Canadian VOIP - Tepid Demand, Lots of Choices
Canadians have been slow to adopt Internet telephony but a sea change is coming
Mark Evans, Financial Post
June 24, 2004
According to a recent poll by Ipsos-Reid, Canadians have been slow to embrace Internet telephony and there appears to be little demand for the service among consumers.
However, this has not stopped an increasing number of companies from jumping into the market. The playing field now includes Primus Telecommunications Canada Inc., Comwave Telecom Inc., Vonage Holdings Corp., Nicer Technologies Inc. and BabyTel. Telus Corp., AOL Canada Inc., Saskatchewan Telecommunications Holding Corp. and Yak Communications Inc. plan to launch services later this year.
Jon Arnold, an analyst with Frost & Sullivan, said the Canadian Internet telephony market will be slower to develop than in the United States because telephony service in Canada is high-quality and relatively inexpensive.
“There is not a lot of inertia to push people to look at new alternatives. We're just spoiled,” he said. “For consumers, price will attract them but I don't see enough margin for Voice over Internet Protocol providers in Canada to drop prices to get a lot of [customer] migration.”
Frost & Sullivan estimates there will be 128,000 Canadian Internet telephony customers by the end of this year; 375,000 in 2005; 713,000 in 2006; 1.15 million in 2007; and 1.58 million in 2008. In the United States, subscriber growth is expect to jump to 1.16 million this year from 100,000 in 2003. By 2008, Frost & Sullivan forecasts there will be 16.5 million subscribers in the United States.
Among the biggest challenges facing many competitors is making consumers aware that the service, which uses VoIP technology, is available, and educating them on how it works. This is tough, grunt work that must be undertaken by market pioneers. The reward for being first to market is they will be viable companies when the market eventually gains mainstream momentum.
Ted Chislett, president with Primus Canada, said the education process has taken more resources than the company expected when its Internet telephony service was launched in January.
“We spent a fair bit of money when we launched with radio campaigns, and our call centre spends a lot of time educating customers about the details about VOIP and how it works,” he said. “We are seeing people are intrigued with competition and choice. They call in and you have to explain things like they need high-speed Internet.”
Ipsos-Reid said educating consumers about the benefits and features of Internet telephony will be crucial because only 23% of Canadians are aware of the term VoIP, while 20% are aware of the term IP telephony. Of those who are aware of VOIP or IP telephony, only 13% admit to understands a “great deal” about the technology. Until consumer awareness grows, Mark Laver, a senior research manager with Ipsos-Reid, said “VOIP will likely only be a niche service found in the households of Canadian technology enthusiasts.”
However, the Internet telephony market could be jump-started by the entry of major telecom carriers and cable firms. While Telus will start offering a service this year, Bell Canada has no immediate Internet telephony plans and Rogers Cable Inc. will not get into the market until at least mid-2005.
In the meantime, Primus should be a market leader because it has a well-known brand name and 900,000 long-distance customers, while Vonage has established itself as an industry pioneer after raising more than US$100-million in private equity.
There is no doubt price will play an important role, particularly among smaller competitors. Comwave, for example, is selling a basic package, which includes 411 and 911 service, for $14.95 a month, while BabyTel is offering a package that includes 500 minutes of long-distance in Canada and the United States for $16.95 a month.
Yuval Barzakay, vice-president of Canadian sales at Comwave, said his company is always battling on price as a market bottom feeder. “We are the value proposition,” he said, adding the real competitive threat will be the entry of cable companies and their use of product bundles. Another marketing tool will be value-added services such as Web portals to check your voice message — with the same look and feel as e-mail.
