June 2003
The International Market For IP Telephony
BY YONAH LLOYD
When was the last time that you vacationed in Aruba? Maybe you�ve visited
Lagos, Nigeria, or Kuwait City recently. Perhaps you have been lucky enough
to pass through Quito, Ecuador in the past few months. You may be thinking,
�What exactly do these places all have in common?� Well, if you�ve been to
any of them then you would have certainly experienced the IP telephony
explosion that is taking place in these and similar markets. In fact,
people�s daily habits of using IP for carrying voice has penetrated many
markets worldwide, far beyond anything happening in the �typical�
techno-triggers like the U.S. or Japan. Average people are taking full
advantage of the long-promised IP/PSTN convergence, whether at home, work,
on cell phones, or simply entering one of the numerous Cyber Cafes dotting
the streets.
So why is it that certain parts of the world are experiencing, or are
about to experience, a surge of Internet-based calling, while others lag
behind? I�d like to offer a first-hand account of this raging phenomenon,
and provide some understanding as to where and why IP telephony flourishes.
The Arbitrage Game
A dictionary definition of arbitrage yields the following: The
purchase from one market for immediate resale in another market in order to
profit from a price discrepancy.
Fact is, everyone needs to chat on the phone, whether with friends,
family, or for work. In most countries where the government controls the
telephone company, phone rates are typically high, as there is no
competition to speak of. Contrast this with the United States, where every
day we watch phone companies trip over each other while trying to offer us
the best rates and service plans. You may remember with fondness some
marketing messages such as �Nickel Nights,� �Reach out and touch someone,�
or the dropping pin. Yet due to the lack of competition, these and similar
slogans are virtually unknown to most of the world, even today. But that is
rapidly changing.
Enter IP telephony. Suddenly, anyone with a connection to the Internet
has a plethora of choices when it comes to delivering their voice, whether
across their country or around the world. In the phone business, the cost of
a call depends mostly on the cost of what is known as the �last mile.� This
is what a carrier is charged to bring a call into a particular country, and
is related to the volume of minutes that the carrier will deliver. For
example, the larger telephone companies can promise a lot of traffic to
Country X, so Country X may charge them 5 cents to terminate there, while a
smaller carrier may have to settle for paying 6 or 7 cents. Yet the actual
caller always pays more -- sometimes a lot more. Often the cost to the end
user is many times higher than the cost to the carrier, simply because there
is no other way for the person to make a call, and the value of the call is
much higher.
Generally, countries that are currently the most active IP telephony
users are also countries that have no pricing competition. This makes sense,
as the population typically cannot afford to pay the inflated rates they are
offered by the government, so they turn to alternative means to place calls.
VoIP has grown the most in the Middle East, Africa, and Latin America, where
price sensitivity is one of the driving factors.
Migrants
The world rests on the shoulders of migrant workers. Millions of people
each year travel to other countries for various lengths of time in order to
earn wages that are unavailable in their home country. For example, many
people from the Philippines spend up to two years in Saudi Arabia and other
nearby countries, working as day laborers, nannies, and in many other
capacities. When it comes to keeping in touch with home many do not have a
telephone or simply cannot afford the price of the calls. However, with the
advent of IP-based calling, the barrier comes down, allowing almost everyone
the ability to place inexpensive phone calls to their loved ones half a
world away.
We mentioned that many of these calls emanate from places like Cyber
Cafes. However, in order to make the technology even more accessible, many
VoIP companies are now offering a pre-paid calling card so that the customer
only needs to find a nearby phone, or pay phone, to take advantage of the
significantly lower rates. Such services have been deployed in areas as
diverse as Angola, Aruba, Iceland, Saudi Arabia, Argentina, and other
countries where traveling workers or tourists seek to connect with folks
back home. Low-cost devices are available for anyone who has their own
Internet connection, be it dial-up or broadband. These devices typically are
connected to one�s ISP for connectivity, and then to a regular telephone, so
the calling experience is as natural as placing a regular telephone call.
The Next Steps
While most retail IP telephony calls are made either from Cyber Cafes,
from hardware devices, or from calling cards, most of these calls are still
not exactly welcome by the authorities, who wish to protect their
monopolistic interests and maintain their hefty margins.
But the world is slowly changing. During the past year many countries
have either deregulated, or announced that they will be deregulating. This
means that there will be room for healthy competition, to the benefit of
those who will now officially have some choice in the matter. Panama,
Brazil, Pakistan, Bangladesh, and Mauritius are just a few of the many
countries that have, or will soon, liberalize and offer telecom licenses. IP
telephony providers who already have solid reputations with customers who
utilized their services in the pre-liberalized days will benefit greatly by
expanding their offerings through more conventional methods. Ultimately, the
commercial distinctions between VoIP and circuit-switched telephony will
blur, as the advantages of low-cost and highly scalable VoIP-based calling
will continue to grow, allowing millions of more people to communicate for a
fraction of today�s costs.
Today, in addition to consumer calling cards and cyber caf�s, A large
opportunity lies in corporate solutions for enterprises looking to scale
their telecommunication costs and improve their telecommunication services.
Many businesses with remote offices are trying to save money on their
interoffice, and local, long-distance, and international phone calls. Others
are attracted to the unique features that VoIP can provide them such as free
interoffice dialing worldwide, call forwarding and voice mail in a modular,
scalable environment that maintains lower operational costs and improves
overall productivity.
It is clear that to consumers and enterprises in even the most emerging
of countries VoIP is a telecommunications service providing a value that
many simply cannot resist. Even in those countries where teledensity is at
its lowest, VoIP is a service that is flourishing and will continue to
flourish in the future.
Yonah Lloyd is vice president of international business development at
Net2Phone. Net2Phone is recognized as
the first company to bridge the Internet with the PSTN. Net2Phone currently
routes millions of minutes every day over the Internet, saving consumers and
businesses up to 90 percent off traditional long-distance rates.
[ Return
To The June 2003 Table Of Contents ]
|