Ofer Gneezy Issue: Global-ICT 2009
Article no.: 12
Topic: International voice primed for outsourcing
Author: Ofer Gneezy
Title: President and CEO
Organisation: iBasis
PDF size: 256KB

About author

Ofer Gneezy is President, CEO and Chairman of the Board of iBasis. Mr Gneezy is also a co-founder of iBasis. Previously, Mr Gneezy was President of Acuity Imaging, Inc., a leader in industrial automation technology, and President and CEO of Automatix, which he merged with Itran, Inc., to form Acuity. Mr Gneezy is a a recipient of Pulver.com’s Industry Pioneer Award for leadership in Voice over IP. Ofer Gneezy is a graduate of Tel Aviv University and the Advanced Management Program at Harvard University’s Graduate School of Business and has an M.S. in engineering from M.I.T.

 

Article abstract

For most carriers, international voice telephony’s contribution to profitability is a fraction of that of their retail mobile and data services. Few carriers can afford the costs of migrating their legacy international voice infrastructure to inherently lower-cost IP networks. Most national carriers have a relatively short list of international destinations that are highly profitable. Given the low margins and massive economies of scale required to succeed in international voice many carriers are seriously considering outsourcing this business to specialised carriers.

 

Full Article

The international wholesale voice business is consolidating, and will continue to do so, as the telecom industry feels the effects of the global economic downturn. Perhaps now more than ever, service providers of all types are under pressure to focus their resources – capital and human – on ‘customer-facing’ assets and services that are most profitable and essential for growth. For the majority, the low margins and massive economies of scale required to succeed in international voice make it a good candidate for outsourcing. Its contribution to the typical carrier’s profitability is a fraction of that of retail mobile and data services. For most retail carriers, international voice does not enhance their competitive differentiation but consumes valuable resources managing cumbersome bilateral and international interconnect agreements. International voice has become a commoditized business, and, as with any commodity business, a low cost structure and tremendous volume is necessary to succeed. Very few carriers have both. And while there is still a market for transmission of international calls via TDM, the cost efficiencies of VoIP are so compelling, that within the next five to ten years, nearly 100 per cent of international voice will be touched by VoIP in some form, even if it is converted to some other protocol at origination or termination. To reduce overhead and rapidly bring new enhanced services to market, nearly every fixed-line operator has begun or announced plans to roll out an IP migration strategy to capture the cost efficiency and flexibility offered by the platform. Industry initiatives reflect this trend. Working with the IP Internetworking Alliance (IPIA), the governing body for the IP eXchange (IPX), extensive IPX voice trials between a European fixed-line carrier and an Asian mobile network operator were successfully conducted. Other carriers are engaged with the IPIA to develop standards for secure, private multi-service IP interconnect networks. These efforts are complemented by the i3forum, an alliance of operators dedicated to guiding the industry’s wide-scale transition of voice services to IP. In association with the i3forum, the migration of thousands of existing TDM international voice ‘bilaterals’ to IP interconnects is occurring, assisted by carriers worldwide including AT&T, Deutsche Telekom, iBasis, Orange, SingTel, Telecom Italia Sparkle, Telekomunikacja Polska, Telefonica International Wholesale Services, Teliasonera and others. For all but a few carriers, the EBITDA contribution of their international voice business cannot support the investment required to convert their international interconnections to IP, especially in today’s economy. For them, outsourcing that service to a carrier specializing in international voice is the most attractive response to the business, operational and financial challenges of doing international voice ‘the old way’. Business challenges include increasing pressure on margin, accelerating product lifecycles as consumers demand more innovative features and capabilities, and, of course, tighter controls on expenses. In the operational environment, the challenges in international voice revolve around increasing complexity – of routing and rating, of managing both TDM and IP networks, and providing the processes, tools and practices for supporting converging services. In today’s global economic climate, there are no greater challenges than the financial pressures to reduce operating expenses, maximize EBITDA, and focus precious capital on initiatives that promise the highest returns. Simply put, many carriers have come to realize they do not have sufficient traffic to justify the investment required to migrate to the low-cost infrastructure of an all-IP network. Even the largest national carriers only have significant volumes of traffic to a short list of destination countries, which they manage through time-honoured bilateral agreements. But what of the 100 destination countries that make up ‘the long tail’? It is difficult to justify the dedicated resources required to manage least-cost routing or the sourcing and management of a large number of international termination partners. As a result, incumbents are increasingly enlisting the services of wholesale carriers that specialize in international voice traffic – ones with significant IP infrastructure – establishing long-term outsourcing arrangements for their international traffic. Outsourcing, also known as managed services, offers a new and better way forward for the international voice business. Carriers that elect to off-load global interconnects and service management to capable international voice specialists stand to earn substantial operational and capital expense savings. They also gain access to efficiencies of global scale and specialization, including advanced infrastructure, systems and buying resources that are optimized to thrive in a commodity business. The trend is certainly building momentum. We have long-term outsourcing agreements with KPN and its several entities in Europe and with Danish carrier TDC. Tata Communications recently announced an outsourcing agreement to carry much of BT’s fixed international voice traffic, and Belgacom International Carrier Services announced a similar arrangement with MTN Group in Africa. To be successful, outsourcing agreements must be established on a foundation of mutual trust supported by clearly articulated requirements and expectations. Seamless migration of traffic without disruption in quality, coverage or reliability is essential. The agreement may include a range of services such as outbound retail and/or wholesale traffic, aggregation of inbound traffic and support of other services such as free phone or global signalling. Dedicated cross-functional teams from both sides facilitate communication and ensure thorough planning, informed decision-making, and effective trouble-shooting. Outsourcing of international voice traffic is on the rise. The vast and growing body of consumers demands ubiquitous connectivity and constant innovation in communication devices and services. While this places tremendous pressures on retail carriers to keep up, it also offers game changing opportunities to those that can harness their core resources effectively. Outsourcing the non-core operations to international voice specialists is a step in the right direction.