VoIP is voice, says the CRTC in landmark ruling, ILECs vow to launch appeal

The federal Cabinet will be presented with two starkly different visions of what’s good for telecommunications competition in Canada when Bell Canada and TELUS Corp. files their appeals of the long-awaited Voice over IP decision. The CRTC on May 12 issued its ruling on whether to forbear or not from regulating VoIP services and came down firmly on the side of the status quo for local telephone service, no matter whether it travels on traditional or IP networks. The regulator will continue to require tariff applications to be made by incumbents, and has imposed new requirements on VoIP providers that have displeased not just ILECs, but seemingly the whole industry. Within minutes of the ruling, Bell Canada voiced its strong dissent to the 5-2 decision, and vowed to make an appeal to Cabinet to overturn it. Bell says the commission has failed to recognize the fundamental competitive shift wrought by IP-based telephony, and says it has been hobbled in its ability to compete. Competitors, however, were quick to applaud the ruling and expressed approval of the commission’s finding that no competitive market for VoIP services could exist so long as the incumbent telcos maintain their stranglehold on the pocketbooks of local service consumers. In Telecom Decision 2005-28, the CRTC expressed in the strongest possible language its concerns that a competitive marketplace for local telephone service has still not materialized. Expressing hope that new VoIP technology might finally lead to a real choice for consumers in local providers, the CRTC went further to say that without safeguards, the incumbent telcos might yet continue to dominate the market and engage in anti-competitive behaviour. Despite the tough tone, however, commission officials and chair Charles Dalfen went to great lengths in announcing their decision to prepare a soft landing for Bell, TELUS and Aliant by emphasizing the several measures unveiled during May’s "ILEC week" that they feel will mitigate continued regulation. These include decisions allowing the incumbents to engage in promotions (Decision 2005-25; NL, May 10/05), the ability to bundle and a rejection of higher-than proposed price floors (Decision 2005-27; NL, May 10/05); and, a streamlined tariff application process that will allow confidential applications (Circular 2005-6; NL, April 26/05). The regulators have also held out an upcoming process to determine when and how it will forbear from regulating local service as a carrot to the ILECs, promising that when markets reach an as-yet-undetermined level of competition, the ILECs will no longer be restrained by a requirement to file applications to change their prices (Public Notice 2005-2; NL, May 10/05). None of these soothing measures, however, mollified BCE Inc. executive VP Lawson Hunter. Speaking to reporters immediately upon release of the decision, he blasted the regulator for its ruling, and immediately vowed to bring the fight directly to politicians. "I think this is an historic mistake for the country. It’s a matter of principle, about how we need to – as a country – encourage innovation and choice, and this is setting it back. We will appeal to Cabinet, and we hope that others will see that the public interest is better served by a different regime." Bell VP of government and regulatory affairs Mirko Bibic tells NL that the ILEC week measures don’t provide the relief Bell needs in a regulated VoIP environment. There is no guarantee he says, that tariff applications will be dealt with in 10 days, or even approved. The company has already expressed its dismay with the strict promotions rules and is considering what action to take on those. Finally, rather than expressing pleasure with new bundling rules, Bibic calls them a form of "re-regulation" of forborne services since tariffs must be filed when local voice service is included. "Sure, there’s more flexibility now than three weeks ago, but there’s still some significant and inappropriate safeguards imposed on promotions, which we don’t feel are appropriate in a competitive environment like (VoIP)." Finally, he notes that the costing rules will be complicated, and he is uncertain how price floor costing rules for plain old telephone service will translate to VoIP technologies. TELUS executive VP Janet Yale echoed Hunter’s comments, also lambasting the CRTC for what she considers a shortsighted decision, and also vowing a Cabinet fight. "We’re extremely disappointed with the decision," she tells Network Letter. "We think it’s the wrong decision at the wrong time, in terms of failing to unleash the power of the Internet to the benefit of consumers. It’s a real missed opportunity. The telephone companies in Canada have been told that if they want to offer Voice over IP services, they have to do it on a regulated basis. We believe we’re the telephone companies that brought IP technology to Canada, and here we are giving a regulatory head start to those who haven’t pioneered the deployment of IP infrastructure in Canada. It makes no sense." In a media release issued the same day, Aliant stood with the other incumbents to voice its disappointment with the decision. Aliant, which has applied for forbearance in several exchanges where it is facing stiff competition from cable rival EastLink, says it agrees with the analysis being put forth by Bell and TELUS. "This decision is not surprising, as the CRTC has a track record of issuing rulings that do not support customer choice or allow full competition to benefit customers," noted president and CEO Jay Forbes in the release. "Once again, the CRTC has demonstrated that it does not understand the Atlantic Canadian marketplace, or what customers want. The CRTC’s rationale is flawed. The Internet is currently not regulated and we have full competition in our market. Attempts to price regulate Internet voice traffic for one company in a fully competitive market do not make sense. Decisions such as this could limit future investment and innovation in our region." Competitors, the strongest of whom will likely be the phone companies’ cable rivals, say the ratcheted-up rhetoric of the ILECs rings hollow. The head of the Canadian Cable Telecommunications Association, Michael Hennessy, says he sees no reason for ILEC discontent with the decision, and praised it as a pro-consumer ruling. "I think it’s really done a good job of balancing what amounts to increased pricing flexibility for the telephone companies, streamlined tariffs, with protections against anti-competitive conduct. The competitors can enter the market knowing that we’re not going to go through the kind of behaviour that sunk competition in the 90s, and that’s what we were looking for. I think it’s hard for the telephone companies now that they’ve been given bundling, streamlining, and the opportunity to go offer lower rates for VoIP, to say that it’s not fair. Particularly when the terms of deregulation, forbearance, are going to start being discussed this summer." Talk of appeal surfaced immediately following the release of the decision, and any Bell or TELUS appeal is likely to be based on attacking the commission’s fundamental ruling that VoIP services are no different than current telephone services. If the politicians in Cabinet and the prime minister’s staff agree with the ILECs that that basis was incorrect, the regulator’s decision could be undone. Asked whether such a scenario might play in Ottawa, Hennessy told NL the current ruling will likely stand. "I think Bell proved it was a telephone service when they launched their IP service and all the features of the service were the same as you get with regular telephone service. In the residential market, everybody is offering VoIP as a phone service and nothing but a phone service. So, it’s hard to say the commission got it wrong. If it walks like a duck, talks like a duck and is priced and packaged like a duck…" MTS Allstream VP of government and regulatory affairs Chris Pierce agrees that the decision was the correct one, and based on sound principles. "The decision fundamentally is clear-headed and straightforward and really puts the lie to misinformation that Bell Canada, especially, has been putting out throughout this whole proceeding. It’s not an issue of regulating the Internet or not. It’s an issue of voice services that clearly utilize the existing network, that is controlled by dominant providers within their own territories. It’s really a well-reasoned and well-worded decision and should go a long way towards assuring that we do get the competitive entry that we want to have over the next period of months." Competitors and cablecos have reason to crow. Besides the requirement to file tariffs, the commission has also extended its VoIPPOTS analogy to include a strict one-year prohibition period on ILECs from engaging in efforts to win back lost customers. Further, ILECs must sell VoIP service for no less than their imputed costs in line with the overall price floor. Other measures to be enforced by the commission in allowing the sale of IP telephony services, however, received a cold welcome from almost all of the potential players. In keeping with its guiding principle that VoIP is functionally the same as regular phone service, the regulator has also mandated that any company selling it, including cablecos, must register as a CLEC, that they must provide phone numbers for directories, allow number portability, provide access to disabled Canadians when possible (a provision that has been referred to the Canadian Interconnection Steering Committee), abide by privacy safeguards, and – in a move that has left most scratching their heads – ordered that there must be equal access provided to long distance resellers. These various regulatory requirements convince Bell that the commission has adopted the wrong approach in the ruling. "The logic of the decision is that, using kind of an inappropriate test to define the relevant market, it concludes that VoIP is exactly the same as traditional wireline service, and then it force-fits wireline attributes onto VoIP, which nobody wants, and which then allows those in favour of the decision to say, ‘see, VoIP is exactly like wireline.’ Well, it’s exactly like wireline if you force fit wireline attributes onto VoIP. Things like equal access – what’s equal access? Who needs equal access? But, it costs money to develop a solution to provide for equal access in the VoIP world. Costs equals higher prices," says Mirko Bibic, Bell’s VP of government and regulatory affairs. Though likely of little consolation to Bell, the provision mandating CLEC registration has also left the cablecos assessing their market plans. Hennessy says his association’s members will have to consider whether their back office systems are up to snuff, though that won’t likely require any extraordinary measures. Cablecos will also have to meet a new condition set by the CRTC for the contracts they have with third-party Internet access (TPIA) resellers. While current contracts specify that the access being sold to those parties may not be used to provide VoIP services, the commission has ordered those clauses stricken. Ken Engelhart, VP of government and regulatory affairs for Rogers Communications Inc. says the move represents a change from the existing regime, but a relatively small one. "We had said that the existing tariff permits ISPs to use those facilities for access-independent VoIP. But, the commission made us remove the restriction so that they could provide access dependent VoIP. But we still don’t have to provide them with quality of service. So, we’re still selling them a data service, and if they want to use that as a voice service, they’re entitled to." Bell and TELUS have 60 days from the May 12 decision to appeal the ruling. Network Letter will continue to follow the VoIP issue and any potential appeal that is filed. Other key issues to watch for in upcoming issues of the publication: ** Proposal from CRTC to extend current price cap regime: don’t expect incumbent telcos to be too happy about that. TELUS executive VP Janet Yale previously told Network Letter that the company would not want to see the current regime extended. ** Complaint from ISPs over Bell Canada unbundled DSL service.

VoIP is voice, says the CRTC in landmark ruling, ILECs vow to launch appeal

News | 05/25/2005 4:00 am EDT

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