An International Phone Call – Where Does VoIP Bring Benefits

Without a doubt, the cost of an international phone call has been dramatically impacted by Voice Over IP, where the opportunity to reduce costs and gain more flexibility in calling patterns has had a considerable impact on the market.Indeed, many of the first wave of Voice Over IP operators focused their business model on attracting customers who had been paying huge costs per minute but could now take advantage of a cheap phone call.

An International Phone Call

However, it is not always the case that an international phone call will be cheaper and more flexible simply due to Voice Over IP. In fact, there is a clear pattern as to where these cost gains and other VoIP benefits can be realised, and where not, and this article will give you the theory to help you build a strategy for using VoIP for the routing of international minutes.As with all markets, the key determinants of price, and changes in price of an international phone call, are those of demand and supply. Don?™t worry if this is new terminology to you ??there are examples below that will help explain.

Demand

In the case of an international phone call, demand rests on residential and business customers. As the world continues to develop, there is a much greater need for overseas communication ??as a result, the demand for international phone calls is increasing at a fast rate. In some rapidly developing economies, inbound calls from abroad have risen by 40-50% in a single year.

We measure demand in terms of a curve, showing the quantity demanded at every price offered. The advancement of international trade in products and services has meant that the demand curve has shifted higher. However, the curve is also fairly flat, or elastic, meaning that customers are not entirely flexible in what they are willing to pay, and a rise in calls prices to a destination will often mean that many less calls will be made.So where is this demand centred? Well, for this we simply need to look at the major growth economies of the world ??China, India, Brazil are great examples, where the demand for calls into these countries has risen sharply. Other developing countries, such as Bangladesh, Mexico, Thailand and Ukraine are further examples on a slightly smaller scale.

All other things equal, you would therefore expect this shift in demand to cause a rise in the price of an international phone call in those markets. And that would normally be the case. However, with an international phone call this has not been true, and another significant influence has been in force that of ??SUPPLY.

Supply
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.

Developed EconomiesWhere 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.

In the case of Europe, Voice Over IP has been slow to make an impact. Wholesale termination rates are already below $0.01/minute, so VoIP cannot offer significant benefits over TDM. The main change will come as PTT operators upgrade their national networks onto IP as an efficiency saving ??though the impact this will have on the cost of an international phone call, and the voice market model in general, is still not certain.

Summary

So in summary, the impact of Voice Over IP on the cost of an international phone call has been evident in a number of countries, and those shrewd enough to make use of the science should be able to take advantage of the great benefits this technology offers. A few things to bear in mind should help you identify these opportunities :

  1. A country experiencing high economic growth should normally offer a Carrier benefits through a growth in the volume of international phone call volumes ??due to the increased demand for international communications and the resultant increased supply of cross-border bandwidth/VoIP facilities.
  2. Look for those countries where regulation is loosening, such as some of the Middle East, as this will lead to wave of new VoIP entrants, and hence prices will be driven down and more consumers will take advantage of cheap phone calls.
  3. Closed economies, eg Cuba, usually mean high market prices, due to restrictions on cross-border voice traffic. As these economies open up to VoIP, market prices will fall and demand will rise.
  4. Keep an eye out for geographic regions where local pricing is still relatively high. VoIP helps break down geographic constraints, and future technology should assist in facilitating access to the local loop. In these economies, market pricing will start to fall and VoIP benefits will become evident.

By considering the above points, shrewd Carriers (and consumers alike) will be able to continue to take advantage of the benefits that VoIP brings to the market, ie cheap phne calls, and eventually improved quality. Whilst future technology advances are still uncertain, the world economy will continue to grow, and VoIP, as a key driver of this growth, will continue to thrive.

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