Introduction

Last updated: September 30, 2005

VOIP (or Voice Over Internet Protocol) allows users to make phone calls using their high-speed Internet connection (e.g., ADSL or cable broadband). Inbound and outbound interconnection to the telephone network typically requires the installation (and configuration) of an adapter or gateway.¹

A variety of factors (discussed in the SWOT analysis below) drive the adoption rate of VOIP; however, in Canada, where basic, local, wired phone service is generally considered affordable, the switch to VOIP is increasingly arising from dissatisfaction with monopolistic incumbents.

Strengths

In contrast to traditional phone line service, VOIP offers:

• (Similar) basic phone service at lower cost.
• Common calling features, often included in the basic package.
• Cheaper long distance rates, with unlimited long distance plans available.

Facilitating the switchover is the relative ease of installation of the adapter or gateway (i.e., plug & play).²

Weaknesses

The slow adoption of VOIP may be attributed to such concerns as:

• End-user start-up costs (e.g., new account fees, shipping & handling costs for the adapter/gateway, etc.).³
• How to route 911 calls to the proper PSAP (public safety answering point)?⁴
• Lack of dry loop (aka naked DSL, i.e., DSL service without basic phone service).
• Number portability/migration/transfer to VOIP providers is not widely available.
• No service in event of power outage (in the absence of UPS).
• Service quality, e.g., latency (network path, conversions).
• Lack of consumer education (re: availability, quality, etc) due to fragmentation in the market and comparatively lower brand recognition (vs incumbent telcos).

Opportunities

VOIP providers may be more nimble to expand their service offerings and attract customers. These areas include:

• Customer service excellence.
• Bundling other services.
• Partnering with other service providers.
• Affiliate and referral programs.

Threats

Competitive threats and risks faced by the VOIP industry:

• Telcos offering bundled service discounts to keep traditional phone customers.
• Telcos setting anti-competitive wholesale tariffs on unregulated services.⁵
• Cable companies offering VOIP solutions over cable broadband.
• Wireless phone services.
• Regulation by CRTC.

Notes:

1. Software solutions (e.g., Skype) and add-ons also exist.
2. Unlike "always on" ADSL (e.g., Telus), additional configuration needed for PPPoE connect-on-demand ADSL (e.g., Bell) when no router is present. Firewall configuration changes may also be required.
3. Comparable to what telcos charge for new connections.
4. On April 4, 2005, the CRTC ruled that VOIP providers had 90 days to implement 911 service for fixed location (aka native) VOIP customers.
5. On May 25, 2005, a coalition of Quebec ISPs oppose Bell's $10 surcharge on wholesale naked DSL.

The Competitive Landscape

The Players

Firms with a stake in the VOIP market include:

• Telcos (e.g., Telus, Bell)
• Local phone and long distance competitors (e.g., Sprint, Primus)
• Cable companies (e.g., Shaw, Rogers)
• Internet service providers
• VOIP-only (e.g., Vonage)
• Resellers

Customer Issues

Customers may have one or more concerns before switching to VOIP:

• An attachment to one's existing phone number. Number portability (or migration) is not available in all areas.
• Service quality: voice quality, latency (lag), and interruptions (unavailability).
• Service recovery: who to call for repairs, how to call for repairs, etc?
• 911 emergency service may not be available (yet). The technical difficulty varies depending on the area code and location of the adapter/gateway: native (fixed, located in area code), non-native (fixed, located outside area code), nomadic phone numbers (not fixed, not necessarily located in area code).
• Inavailability of unbundled, dry loop. That is, you can't have ADSL service without also having a telco supplied basic phone line service. In this scenario, VOIP would either supplement rather than replace a traditional phone line, or mean switching to cable broadband.
• Billing: paper statements or e-bills? are there set-up and termination fees, hidden charges, security deposits, etc?
• Legalese or fine print (i.e., Terms & Conditions, Terms of Service, Terms of Use, Acceptable Usage Policy).

Provider Issues

Similarly, VOIP providers have concerns with respect to:

• CRTC regulation and so-called "levelling of the playing field".
• Unfair competition.
• Interconnection (availability, costs, and technical issues).
• QoS (and specifically, preferential routing).

Conclusion

A number of commercial VOIP providers exist -- some of which are listed below for comparison. (E&OE.) Please check with the provider for updates and detailed information. For example, some providers offer discounts (e.g., signing a 2 year commitment contract or upon purchase of gateway) and other incentives (e.g., Air Miles).

We do not offer any recommendations at this time, but strongly advise that you read the fine print (i.e., Terms of Service, Terms of Use, Acceptable Usage Policy, Terms & Conditions, etc.) as a cursory inspection found substantive disparity between providers. Specific conditions include remote access requirements, how customers are notified of policy changes (if at all), how limited is "unlimited", and going to great lengths to define what constitutes "residential use".

Comparison Matrix⁶

Notes:

6. Disclaimer: the reviewer is/was a customer of Primus, Telehop, Shaw, Rogers, Telus, and Bell Canada.
7. Quoted prices are monthly fees and exclude any activation fees. Sprint charges $4 for the first feature and $2 for each additional feature.
8. Similar to "Follow Me".
9. Dedicated fax line with its phone number.
10. Contact Sprint Customer Care for a configuration change.
11. Credited back over first 4 months.
12. Activation fee per line.
13. Security deposits, credited back upon return of equipment.
14. Plus: early cancellation fee (ECF) equal to 20.00 per month remaining in contract term.
15. Not available in all areas. May be subject to additional charges.

Position Statement

In our humble opinion, VOIP is still in the early adoption stage, with the masses (informed or not) taking a wait-and-see stance. The much anticipated entry into the VOIP market by the cable companies (e.g., Rogers) should shake up the industry a bit, at which point, we expect to see more advertising, aggressive pricing (e.g., waiving start-up fees), and competitive bundling.

To overcome customer disservice and billing complaints, the telcos have limited, immediate means to retain customers and mitigate revenue loss:

1. Bundling discounts for phone, wireless, and Internet (ADSL).
2. Unbundling local loop from ADSL service.
3. Lobbying CRTC for increased regulatory scope.

By offering consumers a choice between a managed phone service (comparable to traditional telco phone service) or third-party VOIP over their broadband network, we believe cable companies stand to gain the most.

"Latecomers need not apply." Given the high cost of infrastructure deployment and entrenchment by some existing VOIP firms, we expect firms to seek operational efficiency (e.g., lower infrastructure maintenance costs), industry consolidation, and/or exits by some players.