International Wholesale Voice Business is Fragile, Some Might Say

The wholesale international voice market is finely balanced at the moment. Some might say it therefore is fragile and prone to unanticipated changes either in volume growth or pricing levels.

And even volume growth is a complicated matter, given the growing percentage of international voice that is shifting to over the top applications that drive volume, but not revenue. 

Little of that is obvious when looking only at overall volume growth. 

In fact, you can’t understand the  international voice business just by looking at the global and overall statistics. TeleGeography estimates that global traffic grew five percent in 2012, to 490 billion
minutes.

Total international voice traffic grew nine percent in 2011, to 467 billion minutes, TeleGeography says. Traditional time division multiplexed (TDM) international traffic grew three percent, to 317 billion minutes, while traffic carried as Voice over IP (VoIP) grew 25 percent, to 150 billion minutes.

In fact, you’d be hard pressed to find a single year when global voice usage or revenue has not grown, since statistics have been kept. The exceptions might be the period after the 1929 Great Depression, or the period around 2001, with the collapse of the Internet Bubble. But those temporary dips are about all you’d find, in terms of years when voice revenue did not grow.

There are challenges. Average wholesale prices have fallen at a compounded rate of approximately eight percentannually since 2002, and though wholesale traffic grew rapidly enough to offset these steady price declines until 2008, that is no longer the case.

While wholesale traffic has grown 30 percent since, wholesale revenues have remained flat, ending with $13.2 billion of revenue in 2011, TeleGeography says.

In large part, that is because average wholesale prices have fallen at a compounded rate of approximately eight percent annually since 2002. Until about 2008, wholesale suppliers made up the difference in higher volume, but volume increases now are falling short of making up for lower unit prices.

Global retail revenue increased six percent between 2010 and 2011, from $90.3 billion to $95.4
billion, TeleGeography says, driven largely by his was spurred by a nine percent uptick in traffic growth, offset by price declines of 3.3 percent.

Despite growth in emerging markets, voice markets are declining in developed markets.

But that isn’t the only big change. Since at least 2004, mobile calls have been gradually taking more share of total voice calling globally.

These days, more calls are originated or terminated on mobiles than on fixed network devices. The number of mobile phones in service overtook the number of fixed lines in 2002.

By 2011, mobiles accounted for 83 percent of total global phone lines, 43 percent of originated
international call traffic, and 58 percent of terminated international traffic.

In 2011, mobile terminated calls accounted for 62 percent of wholesale traffic, and 82 percent of wholesale carrier revenues. In other words, the international wholesale voice business is almost totally a mobile market.

Mobiles account for a disproportionately large share of wholesale revenues because mobile network interconnection rates (the per-minute fees carriers pay to destination network operators to terminate calls on their networks) are often several times higher than fixed network termination rates.

There are other changes, as well, where it comes to the wholesale voice market: it is becoming concentrated in a few regions.

Traffic terminated by wholesale carriers grew 11 percent in 2011, to 293 billion minutes, or 63 percent of total international call traffic, according to TeleGeography.

But wholesale traffic and revenues  are not distributed evenly around the world.  For example, 82 percent of traffic to Sub-Saharan Africa and South America, and 77 percent of traffic to Central Asia, was routed using wholesale carriers.

Calls terminated in Africa accounted for just nine percent of global wholesale traffic in 2011, but 27 percent of revenues.

Conversely, calls to Asia generated 41 percent of wholesale traffic but only 31 percent of revenues, due to very low termination costs to large destinations such as China and India.

Conversely, only 43 percent of traffic to western Europe—and just 33 percent of traffic to fixed lines in western Europe—was terminated by wholesale carriers.

But it would be fair to say that the international wholesale voice market is very finely balanced. Revenue growth is positive, but only barely so. To keep it that way, suppliers will have to hope for steady volume growth and predictable, moderate price declines.