In a decision that will dramatically change the $10-billion local phone market in Canada, the federal government has decided the VoIP market should be regulation-free. "Barriers to entry in this market are low; there is no reason to regulate it," Industry Minister Maxime Bernier said. "In a competitive sector, there is no reason to regulate some companies while others can offer the services they want at the prices they want."
   So what does this decision mean? For one, incumbent carriers will be able to offer VoIP service at any price they want without having to seek approval regulatory approval. As a result, you can expect Bell Canada to become much more aggressive on pricing while ILECs such as Telus, Manitoba Tel and SaskTel will get into the VoIP market after sitting on the sideline until the regulatory uncertainty was resolved. This could mean bad news for Vonage and the cablecos, which have been able to roll out VoIP service without having to worry about competition from the ILECs.
  Another key development is regulation of the traditional local phone market will likely disappear soon (expect in rural communities where there is little or no competition). After all, how can you deregulate VoIP and not deregulate traditional phone service? Depending on how aggressive the ILECs want to be to keep and win-back customers, it would not be surprising to see price wars for local phone service in many markets, particularly places such as Toronto and Montreal where the ILECs, cablecos and VoIP service providers are already going to head to head.
  One wildcard is how ambitious the ILECs will become about VoIP given they could easily cannibalize their traditional phone businesses, particularly high-end customers who would gravitate to VoIP because of the features. If the ILECs do come out with guns ablazin' it may be bad news for the cablecos, who have been enjoying free ride with cable telephony, and the VoIP players such as Vonage who may find themselves on the outside looking in.
Tags: VoIP, Canada, CRTC

While the Net Neutrality has raged in the U.S., it's been quiet in Canada....until now. Yesterday, Videotron CEO Robert Depatie said the federal government should levy a "transmission tariff" on content providers so they can support the cost of building and maintaining networks. "If the movie studio were to mail a DVD . . . they would expect to pay postage or courier fees,” he told Canadian Press. "Why should they not expect a transmission tariff?". Depatie said he also concerned "Canada lags behind in pricing competitives and technology because the regulatory regime discriminates against new providers like Videotron". If there was ever a public shot across the bow of the federal government and telecom regulator, Depatie just delivered a one-two punch. In a sense, his move is a positive because it could compel the CRTC (Canada's telecom and media regulator) to finally get involved in the Net Neutrality issue/controversy. So far, the CRTC's standard response to inquiries about Net Neutrality is it won't act until it receives a complaint, which is hardly pro-active or forward-thinking. It is somewhat interesting to see a cableco push forward the Net Neutrality issue given it's the carriers who are losing customers and revenue as cablecos get deeper in the local telephone business. Then again, the cablecos are being forced to make large investments in their networks to stay competitive with increasingly-desperate carriers so the interest in external "help" is hardly a surprise. As for Depatie's contention the CRTC discrimminates against providers such as Videotron, that's just off-base given Canadian cablecos are barely regulated while carriers are still in regulatory shackles. I wonder my what my friend, Mark Goldberg, thinks about Depatie's comments.For more, check out Rob Hyndman, who describes some of Depatie's statements as "bizarre", and Michael Geist, who runs with the Net Neutrality theme.

Wow!
In one fell swoop, the federal government has abruptly derailed plans by Telus Corp. and BCE Inc. to convert themselves into income trusts. "BCE and Telus will not be able to become income trusts and have the tax benefits that are currently available," Federal Finance Minister Jim Flaherty said after unveiling new rules aimed at puncturing the income trust phenomena. Obviously, the federal government finally got spooked by the growing number of companies looking to avoid paying income tax  by converting themselves into income trusts but you've got to believe Telus CEO Darren Entwistle and BCE CEO Michael Sabia must feel betrayed because they were acting by the existing rules. The key question is whether the move is political or grounded in economic reality. Are the federal PCs worried more about winning the next election or are they truly concerned federal coffers are being depleted by the income trust scourge. Mark Goldberg has some thoughts about Flaherty's move, while highlighting that Rogers has seen its stock climb through the creation of higher shareholder value. Anyone want to bet how much Telus and BCE shares will plummet on Wednesday? If you thought Entwistle was unhappy before (according to the recent Report on Business magazine profile on him), you ain't seen nothing yet if Telus shares drop 10% to 20%.
One more key thought: Do you think Sabia killed (or to be even more blunt...f**ked) Entwistle's income trust party by unveiling his own income trust plans so soon after Telus did? If BCE hadn't finally jumped on the income trust bandwagon, maybe Flaherty would not have have felt so much pressure to get involved. But with the country's largest ILECs trying to walk away from paying income tax, Flaherty may have felt enough was enough. Truth be told, BCE was probably the straw the broken the income trust's back. I mean when Canada's telephone company moves to avoid paying $800-million in income tax, it's likely not going to go over well in Ottawa.
Update: The Globe & Mail's Eric Reguly has an interesting column, suggesting Flaherty made a bold move but could have committed political suicide.

Talk about letting the good times roll for the cable industry. Today, Rogers Communications posted better-than-expected third-quarter results that provide more evidence how the cablecos are thriving while many carriers are struggling to find any kind of growth. Rogers' operating profits jumped to $784-million, compared with estimates of $727-million, while wireless operating profits were $563-million, compared with UBS Securities' estimate of $511-million. For people looking for insight into the growth of cable telephony, Rogers added 106,000 customers, while losing 24,000 traditional circuit customers (part of Call-Net's operations). In terms of guidance for 2006 as a whole, Rogers is now looking for a $90-million bump in operating profits to $1.9-billion and 300,000 net cable telephone subscribers adds (a 50K bump from the second-quarter). Tags: cable, rogers, VoIP

The Report on Business magazine has an interesting profile on Telus CEO Darren Entwistle, which offers some insight into arguably Canada's most dynamic telecom executive. It includes the surprising contention the 44-year-old may have plans to walk away from telecom in four or five years to teach strategy and leadership at a U.K. university - as opposed to moving on to bigger and better things such as CEO of a U.S. RBOC. The only thing I would quibble about in the story is the claim Entwistle "blew some of his regained credibility with a doomed $1.1-billion bid for Microcell" in 2004. Everyone knew Entwistle wanted Microcell out of the wireless game because its discounting tactics were hurting the industry's operating margins. By making the bid, Entwistle put Microcell in play and Telus in a win-win position. If the bid succeeded, Telus would become an even bigger wireless player in a fast-growing market. If the bid failed (which happened when Ted Rogers made a $1.4-billion bid), the market would be consolidated and market conditions would improve. Entwistle didn't blow his credibility; he made a brilliant strategic move that didn't cost Telus a dime.

Here's a theory about the decision to blow up BCE and turn Bell Canada into an income trust. Perhaps the biggest strategic mistake made by BCE CEO Michael Sabia was not buying Microcell Telecommunications, the country's fourth-largest wireless carrier, when he had the chance a few years ago. Instead of acting aggressively and having to deal with the federal competition bureau, Sabia allowed Rogers to swoop in and acquire Microcell for $1.4-billion. Yes, Microcell used GSM while Bell Mobility was on CDMA but the other benefits (a larger exposure to the fast-growing wireless business, tax-loss carry-forwards, etc.) far outweighed any technology issues. Why BCE didn't move more quickly and/or aggressively is a huge mystery. After all, technology could not have been an issue given Telus, which also uses CDMA, had put Microcell in play by making the initial bid. Instead, BCE's failure to buy Microcell left it with just 20% of its revenue coming from wireless and that (along with a host of other issues) made BCE a low-growth entity. As a result, the move to an income trust became more of an option. Another spin on the Microcell story is Manitoba Telecom should have made a strong bid for the wireless carrier. Instead, Manitoba Tel decided to buy Allstream for $1.8-billion, which now shows all signs of being an expensive strategic mistake.