International Traffic Changes Lanes

Posted: 1/2004

International Traffic Changes Lanes
By Khali Henderson

The wholesale international termination business is far different from the days of bilateral agreements between incumbent operators. These deals do exist and remain the foundation for worldwide traffic exchange, but the introduction of mobile and VoIP players are changing the landscape  not only the sources for termination but also its prices.

The traditional bias toward bilaterals versus resale isnt what it was, notes Michael Musa, vice president of international long distance for Qwest Communications International Inc. Qwest formed the international long distance unit as part of its wholesale business in April 2003. Musa, a veteran of the international telecom business, says, unlike years past, his job now is to manage a stable of suppliers that meet the quality and price requirements of wholesale customers. These might include operators, resellers or IP carriers.

Underlying this change, Musa says, is an evolution of the international long-distance market to one that has to be more precise in addressing customer needs and in recognizing, ultimately, the end user is that customer.

Dan Vargas, vice president of sales and marketing for the United States and Latin America at France Telecom Networks & Carriers, agrees, adding some wholesalers have lost sight of that fact. Some players are coming around to this way of thinking, he says and notes, The pure play wholesale- to-wholesale model is not as sustainable as it once was. He says price alone is not working anymore and almost every international wholesaler has retail and wholesale rate tables even for carrierto- carrier traffic. The so-called retail rate table enables them to break out the higher quality and higher priced routes.

Evidence of this migration also is in the September 2003 launch of Select Routing by Arbinet Inc., operator of thexchange minutes trading floor. Select Routing products feature only routes tested by the exchange to meet certain quality standards for the previous seven consecutive days.

While France Telecom resells and manages several of its own lower-cost VoIP routes, it also maintains many traditional bilaterals, which enables it to offer customers international toll-free service, tollfree home country calling for travelers and ISDN services that its wholesale customers can pass on to their end users. More and more customers are coming to us as a stable provider, Vargas says, noting France Telecom has seen a 15 percent increase in U.S. originated traffic over the last 12 months. He adds, where France Telecom has direct termination agreements it may be second or third on customers wholesale routing tables, but typically are first on their retail ones.

QoS isnt the only aspect affecting rate tables; traffic type  fixed or mobile  also is having a great impact. Worldwide, says research house Telegeography, approximately 25 percent of international call volumes, or 36 billion minutes, are terminated on mobile phones  a percentage that is increasing, the firm reports. This increase affects call pricing because terminating on mobile networks usually is more expensive than on fixed-line networks. In Spain, for example, wholesale costs to mobile phones may be up to 14 times those of calls to fixed lines.

This situation is largely mirrored in countries  particularly in Europe  with a calling party pays billing structure. In the United States, however, both parties  the caller and the called  pay for mobile connection, so termination rates for mobile calling are much more like those for fixed lines. Where U.S. wholesale carriers have blended fixed and mobile international termination rates, the opportunity for arbitrage for savvy players is apparent. Thus, such pricing has been broken out.

Meanwhile, U.S. carriers working through the U.S. Trade Representative and the Federal Communications Commission have been pressuring foreign regulatory bodies to end the U.S. ratepayer subsidy of foreign mobile networks by bringing mobile termination in line with costs. According to Telegeographys tracking, the results have been mixed, ranging from the establishment of best-practice guidelines for setting interconnection prices in France to direct mandates for costoriented pricing in Sweden to no intervention whatsoever in Germany.

Speaking on background, one executive from a large CLEC told PHONE+ the situation is absolutely untenable. When compared to wireline interconnection, wireless interconnection is so much higher there is no economic justification. If you have rates out of whack, you are going to have arbitrage, he adds.

Indeed, there are companies operating in the gray, either posing as end users to pass traffic to carriers that still charge blended rates, or by operating GSM gateways wherein they run traffic through a device that makes the traffic appear to be originated from a mobile phone for which termination rates are cheaper. The operators eventually discover these tactics, and the posers are disconnected.

If you see a lower-priced source, you might be able to get it for a month or two, but then it gets shut off, explains Rich Grange, CEO for New Global Telecom, adding in that case it was probably a fixed cellular box. The strategy is to use all means to force them [wireless operators] to play ball.

Their incentive, however, may be low. Telegeography reports mobile operators depend on termination for 25 percent of their revenue.

VoIP wholesaler ITXC Corp., however, claims to have negotiated attractive mobile interconnection rates and it credits the strategy in part with boosting its wholesale customer base. Its not a problem; its an opportunity, says Dan Fitzgerald, senior product manager for ITXC.