Arbinet Simplifies International Voice Termination as Operators Look For Business Efficiency

The economic crisis means there’s increased pressure on telecoms operators to focus on their core business, to cut their costs and to restore profitability — and that means doing everything possible to increase margins in the face of intense competition.
But, prices for voice calls at the retail level are still falling, says Dan Powdermaker, who has been senior vice president of sales and marketing at Arbinet since the end of 2008.
"Every carrier is trying to change and change quickly," says Powdermaker, who joined Arbinet after sales management and business leadership positions at AT&T and then iBasis. "They are trying to cope with pressures that pre-date the global financial crisis, but which are exacerbated by it." However, there are also opportunities in the crisis, he adds.
One of the key challenges — and one where Arbinet applies its skills and experience — is in the efficient delivery of international voice traffic. "Carriers are increasingly looking at whether it makes sense to compete in international voice services."
At first sight, this is something of a surprising claim — but Powdermaker is quick to elaborate that he is not suggesting operators want to close down international access for their end-users, but they are seriously questioning whether selling international services to other carriers makes financial sense.
Delivering international voice services is a huge headache for many operators — and often generates relatively little profit. "What we’re seeing now is that carriers are focusing on profitability, rather than market share," says Powdermaker.

International complexity

The opening up of the telecoms market in the past decade or so has seen the international voice market change from its traditional structure. In the past, most traffic was bilateral: the incumbent in one country had a direct relationship with the incumbent in another country. They swapped traffic between each other.
This meant that each national operator had to manage a relatively straightforward set of relationships around the world in order to deliver international calls.
But the industry isn’t as simple as that any more. There are thousands of operators, fixed, mobile and VoIP, and their customers all expect to be able to dial a number and connect to a subscriber anywhere in the world at a fair tariff.
This change, driven by deregulation and technological advances, has fuelled the growth of the wholesale industry.
"Today, more than 50% of all international voice minutes go through one or more wholesale operators rather than through bilateral exchange," says Powdermaker.
More complexity and — as prices fall — less revenue per minute: it’s a tough challenge for these operators to deliver the services their customers expect and to do so profitably. Using the traditional model, companies need hundreds of relationships with others, and "it just doesn’t make sense for many carriers to have to manage all of these", he says. "Companies are increasingly relying on an international voice specialist."
Operators are trying to simplify their businesses as much as possible: that’s why they are looking to outsource part of their operations, to sign managed service deals with companies that can efficiently deliver international termination, and taking all other possible steps to reduce costs and improve margins while continuing to deliver quality services to their end users.
"They need to get costs in line with the realities of the market," says Powdermaker.
We’re in an era when even profitable business streams are under pressure. "Previously 40% of all voice calling out of the US was prepaid, and that business is now down 20-30%." That’s a direct consequence of the economic recession: prepaid users are forced to economise and expatriates in many parts of the world are returning home as job opportunities vanish and work permits are cancelled.
Some of the prepaid players are under stress and wholesale providers that offered termination to these companies are seeing their business shrink.
And that’s just the consumer side. Business people — long a source of good revenue for fixed and mobile operators — are travelling less, and are more cautious with their calls back to head offices or to other contacts.

Increasing fraud

Meanwhile — just to add to the bad news for a moment — fraud is up, says Powdermaker. "We’re seeing this right across the spectrum." To sum up, "international voice is low margin, defaults will increase — some service providers are already defaulting — and so there’s increased credit risk".
So how can Arbinet help? Arbinet offers a straightforward and easy type of outsourcing: it can take over all or some of the international traffic delivery for operators giving them quality, cost-effective global coverage.
"We work with more than 1,100 carriers worldwide," says Powdermaker, "and we trade more than 13 billion minutes of voice traffic a year. We carry more international voice traffic than many PTTs. We have the efficiency, the routing capability and the automated credit management and settlement systems to do well in this environment."
Arbinet has significantly changed its business model over the past year from its initial focus on operating a minutes exchange.
The Exchange is ideal for carriers that seek to trade in a spot market environment, construct their own custom routing tables based on their particular quality and pricing requirements, or seek to offload spare international capacity to others, route by route. Sophisticated analytical and call management tools are provided to members of the Exchange. "But the Exchange model is not for everyone," says Powdermaker.
Now the company has expanded its operations with the successful launch of two other modes of international voice traffic delivery. Arbinet is adapting its back office to support customer and supplier needs in a standard wholesale fashion. Arbinet Carrier Services leverages the company’s supplier base and technology to offer customers quality A-Z termination at competitive rates under normal industry terms and conditions.
"Our Private Exchange service is a virtual direct route between two operators that uses the Arbinet network. It’s a very easy way to exchange traffic without the cost and complexity of setting up infrastructure."
Arbinet can handle the credit management and settlements and do TDM-VoIP conversion, signalling and interworking. The company then routes traffic over its advanced network using the private commercial terms of the two operators as if they had a direct interconnect between themselves.
Under all the models, Arbinet can take the traffic and deliver it to the right local exchange carrier in the right market, closest to the end user.
"Our preference is to connect via IP," says Powdermaker. "That’s the way the industry is moving." But the company offers a seamless TDM interface as well, with points of presence in London, Frankfurt, Hong Kong, Los Angeles, New York and Miami.
Meanwhile Arbinet is able to provide security against fraud and — in these tough times — handle the difficult challenge of managing credit risk.

Credit monitoring

"We understand our credit exposure to every customer hourly," says Powdermaker. Customers are automatically notified as they approach their credit limit and access to the Arbinet Network is blocked if they exceed it.
Additionally, the company’s relationships with carriers are backed by third-party underwriters, "so our risk is reduced". The automated systems monitoring usage react instantly to protect the company from attempts to exceed the available credit, further minimising Arbinet‘s exposure to risk, and this — coupled with the company’s strong balance sheet is good news for Arbinet — and good news for Arbinet‘s suppliers.
"The international voice market is not the cash cow that it once was. It is an essential part of the service mix that operators need to provide to their customers, but they don’t need to manage the termination themselves to deliver that," concludes Powdermaker.
"As carriers focus on services such as data and triple play, it makes sense to rationalise the business model and leave international voice to the specialists."