There has been a lot of focus on how Internet telephony service providers such as Vonage are offering plenty of features at low prices but perhaps more attention should be ont their impact on incumbent carriers. To compete, ILECs will have to lower prices, add more features and value-added bundles or offer VOIP. Valued-added services such as voice-mail offer ILECs huge margins but this business could shrink as VOIP grows. According to SeaBoard Group, Bell Canada raked in $931-million from value-added services in 2003, and $706-million during the first three quarters of 2004. You have to believe Bell – and other ILECs – are wondering if they're facing the long-distance/market erosion thing all over again. For more on the impending price war, see below.
The Internet telephony market is expected to gain more momentum this year but incumbent carriers like Bell Canada and Telus Corp. will not be able to fight back with lower prices until regulatory changes are made, according to a new report from Seaboard Research.
This means players like Vonage Holdings Corp. and Videotron Ltee have a window of opportunity to use low prices and feature-rich service to attract consumers. Seaboard, however, believes a price war may occur if the rules are changed when the Canadian Radio-television and Telecommunications Commission conducts a telecom policy review next year.
Seaboard said incumbent carriers would then be forced to rethink local service and feature prices.
“With the VOIP carriers including all their features — voice mail, call display, call waiting and such — as part of the package, it will be an impossible challenge for telcos to continue to expect customers to pay the current rates. The value proposition will have been eroded. The present rate structures will be untenable.”
Until the telecom rules are amended, however, incumbent carriers have little pricing flexibility. Any changes they want to make to the cost of local service or features have to be approved by the CRTC. This means they are unable to respond quickly to new offers from unregulated rivals like Call-Net Enterprises Inc. or Vonage.
Seaboard expects more consumers will be drawn to low-cost Internet telephony plans. Vonage is selling its basic residential service, which includes many features, and 500 minutes of long-distance in North America, for $19.95 a month. Bell charges nearly $50 for the same package.
Bill Rainey, president of Vonage Canada, said lower prices for local service are a result of new technology. “The pressure on [carriers] will be tremendous because they have been over-charging for years and years,” he said.
“[Incumbent carriers will] have to aggressive to be competitive. They will have to adjust. It means adapting in ways that will be uncomfortable compared with the past.”
Seaboard expects there will be 2.12 million Internet telephony customers by 2008, compared with 32,800 in 2004. It expects cable companies to have more than half the market in three years, while telecom carriers and independents like Vonage, will each have 20% to 25%.
Roy Graydon, Call-Net's chief financial officer, said the company added more than 100,000 local customers in the third-quarter, and any inroads made by cable companies in 2005 will not be a “huge disruption” to the local market. “We have not noticed any competitive impact from VOIP,” he said.
That may change now that Videotron has launched a service offering discounts of more than 30% for customers who also have its cable and broadband services.
Iain Grant, Seaboard's managing director, said incumbent carriers have two options in the local market: they can reduce prices when the regulations change, or they can get on the Internet bandwagon and compete on price and value-added features.
Mr. Grant said Bell will continue to sell local service to people who have no interest in new services, but it will have no choice but to gravitate to the Internet to pursue consumers who want more features.
© National Post 2005
VOIP's Impact on Prices
There has been a lot of focus on how Internet telephony service providers such as Vonage are offering plenty of features at low prices but perhaps more attention should be ont their impact on incumbent carriers. To compete, ILECs will have to lower prices, add more features and value-added bundles or offer VOIP. Valued-added services such as voice-mail offer ILECs huge margins but this business could shrink as VOIP grows. According to SeaBoard Group, Bell Canada raked in $931-million from value-added services in 2003, and $706-million during the first three quarters of 2004. You have to believe Bell – and other ILECs – are wondering if they're facing the long-distance/market erosion thing all over again. For more on the impending price war, see below.
The Internet telephony market is expected to gain more momentum this year but incumbent carriers like Bell Canada and Telus Corp. will not be able to fight back with lower prices until regulatory changes are made, according to a new report from Seaboard Research.
This means players like Vonage Holdings Corp. and Videotron Ltee have a window of opportunity to use low prices and feature-rich service to attract consumers. Seaboard, however, believes a price war may occur if the rules are changed when the Canadian Radio-television and Telecommunications Commission conducts a telecom policy review next year.
Seaboard said incumbent carriers would then be forced to rethink local service and feature prices.
“With the VOIP carriers including all their features — voice mail, call display, call waiting and such — as part of the package, it will be an impossible challenge for telcos to continue to expect customers to pay the current rates. The value proposition will have been eroded. The present rate structures will be untenable.”
Until the telecom rules are amended, however, incumbent carriers have little pricing flexibility. Any changes they want to make to the cost of local service or features have to be approved by the CRTC. This means they are unable to respond quickly to new offers from unregulated rivals like Call-Net Enterprises Inc. or Vonage.
Seaboard expects more consumers will be drawn to low-cost Internet telephony plans. Vonage is selling its basic residential service, which includes many features, and 500 minutes of long-distance in North America, for $19.95 a month. Bell charges nearly $50 for the same package.
Bill Rainey, president of Vonage Canada, said lower prices for local service are a result of new technology. “The pressure on [carriers] will be tremendous because they have been over-charging for years and years,” he said.
“[Incumbent carriers will] have to aggressive to be competitive. They will have to adjust. It means adapting in ways that will be uncomfortable compared with the past.”
Seaboard expects there will be 2.12 million Internet telephony customers by 2008, compared with 32,800 in 2004. It expects cable companies to have more than half the market in three years, while telecom carriers and independents like Vonage, will each have 20% to 25%.
Roy Graydon, Call-Net's chief financial officer, said the company added more than 100,000 local customers in the third-quarter, and any inroads made by cable companies in 2005 will not be a “huge disruption” to the local market. “We have not noticed any competitive impact from VOIP,” he said.
That may change now that Videotron has launched a service offering discounts of more than 30% for customers who also have its cable and broadband services.
Iain Grant, Seaboard's managing director, said incumbent carriers have two options in the local market: they can reduce prices when the regulations change, or they can get on the Internet bandwagon and compete on price and value-added features.
Mr. Grant said Bell will continue to sell local service to people who have no interest in new services, but it will have no choice but to gravitate to the Internet to pursue consumers who want more features.
© National Post 2005