Mark Evans

Vonage Starts Price War in Canada?

Replicating a strategy done in the U.S., Vonage Canada cut the price of its premium residential service yesterday by 13% to $39.95 from $45.95. The company said this move is consistent with its philsophy to pass along savings immediately to its customers. That may be true but you have to wonder about a business model that doesn't give you the luxury of enjoying the benefits of market leadership. A Bay St. analyst made a good point today when in pointed out it's strange that Vonage is compelling to make price cuts in Canada when there is little competition from the ILECs or cablecos, who don't plan to get into the market until later this year. In a sense, Vonage is competing against itself. My take is Vonage knows what's coming and it's hoping to get as much momentum and buzz that it can before the real competition starts to happen.
Vonage Canada
has slashed the price of its leading residential telephony plan by 13% — a decision that suggests the start of a price war and/or a pre-emptive move to attract subscribers before the major cable companies enter the market.
Vonage, a division of Vonage Holdings Corp., said its premium Internet telephony service has been reduced to $39.99 from $45.99. It comes with unlimited calling to anywhere in North America, features such as voice-mail and call display, and 100 minutes of low-cost international long-distance.
Vonage's decision sets a new pricing benchmark for the emerging Internet telephony market. The competitive landscape will become more crowded when Rogers Communications Inc., Shaw Communications Inc. and Videotron ltee launch telephony services later this year. Before they enter the market, Vonage hopes to attract early-adopters and establish its brand.
Bill Rainey, Vonage Canada's president, said the lower prices reflect the company's philosophy to automatically pass along cost savings to its customers.”One of our goals is to develop a different level of customer service in the telecom market in Canada that is at an excellence level,” he said.
“Doing things in a very unique way by pro-activity going to customers and putting them on a new rate is something you don't see in the telecom market.”
While lower prices are eye-catching, Canadian consumers have shown little inclination to adopt Internet telephony. According to NBI/Michael Sone Associates Inc., there were only 27,000 residential Internet telephony users in 2004. The consulting firm expects there will be 217,000 residential users in 2005 and 513,000 in 2006.
Among the hurdles facing Internet telephony growth are that many consumers do not have a strong grasp about how the technology works and its benefits.
There are also concerns about back-up power and the availability of 911
service. Another issue is low prices for traditional local and
long-distance
telephony.Eamon Hoey, a senior partner with Hoey Associates, said
Vonage's offer of
$39.95 a month is probably not enough to lure many consumers from
traditional service offered by incumbent carriers such as Bell Canada
or
Telus Corp.”There has to be a significant price differentiation for
them to move from
the reliability factor of wireline services to IP phony,” he said. “I
don't
see it at $39.95. At $29.95, you might get some takers. I don't think
[BCE
Inc. chief executive] Michael Sabia has to have many sleepless
nights.”Mr. Rainey said price will not be the key driver to Internet telephony
adoption. Instead, he said, price will be a component in a package that
includes reliability and quality of service, features and customer
service.”This is a new wave,” he said. “We are at a point where in less
than two
years, one out of four Canadians knows of IP telephony. Consumers and
business need to be educated on what making a phone call over the
Internet
is and how it can benefit them in their daily lives.”Last month, AOL
Canada Inc. became the latest player in the Internet
telephony market with the launch of its TotalTalk service. TotalTalk
comes
in two flavours: a $34.95-a-month version that features a variety of
features and 60 minutes of long-distance service in North America; and
a
$44.95-a-month version with 1,000 minutes of North American
long-distance.