Is Offering Free Int’l LD on Your Horizon? Follow These Checkpoints

By Hulya Altinsoy

Vonage got the free international LD service rolling and others have followed. In 2009, Vonage launched its Vonage World plan which now combines domestic and international calls to 60 countries for $25.99 a month and just last week they added more features. As of today, Google offers calling from Gmail in 38 languages, with lowered rates to over 150 countries both landline and wireless.

So is it time for your company to jump into the free international LD fray, too? Why not? Consumers love the service. But, unfortunately it’s not easy to get the numbers to work. With international calls especially, a popular service often doesn’t equal a profitable or sustainable business outcome.

We recently published “Talk is Cheap, or is it?", a study analyzing billions of minutes of international LD calls by U.S. wireless carriers. The result of that research suggests that carriers – fixed, VoIP, and mobile – need to be very careful as they move to unlimited international LD plans. We found, on average, 5 percent of the LD minutes and 21 percent of the LD usage costs for U.S. wireless carriers in the first quarter of 2011 came from international calls (see chart below). That finding is in line with what you’d expect since international LD costs are generally higher than domestic LD costs.

However, the big surprise comes when you look at the data for individual carriers. For instance, costs fluctuated wildly depending on the carrier’s market profile and the countries called. Carrier A, whose international call volume is only 3 percent of its total, saw a modest 6 percent of costs from international calls. But for Carrier B, whose customers do only a little more international volume (10 percent), variable LD costs from international calls added up to a very high 65 percent of all variable costs!

In other words, International LD is fraught with lots of risk. So to help you navigate this minefield, we have put together some checkpoints to consider before your team takes the leap:

1. Decide if free international LD is right for your brand. Do you want to do this? Is competing against Skype and Google talk a viable business strategy for your firm? If you differentiate on quality of service, the margins you earn from free international LD may not be enough to justify high quality routing. On the other hand, it can boost business by attracting new customers or increasing inbound termination fees when your customers get more calls from foreign countries.

2. Domestic is from Mars, international is from Venus. International rate plans are highly complex with fluctuating currency exchanges, differing country rates and a wide scale of pricing depending on the LD partner you route through. With domestic traffic, carriers are usually much smarter at lowering their LD costs by keeping traffic on their own networks or pushing traffic through peering partners. With international though, those economies are simply not available.

International pricing fluctuations are more frequent too. It’s not like the U.S. where LD tariffs stay fixed for the next quarter. Overseas, your rate can change in 7 days so you need you fully understand your costs so you can build a plan that gets you the margin you desire.

3. Analyze your margins in detail. Applying a simple blended rate is a quick way to underestimate costs and sink your profits. Once you understand your costs by country and terminating entity (e.g. landline or mobile), a detailed margin analysis will deliver what you need to know. Remember: What makes sense for Mexico may not work for Cuba, Australia or Russia or even the cities within those countries. To protect margins, every carrier needs to perform periodic rate studies, either in-house or through a trusted third party. Here are some key questions to ask in these audits:

• Top-line revenue may look great, but we achieving the desired results to our bottom line too?
• Is the plan adding new subscribers or reducing churn?
• Did we underestimate the cost to service the plan? It’s not unusual for carriers to experience a call-center spike when customers believe they were misled or billed incorrectly.

4. Obtain international LD benchmarking data. One of the first things your international LD product team needs to know is how your own plan and results compares to that of your peers. This is where Connectiv Solutions offers useful benchmarking data that will help make your own planning more precise. That way you can gauge how you doing against your competitors and find areas for improvement. With good benchmarking data, you’ll find out how your costs compare to your peers’ as well as usage patterns across the international landscape. Delivering macro and micro level analysis, comprehensive benchmarking will assist in traffic modeling which will ultimately help engineering with capacity management requirements.

You probably know where your subscribers are calling currently, but benchmarking will tell you how customer behavior is likely to change once the international unlimited is launched. Industry benchmarking data can often spell the difference between a successful free international LD program and a plan that’s launched with only mediocre results.

5. Be on guard for international traffic pumping and fraud. International LD is just as vulnerable to traffic pumping as domestic LD. In North America, traffic pumping is a $100+ million revenue drain for some carriers and $100+ million “access stimulation" for others. Land-based conferencing bridges and chat rooms are just as rampant overseas as they are in the U.S. So you need to keep alert and have systems in place to detect abnormal usage so you can reduce exposure.

Hulya Altinsoy is a manager, Client Services at Connectiv Solutions , where she oversees new client integration and professional services. Hulya holds a B.A. in Business Administration from Istanbul University, Turkey and M.S. in Project Management from George Washington University.