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VoIP Traffic Termination Charges: Good News and Bad News

January 20, 2011

By David Sims, Business VoIP Contributing Editor

Don't you love those good news/bad news deals? Which do you want first as concerning a new traffic termination deal between business VoIP provider Bandwidth.com and Verizon? How about the good news? We thought so.

Industry observer Joan Engebretson writes that the deal "represents an acknowledgement on the part of the VoIP provider that its traffic may be subject to termination charges. Some VoIP providers have argued that they are not required to pay terminating access charges because VoIP is an information service, rather than a communications service." This is a good argument. 

And as she says, "some of those VoIP providers have gone to great lengths to avoid paying termination charges, including disguising the originating phone number to prevent the terminating carrier from billing for the traffic, a ruse known as "phantom traffic."

As industry observer Mike Dolan says, "The deal puts on display what two VoIP players are willing to pay for VoIP termination on landlines and might put pressure on the rest of the industry to drop prices on termination fees. The deal for an agreed upon rate for traffic that originates from or terminates to a VoIP end user provides the companies with cost certainty for the traffic they exchange."

Bandwidth.com President John Murdock recently gave an announcement about this deal, saying "for too long, uncertainty over what charges apply to VoIP traffic has served as a wall to the innovations customers want and the lower prices they need."

The bad news, however, as far an Engebretson sees it, is that the deal calls for what she sees as "a surprisingly low $0.0007 per minute." As she explains, "Small rural Telco’s traditionally have the highest termination charges because they rely on those charges to pay part of their network costs, which tend to be substantially higher than for carriers in more densely populated areas. It’s unlikely that Bandwidth.com would be willing to sign an agreement to pay typical small Telco termination fees, unless the company is using phantom traffic techniques, however, it presumably is already paying those charges today."

"The deal allows Bandwidth.com to make business decisions based on the cost they now know will be incurred when their users make VoIP calls and put money towards investing in innovations," Dolan says. Engebretson cites Stifel Nicolaus analyst Rebecca Arbogast saying “In the absence of reform, we believe Verizon and others are looking to put downward pressure on inter carrier compensation in the marketplace."

David Sims is a contributing editor for business-voip. To read more of David’s articles, please visit his columnist page. He also blogs for business-voip here.

Edited by Charles West

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