VoIP should finally bring competition in phone market: NBI/Sone

The introduction of Voice over IP (VoIP) technology into the telecommunications market will finally threaten the ILECs’ stranglehold on the market and create competition, argues a new report on the sector. NBI/Michael Sone Associates predicts that by 2007, the incumbents will hold only 83.7% of the residential market, and that the number of VoIP subscribers will rise to 1.1 million – about 9% of the total residential share of wireline local access lines. Further, NBI/Sone forecasts that cable companies will have 53% of the residential VoIP market. "I think we’re entering a new phase of competition going forward," Michael Sone, president of NBI/Michael Sone Associates, tells Network Letter. "We’ve started to see it happen in 2004 and I think it’s going to accelerate next year, and that’s primarily owing to VoIP. We’ve had new players come to the market and I think next year we’re going to have more even more players come in. So things are going to get juggled around." This year saw Primus Telecommunications Canada Inc., babyTEL, Yak Communications, Vonage Holdings Corp., Call-Net Enterprises Inc., and others enter the Canadian VoIP market. Cablecos Rogers Cable and Shaw Communications have also said they will enter the telephony business next year, and the telcos will also offer VoIP services. In its report 2004 Canadian Local Telecom Services Market, NBI/Sone notes that the past seven and a half years of CRTC regulation with a focus on facilities-based telecommunications has failed to create as competitive a marketplace as the introduction of VoIP is expected to do. "This could lead one to the conclusion that the CRTC’s vision of facilities-based competition was not in concert with the financial realities of the market and a totally different model, based on low-cost, shared access, seems in actuality what is required to create a competitive local telephone market." Sone continues that entry into the telephony business is much easier now because the cost of starting up are substantially less. "It cost a lot to get into the market in 1999 because (new entrants) had to build out all these facilities," he says, adding that with the proliferation of broadband access, companies can offer their services on an access-independent basis. Overall, NBI/Sone sees ILEC wireline, including VoIP, register an compounded average annual loss of 4% between 2002 and 2007. The ILECs controlled 98.5% of the market in 2002. The report further predicts a corresponding 10-fold gain in competitor share over the same period. ILEC wireline business local access share, again including VoIP, is seen falling to 76.6% by 2007 from 88% in 2002, with competitors doubling their share over the same five-year period. Perhaps counter-intuitively, competitor gains are expected to be greatest in some of Canada’s secondary markets. Of the top five locations for competitor share gains, Halifax, London, Hamilton and Kitchener are included. While actual VoIP subscriber figures are sketchy at this time, service providers have varying views on how subscriber growth will play out. Some believe VoIP will serve as a primarily second-line service, while others believe the significance of VoIP will be minimal. Bill Linton, president and CEO of Call-Net, says that VoIP has received a lot of press, but notes that there aren’t a lot of subscribers. "And I don’t think it’s going to have many customers for the foreseeable future because out of the box it’s not a service that you’re going to use in your home because it only works on that one phone that’s attached to your computer," he explains. At the recent Canadian Telecommunications Forum in Ottawa on October 27 and 28, Primus Canada and Yak highlighted the fact that second-line replacement can represent substantial market opportunity. Ted Chislett, president of Primus Canada, said during his presentation that the company already has several thousand customers using its TalkBroadband VoIP service. While he didn’t break out numbers for primary and second line users, he indicated that there is significant potential in the second line market. A survey of Primus Canada’s customers shows that 15% of its high-speed Internet customers have second lines, Chislett said. "If you look at the $4-billion local (telephony) market in Canada, second line represents $400 million. That’s significant," he concluded. Yak’s Ken Carrière wouldn’t say for sure whether VoIP is going to become primarily a second-line service. "From a primary line versus second line stand point, it’s going to be interesting to see what differences there may be in the Canadian market versus the American market because we seem to be going (down) the path of VoIP as a secondary line service," he said, adding that most VoIP providers are marketing it as such. Incumbent telephone companies will also be affected by a growing number of Canadians who cut the cord. The study also estimates that the number of wireless-only subscribers will be 500,000 to 700,000 by the end of 2004 – or between 3.7% and 5.1% of all residential phone lines. Michael Sone tells NL that the NBI/Sone’s estimates are best-guess efforts based on discussions with the various industry players. A key assumption that underlines many of the report’s predictions is that the CRTC won’t move from its current preliminary view that VoIP is similar to existing local telephone services, and won’t forbear the ILECs from regulation over the new technology. This, notes the report, means that the ILECs likely won’t launch VoIP in their home territories. Though he doesn’t pretend to read the commissioners’ minds, Sone says the prediction regarding regulation is based on past commission behaviour, and he stops short of passing judgment on the advisability of status quo regulation.

VoIP should finally bring competition in phone market: NBI/Sone

News | 11/25/2004 5:00 am EST

To keep reading, get a free trial.

Already a Subscriber?

Reuse & Permissions

Inside The Wire Report

Information

Hill Times Publishing

Get in Touch With Us