On the face of it, the international wholesale voice market is sliding into a state of terminal decline. Average prices are reducing dramatically, margins are being squeezed, and volumes are not increasing at the rates necessary to offset declining prices. Indeed, in some markets traffic volumes are even falling.

 

International voice wholesalers must act now to address two considerable challenges: the intense margin squeeze, and market transformation as VoIP begins to dominate.

 

The forecast increases in wholesale international voice traffic volumes will not be sufficient to cover the overall downward trend in revenues, and margins will be squeezed more and more. It is no surprise that carriers are increasingly talking about bottom as well as top lines: managing costs and gaining economies of scale are at least as important as, and in some markets more important than, volume growth. Our latest forecasts project a doubling of international wholesale voice traffic over the next five years, but we expect revenues to fall over the same period.

 

International wholesale traffic volumes will grow to 349 billion minutes in 2016 (8.2% CAGR 2009–16), with the greatest growth in Asia-Pacific and South & Central America. However, in the same period net wholesale revenues (i.e. excluding termination) for carrying international voice traffic will decline to $2.9 billion (€2.1 billion) as a result of continued downward pressure on prices.

 

Consolidation of the market is inevitable, but this is taking the form of outsourcing contracts rather than mergers or acquisitions. National carriers are increasingly outsourcing international termination, and even some wholesalers are outsourcing their international off-net traffic to a small subset of international wholesalers that have the scale and efficiency necessary to garner the economies that make the business viable.

 

VoIP is a double-edged sword for international wholesalers. Most international carriers have invested heavily in next-generation, IP-based network infrastructure, which offers considerable cost savings for the carriage of voice and data traffic together on a single integrated network. We estimate that nearly three-quarters of international voice traffic in 2010 was carried using VoIP, and expect that to rise to virtually 100% by 2015.

 

However, the real challenge for retail and wholesale telcos has come from Internet-based OTT VoIP services such as Skype and GoogleTalk, which are perceived as free or extremely low-cost. These services attack the traditional telco international voice business model because they use the public Internet to connect callers, cutting out the need to pay for international transit and termination separately.