Maturing technology, more vendors with stronger solutions, heated competition and increased convergence are the key drivers behind the emerging voice-over-IP market in Canada, according to the Yankee Group.
Primus Canada was
the first to market with is VoIP offering in January 2004 — one year after Vonage launched its service in the U.S. — followed by Vonage, the former Sprint Canada (now Rogers Telecom) and more recently cable companies such Shaw and Rogers. The technology, however, presents different strategies and risks to these groups, an analyst said.
“For cablecos, adding phone service allows them to compete with a true triple play,” said Carrie MacGillivray, senior analyst, Canadian market strategies, Yankee Group. “With the CRTC ruling they will also be able to bundle local service into their existing bundles.”
MacGillivray, who led a Yankee Group online discussion forum titled, “Canadian VoIP Landscape,” on Wednesday, added the introduction of VoIP also provides cablecos with an opportunity to develop a new revenue stream and compete aggressively with the incumbent telephone carriers.
Alternative providers like Vonage are vying to create a profitable business and grow their revenue in a market where they face stiff competition from big players.
“They are faced with a shrinking niche market that is interested in a very low cost service,” said MacGillivray . “Without a larger product portfolio, they are vulnerable.”
MacGillivray added if alternative providers or niche players want to stay afloat, they need to focus on value-added services instead of solely fixating on price.
Telcos, on the other hand, must enter this market and try to prevent customers from turning to the competition. This group, however, runs the risk of “self-cannibalization” of their existing local telephone service. At the same time, the introduction of such an offering also allows them to retain a revenue-generating customer.
“(Telcos) need to take advantage of their strong reputation and look outside the box when considering bundling options,” said MacGillivray.
But it’s the incumbents or ILECs (incumbent local exchange carriers) such as Bell Canada and Telus that are faced with the biggest challenge to protect their existing subscriber base and continue to grow revenue. ILECs face the additional risk of confusing the customer in terms of giving them two options — traditional phone service and voice. The other more pressing risk is the regulatory environment. The decision on May 12 ensures that new entrants have a chance to get established in the voice market before there is an unfair advantage from incumbents, according to the analyst firm. ILECs, however, fought back last week when they asked the feds to overturn the May 12 ruling.
“The ILECs view the May 12 decision as a severe handicap for their ability to compete both with requirement for tariff approval but also bundling and win-back rules,” said MacGillivray.
While the ILECs argue that restrictions imposed on them jeopardize their competitive position — Yankee Group says telephone companies have 97-plus per cent market share in the local telephone market — the CRTC’s recent quick term approval of Bell’s tariff application for digital voice still gives ILECs the chance to compete flexibly. MacGillivray, however, added that if other players ask for full disclosure of the prices then this could hinder Bell’s current position.
“The bundles, being the strong marketing tool that they are, will inhibit some customers from moving voice and high speed Internet elsewhere regardless of whether local phone service is or isn’t bundled with other services,” she said.
While cablecos present a viable alternative to the ILECs, the Yankee Group reported that the Canadian cable VoIP market has moved slower than initially expected. But the cablecos also face competition — namely from the growing threat of telco video providers like Videotron, which leads the Canadian cableco VoIP market. Videotron launched a VoIP service in Montreal in January and currently has 42,000-plus voice customers in the province.
“This example demonstrates the pent up demand for cheaper ILEC replacement in Canada,” said MacGillivray.
Even with increasing adoption rates of the technology, the Canadian Technologically Advanced Family Survey, which surveyed 1,100 respondents, showed that 71 per cent have never heard of VoIP. Twenty-four per cent said they had heard of it but never used it and only four per cent have tried it.
“There’s still a long way to go for VoIP to gain mass market popularity,” said MacGillivray.
Aside from bundles, new features and long distance savings, MacGillivray said ensuring a positive end user experience is paramount to driving consumer adoption of VoIP.