However, that requires a lot of legwork, as does establishing relationships with new service providers (like VoIP operators), and building a routing platform intelligent enough to sort through all the routing options and terminate the call in the most cost-efficient way possible. It's at this point where service providers may be asking themselves why they're going to all this trouble when wholesale players from global carriers like Tata Communications, VoIP specialists like iBasis and bandwidth exchange platforms like Arbinet have done it for them.
That, at least, is the pitch from wholesale providers that already interconnect international voice traffic.
'We have relationships with all the major carriers, as well as mobile providers, ISPs and broadband operators,' says Marie-Josee Mathieu, senior product manager of global voice solutions for Tata Communications. 'We can better manage off-net traffic as well as on-net, so there's no need for them to worry about handling things like that. They can just leave it for us to do.'
On the VoIP side, another option is peering federations like those touted by London-based XConnect. A peering federation enables VoIP providers to interconnect to a central ENUM registry (ENUM, for the uninitiated, being the protocol that links a phone number to an IP address), effectively multilaterally connecting VoIP islands, while the federation host does all the intermediation work with rates, settlements, etc. XConnect has established peering federations in Brazil, the Netherlands and, at the end of last year, South Korea via a deal with Korea Internet Neutral Exchange (KINX).
Mathieu says that peering federations have value within a given market, but are still limited when it comes to international traffic. 'You do need some peering federations where carriers within a country can hook up nationally, but globally, there's no true federation solution.'
Heap is far more dismissive of the idea, saying he was once a big supporter of voice peering as a solution, but has since soured on the idea which he feels has been too slow to catch on for a simple reason: it's too hard.
'I know, because we've enabled it on our platform and it's very difficult, but it's also our core business,' Heap says. 'For service providers, whose core business is selling voice and other services, the effort to enable peering from the originating service provider to the terminating service provider has become so complex that no one's really doing it, apart from the odd attempt like XConnect peering within Korea. But as a global phenomenon, it's not really going anywhere, because commercially and operationally, there's no reason for anyone to do it. It's too complex to be worth solving.'
CFOs take notice
All that said, Heap allows that another reason service providers aren't in a hurry to shift to voice peering is because, at least for now, international voice isn't so complex to the point of being broken. 'There's a lot of inertia from service providers, because it works so people won't change it.'
Indeed, most of the world's international traffic is still terminated via bilateral agreements. Despite counting many of the world's biggest incumbent telcos as its customers, Arbinet's platform only terminates at most 3% of international traffic. 'Most of what we don't handle is bilateral traffic between the biggest telcos in the top 20 markets,' says Heap. 'It doesn't make sense for us to get in the middle of that. Guys like us are who you turn to when you need to get to the other 190 smaller markets.'
However, Heap says that telcos are under more pressure than ever to stay focused on customers, and with added economic pressure on keeping costs down, more and more telcos are seriously looking at the money and effort they sink into maintaining international termination operations. 'So instead of maintaining bilaterals, many of the bigger companies are saying it costs too much for the benefits they get.'
Whether that means more business for the wholesale carrier space or IP federations is unclear, but Heap predicts that the termination issue will be at the top of the agenda for many operator CFOs in 2009.
'For a start, there's the issue of losing money to fraud or incorrect billing, because today every cent matters,' says Heap. The other issue is that wholesale businesses are already under pressure for being a low-margin business, he adds.
'When the CFO looks at the performance of the company and their international business has dragged the group down, the stock market looks at that, so you have to increase yr margin, which is hard to do, or drop it,' Heap says. 'So the signs are there that the industry is evolving, and the current financial crisis will push that more quickly.'