, if it’s savings you’re after, the enterprise should scrutinize existing service level agreements and make sure carriers are living up to expectations. It’s more proactive than simply waiting for the telcos’ battle cry.

Joe Polard, general manager and vice-president of Accounts Recovery Corp. (ARC), a telecom-savvy collection agency headquartered in Victoria, said low prices are more important than new innovations. If the telcos halt their march of progress, it bodes well for companies like the one he works for.

“I think in the short term, you want the lowest price possible….I shouldn’t have to fund Telus and Bell so they can invest in R&D and come out with a product I may or may not want.”

In Polard’s view, the industry’s future involves a balance of solid-state service on the part of incumbents and innovation on the part of newcomers. This happy medium would yield both reasonable prices and reliable connections for the enterprise, he said.

Opinions about the industry’s future vary. Robert Olenick, regulatory analyst with Thunder Bay Telephone in Thunder Bay, Ont., said independent telcos like his have a roll to play in the offing, particularly serving outlying areas.

“It’s not a question of holding on,” he said. “I just don’t think it’s cost-effective for the big guys to come into these areas.”

Leslie Chase, a senior vice-president at Primus Telecommunications Canada Inc., a service provider in Toronto, said the ground has quit quaking for Canadian telecom. “I think we’re right where we should be,” she said, referring to the number of carriers and their roles serving customers.

But Chaisatien maintains that the industry is shaking and that the tremors will get worse. As competitors return to the fight and enforce the capacity glut, telcos turn from innovation to territorial defence. The price war siphons funds from new services, yields a dearth of new technology and ultimately a stale industry. Despite the potential for better rates in the near term, “in the long term, we’re not sure…the enterprise would benefit,” he said.