The interconnect voice business model. WFT?

So, this interconnect industry has undergone rapid evolution and disruptive change. While the basic premise still exists (carriers exchanging voice traffic and arbitrageurs trying to carve out above market margin through technological or regulatory advantages or constraints), the steady decline in the price points places great pressures on carriers. Scale and speed are the new standards in the industry. Quality has remained relatively stable over the last several years. So, what’s happening to the interconnect voice business model? Where is it going? Is it going to change?

These are good questions, and they are ones that have been continually asked since the late 90s when voice interconnect exploded with the introduction of VoIP. GCS’ heritage can be traced all the way back to those days where many of us worked at ITXC which was one of the very first companies to use public IP to transport voice traffic all over the world. During that time we were able to continually push pricing boundaries and move markets because the actual cost of transport was radically disrupted. There were no more dedicated circuits, no more “cross connects”.  From 1996 through 2004, the market became a true commodity based market where it became clear that there was little differentiation between voice termination; other than capacity and price.

That being said, the past decade has been a further steady decline in top line pricing, overall margin percentages, and actual dollars. Today, the market is a pure commodity. There are marketplaces trying to cement themselves as the “source” for pricing and trading just as CME is the place for the more familiar commodity products.   

But as far as interconnect voice goes, what’s next? What is going to happen to the business model? What does the future hold? What are the industry analysts and larger carriers predicting will happen over the next several years? What will the industry look like in 2025? Will it still exist? The industry is moving forward but the focus, at least from our perspective, is still somewhat short in terms of time horizons. No one is really sure. Right now, there is a huge emphasis on cost reduction via automation.That’s good because in commoditized markets many of the extraneous costs have been removed and squeezed out so the marketplace is running as optimally as possible.   

In interconnect voice we are still asking ourselves WFT. (BTW, that is Waiting For Transformation).

What do you think?  What’s your forecast for our industry.


Andrea Rona