A regular trefor.net contributor, Peter Farmer is the Commercial and Regulatory Manager at Gamma, as well as an ITSPA Council member and Chair of ITSPA Regulatory Committee. We are pleased to present his “VoIP Week” post.
So, Trefor asked me to approach an article for “VoIP Week” from a commercial perspective as opposed to regulatory…. took me a while, but sunstroked approaching Havant cycling from Esher to Portsmouth, it dawned on me.
We’ve had our VoIP Spring. We just don’t realise it yet.
Last year, there was much furore around Ofcom’s decision (enacting an EC Recommendation) to reduce geographic termination rates to the Long Run Incremental Cost (“LRIC”). These rates were previously calculated using Fully Allocated Cost (“FAC”). Very roughly, FAC is 5x LRIC in this market, so 0.3 became 0.06 pence per minute.
All the views espoused on that subject were valid, especially as we have a diverse industry with many niche interests and many unbalanced portfolios of net termination and origination. In the same market review, however, Ofcom transferred — for BT at least — the foregone common cost (the difference between LRIC and FAC, attributable to costs such as your CEO and Finance and HR teams, etc., and not directly to each incremental unit of what you are selling) in the termination market to the origination market. Granted, this had the perverse effect of reducing the cost (through the Significant Market Power Condition that governs non-geographic out-payments), but what it did to was virtually double the per-minute cost of the origination leg of Carrier Pre-Select and Indirect Access. Granted, again, this nets off against calls to UK geographic and non BT terminating non-geographic (why BT itself is exempt is a very long story that I will tell another day), but means that calls on legacy ISDN30 estates to mobiles and international numbers increased. Markedly. We are now in a situation where the direct cost of getting a call from the Network Terminating Equipment (“NTE”) over the Local Loop to the Digital Local Exchange (“DLE”) is five times that of getting it from the DLE to a mobile in the US of A. Seriously.
If you’re an over-the-top provider, your cost base just went down. You don’t have to worry about that leg from the NTE to the DLE. Your voice traffic is ones and zeroes encoded in packets of data over broadband frequencies, not analogue on narrowband frequencies. The per minute cost of providing the service to any caller has plummeted, relative to an ISDN2 or 30 or even a single WLR line.
And that right there, Ladies and Gentlemen, was our VoIP Spring. Let’s make the most of it.
VoIP Week Posts:
- Ten Years of VoIP – Happy Birthday!
- #voipweek on trefor.net Brings Diverse Set of Posts
- The Conception and Birth of a New IP Handset
- UC Disappearing Like VoIP
- Microsoft Lync, Embrace or Ignore?
- Voice Fraud – You Need to Act!
- VoIP and Emergency Services – Location, Location, Location…
- Vastly Objectionable Ignominious Phrase
One reply on “A VoIP Spring”
Good piece Peter and thanks for the “furore” link.
I still maintain that this review was anti-consumer, anti-competition and pro-BT. Your point that this is pro-VoIP I have mixed views on. Will it kill CPS/IDA in time, absolutely. Does it make the position of businesses like yours and mine more secure, probably. But will it spur life and innovation into the VoIP sector, no.
I think those of us already here can (and have) adjust(ed) but these changes greatly reduce the scope for disruptive innovative new business models and make it far harder for new entrants at the higher (regulated) levels of the infrastructure food chain. Sadly, the economic case for new entrants to build anything is massively reduced and instead their default will be to resell the managed services of those of us already here.
We’ve already seen that amongst the plethora of BT IPX resellers who were doing economically disruptive things, whether or not we agreed with the model at the time (I didn’t). For example, gone are free DDIs subsidised by ingress income to be replaced by heavy call charges to *receive* a call. All that in a service where poor end users can’t port out due to the unique nature of an incumbent provided unregulated managed service, but that is a rant for another post.
Amongst our customers the termination saving has been passed on and we’ve not had to increase numbering rates; so that is all good. We typically attract the innovators due to our API etc. and whilst business is booming, there feels fewer of them. Perhaps the optimistic interpretation of innovation being killed is that the industry was forced to mature when there was a 1300% margin swing in favour of BT between 23.59.59 and midnight on Feb 1st.
Maturity is good but I still maintain the only winner here is BT, the loser is the consumer and potential new entrants to the market. Those of us already here are somewhere in the middle I suspect.