Mark Evans

VOIP Regulation - Part II

Just a few more thoughts about VOIP regulation following my posting yesterday about David Colville, who headed up the CRTC's telecommunications policy for 14 years.
Let's make a couple assumptions about the VOIP market's potential in Canada: there will be a level playing field with every service provider free from regulation, and the residential market reaches 1.1 million lines by 2007 (based on research by NRI/Michael Sone Associates). Given there were 12.9 million local lines in 2003, 9% of the market will using Internet telephony within three years. This would work out to about $1-billion in revenue. Let's assume, the incumbent carriers get 50% of the market, while cablecos and third-parties such as Vonage get the rest. That would mean the incumbent carriers would lose $500-milliion in revenue.
That's a big chunk of cash but you balance that off with whatever revenue the carriers will get from increased high-speed access business as consumers look to get VOIP, and sales from IP-TV. Maybe the whole VOIP thing will be a financial wash from the carriers. Part of this thesis is based on my belief whoever controls the IP “pipe” is extremely well positioned to benefit from VOIP or any other IP application.
In a bit of seagway, it will be iinteresting to see how the Federal Communications Commission handles VOIP regulation. A few months ago, FCC chair Michael Powell said VOIP “s “is not a telephone service, it is a voice application, completely indistinguishable from any other kind of application that can run on an IP network.” We'll see if his view does within the political landscape. (For more on Michael Powell, check out Om Malik's posting following the FCC's ruling that VOIP regulation is a federal mandate.)

Related Posts

• Michael Powell Quits
• VOIP regulation
• New FCC Sheriff Gunning for VOIP

David Colville's CRTC Departure

With David Colville leaving the CRTC as vice-chair of telecommunications, it raises questions about the Canadian regulator's approach to VOIP. Colville was seen as a bold, progressive administrator who played a key role in the CRTC's decision in 1999 not to regulate New Media on the Internet. It was seen as a strong signal from the CRTC it would take a hands off approach to the online world, which was in the midst of the dot-com boom.
With Colville at the helm, there was some thought the CRTC would let all Internet telephony players compete on a level playing field. At best, the new players such as Rogers, Primus, Vonage, etc. would be given a small head start to deal with any concerns about Bell, Telus and others from squashing competition before it even got going. If the CRTC adopts this approach, it would let incumbent carriers go head-to-head with a growing number of competitors.
Now, you get the feeling the CRTC may lean on its preliminary view to VOIP - that incumbent carriers should be regulated while cable companies, competitive carriers and new service providers such as Vonage will be free to set their own prices. While the entry into the market by cablecos such as Rogers and Videotron will give VOIP a jump-start, the market will not take off completely until the incumbent carriers get into it.
Not withstanding some bullish forecasts from consultants such as NRI/Michael Sone Associates, I remain skeptical about VOIP's prospects in Canada - at least for the short term.
With relatively low prices - even if you use features such as call-answer and call-display - and cheap long-distance costs (a big selling point of VOIP service providers), local telephony service in Canada is inexpensive for most consumers. Add on consumers' general satisfaction with circuit-switch local telephony, there appears to be very little impetus or incentive for many people to get on the VOIP bandwagon.
Maybe this will change as the cabecos start to aggressively market their new services as part of bundles, or when the CRTC's price-cap regime, which has kept local service prices low, is changed in 2006, but it's my take VOIP will be far more successful in the U.S. than in Canada.

Related Posts

• VOIP Regulation; It's Your Move, Canada.
• VOIP regulation
• Tepid Interest in VOIP in Canada

Software Buying Binges Continues

Another day, another M&A deal in the rapidly consolidating software industry. This time, Fimalac SA has acquired Toronto-based Algorithmics for US$175-million. Algorithmics is one of the leading suppliers of risk management software to financial institutions. It will be interesting to see how must Algorithmics' investors get back given the company has raised US$85-million since 2000. This week alone has seen PeopleSoft, Veritas and Algorithmics snapped for more than US$28-billion. As software makers prepare for a return in corporate spending, look for more acquisitions as the bigger players looking to fill holes in their product portfolios.

Related Posts

• Tropic Networks Raises US$33M
• Vonage's Ambitious Growth Plans
• Technorati Raises $7.6M

Videotron: VOIP Update

Financial Post
Videotron Ltee. is expected to jump into the Internet telephony market soon, which would make it the first Canadian cable company to offer the fast-emerging service.
According to analysts who attended briefing sessions with Videotron senior management yesterday in Toronto, the Montreal-based company will roll out a residential primary line service with eight hours of back-up power, access to 911, the ability to keep your existing phone number, as well as features such as 411, 611, voice-mail, call-waiting and call-display.
There is strong speculation Videotron, the country's third-largest cable company, with 1.45 million customers, could launch its service as early as Jan. 1. This will put the company into the telephony market ahead of peers like Rogers Communications Inc. and Shaw Communications Inc., which plan to unveil telephony service by the middle of next year.
Videotron said it expects to spend $80-million over the next four years on fixed capital costs to support its telephony plans. It estimates the average acquisition cost per customer will be $250. The company, which will offer telephony as part of a bundle, has been conducting trials with 2,000 customers in Montreal.
Eamon Hoey, a senior partner with Hoey Associates, said Videotron did not disclose its launch date or pricing strategy but he said it does not make much sense for a company to hold analyst briefings a week before Christmas to discuss a product to be launched several months down the road.
He believes Videotron will pose a more dangerous threat to Bell Canada than Internet telephony players such as Vonage Holdings Corp., Comwave Telecom Inc. and Primus Canada Telecommunications Inc. because Videotron has a stronger brand name.
“Consumers in Quebec have a strong belief in Bell, and it has been much more difficult for competitors to penetrate [the market], even in long-distance,” Mr. Hoey said. “People in Quebec believe bigger is better so you need a big company that consumers believe in, the same way they believe in Bell.”
Videotron, which has 500,000 Internet access customers, aims to differentiate itself from Vonage, Primus, and others by playing up its 15-year track record in the telephony business.
Its Videotron Telecom subsidiary operates a 11,000-kilometre broadband fibre-optic network in Quebec and Ontario, and offers services to business customers.
“Videotron is well positioned for the future of residential telephony using VoIP,” the company said in an executive summary given to analysts. “It has a solid, reliable and saleable network, and delivers carrier class quality of service.”

Related Posts

• Videotron's VOIP trials
• Videotron's VOIP pricing strategy
• Bell Moves into the Montreal VOIP Market

Nortel's New Economics

Not to kick a dog when it's down but you have to love Nortel's ability to
turn a positive into a negatiive. Exhibit A is a US$500 million contract
Nortel announced earlier this week with an Indian wireless carrier. Turns
out - according to National Bank Financial analyst Tom Astle - Nortel could
lose as much as US$150 million on the deal. Apparently, that is the price of
admission to get a foothold in the Indian market these days. I guess the
idea is that you lose now but win later when customers come back for more
goodies - kind of like a retailer offering a loss-leader in the hope a
consumer buys some other premium price products. Nortel's willingness to
strike a money-losing deal shows the lengths that suppliers need to go these
days to win business in an industry with low single-digit growth. What you
may discover is while sales stay steady, profits will shrink unless you can
migrate your product mix to services and software. In many ways, Nortel is
looking much like Ericsson these days with its heavy reliance on wireless.
If that market starts to slow, watch out 'cause Nortel will have more to
worry about than cooked books.
————————–
Sent from my BlackBerry Wireless Handheld

Related Posts

• More Love for Nortel in India?
• Nortel's Q3: Higher Sales
• Telecom's Tough Times

Videotron's VOIP trials

Videotron Ltee's telecom division, the company has more than 1,000 customers testing its Internet telephony service in Montreal. “The tests are very conclusive (+++), and Videotron with Videotron Telecom are currently poisitioned to become the first major telco to provide IP TEL over a high speed internet network in Canada,” a Videotron Telecom executive wrote in a recent e-mail after AOL Canada received plenty of media attention about its new TotalTalk telephony service.
Videotron may be getting close to its Internet telephony if a meeting today with analysts in Toronto is any indication. Rogers has set its VOIP launch date for July 1, 2005 while Shaw Communications will likely go live in the first quarter of next year.

Related Posts

• Videotron: VOIP Update
• Videotron Offers VOIP Service
• AOL's VOIP Strategy

Bell's IP-TV plans

Bell's move into the television business will take a major step forward next year when it start trials of an Internet-based service aimed at single-family households. During an investment conference today in Toronto, the company came across as ultra-confident as it gets ready to go mano-a-mano against the cablecos. At the heart of Bell's TV strategy is a $1.2-billion investment over the next four years to upgrade it high-speed Internet network in Ontario and Quebec. This will boost the network's speed to 26Mbps. When asked if this is a big enough pipe, BCE executive Eugene Roman said 26Mbps will let Bell deliver one high-definition channel, two standard television channels, high-speed Internet and telephony. He said a high-definition channel can be delivered using 8Mbps of capacity, and it will only shrink as compression technology improves.
Another interesting discussion is Bell's decision to pursue the less expensive fiber to the node (FTTN) strategy rather than following Verizon, et al down the fiber to the home (FTTH). BCE CEO Michael Sabia FTTH makes no economic sense and his company can do everything they need strategically with FTTN. Still, Bell is going to spend nearly $700-million to execute its TV strategy.

Related Posts

• S&P: Cablecos Have an IP Edge
• The Future is SaskTel
• Aliant's Fiber to the Home Trial

Bell's Wireless Upgrade

Bell Mobility is jumping at the 3G bandwagon with a $150 million plans to upgrade its 1X wireless network to EVDO. Canada's second-largest wireless carrier has 21 EVDO sites up and running now, and hopes to roll out EVDO across the country by 2006. Bell claims it will be offer regular speeds of 600 to 800kps, which is five to seven times faster than 1X. Bell has little choice but to spend aggressively if it wants to generate more revenue from data wireless services, which carry higher margins than voice. Laugh if you want at ring tones, screen savers, games, etc. but that's where the real money in wireless will be found. Bell also plans to launch a push-to-talk product in the first quarter, which it says will “end the push to talk monopoly” enjoyed by Telus Corp.'s MIKE service. Bell Mobility CEO Michael Neumann says Bell's push-to-talk service will lure MIKE users away from Telus with enhanced features, although he wouldn't spills the beans on what they might be. He also mentioned Bell has no plans in the short to medium term to expand its wholesale strategy, which will see Virgin come into the market early next year (maybe?) through a joint venture with Bell. Speaking of the youth market, look for Bell to re-introduce its SOLO brand to go after the teen set. This begs the question why do a deal with Virgin if you have your own youth strategy?

Related Posts

• Bell Mobility's Youth Marketing Misguided
• Push to Talk: Why all the Buzz?
• The Wait is Over - we think - for Virgin Canada

Nortel's Q3 Results

As Nortel stumble towards the financial restatement finish line, the numbers are coming out fast and furious. Today, the telecom equipment maker said it had an unaudited loss of six cents (US) in the third quarter on sales of US$2.3 billion. If you take out one-time losses and gains, it looks like Nortel was just slightly in the red. The fourth-quarter looks fairly good with sales expected to be US$2.8-billion to US$2.9-billion. Early reaction from analysts suggests they are not overly impressed.
After Nortel completes its financial overhaul, it is important for the investment community to start looking at what's on the horizon for Nortel. First, the telecom market itself which will only growth in low single-digits at a time when competition from low-cost players such as China's Huawei Technologies is intensifying. While Nortel has done well in wireless, its IP and enterprise units have been mediocre. Nortel's senior management will also be distracted by the flurry of class-action lawsuits that have been filed. It is impossible to know how much this will cost the company - estimates have run from US$500 million to US$1 billion - but the lawsuits will be a major distraction. Finally, you have to look at the future of CEO Bill Owens. After Nortel returns to some sense of stability, is Owens the right person to re-ignite growth? Would Nortel be better off with a CEO who have deep telecom experience and a strong handle on where the telecom industry is heading?

Related Posts

• Nortel Unveils $2.4B Lawsuit Settlement Plan
• Nortel: The Beat Goes On
• Who's Afraid of Big, Bad Huawei?

RIM wins, RIMs Loses

The much-awaited U.S. court ruling came down today involving Research in
Motion's three-year patent dispute with NTP Inc. Anyone who was expecting a
clear-cut decision will be disappointed as the court appeared to rule in
favor of RIM in some parts and for NTP in others. To make matters worse, the
court sent the whole kit and kaboodle back to a lower court for
reconsideration. While both sides will likely claim victory, it is likely
this exercise - which is making lawyers rich and investors crazed on
speculation - will be appealed and go on for years and years. The
interesting thing about this battle is RIM reluctance to settle with NTP.
Obviously, they believed their case was strong but today's decision is a
major blow. Perhaps saner minds will prevail and a settlement will be
reached so both sides can really claim victory.

Related Posts

• Vonages Wins!
• Canadian ILECs Appeal CRTC Ruling
• RIM