The end of blending
Variant pricing is nothing new, of course - as markets liberalized in the 90s, competitive carriers were often allowed by regulators to charge more for termination than the incumbent PTT to encourage competition. Traditionally international carriers simplified the process by blending termination prices in a given market to one a little higher than the going PTT rate. That was an easy and manageable solution as long as PTTs were originating and terminating most of the calls, but now that competitive telcos, cellcos and VoIP players account for more calls than ever, blending isn't as viable an option anymore, says Heap.
'People know the cost is different, so now you have two choices,' Heap explains. 'One is to cherry-pick new entrants to send them the higher-cost calls instead of a normal blend, which impacts termination costs in low-cost or low-margin destinations, or you can pick apart the cheaper bits and try to send them directly to someone who can terminate at that price. Either way, it's a much more complex process than before.'
Even quality isn't so straightforward anymore because of VoIP, says Heap - which isn't to say that VoIP calls are crap quality, but that quality depends on who owns the VoIP switch.
'If you had a Nortel DMS switch 10 years ago, you couldn't really alter how it worked. The software is incredibly complex and hard to modify. But nowadays if you're using a VoIP switch, you can do all sorts of alterations to the way the switch behaves,' says Heap.
That opens the door for all kind of trickery, Heap goes on, from manipulating the way calls are released to make performance seem better than it is to returning a busy signal as congestion, which then forces the call to be routed to the next carrier, or create a false answer signal that allows the VoIP gateway operator to boost their answer seizure ratio (ASR) and bill the originating carrier even though the call wasn't really terminated. Meanwhile, the end-user is trying to get through and frustrated that their call is going nowhere.
Heap doesn't go so far as to say that all or even a majority of VoIP players engage in such shenanigans - but that enough of them do to make voice termination much more of a challenge than it used to be.
And it's one that will only grow more complex with time as VoIP becomes more commonplace, says Telegeography's Beckart. 'As consumer VoIP grows - and by mid-year 2008, 48% of French households had a VoIP phone line - interconnection will get more complex.'
Taking it with you
An even bigger challenge, however, is the issue of number portability, where customers keep their phone numbers when they switch carriers. While some markets allow number portability for fixed-line customers, the practice is far more prevalent in the mobile sector, and it's making voice termination even more of a challenge.
'In most countries, specific dialing prefixes are used to denote each mobile operator, which makes it possible for carriers to charge appropriate wholesale rates for calls terminated to each carrier's network. However, mobile number portability messes things up good,' says Beckart. 'Now customers can switch from say, Vodafone to a smaller, and presumably less expensive mobile operator, but keep their old telephone number, including the mobile prefix that denoted a Vodafone phone line. As a result, mobile dialing prefixes are becoming less reliable indicators of a carrier's potential interconnection costs, making it hard to price appropriately for termination to mobiles.'
This is especially problematic when a customer churns from a lower-cost 2G network to a higher-cost 3G network, says Arbinet's Heap. 'If the difference between 2G and 3G is 12 cents a minute versus 20 cents a minute, the operator's mobile code tells you which is which. But with portability, that 2G number that was terminated at a lower rate now has to be billed at the higher rate, but the code doesn't tell you that. So we now route calls based on who owns the customer and the network as opposed to set of codes.'
We can terminate you
The portability issue, of course, isn't insurmountable - if you have access to the portability database in a given market, you know what numbers are on which network, and thus know what its termination rate is going to be.