VOIP a wake-up call for global phone competition

Low price is still the main driver for international VOIP (voice over Internet Protocol), according to research firm TeleGeography.

Broadband-based VOIP services to homes and businesses can include added features such as click-to-dial and a choice of area codes. Call quality on VOIP has also improved significantly, according to TeleGeography. However, the Washington, D.C., research company said new features and quality aren't the main motivations for international VOIP. Most international VOIP calls are made to countries in the developing world, using conventional phones, in order to bypass regulated termination charges for circuit-switched calls. VOIP is only used to transport calls from one traditional network to another, said Patrick Christian, an analyst at TeleGeography, a unit of PriMetrica Inc.

International VOIP traffic grew by 35 percent to 30.8 billion minutes in 2004, the latest year for which TeleGeography has issued a VOIP report. Though the growth rate has dipped from more than 100 percent per year in the early days of the technology, usage seems to be increasing: If trends continue from the first six months of 2005, the full year should see international VOIP use increase 38 percent, Christian said. The research company bases its statistics on figures from VOIP wholesalers. The figures don't include PC-to-PC traffic such as on Skype Technologies SA's peer-to-peer service, or calls over private networks.

The top three countries for VOIP growth in 2004 were Brazil, Nigeria and Bangladesh, according to a recent TeleGeography report, and those countries remained near the top in the first half of 2005, Christian said. Measured in calling minutes coming into each country, VOIP traffic is growing fastest in places where the telecommunications market has recently been deregulated, Christian said. Making calls over the Internet bypasses international termination charges, so the entry of competitive carriers that will handle incoming VOIP calls provides an alternative that can save callers more than 50 percent over traditional circuit-switched minutes. Following deregulation, prices tend to balance out from the pressure of VOIP competition, he said.

In Brazil, where the industry was deregulated beginning in 2002, inbound international VOIP minutes grew 112 percent in 2004, according to TeleGeography's recently released yearbook. Nigeria saw growth of 103 percent that year, and inbound minutes to Bangladesh grew 97 percent that year.

Much of Africa and the Middle East, where many countries still have state-owned telecommunications monopolies, are still ripe for VOIP growth, Christian said.

VOIP is growing faster than circuit-switched traffic, and in 2005 it will probably account for about 16 percent of all international voice minutes, Christian said. That's up from about 14 percent the previous year and 11 percent in 2003, he said.

In some countries it is even becoming the dominant mode of transport for international calls. About half of inbound international calling minutes to Mexico are VOIP -- more than 5 billion minutes in 2004, the company said. VOIP also makes up about half of inbound calls to Brazil, and in Bangladesh, its share is more than 60 percent, according to Christian.

Latin America was the top destination region for VOIP traffic, with more than one-third of all the world's international VOIP minutes in 2004, the company reported. Asia, especially South Asia, came in second place and the former Soviet bloc countries were third. Most Eastern European countries deregulated their telecommunications markets between 1999 and 2001, Christian said.