Convert the human voice into digital form, break that signal into data packets and transmit those packets over an Internet Protocol (IP) network. Put them back together at the other end and convert the data back to audio and the voice sounds more or less the same as if you converted it to an analog

waveform and transmitted it over a circuit-switched telephone network. So what’s the difference?

To the human ear, not much. But to telecommunications regulators, it could make quite a big difference. Exactly what difference should it make whether a phone conversation is carried in the traditional way or using voice over IP (VoIP)?

In the spring, the Canadian Radio-television and Telecommunications Commission (CRTC) published Telecom Public Notice 2004-2, outlining its preliminary thoughts on regulating this increasingly popular way of carrying phone conversations. Put simply, the commission’s view is that a phone call is a phone call.

This does not include all VoIP communications. The first use of VoIP involved early adopters setting up their own Internet voice links between computers. That kind of VoIP is virtually impossible to regulate — how do you know what Internet users are sending over the Net, or what large organizations are sending over their private networks? The CRTC made it clear that it is not talking about that sort of VoIP.

What the commission proposes to regulate like ordinary phone service is the sort of VoIP call that companies such as Vonage Holdings Corp. and Primus Telecommunications Canada Inc. have recently begun offering to customers. With these services, a customer gets a telephone number that looks like any other North American telephone number, and the ability to call anyone on the public phone network.

Constructing a level playing field

The CRTC’s view is that if it provides a phone number conforming to the North American Numbering Plan and lets you make calls to anyone on the telephone network, it’s a phone service and should be regulated as such.

Some carriers and industry observers agree. Eamon Hoey, president of Hoey Associates Telecommunications Consulting Services Inc. in Toronto, says the CRTC is right in aiming to make regulation technology-neutral. “”Whatever you do, it should not advantage or disadvantage anybody,”” he says. “”In other words, we want a so-called level playing field for all entrants.””

There are two ways to get that level playing field — regulate the new technology the same way as the old, or deregulate the old to match the new. Hoey favours the second option. He agrees with the incumbent phone companies when they say that by choosing not to regulate wireless carriers at the local level, the CRTC has undermined its “”a phone call is a phone call”” argument for regulating VoIP. But if you’re not going to regulate VoIP, he concludes, why regulate competing services on the public switched telephone network?

Others argue for keeping the existing regulations and applying them to VoIP.

“”It can fit in pretty much with the existing regime,”” says Robert Yates, co-president of Montreal-based telecom consultancy Lemay-Yates Associates Inc. That would mean treating incumbents differently from new entrants, and Yates says that’s appropriate because of their market power. “”They can easily drive competitors out,”” he argues.

“”Every time the technology changes you don’t turn the regulatory framework on its head,”” says Chris Peirce, senior vice-president of regulatory and government affairs at MTS Allstream Inc. Peirce — whose company resulted from the recent marriage of incumbent local exchange carrier Manitoba Telecom Services Inc. with national long-distance competitor Allstream Corp. — says competition in new services like VoIP depends on making sure incumbents can’t use their dominance of traditional services to muscle out competitors in the emerging VoIP world.

Guess what — the incumbents disagree. While they don’t argue that a mere change in underlying technology justifies different regulatory treatment, Bell Canada and Telus Corp. maintain that at least some types of VoIP services are different enough that established phone companies should be allowed to offer them without being subject to the same restrictions that apply to their traditional services – particularly the requirement that the CRTC approve their prices, which it does not have to do for other competitors.

Janet Yale, executive vice-president of legal, government and regulatory affairs at Telus Corp., agrees that if her company uses VoIP within its network but the service to the customer is unchanged, that service should still be subject to the same regulation, including the pricing rules the CRTC now enforces. But, Yale argues, VoIP services like those of Vonage and Primus separate the service from the network. Customers buy VoIP as an Internet application and run it over a high-speed Internet connection that might come from the same company or might come from a different one.

If Telus offers such a service, she says, a customer might use it over a Telus Digital Subscriber Line (DSL) Internet connection — or over another carrier’s DSL line or a cable modem. So Telus no longer gets the same advantage from owning the local telephone network in its home provinces, nor do MTS Allstream, Bell Canada, Aliant Corp. or SaskTel have a comparable advantage on their traditional turf. Even in Alberta and British Columbia, Yale says, Shaw Communications Inc. has more of the broadband Internet access market than Telus.

Lawson Hunter, executive vice-president of Bell Canada’s parent BCE Inc. in Montreal, says the CRTC has already forborne from regulating Internet applications, and VoIP is just another Internet application. And he agrees with Yale that incumbents have no advantage in this market and should be free to compete on price with emerging competitors.

Is an IP phone call the same as a PSTN call?

Couldn’t an incumbent carrier use its strengths in some way to make new competitors’ lives difficult? What about service bundles? What about cross-subsidization? What about, perish the thought, a carrier tweaking its broadband Internet service to favour its VoIP service over that of a competitor? A fair point, Yale admits, and “”I have no problem having a conversation about what regulatory safeguards are necessary or appropriate.”” The big issue, she says, is price regulation. The ILECs are not dominant players in offering VoIP services distinct from network connections, she argues, and therefore their pricing does not need to be regulated. In fact, she says, if the ILECs are not free to respond to the prices set by the pioneers in this area, they may have to sit with their hands tied and watch VoIP services erode their existing businesses.

But Hunter says ILECs should be free to bundle services. “”That’s unfortunately the way of the world,”” he says. “”I don’t really see why that raises any public policy regulatory issues.””

And Yates argues price regulation is also needed. The incumbents can afford to price services below cost, driving out competitors, he says.

John Lawford, a lawyer and research analyst at the Public Interest Advocacy Centre (PIAC) in Ottawa, takes a cautious view of the debate. For now, the PIAC supports the CRTC’s position — a phone call is a phone call. But Lawford admits that may change as the issues become clearer. “”There’s something to the arguments that are being made that (VoIP) is going to change everything,”” he says, but “”the CRTC position is one that gives us short-term stability so that we can see what comes out of the dust.””

Whatever the CRTC ultimately does about price regulation, Lawford says, the PIAC is adamant that social obligations must be upheld. That means, for example, requiring VoIP operators to provide 911 access and services for the hearing impaired and so forth. “”It’s quite disturbing to us that the commission even considers approving the services”” without full 911 functionality, he says.

Advocacy group wants to reset the clock

At press time, the CRTC was conducting public consultations. Philippe Tousignant, a commission spokesman, says the CRTC hopes to establish a VoIP framework by early 2005.

VoIP raises questions that could shake telecommunications regulation to its foundations. “”Basically everything is going to become data,”” Lawford maintains, “”and you know how competitive data is.”” This shift could force a serious rethinking of what regulation should do and how well it’s working. Lawford favours it, noting that Bell has been promoting a broad review of telecom policy for a while now. Since the current Telecommunications Act was proclaimed in 1993, he says, technology has moved fast.

“”In our view, it’s time to reset the clock.””

Yates says the regulatory system is better than the balkanized mess of 20 years ago, when some carriers were regulated federally and some provincially. But the process is still too slow, he says. “”Some of these things just take huge, huge amounts of time.””

In a recent speech, Telus president Darren Entwistle proposed simplifying some rules and establishing performance guidelines for the CRTC itself — requiring, for instance, that issues be resolved within specified amounts of time.

To a large extent Hoey argues for less regulation. “”What we want them to do is get out of the kitchen and stop stirring the pot,”” he says – though he adds that regulation is still needed in some areas, such as remote locales where local service probably wouldn’t exist without it.

Lawford says the problems are much the same as ever — poor customer service and limited coverage of unprofitable areas, for instance. Local competition has largely fizzled and local rates have not fallen. It may be possible to simplify regulations and still achieve the desired results, he says, but regulation still has a place.

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