Two Alberta- and B.C.-based cable and telephone companies are leading the charge in what is emerging as a national battle for the Internet-based telephone market.
Shaw Communications Inc. of Calgary intends to offer local and long-distance voice-over-Internet protocol (VoIP) telephone service in Calgary, Vancouver and possibly other locations by September.
Burnaby, B.C.-based traditional phone company Telus Communications already offers VoIP in Ontario and Quebec through its Next Generation Network.
Telus contends that businesses are already utilizing the service.
Last month, Shaw registered with the Canadian Radio-television and Telecommunications Commission as a competitive local exchange carrier (CLEC), pitting it against Telus, classified as a local exchange carrier.
As a result, if customers want to switch to Shaw from a phone company, they can keep their old phone numbers and still have access to 911 and such traditional phone services as caller ID, call waiting and call forwarding.
“Preliminary feasibility analysis concerning the deployment of IP telephony is encouraging,” said Shaw’s annual report.
“As a result of meetings with various cable companies who have or are in the process of deploying IP telephony, Shaw believes related capital expenditure is mostly success-based, (i.e. customer premise type capital) and the capital expenditure related to incremental infrastructure is minimal.”
Shaw estimates the capital cost for the first 100,000 customers to be approximately $50 to $55 million and the next 100,000 customers will cost $35 million.
The company is conducting a feasibility study that will continue to refine capital-cost estimates in addition to assessing potential markets, billing requirements, field trials, customer-service requirements and vendor arrangements.
“It is anticipated that the company will be in a position to decide whether to proceed by the end of fiscal 2004,” said Shaw’s annual report.
But Shaw and Telus are not the only ones trying to get in on the VoIP action.
Primus Canada is already offering VoIP to residential customers in Calgary, Vancouver and other cities.
Rogers Communications Inc. and Bell Canada Enterprises have also announced plans to sell VoIP phone service.
“Bell’s Next Generation Network is a key building block in our drive to create and deliver simplicity for our customers,” company CEO Michael Sabia said in a statement.
Initially, Bell plans to invest $200 million over three years in Nortel Networks technology to provide new services to its large enterprise customers.
Calling the plan a “one-network approach,” Sabia said it is evolutionary rather than new and can be integrated with little or no displacement of existing technologies.
However, the head of the telecommunications department at the University of Calgary says large institutions and big business won’t jump on the VoIP bandwagon.
“It doesn’t make any sense for large organizations,” said Tom Seto, the U of C’s manager of network services.
Businesses that have invested millions of dollars in conventional phone systems won’t want to invest in VoIP just because it’s there, he said.
“We have trunk lines from Telus right now that plug into the analog world of telephones. We’ve got 11,000 phone lines on the inside and about 500-600 lines on the outside going into the Telus world,” he said.
Seto predicts that a price war will ensue as cable providers compete to offer phone, cable TV connections and Internet access all in one affordable package. He said Shaw is trying become a one-stop-shopping telecommunications company.
“They’re trying to leverage the network that they’ve built into something that you’re paying for,” said Seto.
“If it’s a matter of putting up a call manager somewhere on the Internet and then you’re able to convince people to subscribe to that instead of Telus, then why not?
“If (Shaw) can offer a rate that’s really attractive and start pulling people away from Telus, then you might see something move on Telus’s part sooner rather than later,” said Seto.
“It’s all competitive pressures. The time-to-market is narrow. In the old days, you took time developing strategies and so on. But now if more people come in and start (eating) your lunch, it can have profound impacts.
"I don’t think people are particularly loyal to Shaw or Telus or anybody else. If you can affect (someone’s) pocketbook on an ongoing basis, you’re probably going to get a lot of people’s business now.”
Cable companies with their own backbones that can gain CLEC status will have an inside track on those such as Primus that will have to lease network facilities.
“The thing with the Internet is it’s not one thing,” said Seto. “The Internet is a whole bunch of networks connected together, so if I’m running part of the network, why should I give you, who are coming from another network and paying somebody else, priority on my network?”
Phone company Telus, he said, has an additional challenge in that it has a traditional phone business to protect. “They don’t want to eat their own,” he said.
According to the companies’ latest quarterly financial reports, Shaw had 2,073,813 basic cable subscribers at the start of this year while Telus claimed that it gained the majority of high-speed Internet net adds in the Alberta/B.C. market in 2003, boosting the company’s subscriber base 37 per cent to 562,000.
Toronto-based Bell claimed that it had 2,351,000 Internet subscribers after adding 20,000 more than it did in 2002.
“Whether it’s DSL or a cable modem, how good it works ultimately comes down to: How good is the Internet access?” said Seto.
“If you have a busy slow network, which Shaw is prone to having, then you’re trapping (voice data). It gets chopped up on the way out. But that can happen on DSL as well. It clearly boils down to how much capacity there is in the particular line that you’re on. It’s not a general statement. Some people have great service from Shaw and some people bitch and complain all the time because they happen to be in a distribution (area) that is burning up a lot of traffic through the network.
“You share the network no matter who you’re with – whether it’s Shaw or it’s Telus.”
Bell, he suggested, is in a similar position as Shaw and Telus and will try to establish a strong presence in B.C. and Alberta. “Bell is a national player, so they’ll want to be everywhere,” said Seto.
“They won’t be everywhere at once, but they’ll try.”
Telus and Bell, he said, are leasing each other’s network facilities in the east and west, respectively. But he predicted that the companies will have to build their own networks in the respective regions.
“My bet is they’re both going to make it,” said Seto. “This market will probably drive the cost down enough that they’re going to be able to do it.”
If the technology works properly, callers won’t be able to tell the difference between the new service and traditional telephone lines, which are based on circuit-switching technology that has been used for most of the past 100 years.
VoIP customers’ telephones will still be connected to common phone jacks.
Rogers plans to offer business and residential service to 1.8 million Greater Toronto Area subscribers first and then move elsewhere.
Many of the newcomers to the phone business have roots in cable TV. Shaw and Rogers have operated as cable TV service companies, which provide cable TV connections, and on-air TV and radio networks, while and Bell has acted as a traditional phone company and on-air TV network – CTV.
U.S.-based Primus has operated as both a cellphone and regular phone service provider.
Many industry analysts and other observers view the newcomers’ decision to sell VoIP as a challenge to former telephone monopolies for phone market share. Until now, Telus (the successor to B.C. Tel and Alberta Government Telephones), Bell (a telco giant that has telephone roots) and other former monopolies have controlled the Canadian voice market.
According to the CRTC, as of 2002, the last year for which figures are available, large phone companies controlled 96 per cent of the national market, compared to 97.4 per cent in 2001.
But cable-based TV companies and internet service providers are not expected to face many regulatory hurdles. Analysts perceive the CRTC as being more lenient toward Internet-based phone services than traditional phone services.
