Tuesday, November 23, 2010

Regulatory Issues affecting VoIP in South Africa

Although all the hype and excitement exists, we still have a number of Challenges in our industry today, so, over the next few days I will be sharing specific information around the Regulatory Issues affecting Voice over IP in South Africa. Important to know, even more important to Share!

I will be covering topics such as:
- Interconnect Fees
- Facilities Leasing
- Carrier Pre-select
- Number Portability
- Frequency Allocation
- Local Loop Unbundling

I am really going to encourage you to share your comments and thoughts with me on this one, and welcome any input from fellow members.

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Part 1) Interconnect Fees

Interconnect Fees
With the incumbent mobile operators set to drop interconnect rates even further in 2011, converged communications providers are preparing to take advantage of a more competitive voice market.
The drop in the interconnect rate, while not as substantial as many would have hoped will have far reaching effects for the local market, as a decrease in rates will mean a concurrent drop in mobile-to-mobile and mobile-to-fixed line voice rates. It also opens up the market to competition, as the crossover interconnect rates to other operator networks will become more affordable, meaning smaller players will have lower cost barriers to enter the market.

But what does this drop in the GSM network rates mean for Voice Over IP (VoIP), a technology driven by a cheap on-net call rate value proposition? Honestly the drop in interconnect rates could hurt the VoIP value proposition in the mobile space, but there is more to this than meets the eye.
While it has not been an easy birth, advanced technology has allowed local VoIP providers to survive and even thrive in the high interconnect rate environment. Internet Solutions for example already terminates 40,000,000 VoIP minutes a month. This is testament to South Africa’s ability to provision world class VoIP services in the face of huge hurdles, which offers great value when using on-net voice minutes.

Additionally, the nature of VoIP made it an ideal disruptive technology for smaller players to disintermediate the mobile operators, drawing off-net voice minutes on-net over IP networks at vastly reduced rates. With more people using mobile devices as converged communication tools the potential for mobile VoIP services is growing rapidly, so the market has seen a number of service providers look to move into the mobile VoIP market, a trend driven largely by the massive growth in Wi-Fi technology and accessibility.
A prime global example is AT&T, the biggest voice data carrier in the world, who has allowed iPhone users to use the phone’s technology to terminate VoIP calls, a tectonic shift in the voice industry paradigm. By bringing VoIP into the mobile model AT&T has taken what was generally a cottage industry and, practically overnight made it mainstream.  However, with the drop in interconnect rates the need to disintermediate has diminished somewhat, which will be viewed negatively by some. VANS and ECNS providers that offer off-net voice services will now have less of a hurdle to enter the market, causing the disintermediation approach of using disruptive technologies to penetrate markets to lose its appeal.
So, with the current interconnect rate of 89c dropping to 65c in early 2011, which is a substantial drop at 27%, the rate will need to be reduced even further to negate the need to disintermediate the incumbent mobile operators and make the marketplace more competitive. Interconnect rates of around 5 to 10c is ultimately the level the industry needs to reach to really open up the market to price competition from new entrants.  In the meantime service providers with sustainable mass on their networks will continue to expand their offerings by augmenting VoIP into their basket of products and services. This is especially true for Least Cost Routing (LCR) service providers, who stand to lose the most should interconnect rates drop further. To survive and offer competitive costs they will need to diversify their voice offerings by augmenting VoIP into their offerings, rather than remaining with blended off-net LCR.
It’s clear to see that there are a number of confluencing events that will make life more difficult for mobile operators, but will benefit South African consumers and the economy. It is estimated that an interconnect rate of 60c can add 1% of GDP growth to the local economy, which is materially good for the country. Lower call rates, be it due to a drop in fixed line and mobile rates, or the increased adoption of VoIP technology will mean companies can conduct more efficient business. And with the introduction of the next generation 4G/LTE mobile network, which is IP multimedia system enabled, the networks will become IP compliant, enabling VoIP over mobile networks, providing further impetus for the move towards a VoIP world.

So, all in all the net gain from the drop in interconnect rates is beneficial for VoIP, especially mobile VoIP, as there is a great deal of room to grow the number of VoIP minutes terminated over off-net networks. Currently the fixed line market is around R20 billion and mobile voice services generate around R80 billion in revenue. With VoIP only accounting for a small percentage of that and interconnect rates not coming down to a level that will truly open up the market, new technologies and a need for cheaper voice calls will continue to place VoIP services at the frontline of the disintermediation battle.

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