Prepaid Voice Over IP

When prepaid Internet calling cards hit the market several years ago, they didn’t have a broad appeal. Mostly due to their poor sound quality, prepaid VoIP cards were not viewed as serious challengers to cards issued by major long distance companies, but were specifically targeted toward those users without local residential service or those looking for an inexpensive way to call overseas.

“Prepaid voice over IP is going from a toll by-pass for ethnic and other niche markets to the mainstream market,” says Zeev Braude, vice president of product line management at MIND CTI, a maker of billing and customer care systems. “Now, we’re starting to see prepaid IP telephony competing with the traditional prepaid market as well as traditional services for international and domestic long-distance calling.”

Prepaid IP telephony cards are also starting to cut into the traditional calling-card market, which has been dominated by large IXCs such as AT&T, MCIWorldCom, and Sprint. Business travelers know that calling cards issued by carriers can charge exorbitant rates, even for calls within the United States.

Providers are beginning to offer roaming features on their prepaid accounts, as well as real-time access to customer accounts through the web. Companies offering online account information include Delta Three and Net2Phone.

SETTLING DOWN

With prepaid VoIP attracting new users, service providers are under pressure to guarantee that they can terminate the calls just about anywhere in the world.

With a prepaid voice over IP model, as with any other type of Internet telephony service, providers generally rely upon others to route traffic and complete calls. Very few top-tier carriers own complete end-to-end IP connections, so peering becomes a necessity. “Now it’s more of a carrier-to-carrier model,” says Scott Fogle, senior vice president of marketing and sales at RapidLink, a provider of prepaid and postpaid calling products.

RapidLink has been targeting U.S. military families in Europe and Asia, as well as ethnic communities within the United States. In addition to providing service to its customers, the company also builds its own infrastructure—including voice over IP gateways, routers, and RADIUS servers—at the edge of a carrier’s IP network. The company has partnered with Cable & Wireless, MCIWorldCom, Global Crossing and Sprint.

Because RapidLink doesn’t own or control an entire IP link, it has to work with other carriers to deliver the minutes it generates. The company tends to work with PTTs or other dominant carriers in a given market to ensure a high call quality, Fogle says. However, Fogle says he’s starting to see a shift in how carriers terminate their IP traffic. Because RapidLink owns IP infrastructure in certain parts of the world, it is able to enter into bilateral agreements with other providers to terminate traffic. Fogle says he’s noticing that large PTTs - such as Korea Telecom, which entered the IP services business about two years ago - have to enter into new settlement agreements to handle IP traffic.

Korea Telecom’s mix of IP services included e-mail, web access, and prepaid calling cards targeted at ethnic groups within Korea. “They started to generate a large amount of minutes and needed a place to send those minutes,” Fogle says. “They can terminate traffic over their Tier 1 carrier network, but at very high settlement rates. Their home markets are becoming very competitive, and now they are looking for ways to reduce costs.”

One way to do that is to find partners outside of the country with whom to terminate traffic, which lowers costs but doesn’t upset relationships with other Tier 1 carriers, Fogle says. RapidLink has become Korea Telecom’s primary termination partner. Many carriers looking to terminate traffic are now turning to ITSPs, rather than traditional phone companies, due to these cost savings.

Delta Three, which offers prepaid voice over IP service, is also positioning itself as an alternative to local PTTs. The company owns what could be considered a global IP infrastructure. For those points where Delta Three cannot complete a call through its own network, it primarily relies on its parent company, RSL Communications, a global telecom company with facilities on five continents. “On our own, we may not be able to terminate much traffic to Nigeria, but we can get a decent rate because of RSL,” says Fara Hain, director of marketing communications at Delta Three.

Delta Three also relies on ITXC, a global telephony carrier that provides wholesale termination of minutes. Through its relationship with ITXC, Delta Three terminates traffic from providers who aren’t able to reach certain destinations. Currently, Delta Three isn’t sending much traffic back through the ITXC network, but that could change in the future, as ITXC’s global network will include more managed links that can guarantee a high level of quality.

But as traditional PTTs and next-generation IP service providers enter into agreements for cheaper termination, the question arises: do those deals conflict with existing ones with Tier 1 carriers? In some cases, a dominant PTT in a particular country may stipulate that only it may terminate IP-based traffic within its borders, while other countries are experiencing deregulation may not have such stifling rules.

“I don’t think coming to an agreement with an ITSP to terminate traffic violates any agreements,” says Phil Mutooni, product manager at iBasis. “It really depends on the nature of the contract or relationship, so if a carrier isn’t allowed to terminate traffic in a particular country except through the dominant PTT, then it would be a violation. However, if the relationship is more open-ended, a carrier would be able to terminate with someone else.” Mutooni adds that as more countries open up and eventually have two or three providers who can terminate traffic, that the concern may become a non-issue.

SELECTING TERMINATION PARTNERS

iBasis (formerly VIP Calling) offers global traffic termination as well as its IPCallCard Service, which targets carriers that want access to the prepaid and postpaid voice over IP markets without major investments in equipment or infrastructure. Carriers with billing and AAA (authentication, authorization, and accounting) systems can use iBasis as a wholesale carrier of minutes. China Unicom, a GSM cellular provider, last year began offering prepaid voice over IP services through iBasis.

iBasis says it can terminate to any global destination; the company has its own extensive global IP infrastructure, “and then we very carefully select other carriers for overflow or [for locations] where our network is not able to reach,” says Jackie VanderBrug, director of business development at iBasis.

VanderBrug stresses the importance of maintaining relationships with providers who deliver high quality of service, high call completion rates and can show a high percentage of billable calls out of all calls sent. Using iBasis’ proprietary iTrac web-based service, partners can view total minutes of voice and fax traffic, total number of calls, call completion ratios and average call duration. “We’re trying to deliver toll quality or higher quality than the PSTN,” she says.

Delta Three’s Hain says that the company doesn’t often partner, due to its relationship with parent company RSL Communications. She acknowledges that a partner ITSP with a gateway in a particular country would probably be cheaper, but it can also be a bit more complicated. “There are no guarantees that an ITSP is using a managed link or whether they are sending over the public Internet,” she says. “In some countries, for a few cents a minute more we can terminate through RSL and get toll quality; that’s not something you can always be assured of with an ITSP.”

According to Hains, peering contracts can include a provision stating that an ITSP can’t send business-to-business or commercial traffic over the inherently unreliable public Internet.

When RapidLink looks for termination partners, it has specific criteria, says Fogle. “When service providers overseas have approached us, we found that many of them operate on a clearinghouse model, meaning they will pass off traffic to another service provider [instead of terminating it themselves],” he says. Instead, RapidLink looks for providers that can do the actual termination of retail business traffic. Fogle adds that in some cases, RapidLink will act as an interexchange carrier by offering termination services in areas to which other providers don’t have access.

DEREGULATION AND SETTLEMENT

Although deregulation has hit countries outside of the United States, most foreign countries have maintained high settlement rates to terminate traffic. If more calls go from the United States to another country than vice versa, the termination rate in the other country is generally higher, compared with the rate in the United States. Foreign PTTs receive large checks from AT&T, MCIWorldCom, and smaller providers, making termination a huge source of profit.

The FCC and the WTO are trying to ensure equity for everyone involved in international termination, says Delta Three’s Hain. “About two or three years ago, the FCC and the WTO said that this settlement arrangement is not fair, and that they’d do what they could to dismantle it,” she says. According to Hain, within the next decade, settlement rates will reflect cost rather than arbitrary numbers set by local PTTs.

“The WTO is being lobbied hard by carriers to make changes, and I think rightly so,” Mutooni says. “And when they do lower the rates they offer to end users, they will actually get more traffic and therefore increase their income.” Lowering termination rates with other carriers likely will hurt PTTs in the long term, but “PTTs are not foolish; they can create an Internet division so they themselves are acting as the ITSP,” Mutooni says.

Even without pressure from the FCC and WTO, some PTTs are starting to see the handwriting on the wall, often due to deregulation, which will bring increased competition. To keep customers, established PTTs will likely have to lower their termination fees. Also, technologies such as callback and voice over IP have already caused PTTs to lower settlement rates. For now, most carriers who want to terminate in areas where they don’t have an infrastructure are generally forced to deal with the dominant carrier.

“PTTs are in a dilemma because whether they like it or not, traffic will come into their country and they’ll lose out on revenue due to their high tariffs,” Mutooni says. “Small ITSPs in their home country might be essentially arbitraging traffic that should be going to the PTT, but in the long run the PTT has no choice but to lower its termination rates.”

STANDARDIZING THE SETTLEMENT PROCESS

Although deregulation and other factors will fundamentally change how voice over IP and other IP-based traffic are terminated around the world, a standards-based settlement process is considered a formidable obstacle.

Most carriers have peering arrangements with one or more terminating carriers, but the settlement process can be extremely complex, especially in interdomain scenarios.

Currently, two standards efforts are under way: one is the International Multimedia Teleconferencing Consortium’s iNow! Profile, based on the H.323 protocol and championed by companies such as ITXC, Lucent, and Vocaltec. The other, the European Telecommunications Standards Institute’s Open Settlement Protocol (OSP), has drawn support for companies with global IP networks. (For a detailed technical discussion of the iNow! Profile and OSP, see “Interdomain Settlements in Multi-Service IP Networks,” by Dr. Matthew Lucas and Philip Mutooni, BillingWorld, June 1999.)

iNow! has been used successfully, but does not scale beyond one clearinghouse. “This is because it is dependent on the gatekeeper—if traffic is moving from one domain or network to another, all this information must be communicated via the gatekeeper, and that’s not likely to change,” Mutooni says. He adds that the numerous implementations of the H.323 protocol are also holding iNow! back.

OSP may have the best shot at becoming the de facto settlement standard for global distributed networks; it enables interdomain authentication, authorization and reconciliation and can be used to settle between ITSPs and between clearinghouses.

However, OSP hasn’t taken off. “[It] does fill a void, but in terms of adoption it’s not where we’d all like it to be,” Mutooni says. His company, iBasis, is working with Cisco and billing vendor Belle Systems on an OSP solution not yet commercially available. RapidLink is also looking seriously at OSP and has a prototype system in place, but has nothing commercially available.

According to Mutooni, lack of knowledge about OSP’s technology, as well as limited promotion, have hindered the use of OSP. He anticipates OSP deployments to appear this summer.

KEEPING THE CUSTOMER HAPPY

As more providers jump into the prepaid market, competitive rates may not be enough to keep a customer. “Many upstart prepaid distributors are trying to distinguish themselves solely on price, but they may have premature termination of calls, the voice quality might be questionable, the call completion rate could be low, and they might not be able to complete calls from cell phones,” says RapidLink’s Fogle.

It’s difficult to market concepts like high call completion rates, but if a provider consistently provides clear connections - even during holidays and other peak times - that speaks volumes. “Quality definitely reduces churn,” says iBasis’ VanderBrug. “If I know that every time I use this calling card it will work, I’ll continue to use it,” she says.

Providers are adding value to prepaid accounts by giving customers the ability to recharge cards online and check real-time account information. Customers may also be drawn to especially good customer care, including online customer service, says MIND CTI’s Braude.

Also hot on the list of value-added features is the ability to use the card from any country. Typically, prepaid voice over IP cards only work for calls originating in the home country. As the lower rates become attractive to business customers, providers are beginning to offer global roaming with the same account—in effect, offering the same features of a traditional calling card at a better price.

Incentives and promotional rewards – such as additional time on a calling card - may be another way for providers to keep their prepaid customers around, according to Elhum Vahdat, vice president of billing vendor Apex Voice.

PREPAID GOES FORWARD

Prepaid IP telephony also applies to sending global faxes; it’s just a matter of punching the sequence number into a fax machine. In the future, providers plan to market this feature more heavily. They will also bundle services; for example, a provider offering data services might combine Internet access with a prepaid calling account.

The addition of voice mail boxes to prepaid accounts would make sense in countries where many people don’t have phones at home. With a voice mailbox feature, a user can not only call out from a pay phone, but can also retrieve messages.

Prepaid IP telephony services may also include unified messaging features, such as the ability to access messages through e-mail and have text-to-speech software read back the message. Also, a single prepaid account and PIN could be used for voice calls as well as PC-to-phone calls. Additional features such as multiple-party audio conferencing may also be included in the same account.

When providers start offering these services, they need to be able to rate for each one and integrate it all in a single billing system. This will likely prove to be something of a challenge, even with a prepaid model. Usage information and CDRs will be coming from a variety of sources including voice over IP gateways, switches and routers. The process of collecting call detail information, rating it, and actual bill presentment will likely become more complex. Service providers will have to work closely with billing and mediation vendors to ensure they’ll be able to define class of service and correlate it to a particular account, and to make sure those OSS systems will be able to support new services.

If providers can do that, prepaid IP telephony cards have the potential of becoming the smart cards of communication.

China Unicom Enters Prepaid Market

China Unicom, the second-largest carrier in the country (next to China Telecom), was mostly a GSM cellular provider before the Chinese government began to deregulate. The government has given four operators, of which China Unicom is one, licenses to offer voice over IP services - China Unicom can now offer long-distance and international calling independent from cellular service. Also, the carrier will be able to enter into interconnect contracts with affiliates to terminate traffic in China.

The project began last summer with a goal of issuing 1 million prepaid calling cards and providing service to 12 cities in China. The second phase of the project, currently under way, involves expanding the number of cards issued to 5 million and providing long distance service in 20 cities, inside and outside China. This phase of the project also includes bringing voice over IP services to about 2 million of China Unicom’s GSM customers.

China Unicom is using Cisco’s voice over IP gateways and MIND CTI’s MIND-iPhonEX billing and customer care system. MIND’s product provides the ability to authenticate prepaid and GSM customers, and it exports billing information to the legacy GSM system. All prepaid and GSM customers are handled on the same billing system; GSM customers who are also signing up for prepaid voice service will see a single bill, says Zeev Braude, vice president of product line management at MIND CTI, who adds that the China Unicom system was up and running in about five weeks.

Last June, China Unicom entered into an agreement with iBasis (formerly VIP Calling) to terminate its voice and fax over IP traffic. Because China Unicom is an established carrier, it already has its own billing and customer care system, so it is using iBasis instead as a wholesaler of minutes. “They need somewhere to send traffic based on all those cards,” says Jackie VanderBrug, director of business development at iBasis.

For billing settlement, iBasis provides the carrier with CDRs and bills for the wholesale minutes passed through iBasis’ network. “Those CDRs have all the fields required to do settlement, such as where the call originated, how long the call was, where the call was terminated, and what the rate was,” says Wingkay Leung, senior product manager at iBasis. China Unicom is then able to reconcile that information with the CDRs it generates, and its billing system keeps track of how many minutes are passed to iBasis.