Supply in terms of an international phone call rests on the operators offering these services. The reaction to the shift in the demand curve was both big and fast – many new operators entered the market, competing for the ‘super-normal’ profits that could be earned. Unfortunately for them, the market soon became saturated – hundreds of new operators that owned very little network, survived on little cash, and soon went bust. This is what happened when the ‘bubble burst’ in 2000.

However, at the same time, another force had an influence on supply – that of international Voice Over IP. VoIP came about through the ability to send voice calls over an IP infrastructure in packetised form.

Many of the countries experiencing international phone call demand growth had a limited supply of traditional TDM bandwidth, so the growth in their communications infrastructure centred on more efficient, cheaper IP technology.

As the global Voice Over IP infrastructure evolves, the ability to terminate (and quality of) an international phone call in a country increases at a phenomenal rate. This massive increase in supply means that competition is hot, and the impact is a consumer that can now make a cheap phone call.

In the case of a classic developing economy, such as Bangladesh, the rise in demand has been more than offset by the huge rise in supply, leading both to a lower international phone call market price and a higher volume of minutes being terminated. This is good news for both business and residential customers, who have seen lower cost and improved quality.

Developed Economies

The picture is a little less clear in developed economies, such as the USA and much of continental Europe. In summary, the demand has increased, though not at the alarming rates we’ve seen elsewhere (these countries are not experiencing the economic growth seen in developing countries). However, Voice Over IP technology has had some impact, and has driven demand up, albeit more modestly.

On the flip side, supply to the market (in terms of international connectivity) was already generally sufficient to cover demand, and many new VoIP entrants have been focusing on ‘cherry-picking’ the developing markets. Therefore, there has not been a significant shift in supply.

Where Voice Over IP has had a significant impact on supply has been those geographic areas where price had been held at a higher level for local reasons. For example, in the USA, many rural calling codes are still more expensive to reach due to the long distance nature of the call. Voice Over IP has meant that local exchanges have become even more local, so direct access to more local numbers has driven down the price in the market, leading to a considerable rise in demand.