Vonage Canada Battles Over “VoIP Tax”

By | March 30th, 2006 comments icon (6) Comments


Vonage logoConsumer VoIP pioneer Vonage is among the first companies to face a Quality of Service (QoS) surcharge by Canadian operator Shaw Cable. Vonage customers are “encouraged” to pay an additional C$10 ($8.60 USD) in order to use the Vonage VoIP service over Shaw’s broadband cable modem connection. Not so coincidently the added surcharge reduces the monthly price difference between Shaw’s competing VoIP product to about C$10 from C$20. Vonage obviously decided to make a very public objection to this surcharge, while Jim Shaw, C.E.O., Shaw Communications Inc largely dismissed the complaint by asserting that Vonage’s claim is “both wrong and misleading”.

While US Telco and Cable operators continue to struggle over the issue of ‘Net Neutrality’, Shaw Cable in Canada is one of the first operators in North America to levee a surcharge on customers that use high bandwidth applications or services on their broadband connection. Broadband operators claim that these high bandwidth services cost more to service and further maintain that either the end-user or the company providing the services should pay a premium for the access and QoS.

At issue are what the operators refer to as “Over the Top” applications and services such as Vonage, Skype, Akimbo, iTunes or other services that require a broadband connection to enable the product. The operators are rightfully concerned that the capital investment made to provide these high speed networks will be cannibalized by Over the Top services. The business models for providing high speed internet connections are based on consumers buying cable, phone, internet and related products directly from the operators. Over the Top applications put those revenues in serious risk.

The results of this complaint are being closely watched and the implications of this case could be far reaching. Start-up’s such as Skype, Vonage or Real Networks might never have gotten off the ground if consumers were forced to pay a premium for these products in the early going. Technologies such as Bit Torrent might never have been developed or flourished if not for the open nature of the Internet. There are a lot of social, political, and economic reasons on both sides of the Net Neutrality debate and it’s only getting started.

It will be curious to see how this all plays out. It’s also curious how this issue will impact Vonage’s pending IPO later this year. There are rumors that Vonage is also looking for a buyer as well. Maybe Google, who recently made public objections to any surcharges or premiums, will make a run at Vonage. I’m not so sure Shaw Cable would be able to bully Google as easily as it is pushing Vonage Canada around.

[Edited to reflect a change in the first paragraph. Note: Vonage users are not required to pay the surcharge to use the service.]





Filed in: Broadband

  • nickgailloux

    As an eHomeUpgrade fan for a long time, I’m very dissapointed in the accuracy of this article. It is not required to pay the $10 fee to get enhances QoS with Shaw. In fact, I use Primus TalkBroadBand over my Shaw connection without the QoS enhancement and it works flawlessly. This $10 option is so VoIP customers can get better service in the off chance that their VoIP line is not working well. My speeds with Shaw are consistently 4.8 Mbps and delay is minimal, so this is absolutely in now way required to use VoIP. This rumour has been spread around ridiculously throughout the Internet.

  • Andrew McLaughlin

    Nick, thanks for pointing that out. The original article does in fact state that users are “encouraged” and not required. I’ll make the edit. The issues around ‘Net Neutrality’ and the related impacts are still very much an important topic. There are questions related to these QoS fees for critical IP applications such as VoIP that will continue to arise. Will consumers need to pay an additional surcharge for every critical IP application used over thier home broadband connections? Thanks again for the note.

  • http://www.alexandergrundner.com Alexander Grundner

    Ok, I had to see for myself what the fuss was all about. Below are some interesting quotes that I pulled both Vonage and Shaw.

    Vonage press release quotes:

    Shaw recommends to its high-speed Internet customers that they pay an additional $10 charge if they use a Voice over Internet Protocol (VoIP) phone service provider such as Vonage Canada. Shaw claims its “quality of service enhancement” fee, which it does not charge to its own Internet phone customers, is necessary to ensure independent VoIP service is not disrupted or degraded.

    In its submission to the CRTC, Vonage described the VoIP tax as a possible “red herring” because Shaw had refused to provide a technical explanation for how its enhancement works or why it is necessary.

    “In the absence of credible, complete information, there is good reason to believe (Shaw’s) service offering is not an enhancement to Shaw’s high-speed Internet service but rather is an anti-competitive measure aimed at either increasing the perceived cost, or damaging the perceived reliability, of the services of independent Internet telephone service providers when compared to Shaw’s higher-priced phone service.”

    Shaw counter press release quotes:

    With Internet telephony, voice packets are treated like regular data. Under peak loads voice frames will be dropped equally with data frames. Regular data, however, is not time sensitive and dropped packets can be corrected through the process of retransmission. Dropped voice packets, which are time sensitive, cannot be corrected in this manner. Shaw’s quality of service enhancement helps address these shortcomings with Internet telephony.

    Contrary to Vonage’s claim, Shaw does not offer an Internet telephony service in direct competition with Vonage or any other Internet phone provider. Shaw’s Digital Phone service is a carrier-grade, primary line, local and long distance residential telephone service that uses a managed IP network. Shaw Digital phone calls travel directly from Shaw’s secure private network to the tried-and-true public telephone system. They do not travel over the Internet. The result is a more reliable and higher quality phone service.

    So it looks like Shaw’s phone service is not a direct “VoIP competitor” per se, since it uses an IP network to land line transmission. However, I can see the value of paying extra if you want near-pristine VoIP call quality by having Shaw monitor and regulate dropped data and voice packets, since they make the argument that voice packets are time sensitive and critical.

    My take is: You really shouldn’t have to pay for Shaw’s QoS unless you are experiencing shoddy VoIP call quality (and perhaps this is something that’s business critical). Like nickgailloux said, “I use Primus TalkBroadBand over my Shaw connection without the QoS enhancement and it works flawlessly.” It seems to me that Shaw is providing a value-add service by identifying and providing a solution to curb voice packet loss so VoIP users have a consistent, high-quality experience.

  • nickgailloux

    A bit of info regarding Shaw’s Digital Phone Service:

    Digital Phone does use VoIP technology but it does not run through your Internet connection. It runs through a secondary modem/gateway device and through a seperate, private network that is managed entirely by Shaw and dedicated for this use only. Once it leaves this network it goes straight into the PSTN which almost never experiences congestion. No Internet traffic traverses this network. Thus, Digital Phone customers do not need the QoS enhancement.

    VoIP from providers such as Primus, Vonage, etc, run through the Internet. This means that anywhere between the source and destination, congestion can occur. The QoS enhancement gives priority to your voice traffic over traffic such as the large packets used in BitTorrent and other P2P traffic which is not delay sensitive. Again, this is not required. As a matter of fact, I’ve spoken with a few Shaw customers that do not have QoS and are using Vonage, where their delay in the Shaw network was very small (less than 100ms) but their overall VoIP delay was 300ms or more. This is caused by congested Internet links that Shaw and Vonage have no control and little influence over. Try your VoIP product on your Shaw connection. If it doesnt perform well, try the QoS option for a month.

  • http://www.alexandergrundner.com Alexander Grundner

    Jason Dunn from Digital Media Thoughts sent me the following email on the topic that may be of interest:

    I happen to live in Calgary, the home of Shaw Cable, and also happen to have
    a cable modem through them (well, technically through CIA, a company that
    rents time on their network). The $10 a month charge is what they charge to
    go from “regular” service to “Shaw Extreme”. Shaw Extreme boosts speed from
    5mbps to 7mbps, but more importantly it boosts the upstream data speed from
    around 60kbps to 120kbps – and that upstream data is what you use to make
    the calls. 60kbps isn’t much bandwidth is someone else on the home network
    is sending email, and I don’t think the Vonage box does any sort of
    bandwidth throttling on the computer network to prioritize voice calls…

    Hope that helps a bit. :-)

  • nickgailloux

    Alexander Grundner said: Jason Dunn from Digital Media Thoughts sent me the following email on the topic that may be of interest…

    Regarding that email. Shaw’s $10 Extreme-I option is completely different than the $10 QoS option. First of all, the Extreme-I option boosts your download speed from 5 to 7 Mbps, and your upload speed from 0.5 Mbps to 1 Mbps. The QoS option prioritizes your voice packets, therefore reducing delay, not increasing bandwidth.

    The Extreme-I option will likely not improve your VoIP call quality, as it does not decrease delay times.