High-cost T-1s create e-commerce disadvantage

Doing business on the Internet may come at too high a price for most Canadian merchants, according to one ISP.

Chris Scatliff, president and CEO of Toronto-based UUNET Canada Inc., said by 2002 business-to-consumer global e-commerce revenue is projected to reach US$50 billion. However, a 1997 survey showed less than 10 per cent of money spent on-line by Canadians went to businesses based here. One potential cause of this is the high price tags attached to T-1 lines.

“If all these wired Canadians start buying on the Internet, and you don’t have a proper amount of Canadian businesses on-line — you can see what happens.”

Scatliff said that although Canadians comprise about 10 per cent of on-line presence, a recent survey of 255 Web sites with e-commerce capacity showed that only one per cent of these were Canadian.

He said Canada has some of the best dial-up rates in the world, but local loop prices for on-line merchants is another story.

“It’s two to five times more expensive for Canadian merchants to do business on-line compared to the U.S.,” he said. “We can build the biggest backbone in the world, but if you can’t go that extra mile, you can’t get there. It’s like looking across a canyon at a green pasture.”

According to Scatliff, running a T-1 line with a switch at both the ISP and at the merchant sites, which constitutes compression on an unloaded copper loop, costs the merchant about $2,000 per month. Bell Canada will allow the merchant to have its own switch but will not allow the ISP to collaborate, forcing them to pay rates to Bell for use of its equipment instead. In the United States, it only costs $200 to $500 for the same type of local loop, Scatliff said.

“Is this a strategy by mean old Bell to bury all ISPs? Probably not, it’s just Bell being Bell,” Scatliff said.

UUNET is one of many companies currently appealing to the CRTC to regulate the charges enforced by Bell and other telcos in Canada.

“It’s the general perception that Canadians will lag two to three years behind the U.S. in this area. But this is a dangerous way of thinking when you consider the Internet itself has only been around for four or five years altogether. People form habits that are hard to break, they build favourite lists,” Scatliff said.

Gaylen Duncan, president and CEO of the Information Technology Association of Canada (ITAC) in Mississauga, Ont., said before e-commerce reaches its full potential in Canada, two things have to occur.

“First, there has to be an increase in competition at the local loop so that the market forces itself to begin driving down the price.”

The second issue is telephone providers need to address rate rebalancing, he said.

“The rates are going to move — they will go up for some and down for others. And there’s no doubt one of the rates that’s going to have to go down is business use of T-1. Also, Bell is no longer a monopoly — there are competing phone companies that are just now entering the market.”

But Bill St. Arnaud, senior director of network projects for CANARIE Inc. in Ottawa, said bandwidth on the merchant side is not the only problem.

“There’s no question that T-1 prices are very expensive in Canada — because T-1 is a regulated service in Canada,” St. Arnaud said. “You can have businesses at high speed, but if you don’t have consumers at high speed, than you are missing half the equation.

At any rate, competing with U.S. companies on-line is a “daunting challenge. I think we have to find specialities and niche areas that don’t compete head-on,” he said.

Terry Stuart, senior manager with the e-commerce group at Deloitte Consulting in Toronto, agrees.

“The fundamental challenge is going to be the value proposition. So Canadian companies getting into the game now are going to have to think significantly about how they differentiate themselves.”

Canadian companies have been a little more cautious than their American counterparts, first making sure there was a strong market to sell to. But now they are starting to see the success of many U.S. companies, he said..

Michelle D’ouray, executive director of the Task Force on Electronic Commerce for Industry Canada in Ottawa, said 1999 is the year “you will see a significant increase within the Canadian market place of Internet-based services.”

Up until now, the government office has been concentrating primarily on security and eliminating legal barriers, but is now starting to place more focus on encouraging market development for on-line businesses and consumers, she said.

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