In 2002, users will increase outsourcing to 30 per cent of non-strategic network services (e.g., voice administration, managed router services, publishing-oriented Web hosting, telecommuter support) and develop centres of excellence for strategy/architecture, infrastructure planning, and partner management/negotiation (2002-04). Bill auditing will become an essential cost-control measure during 2002/03. Surviving carriers will be forced to de-emphasize traditional commodity services. Virtual services provided “in the cloud” would become a viable option for PBXs, voice mail, identity infrastructure, and security by 2005/06.
The competitive Canadian telecommunications market is beginning to produce benefits for many enterprises, especially for buyers of Internet access and voice services. Because Canadian voice prices are occasionally lower than U.S. rates, large call center operations based in the US are considering relocating to Canada, a trend that will continue through 2003. Although competition is driving usage up as rates decline, the incumbents (Bell Canada, Telus, Manitoba Telephone Services, SaskTel, and Aliant) have actually begun recapturing market share from the new competitors. This trend will continue through 2004, as competitor financing becomes more difficult. Local competition is not everywhere (e.g., local competition in the service areas of Telebec and Telus Quebec began during 2002). In the Yukon, Northwest Territories, and Nunavut and in the service territories of incumbent local exchange carriers servicing Northern Ontario and Quebec, there will be no true competition before 2006.
The vast Canadian geography challenges the domestic ILECs to provide consistent services throughout the provinces and northern territories. Outside major business centers, data options remain more limited, if available at all. Enterprises are advised to choose business locations wisely and make the availability of broadband data service a “must have” when selecting office sites. Canadian mining, agriculture, and forestry market segments will have the most difficulty sourcing communications services. Rural areas remain underserviced, and clients should evaluate satellite services (e.g., Telesat Canada) as an access alternative.
Canadian data services are growing at 30 per cent annually and shifting from private leased line service to frame relay, ATM, and IP-based services. Wideband (64 Kbps – T1) and broadband (greater than T1) services are growing at the expense of narrowband (less than 64 Kbps) services, which are now in decline. Most corporate buyers are staying with frame relay, waiting for the prices of IP/virtual private network (VPN) services to drop.
Broadband uptake across Canada is robust. In a short period, cable and xDSL operators have achieved greater than 40 per cent of the addressable market for broadband Internet access. But new competition is fragmenting the landscape. Cable companies and “new” competitors own 70 per cent of broadband customers. Enterprises with distributed national operations looking to negotiate broadband access for small-office/home-office (SOHO) employees will be disappointed by the inability of incumbent carriers to service more than 35 per cent of their employees.
The ability to deliver data services to less densely populated areas remains a challenge, and hence, Canada as a whole remains classified by META Group in accordance with the META Telecom Maturity Model as B1.
The carrier marketplace
The Canadian market more closely models Europe than the United States. The big ILECs have territorial monopolies similar to the ILECs in the United States, but they differ in that they offer both local and long-distance services, while acting as competitive local exchange carriers (CLECs) in their competitors’ territories – similar to carriers in Europe. Enterprise services outside a carrier’s given home province are much more limited.
Canadian enterprises looking for telecommunications services should stick with Tier 1 carriers – Bell Canada, Telus, MTS, SaskTel, and Aliant. Bell Canada Enterprises (BCE) serves as parent company to Bell Canada, Aliant, Teleglobe, and others, collectively owning the largest portion of the carrier business in Canada, servicing more than 70 per cent of large-enterprise customers in the country.
Tier 2 carriers, including the CLECs, usually provide services at lower prices (10 per cent to 15 per cent or more), but with higher risk to the buyer. Enterprises that wish to negotiate agreements with Tier 2 carriers will generally experience more problems, including installation delays, slow moves/adds/changes, and inconsistent trouble-ticket resolution. We do not recommend Tier 2 carriers because of the greater service delivery and financial risks associated with these companies. Tier 2 carriers include AT&T Canada, which is currently suffering financial distress. It should be avoided through 2H03, when financial issues are expected to be resolved. Other Tier 2 carriers include Call-Net (owner of Sprint Canada), GT Group, and Futureway.
Internet access is completely unregulated by the CRTC; 97 per cent of ILEC lines can connect to the Internet without incurring long-distance charges. Residential Internet penetration is approaching 50 per cent. The ILECs control 32 per cent of the Internet access market, with 19 per cent owned by cable companies and 41 per cent by CLECs. The largest ISPs include Bell Canada’s Sympatico, AOL Canada, and WorldCom Canada.
Why North American call center operators are looking to Canada
To a US-based buyer, Canada is attractive for call centre relocation. Unlike the United States carriers do not have the equivalent of intra-LATA (local access and transport area) intrastate and inter-LATA intrastate long-distance rates. Even rates for calls traveling from Canada to the United States are lower (in U.S. dollars) than those offered by most U.S. carriers. This makes Canada appealing as a haven for call center operations. Both Canadian-based as well as foreign enterprises (especially U.S. enterprises with Canadian operations) are becoming aware of the advantages of moving their call center operations into Canada.
Foreign call centre operations are also attracted by the fact that the Canadian workforce is well trained and bilingual (English/French). Because of its more liberal immigration policy and status as a member of the British Commonwealth, Canada has a diverse population speaking a wide number of languages, especially in larger cities.
Up until 1998, Canadian-based international service was controlled by Teleglobe’s monopoly. Since then, competitors (primarily ILECs) have captured 50 per cent of the market. Teleglobe now provides global communications and Internet services as BCE Teleglobe, with 160 POPs (points of presence) serving more than 110 cities internationally (the company was acquired by Bell Canada in 2000). Bell Canada/Bell Nexxia (BCE) remains Canada’s major business carrier. The combination of Bell Canada and BCE Teleglobe should be considered an alternative for North American and international communications.
Business Impact: Competition is heating up the Canadian market, and companies that can negotiate effectively can capitalize on better pricing.
Bottom Line: Canadian telcos are becoming major North American and international competitors, offering great voice rates and good data services in the major Canadian business centers. Call centre operators (throughout North America) are looking at Canada because of comparatively cheap voice rates and the availability of skilled labour.