The importance of relationships in a commoditized marketplace

So, by now we all know that the interconnect voice marketplace has become completely commoditized. According to Investopedia, commoditization refers to a process in which goods or services become relatively indistinguishable from competing offerings over time.

That pretty much sums up voice services these days, particularly interconnect voice, where the interconnectivity of carriers is sometimes impossible to even trace, which can even result in looping (the process of the originating carrier sending the call to a terminator and the terminator sending it back to the originator for terminating). Sure there are quality and CLI attributes, but the differentiation between them is pretty much negligible.

So, what’s a carrier to do in a commoditized marketplace? How are they supposed to maintain or even grow their business? Well, one thing is for sure, they need automation and scale. They need to be able to reduce the costs of operation to its absolute lowest level, which is done through automation and a constant drive to stamp out costs. But lately we have been hearing customers cite relationships as an important drive to sustained or even growing interconnect voice business.   

It’s an interesting perspective because relationships, in theory, shouldn’t drive the efficiency of the marketplace, right?  Adam Smith would say that the invisible hand should drive behaviors (buying and selling) in such a way that, particularly in a commoditized marketplace, price and quality should be the only determination. So why the contradiction? Well, we can’t say exactly why, but we certainly can speculate: the industry, while heavily controlled by larger telcos, who because of their buying power can dictate the marketplace (aka they have pricing power).

There are plenty of opportunities in the margins to extract enormous value from the marketplace by having strong relationships, because the commoditized product has little differentiation in price or quality. So, the smaller regional carrier doesn’t care who terminates the call because the commodity is essentially the same from either vendor (not always true, but that is the predominant perspective). With that as a reality, why not do business with a partner you actually like and enjoy working with and who is committed to mutual success?  Seen through that lens, it seems like a reasonable conclusion to focus on relationships in a commoditized market, regardless of what Adam Smith says. Besides…what does he know?

Andrea Rona