The most significant change in telephony over the past ten years has been the explosive growth of wireless subscribers worldwide. Yet unlike their colleagues around the world, mobile operators in the U.S. have not capitalized on the revenue potential from international calling; in fact, most operators do not aggressively market international services and some do not even authorize their credit-worthy customers to initiate such calls. This is despite the fact that the mobile phone is rapidly becoming the primary business phone, and that international service is mission critical to many enterprises.

As a result, mobile subscribers in the U.S. are much less likely to originate an international call than those in Europe and Asia, where 40% to 60% of all mobile calls are international. While it is unlikely that the percentage of international calls originating on mobile phones in the U.S. will achieve the levels in Europe, nevertheless such calls represent an untapped source of revenues--and one that will only grow larger.

According to a recent report by TeleGeography, mobile telephones are now a basic necessity for 1.7 billion subscribers worldwide, accounting for 59% of worldwide phone lines. For a whole generation in the U.S., the mobile phone is the only phone. The same report notes that aggregate international voice traffic has grown between 11% and 16% for the past 20 years; international call minutes will reach an estimated 158.4 billion in 2005.

Wireless operators realize that if the mobile phone is the phone of choice, they must offer wireless connectivity anywhere in the world. In addition, they realize that to grow the top line, they need to provide quality connections to new and underserved markets--and that for some of those niche markets, such as the Latino market in the U.S., the ability to make international calls is a necessity.

Operational constraints
Despite the rapid growth of mobile phones, they are underutilized for international calling and account for only 24% of outgoing and only 35% of incoming international calls. Clearly, the potential of the international call market is too important for mobile carriers to ignore, yet just as clearly, mobile carriers have not grabbed a market share that is proportionate to their share of the total telephony market.

Why don’t mobile operators promote international calls? They certainly understand the market potential, especially in the important enterprise market, but they face operational constraints. Most mobile operators do not manage their own international networks because it would require a huge amount of expensive resources. In addition, they are faced with the unfortunate reality that their subscribers who are roaming internationally cannot consistently access the features and functionality of their mobile service, forcing them to use landline services when they are abroad.

Today’s options are sub-optimal
Historically, mobile operators without their own international networks have had to compromise with sub-optimal options--outsourcing and bilateral agreements--when it comes to offering international calling service. One is affordable but suffers from inconsistent quality, while the other offers high quality but is quite expensive. 1. Outsourcing International Services to an International Carrier
The primary approach to offering international service for most mobile operators is to purchase wholesale circuits from an international carrier to complete connections to other networks around the world. This model is relatively easy. It requires little or no capital investment, and monthly service charges are affordable. However, this solution does not ensure the quality that U.S. subscribers expect from their mobile service. International carriers fill their high-quality routes with traffic from their retail customers; if there is any excess bandwidth it goes to wholesale customers. Otherwise, wholesale traffic is shunted off to other operators.

There may be many handoffs to multiple middlemen in calls that traverse long-distance. Each network along the way can have huge discrepancies in quality of service (QOS), and each may add delays or be a potential point of failure, making it impossible for a provider to offer QOS guarantees or SLAs. To make life more complicated, each network will also have different billing systems and accounting processes. As a result, quality varies and subscribers may not be able to access features such as caller ID or call back to their voicemail.

2. Bilateral circuits and agreements
Another approach is to establish their own bilateral agreements with the various fixed and wireless operators around the world. By establishing direct interconnects between carriers, these agreements enable high-quality, feature-rich calls. However, they are very expensive to implement, requiring a heavy investment in both infrastructure and staff. It takes man-years of effort to make the connection work, and monthly operating expenses are in the tens of thousands of dollars. Since telecom deregulation worldwide has led to an explosion in the number of carriers, it would be operationally and economically impossible for any one mobile operator to establish the number of bilateral relationships required to offer high-quality, feature-rich international service.

Even if either of these models could assure mobile carriers of high-quality international service at a reasonable cost, they would still face the barrier of transparent access to features and functions from any place in the world. Because every link in the long chain of provider networks that an international call traverses may employ different standards and different protocols, it is impossible to ensure feature delivery.

Lack of transparency can prevent mobile carriers from offering special services to customers who roam frequently. Today, for example, a mobile subscriber from Boston cannot access her voice mail or get caller I.D. when in the south of France on business. As a result, travelers either rent phones in the country they are visiting, or if they travel frequently, own a battery of mobile phones, one for every country. These customers would appreciate features such as VPNs or wireless PBX services that enable 4-digit dialing, but if roaming customers can access them only inside the operator’s serving area, the outsourcing and bilateral agreements lose their value proposition.

The options outlined above are not ideal--far from it. And thus with the belief that there must be a compromise between cost and quality, many U.S. mobile operators have simply opted not to aggressively market international service.

New peering model ends cost/quality Compromise
While mobile operators in the U.S. have had good reasons to shy away from marketing international service, the rapidly growing use of mobile phones around the world for all types of services means that they can no longer ignore this market. And luckily for them, they no longer have to compromise on quality and cost. A new approach to international service delivery has emerged--direct voice-over-IP (VoIP) peering--that eliminates all of the old challenges. Now, mobile operators need enter into only one interconnect agreement with a direct VoIP peering service to directly interconnect with other carriers worldwide. Since the direct connections are established using VoIP over the Internet, the service provider is able to offer direct, high-quality, feature-reach service. This peering model offers the PSTN-like quality and feature transparency previously available only via expensive bilateral agreements, but it offers significant cost advantages.

Today’s new direct VoIP peering services solve the problems of cost, quality and seamless interconnection to markets around the world, offering direct, transparent connections that enable mobile operators to reach multiple carriers serving many markets via a single interconnection--regardless of the different standards and technologies that the carriers might employ. This arrangement allows the service provider to establish direct connections no matter where a call terminates, drastically reducing the number of call handoffs and significantly improving quality compared with wholesale options. In addition, service providers can manage and optimize routing decisions to ensure that calls are routed over the best available connections.

PSTN quality enabled by optimized routing
In addition to offering direct connections and standardization, a direct VoIP peering provider must provide one more thing to attain PSTN-like call quality--optimized VoIP routing. Ordinary IP routing techniques make no distinction between voice and data packets, nor do they choose routes based on the quality of the path. VoIP routing techniques designed for real-time Internet telephony, on the other hand, take into account factors such as load balancing, line quality, and capacity when choosing a route. Other optimization techniques enable peering providers to automatically engineer to ensure the highest quality.

New service model enables new revenues
Because direct VoIP peering providers provide direct connections, they can also offer their mobile operator customers QOS guarantees and SLAs. In turn, operators can pass these on to their customers, use them as competitive service differentiators, and even charge a premium for a premium service. Direct VoIP peering providers that offer PSTN-quality voice and feature transparency enable mobile operators to tap new sources of revenue by offering call plans to hot new emerging markets such as Latin America.

The ability to offer a high-quality, cost-effective international service also gives mobile operators in the U.S. the ability to market mobile phones as the principal phones for enterprises. The enterprise market is particularly important for mobile operators because it provides a far higher ARPU than does the consumer market, giving them not only a new market but also a highly lucrative new market.

New service liberates mobile operators
The new direct VoIP peering services model liberates mobile operators, eliminating the operational challenges of quality, cost and feature transparency that prevented them from providing high-quality connections anywhere in the world, cost efficiently. Now international service is not only feasible and profitable, but it also opens up new revenue opportunities. The new model also responds to the pain points--the high cost and poor quality of international calls--that make customers think twice before making international calls on their mobile phones, and that make them keep calls short if they do make any. Direct VoIP peering offers call quality equivalent to that of the PSTN--and the higher the quality an operator offers, the longer the average call duration and the greater the operator’s revenue and profitability.

By providing a win-win situation for both operator and subscriber, direct VoIP peering services have the potential to make international service the next big winner for U.S. mobile operators.

Larry Frank is vice president and chief marketing officer for InfiniRoute Networks.

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