International voice becoming a "loss leader"
25-12-2009
Many telcos will want to outsource this business, as BT outsourced to Tata Comm
International voice is becoming a "loss leader", TeleGeography officials say. This segment is no longer a core business for some carriers. This is in sharp contrast to the situation over a decade ago, when international calling was among the highest-margin products any telecommunication service provider sold.
In fact, says TeleGeography, carriers' willingness to offer free or flat-rate international service is an indication that they no longer view international voice as a source of revenue in its own right.
A growing number of telecommunications companies are offering flat-rate or heavily discounted international calling service to attract and retain subscribers to their bundled fixed-line or mobile phone services. International long distance is becoming, at least for some, a feature used to attract and keep customers for the services that actually drive revenue, especially mobile and fixed access connections.
And the non-strategic nature of international long distance is leading some executives to outsource the function. BT's announcement in June 2009 that it would essentially outsource much of its international voice termination to Tata Communications underscores this trend, TeleGeography officials say. In fact, other big Indian telecom companies like Reliance and Bharti can capitalize on this trend.
"TeleGeography believes that a growing number of retail service providers, including many incumbents, will choose to get out of the business of transporting and terminating international voice traffic" company officials said.
Rather than investing capital in a segment that faces both daunting challenges and limited growth prospects, many service providers will choose to outsource their international voice termination or to merge their international carrier business into that of a larger entity.
None of that is to suggest voice communications has ceased to be a valuable feature of the communications experience. But it increasingly resembles email or instant messaging, likewise valuable communications features that are indirect drivers of revenue.
As AT&T, Verizon and Cablevision Systems Corp. have found, public Wi-Fi hotspot networks are a way of attracting and keeping customers for other revenue-generating services, but the Wi-Fi networks are not, in and of themselves, a stand-alone revenue stream, for the most part. It appears international voice is headed the same direction.
TeleGeography projects that global international voice traffic will grow approximately seven to eight percent annually between 2009 and 2011, well below the trends recorded over the past 25 years. Of course, growth rates tend to slow, over time, for any product with a large installed base, and that is true of international long distance as well.
It is a lot easier to maintain a high growth rate on a global base of 25 billion minutes of use than it is to maintain high growth rates on a base of 406 billion minutes, as will be the case in 2009.
Traffic growth is slowing, no doubt, and prices continue to fall, on a price-per-minute basis. But TeleGeography sees a growing threat from computer-based voice services that increasingly will siphon traffic off the world's "voice" networks and onto the "data" networks, at least in terms of charging mechanisms.
"Voice traffic is moving off of the PSTN" TeleGeography officials say. Computer-based VoIP, and Skype in particular, are large enough to have a meaningful impact on the international voice market.
TeleGeography estimates that Skype users generated 33 billion minute of international "Skype-to-Skype" traffic in 2008 and projects that Skype's on-net international traffic will reach approximately 54 billion minutes in 2009. In the span of six years, Skype has emerged as the largest provider of cross-border communications in the world, by far.
The volume of traffic routed using Skype also is growing at a rapid pace. Skype's international traffic is projected to increase by approximately 21 billion minutes in 2009, compared with 11 billion minutes in 2008. By comparison, TeleGeography projects that the total volume of international traffic terminated by carriers to fixed and mobile phones will increase by approximately 30 billion minutes.
"Given these immense traffic volumes, it's difficult not to conclude that at least some of Skype's growth is coming at the expense of traditional carriers" TeleGeography officials said. "If all of Skype's on-net traffic had been routed via traditional telcos, global cross-border telephone traffic would have increased 11 percent in 2008 and would be projected to grow 12 percent in 2009".
Based on story by Gary Kim, TMCnet.
International voice is becoming a "loss leader", TeleGeography officials say. This segment is no longer a core business for some carriers. This is in sharp contrast to the situation over a decade ago, when international calling was among the highest-margin products any telecommunication service provider sold.
In fact, says TeleGeography, carriers' willingness to offer free or flat-rate international service is an indication that they no longer view international voice as a source of revenue in its own right.
A growing number of telecommunications companies are offering flat-rate or heavily discounted international calling service to attract and retain subscribers to their bundled fixed-line or mobile phone services. International long distance is becoming, at least for some, a feature used to attract and keep customers for the services that actually drive revenue, especially mobile and fixed access connections.
And the non-strategic nature of international long distance is leading some executives to outsource the function. BT's announcement in June 2009 that it would essentially outsource much of its international voice termination to Tata Communications underscores this trend, TeleGeography officials say. In fact, other big Indian telecom companies like Reliance and Bharti can capitalize on this trend.
"TeleGeography believes that a growing number of retail service providers, including many incumbents, will choose to get out of the business of transporting and terminating international voice traffic" company officials said.
Rather than investing capital in a segment that faces both daunting challenges and limited growth prospects, many service providers will choose to outsource their international voice termination or to merge their international carrier business into that of a larger entity.
None of that is to suggest voice communications has ceased to be a valuable feature of the communications experience. But it increasingly resembles email or instant messaging, likewise valuable communications features that are indirect drivers of revenue.
As AT&T, Verizon and Cablevision Systems Corp. have found, public Wi-Fi hotspot networks are a way of attracting and keeping customers for other revenue-generating services, but the Wi-Fi networks are not, in and of themselves, a stand-alone revenue stream, for the most part. It appears international voice is headed the same direction.
TeleGeography projects that global international voice traffic will grow approximately seven to eight percent annually between 2009 and 2011, well below the trends recorded over the past 25 years. Of course, growth rates tend to slow, over time, for any product with a large installed base, and that is true of international long distance as well.
It is a lot easier to maintain a high growth rate on a global base of 25 billion minutes of use than it is to maintain high growth rates on a base of 406 billion minutes, as will be the case in 2009.
Traffic growth is slowing, no doubt, and prices continue to fall, on a price-per-minute basis. But TeleGeography sees a growing threat from computer-based voice services that increasingly will siphon traffic off the world's "voice" networks and onto the "data" networks, at least in terms of charging mechanisms.
"Voice traffic is moving off of the PSTN" TeleGeography officials say. Computer-based VoIP, and Skype in particular, are large enough to have a meaningful impact on the international voice market.
TeleGeography estimates that Skype users generated 33 billion minute of international "Skype-to-Skype" traffic in 2008 and projects that Skype's on-net international traffic will reach approximately 54 billion minutes in 2009. In the span of six years, Skype has emerged as the largest provider of cross-border communications in the world, by far.
The volume of traffic routed using Skype also is growing at a rapid pace. Skype's international traffic is projected to increase by approximately 21 billion minutes in 2009, compared with 11 billion minutes in 2008. By comparison, TeleGeography projects that the total volume of international traffic terminated by carriers to fixed and mobile phones will increase by approximately 30 billion minutes.
"Given these immense traffic volumes, it's difficult not to conclude that at least some of Skype's growth is coming at the expense of traditional carriers" TeleGeography officials said. "If all of Skype's on-net traffic had been routed via traditional telcos, global cross-border telephone traffic would have increased 11 percent in 2008 and would be projected to grow 12 percent in 2009".
Based on story by Gary Kim, TMCnet.
