Monday, March 07, 2005

Mar. 7, 2005. 01:42 AM

Bell finally grants high-speed freedom


Bell Canada's high-speed Internet service is about to get naked.

Canada's largest phone company has confirmed that, by the end of this month, its customers will be able to buy its Sympatico digital subscriber line (DSL) service on its own without having to pay for a local phone line.

Bell, in a letter dated Sept. 15 to the Canadian Radio-television and Telecommunications Commission, committed to coming out with so-called naked DSL by March of this year. It will mean that customers who want to use their mobile phone or a Voice over Internet Protocol product as their primary phone service won't have to pay $23 or more for a local line they don't plan to use.

"At the end of the month we're doing a soft launch," said Charlotte Burke, senior vice-president of consumer Internet services at Bell.

By "soft" launching Sympatico as a standalone product, Bell means it won't be heavily promoting the fact it's available. It will, however, offer it to those customers who ask. Burke said Bell is treating this initial phase more like a commercial trial, a chance for the company to test out its processes before widely promoting the option as part of a "hard" launch later this summer.

"We want to be ready for the summer, the whole back-to-school season," said Burke. "We think the whole concept of mobile (phone service) and Sympatico as a student offering is really compelling."

This is important, because for the first time Bell seems to be positioning its mobile service as a landline replacement. The risk, of course, is that there's no guarantee a customer will choose Bell's wireless service.

Burke avoided mentioning "VoIP" during the interview, but there's no doubt that naked DSL could prove a significant boost for companies such as Primus, Vonage and Comwave, who sell Internet-based phone service that can piggyback any high-speed connection.

"It opens up a big piece of the market for us," says Bill Rainey, president of Vonage Canada. "It gives customers the opportunity to use lots of other suppliers for VoIP, including us. We're thrilled."

A Vonage customer can get unlimited calling to any location in North America for just $40, and that includes a half dozen features such as call waiting and call answer, as well as a Web account where people can manage their calls online. You can get pretty much the same package for just $30 through Primus, which is putting pressure on Vonage to lower its own prices.

But even these bargains don't look so good if a Bell Sympatico customer still has to pay for a traditional local phone line.

Rainey said Bell, like some phone carriers in the United States, have been forced to move toward naked DSL. Many customers want to use VoIP or wireless as their primary phone service and have been leaving Bell altogether and opting instead for high-speed cable Internet, he said.

By going to a cable company such as Rogers Cable, you're not tied to a traditional local phone service. While Rogers and others do bundle high-speed cable with cable TV, customers can pay a $10 premium to get the broadband line on its own. Rogers plans to introduce a phone-over-cable service July 1, giving cable users another option.

Bell risks losing two sources of revenue by keeping customers hostage to a DSL-local combo."That's simply not good business for the phone company," said Rainey. "By choosing to separate DSL and local, they at least get to keep the ISP component of the service. You've got to understand that Bell realizes this is very good for them."

Brian Sharwood, a telecom analyst with The Seaboard Group in Toronto, agreed that Bell and other phone carriers have little choice. "I think market forces are pushing Bell in that way."

The timing might end up being good for Bell, if it plays its cards right. On March 17, Rogers Cable will begin capping to 60 gigabytes the amount of bandwidth its high-speed cable customers can use. This bandwidth cap is the same, whether or not you're a Rogers Lite, Express or Extreme user.

A small but vocal — and angry — contingent of Rogers Cable high-speed customers using the ultra-fast Extreme service say the cap defeats the idea of an "unlimited" high-end offering. They say it makes no sense to slap the same cap on everybody, since it's logical to assume that Extreme users will be doing more file-sharing, movie and music streaming, and other bandwidth-intensive activities. That's why they're paying more, after all.

"While Rogers says 60 GB is generous, today's multimedia-rich Web sites use far more bandwidth than ever," wrote one reader and disgruntled Rogers customer named Michael, who has since switched to Bell Sympatico. "This is a huge customer service blunder on Rogers' part."

To make matters worse, Rogers has said on its website that the use of third-party VoIP services count towards bandwidth use, though Rogers' own phone-over-cable offering coming this summer won't. VoIP doesn't take up a large amount of bandwidth, but a heavy talker who also downloads a lot of large files could easily find themselves busting through the cap.

Rogers, it appears, wants to dissuade people from using services like Vonage or Primus. But this tactic could backfire.

As Kaan Yigit, president of Solutions Research Group in Toronto, often says, customers — as a matter of principle — don't like being caged. It doesn't matter that they may never hit the ceiling of a cap. The mere perception of a service cap, just the knowledge it's there, is enough to spark outrage.

Bell Sympatico doesn't have such a bandwidth cap. At least not so far. With naked DSL coming out, this could be a good time for Bell to start luring people back from Rogers.

"Where we might have looked at this differently a few years ago, we see it as an opportunity now," said Burke.

Unclear is whether Bell will have some surprise charges for naked DSL, similar to the $10 premium for taking stand-alone high-speed cable. One challenge is regulatory: Bell isn't allowed to bundle any of its services with local phone service at a discount. By charging a premium for naked DSL, Bell could arguably be violating the rules.

"We will, of course, price according to any regulatory requirements," said Burke, at the same time hinting that Bell could impose arbitrary charges — similar to the wireless industry's controversial system access fee — to standalone DSL users. "There's certainly costs associated with (providing) it."

Bell could also provide naked DSL on a limited basis. That is, only for customers who want to replace their local phone line with a Bell-only wireless service or its residential VoIP offering expected to come later this year. But this anti-competitive approach would surely be frowned upon by the federal regulator.

Perhaps a more realistic scenario is that Bell will provide attractively priced bundles for anyone who signs up to a high-end Sympatico and wireless/VoIP package. This approach might cannibalize Bell's traditional local phone revenues, but it will at least keep those customers away from rivals such as Rogers.

One thing to remember is that this is new territory for Ma Bell. She will move cautiously, and whatever is introduced today is surely to change before the end of the year as the company becomes familiar with this new reality.

Sure, it's risky, but Bell has no choice, and by setting its high-speed customers free it may find they decide to stick around. That is good business, because it sends a positive message to consumers.

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