Call termination voip

Level 3, a US-based wholesaler of telecom services, has announced the 'next phase' of its voice strategy. Following on from the launch of its VoIP products for businesses and call centre operators in the US last year, Level 3 is to unveil two new residential VoIP services at the 2004 VON Conference & Expo, held in Santa Clara, California (28 March to 1 April). Initially targeted at the US market, Level 3 intends to roll out residential VoIP services to Europe in the second half of this year on a 'country-by-country' basis--which countries those will be has yet to be disclosed.

"There are many good, commercial reasons for offering residential VoIP services to our channel partners [cable operators, ISPs, enhanced service providers] and we have the technical platform to do it," says Kevin O'Hara, Level 3 Communications' COO, in conversation with Telecommunications[R] International. "By leveraging the economics of our softswitch network, our customers can offer voice services a lot cheaper to their subscribers than is currently available [from legacy network providers] and still make a good business out if it. The level of interest we're getting from our channel partners is incredible."

Level 3's move into residential VoIP, according to O'Hara, is part of the company's ongoing strategy to enter into new markets and use the 'disruptive' economic nature of its IP-based network to its own advantage. "If you look at the addressable size of the market that Level 3 had in the early part of 2003--based on the combination of products, services and geographical reach we had at that time--it was in the neighbourhood of US$35 bn," says O'Hara. "Now, with the voice products we have launched, the size of that market goes up to US$100 bn."

Although O'Hara doesn't reveal how much of that market Level 3 is aiming to get, or the amount of revenue it has so far generated from its enterprise voice products, it is his belief that Level 3 is well-placed to take advantage of a growing demand for voice over broadband since its dial-up internet infrastructure already reaches 93 per cent of the US population via its ISP partners.

During 2003, margins for all products offered by Level 3 Communications averaged out at 78 per cent. O'Hara does not expect residential VoIP to make any significant dent on that figure. However, margins will be squeezed if the FCC, the US telecom regulatory body, decides to change its current policy of defining VoIP as an information service to that of a telecom service. If that happened, VoIP providers would become eligible to pay access charges to local phone companies for call termination. Currently, VoIP providers do pay a call termination fee but it's cost-based. Level 3, along with other interested parties, contend that the present access charges are over-priced and would stall VoIP take-up if service providers had to foot that bill. In December 2003, Level 3 issued a 'forbearance petition' to the FCC to reaffirm that computer-to-phone VoIP calls are exempt from access charges.

Cheaper voice calls courtesy of VoIP is, however, bound to raise the hackles of the PSTN players. Vonage, a privately-held US-based company founded in 2001, is charging US$34.99 per month for unlimited local and long-distance calling throughout the US and Canada. Although the VoIP market in the US is still small (Vonage had 120,000 active VoIP lines as of 10 March 2004, which is roughly a 55 per cent market share) its take-up rate is growing, as is its financial muscle. In February 2004, Vonage announced it had raised an additional round of VC funding to the tune of US$40 m, bringing the total capital raised to US$103 m. The latest round also brought on board two new investors: Meritech Capital Partners and 3i. The additional finance is to fund growth in the US as well as to ramp up international expansion.

In February 2004, FCC announced that it had begun an in-depth review of VoIP legislation. The process is expected to take over a year.