Here's something that jumps out of the CRTC's decision today to regulate Internet telephony. It has adopted a rule called "equal access", which makes local service providers provide consumers with access to competitive long-distance service. This makes some sense in the traditional world because it gives consumers an alternative to the LD service provided by their local service provider. In the VOIP, however, "equal access" makes little sense because most people who sign up for Internet telephony are doing so for the long-distance plans. In other worlds, when they subscribe to Vonage, they realize 500 minutes of LD or unlimited LD is part of the package. The CRTC said "equal access" has been extended to Internet telephony because it's a voice service, and "equal access" is part of the traditional phone world. The CRTC also contends LD also involves international calls, which are often not part of Internet telephony plans. Therefore, the CRTC believes it is serving the needs of consumers by giving them LD choice. This strikes me as the CRTC's attempt to force old rules and ways on to a new technology. It also illustrates a fundamental flaw in the CRTC's approach to Internet telephony - despite the difference in technology, it views voice as voice - except when it comes to wireless. While I'm all for encouraging for competition, creating an unlevel playing field to achieve competition is misguided.
On another note, one of the most bizarre post-decision statements came from the head of the Canadian Cable Television Association, who claims cablecos will not sell telephony below cost otherwise they would be penalized by investors. If you think the cablecos aren't willing to take advantage of every marketing tool at their disposal - including lower prices - you're missing a big point.

As expected, Canada's telecom regulator has decided to regulate VOIP. It means ILECs such as Bell Canada and Telus Corp. will have to seek pricing approval from the Canadian Radio-television and Telecommunications Commision to ensure they don't sell Internet telephony service below cost, while cablecos and third-party suppliers such as Vonage and Primus are free to price any way they want. Bell Canada, Sasktel and Telus have already said they will appeal the decision to the federal cabinet, and could pursue legal action. The bottom line is the CRTC decided telephony service is telephony service regardless of the technology used to provide it. The CRTC's decision to regulate is not a surprise because it made it clear in a recent ruling there still isn't enough competition in Canada's $10 billion local phone market. (The CRTC does not consider the 10 million wireless users as an alternative to local service). In regulating VOIP, the CRTC is bending over backwards to pursue its pro-competition mandate. If this means hobbling ILECs with regulatory requirements for awhile so be it. When I've had some time to digest today's ruling, I'll provide some more insight.

Is the Internet telephony service provider market ripe for consolidation? If you read an insightful story by Light Reading's Mark Sullivan, it seems like a no-brainer. Sullivan estimates there are about 400 VOIP SPs in North America. Using data from Infonetics, he calculates ARPU at close to $20 a month. After substracting the revenue of the big boys - Vonage, Cox, Cablevision, and Time-Warner- Sullivan figures the remaining players each had about $70,000 in annual sales. This suggests many of them will disappear as their money evaporates and attracting new capital becomes increasingly difficult due to concerns about competition. At the end of the day, most of the market will be dominated by large, well-financed players such as the cablecos. This explains why Vonage raised another $200 million recently to make sure it can keep up with the pack.
It would wrong, however, to suggest the rest of the VOIP SPs will disappear. I would not be surprised to see dozens of small players thrive by focusing on specific business, cultural, ethnic and special interest niches - much like many dial-up Internet access companies have been happily doing business for years amid the AOLs and EarthLinks of the world. Small, profitable VOIP SPs, which are happy to piggyback on other companies' broadband networks, will continue to exist because the barriers to entry are relatively low. If they target a specific audience with reasonable prices and good customer service, there is no reason why a well-run, low-cost VOIP SP can't find a nice niche. A perfect example of this marketing strategy is how long-distance calling card companies in Canada such as Goldline have done very well by focusing on the Chinese, East Indian, Caribbean and South American communities. If you think about it, VOIP could take the telephony industry back to its roots when there were dozens of local public telephone companies serviing small communities.