Posted: 01/2001

IP, Latin America Emerge as Major Growth
Markets
By James R. Dukart

The move to IP as a transport mechanism and the growth of market minutes to
Latin American countries are considered the major boons to international
wholesalers and resellers.

According to ATLANTIC-ACM Inc. (www.atlantic-acm.com)
wholesale market analyst Taher Bouzayen, research shows that Latin American
countries led the way in 1999 for international circuit-switched traffic
outbound from the United States. The countries in South and Central America and
Mexico accounted for 27 percent of the total international traffic emanating
from the United States, according to a 1999 ATLANTIC-ACM study. Of that 27
percent, half the calls went to Mexico.

The percentage for Latin American countries compares to 23.67 percent of
outbound calls to Europe and 20.74 percent to Asian countries, Bouzayen says.

The data shows that large Hispanic communities within the United States
indicate the Latin American market will continue to grow, he adds.

Bouzayen also sees the emergence of IP as a transport mechanism, particularly
in Asian and Middle Eastern markets, as a major wholesale, resale growth area.
The significance of Asia and the Middle East is that those are regions where
circuit-switched infrastructures are not well-developed or remain under a
state-controlled monopoly.

"IP used to be an arbitrage way to beat circuit-switched, but given the
growth right now and in 2001, it is becoming a substitute for
circuit-switched," Bouzayen says. "With all the technologies being
developed today, IP is catching up in terms of quality and service."

This analysis is music to the ears of wholesalers such as edge2net Inc. (www.edge2net.net),
iBasis Inc. (www.ibasis.net) and ITXC Corp.
(www.itxc.com), which are IP-based carriers
that say business is booming for international voice traffic via the Internet.

"It’s an evolving market that clearly started out as an arbitrage
play," says Mark Ozur, CTO for the Kirkland, Wash.-based edge2net.
"Everybody has been in a frenzy on the terminating and arbitraging, and now
we are seeing more activity on the originating end. We are seeing a lot of new
kinds of originating carriers developing, and as technologies change, we think
we can help them."

Chart: 1999 U.S. International Outbound Traffic Destination

An example of an emerging originating carrier is an ISP that wants to offer
international calling, Ozur says.

He calls edge2net "a telephony ASP, or a voice OEM" that helps a
carrier without VoIP become "voice capable at the edge."

Ozur adds that ISPs are interested in adding applications, such as
international voice mail and audio conferencing, which can be done efficiently
and effectively using IP.

Mary Evslin, vice president of marketing for ITXC, based in Princeton, N.J.,
says that as call quality via IP approaches or exceeds traditional
circuit-switched calls, carriers will increasingly recognize the economic
advantage to routing calls via the Internet.

"A 2MB leased line for a year to Brazil may cost about $70,000 per
month," Evslin says. "And that will only get me into and out of
Brazil. For that kind of money, I can run a lot of traffic over the Internet;
and as long as I have top-notch call routing, no one will even know the
difference."

Evslin adds that IP also grants an advantage in bringing calls to places that
are not served by undersea cable or advanced telecom infrastructures.

"We don’t compete U.S. to London–there is already enough there,"
she says. "But we can take the Internet into Moldavia, and we can serve the
demand out of Britain for traffic to North Africa and India."

Sean O’Leary, vice president of Internet telephony for Burlington,
Mass.-based iBasis, says international IP business is "growing like
gangbusters," and he sees the pace picking up as more IP carriers roll out
SLAs and produce answer-seizure ratios that match or beat circuit-switched
routes.

The largest IP routes right now are to China, Mexico, Israel and Thailand,
with "tremendous room for growth" in Latin America, he says.

In addition to VoIP, more resellers want to provide IP-based applications
such as unified messaging and electronic commerce services on an international
basis, O’Leary adds.

But Mike Budnick of WorldCom Inc. (www.wcom.com)
is not as eager to jump on the IP bandwagon. Budnick, director of product
marketing for WorldCom Wholesale Marketing, says the strongest resale market for
circuit-switched traffic is going to secondary locations, such as Vietnam and
India, rather than the United Kingdom or Japan.

"I don’t see a whole lot of impact right now with IP. If it is out
there, it is so small it is not noticeable," Budnick says.

And WorldCom’s senior manager for account programs within wholesale
marketing, Emanuele Tosi, adds that another international resale trend has been
deployment of additional bandwidth in certain markets, with resulting price
pressures.

"There has been an explosion of bandwidth across the Atlantic, and to
some degree the Pacific," Tosi says. "The result is prices that are at
cost or below, and there is no way to be more aggressive. Everyone seems to have
a circuit in place."

At the same time, parts of Central and South America are suffering from
limited capacity, he says.

While IP may be a partial answer, the overall international resale market is
in something of a pullback from the days of carriers simply chasing the cheapest
rates for all calls, Tosi says.

"The last couple of years we have had a rush to the cheapest rate, and
there was not much concern about quality," he says. "There is more
attention to quality now, and rate pressures have eased a bit.

"The carriers who have been playing on the rate side have been in
trouble recently. I expect to see some consolidation, and those that have been
too aggressive will start slowing down and realizing that quality is very
important, particularly for business customers," Tosi says.

Despite this, Bouzayen sticks to his prediction that IP is the wave of the
future for international calling.

"The first-tier carriers built their undersea cables decades ago. They
are totally amortized, and the carriers have been receiving good settlement
rates from other carriers," he says. "But they are going to have to
make some efforts to upgrade their networks."

As this happens, IP quality will get better, and carriers with IP
transmission will benefit by offering deeper and richer applications to
resellers, who then can offer more advanced services to end users.

"Pure circuit-switched wholesale minutes have become a commodity,"
Bouzayen says. "There is no differentiation, and the result is price
erosion. There are two factors that have acted as catalysts to develop
applications. One is that applications add additional revenue streams for
resellers. A second is that, as a wholesaler, I can offer you something more
than competitive rates and guaranteed uptime. I can offer you advanced billing
features, click-to-talk and many other things that circuits will not let me
do."

James R. Dukart is a free-lance writer based in Minneapolis. He can be
reached at [email protected].