UNCLAS OTTAWA 001472

SIPDIS

SENSITIVE

STATE FOR EB/CIP, EB/BTA/DCT - FAIRFAX/SHEEHAN
AND WHA/CAN

STATE PASS USTR FOR J.MCHALE AND S.CHANDLER

FCC FOR INTERNATIONAL - D.ABELSON, J.MANN AND P.COOPER

USDOC FOR 4310/IEP/OOC/WH/J.BENDER

USDOC ALSO FOR NTIA - BURR

GENEVA FOR USTR

E.O. 12958: N/A
TAGS: ECPS ETRD CA
SUBJECT: VOIP: CANADA CONFIRMS IT WILL REGULATE INTERNET-
BASED TELEPHONY

REF: 04 OTTAWA 0924


1. Canada's communications regulator has confirmed a
decision which it foreshadowed in April 2004 (reftel): that
its existing telecoms regulatory framework will cover "voice
over Internet protocol" services when VOIP is used for local
calling. (The decision, by the Canadian Radio-Television
and Telecommunications Commission or CRTC, is available on-
line at www.crtc.gc.ca -- Telecom Decision 2005-28).



2. While this approach contrasts with the U.S. FCC's free-
market approach to VOIP, the CRTC stresses that its
intention is not to regulate, but to create sustainable
competition in local phone service - which in Canada remains
dominated by two incumbents. This view is supported by the
fact that the major telcos, Bell and Telus, expressed
disappointment at the decision. Bell and Telus both offer a
wide range of wireline, wireless and Internet services
across most of Canada and, while they are challenged in some
areas by cable firms and smaller players, they clearly
thought they could do well in unregulated VOIP.


3. Competition in communications services in Canada has
been driven as much by technology as by regulatory change.
While the CRTC adopted pro-market rhetoric a decade ago,
progress has been slowed by a number of factors, including:

-- Restrictions on foreign ownership (currently
limited to 46.7 percent), which mean that U.S. and
other foreign-owned players can only enter the market
as minority partners.

-- Continuing desire by the GOC to use its regulatory
control over large, profitable incumbent telcos in
order to achieve public policy goals (such as
promoting "connectedness" of poor and remote
communities).

-- Resistance to deregulation by Canada's "cultural
policy" establishment, which believes that loosening
restrictions on the telecom industry will inevitably
loosen the GOC's grip on broadcasting and other media.

-- Lack of reform of the CRTC's cumbersome structure
and very slow processes. Most players acknowledge the
need for such reform, but concrete steps have been
delayed for a variety of political and institutional
reasons.


4. In this context, it may not be "deregulation" but
rather technology-driven change -- such as the arrival
of VOIP and the offering of telephone service by cable
TV and perhaps even by electric power firms - that
brings Canadians greater competition in phone service.

DICKSON