Home Latin America II 2003 VoIP Opportunities in Latin America

VoIP Opportunities in Latin America

by david.nunes
Dan PowdermakerIssue:Latin America II 2003
Article no.:7
Topic:VoIP Opportunities in Latin America
Author:Dan Powdermaker
Title:Senior Vice President, Worldwide Sales
PDF size:124KB

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Article abstract

Latin American operators, responding to economic pressure, have shifted from investing for rapid growth to cost savings and maximising return from existing infrastructure. VoIP wholesalers have built partnerships with backbone providers, avoided capital intensive network building and, having taken advantage of falling bandwidth prices, pass the savings to Latin American operators who can cut costs to build margins. Today’s leading VoIP providers use the public Internet and highly sophisticated service quality management systems to ensure high voice quality and call completion.

Full Article

The changing economic and social conditions in Latin America are accelerating the pace of the region’s development. Eager for economic development and social progress, the region is fertile ground for the deployment of new communications technologies. Before the 1990s, much of the Latin American telephone industry was state operated and had little incentive to invest in infrastructure. Consequently, the quality and breadth of services, as well as customer care suffered, the cost of service remained high and teledensity remained low. Since the beginning of the 1990s, Latin American telecommunications have been largely privatized. Argentina and Chile launched major deregulation initiatives, followed by Brazil, Colombia, Mexico, and other countries in the region. A new market-driven environment spurred local competition and attracted massive investments from international firms. Data and voice traffic in Latin America surged as a result of strong economic growth in the 1990s and the spread of the Internet. The expansion of the data and voice markets, coupled with far-reaching deregulation initiatives in many Latin American countries, created lucrative opportunities for both incumbent service providers and new entrants. Since 1999, slower economic growth has shifted the focus from rapid expansion and investment toward short-term cost savings and enhanced efficiency and slowed or halted many infrastructure projects, especially in Argentina and Brazil. International firms have reduced their Latin American investments, and many local firms have either merged or declared bankruptcy. The remaining companies are often more interested in maximizing their existing infrastructure and reducing excess capacity than in upgrades and technology initiatives. Teledensity remains low in many areas of Latin America and even consumers with telephones are often unwilling or unable to pay for services that generate incremental revenue for providers. VoIP: a strong potential for growth in Latin America New technologies that will help Latin American service providers face these challenges have good growth potential. Many telecom services are growing faster in South America than in other parts of the world, particularly broadband access and voice over Internet protocol (VoIP). According to a 2002 Frost & Sullivan report, broadband access services in Latin America will generate at least $14 billion (U.S. dollars) in service provider revenue in 2006, compared to $286 million in 2001. According to Telegeography, US-originated VoIP routes to Brazil increased 80% between 2001 and 2002. Latin America represents 35% of global VoIP traffic, but accounts for only 9% of worldwide PSTN traffic. VoIP accounts for 20% of all incoming long-distance traffic in Argentina. Even the VoIP enterprise market, which is nascent in Latin America, is expected to grow steadily. According to IDC, the VoIP equipment market realized revenues of US$70.9 million in Latin America in 2002 – with only 17.5% of organizations in the region deploying this new technology. However, nearly half of the companies in the region are considering VoIP, with many planning implementations by the end of 2003. Looking forward, IDC sees a compound annual growth rate of 21.5% for the region over the next five years. By 2007, revenues are expected to top US$229 million. Wholesale VoIP is increasingly important to Latin American service providers as pressure to decrease costs and increase margins intensifies. VoIP, particularly using the public Internet rather than private IP networks, provides lower-cost infrastructure and transport, faster deployment and network growth, and opportunity for new higher-margin services. High fixed costs, slowing revenue growth, and the lack of capital for expansion are driving many large carriers to outsource increasing volumes of international traffic to wholesale carriers. Even Tier 1 carriers are sending more traffic to major wholesale VoIP providers. Given the increasing use by Tier 1 providers such as AT&T, Sprint, and Telefonica, analysts are optimistic about the continued migration of voice traffic from PSTN to VoIP and the cost savings that will result. New Business Models for Latin American Service Providers Internet telephony is proving to be a reliable, competitive, technology that brings opportunities to build successful new business models in the struggling international telephony market. Rather than invest billions of dollars in laying optical fiber and undersea cables, major Internet telephony players have focused on building relationships with multiple backbone providers. As a result, rather than suffer from the IP bandwidth glut, VoIP providers can take advantage of the downward spiral of bandwidth prices. Internet telephony providers can grow their network footprint more efficiently through partnerships than with capital investment. Outsourcing international traffic is necessary, both for large incumbent providers and new entrants striving to cost-effectively leverage their domestic or regional customer base. Instead of managing 200 direct routes and allocating the corresponding resources, Latin American carriers control 6 to 10 of their key strategic routes and outsource the rest. The resulting traffic windfall is going to Internet telephony players who can scale quickly, provide coverage over a wide variety of routes and deliver the highest quality service at competitive prices. Carriers in the region rely on relationships with international providers to instantly establish a state-of-the-art global footprint, improve service quality and provide access to the global marketplace. Large VoIP carriers carry billions of minutes of voice traffic over the Internet can provide the engineering expertise to help carriers transfer their circuit-based networks to VoIP. With VoIP, national carriers can “leapfrog” traditional TDM technologies and deploy much less expensive VoIP equipment to accelerate growth, improve teledensity and provide a broad range of enhanced communications services, including prepaid services, conferencing, and call center applications. VoIP initially depended upon private, managed, IP networks. Today’s leading VoIP providers shunned that approach and use the public Internet. The public Internet enables VoIP carriers to scale very quickly and economically with far lower infrastructure costs than those to deploy a private network. The cost of building or expanding a VoIP network is dramatically lower than that of a circuit switched network. VoIP carriers can add new routes and capacity on existing routes by adding lower cost equipment and IP connectivity. VoIP network deployment costs are typically in increments of tens of thousands of dollars, rather than the millions of dollars required for telco switching facilities and dedicated circuits. Developing countries find VoIP economics compelling; they are embracing the technology to expand their domestic communications infrastructure at perhaps 1/10th the cost. Better asset utilization for greater efficiency and quality of service Wholesale VoIP providers using the public Internet have to overcome significant hurdles, such as congestion and QoS issues that are inherent in the Internet. VoIP providers have specialized in developing highly sophisticated service quality management systems that integrate proprietary monitoring, routing, and rating and billing software with off-the-shelf technology. These systems ensure the high voice quality consumers expect and the high call completion and call durations that translate into revenue for carrier customers. Managing growth while achieving greater efficiency and quality is one the biggest challenges for wholesale VoIP providers. Developing systems that handle high volumes of traffic effectively is difficult. As network traffic increases, the complexity of network management increases exponentially. VoIP carriers must ensure that they can maintain quality, even while they are growing rapidly. Our network, for example, has grown in five years from a single switch and a dozen points of presence in a handful of countries to eight central offices with multiple high-capacity backbone connections and nearly 850 points of presence in 90 countries. Add to that a myriad of off-net provider partnerships and the public Internet, and there are a very large number of possible route choices for every call. The challenge is in knowing which route choice is the best at the particular moment the route is needed. With the public Internet, that “best choice route” is likely to change frequently, and without advanced warning. Network and routing enhancements are strategic for VoIP providers who face the complex challenge of simultaneously building traffic, increasing quality and decreasing cost. Greater Margin Growth In addition to cost savings, Latin American service providers are learning that VoIP can enhance delivery of value-added services to end-users, help providers strengthen their enterprise customer segments and increase retention rates. Major retail sectors, such as prepaid service providers, are already shifting to a VoIP delivery infrastructure to make their business model more successful. According to Frost and Sullivan, 75 percent of all calling card traffic will be delivered by VoIP by 2007. Consumer demand is behind the high-growth in calling card services. In countries where the telecommunications infrastructure is not fully developed, VoIP enables calling card operators to provide residents access to long distance services that would not otherwise be available or economically feasible. This service is ideal for rapid deployment and it provides affordable telecommunications service. Conclusion Internet telephony has matured and proven its value in the international wholesale arena. The pioneering work of wholesale VoIP providers has made Internet telephony the preferred network for high-value retail services. Today, economic pressures are forcing many providers to rethink their infrastructure investments. Instead of investing heavily in new technologies, Latin American service providers can build long term partnerships to obtain the technology and expertise and build their customer bases. Partnerships with VoIP and IP-based service providers, allow Latin American operators to deliver cost-effective, and revenue generating, high-quality next-generation services to their clients. Innovative strategic outsourcing can help service providers prepare for the inevitable economic upswing, deal with competition in deregulated markets, achieve significant short-term cost savings, enhance efficiency, and develop new revenue sources.”

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