December 1999

VoIP: Part VI — The Party In The Middle Of The Net

BY LIOR HARAMATY

Let me begin this column with a quick trip down memory lane to the early days of Internet telephony. In the beginning, IP telephony consisted of small Internet telephony service providers (ITSPs) that offered service to a limited number of locations. In order to expand their reach, these ITSPs started forming alliances with one another to terminate and originate more minutes. This activity required the establishment of not one but many relationships to connect to the many points in this highly individuated network.

Forming trusting relationships and legal agreements is one of the most expensive parts of running a business, and this activity proves to be a real strain on new businesses. It took years for solutions to emerge for traditional carriers to move traffic among their networks. ITSPs needed to turn a buck ASAP and didn’t have time for a state regulatory agency to slowly and painfully devise a bureaucratic solution to an entrepreneurial need.

The missing link in this evolutionary process proved to be a new type of carrier called an Internet telephony exchange carrier or a clearinghouse (terms used interchangeably throughout this column since they offer similar services). With the emergence of these new businesses, a matchmaker for the new communications industry was born. Let’s take a closer look at what these companies do and who they are.

Often referred to as a carrier’s carrier, the basic role of a clearinghouse or exchange carrier is rather simple. In a nutshell, clearinghouses simplify the relationships between providers by giving each of them a single point of contact for multiple origination and termination points. Clearinghouses charge a premium to member carriers for securely moving minutes to and/or out of their network. Members are often pre-paid calling companies that need cheap outlets to terminate their minutes, or discount telephony providers that need to increase revenue and maximize infrastructure utilization. It is a highly competitive model that can offer great rewards for service providers that offer quality service at competitive prices.

VoIP clearinghouses and exchange carriers are mixing Voice-over-IP (VoIP) and PSTN traffic to achieve best of breed services including least cost routing, overflow handling, failover, and access to countries where VoIP is still not available. Clearinghouses tend to cater to:

• Telephone companies that want to gain fast entry into the IP telephony industry;
• Telephony resellers that want to complete calls;
• ISPs that want to generate revenue by terminating large volumes of IP telephony calls;
• ITSPs that want global coverage and large volumes of traffic; and
• Future ITSPs that are considering becoming IP telephony service providers and want the expertise of a clearinghouse that can either outfit them with a turnkey solution or provide deployment/provisioning expertise and network management.

A quick list of the benefits of joining a clearinghouse service includes:

• One contract/relationship instead of many relationships with individual service providers simplifying business and legal issues;
• Immediate global footprint leveraging all existing service providers that are already connected to the service;
• Immediate multiple options for termination;
• Guaranteed payment for your services;
• Pre-selected levels of quality of service;
• Single point of contact for billing settlement;
• Traffic overflow handling;
• Turnkey solutions for easy entry into the carrier market;
• Network management;
• Administration services;
• Bundled connectivity services; and
• Approved equipment and customer care solutions.

Below is a list of some of the matchmakers of VoIP service providers. As a neutral observer in the Internet Exchange/clearinghouse business, I have taken the liberty of summarizing these companies’ corporate descriptions. I encourage you to visit their Web sites to find out more about them. Remember, there is nothing stopping you from signing up with multiple exchange carriers to maximize profits.

AT&T GCH. The AT&T Global Clearinghouse provides ISPs with a complete solution, enabling them to offer a range of Internet communications services, including phone-to-phone voice, fax, and a range of value-added applications. AT&T Global Clearinghouse offers members termination points in over 220 countries around the world.

ITXC. ITXC is one of the original clearinghouse service providers and offers turnkey solutions to its members. ITXC sells Internet telephony to carriers and resellers worldwide for international voice and fax calls, as well as new enhanced services available only because of the Internet.

Arbinet. The Arbinet Global Clearing Network (AGCN) members post for sale or purchase any capacity to any destination and attach specific parameters to define the conditions under which such trades will be authorized. The rest is performed automatically by the AGCN as it matches on a call-by-call basis any such available routes. The AGCN is presently clearing and settling minutes for all types of communications companies, including VoIP and major carriers.

iBasis. iBasis (formerly VIP Calling) manages a worldwide network of points of presence (PoPs) with primary gateway and switching facilities, or “Super PoPs,” located in New York, Los Angeles, and Hong Kong. The iBasis Calling Network enables customers to realize the benefits of IP communications by rapidly deploying new services and simultaneously reducing costs.

Clearinghouse services are performing a crucial role in the fast-paced IP telephony industry. They can be a great avenue for growth for new and traditional carriers as the communications industry continues to change and expand.

Lior Haramaty is a co-founder of VocalTec Communications and belongs to the original group that started the VoIP industry. Haramaty has dealt with passing audio over data networks since the late 80s. VocalTec started shipping VoIP products in the early 90s. Haramaty has a multidisciplinary background in the business, technology and marketing fields, is a co-inventor on VoIP patents, and has initiated and spear-headed standards activities in the industry. The goal of this column is to clearly explain issues related to voice (and other media) over Internet Protocol (VoIP) to anyone, including the “acronym-impaired” person. Requests for future column subjects are welcomed. Please write to [email protected].