Will termination fees still be alive when everyone is interconnecting via VoIP?

A lot of VoIP operators is really a fancy re-seller of other PSTN operators services. This means that they do not see any revenue on termination fees - the one who sees termination fees are their SS7 partners. For sure the VoIP operators would love to get termination fees - but currently this means that they either need to make special deals with their SS7 provider, or they need to implement SS7 themselves.

Is not one of the major points about becoming av VoIP operator is to circumvent SS7 and trouble the Big Bad Telcos?

Currently it is a sad state of affairs in VoIP land when various VoIP operators are using ISDN providers to connect to each other rather than creating a direct interconnect using a SIP or IAX trunk.

A good example of this stupidity is what is going on in Norway. Without naming any names a lot of VoIP operators are using the same SS7 provider. Of course does this provider charges termination fees. The very interesting thing is when two VoIP operators which uses this SS7 provider place calls to each other - they pay termination fees (unless they get a "good deal"). Even within the same country with only a few SS7 providers all interconnecting traffic goes through these providers - and end users have to pay termination fees along the way.

So why have VoIP operators co-operated and either created direct trunks between them or created regional VoIP Exchange Points the same way the Internet Exchanges works? Based on the experience I gained working for a VoIP operator, I would say that they rather pay termination fees to a SS7 aggregator than cooperating with each other.

There have been some attempts of getting VoIP operators to trunk directly to each other - but these trials have been more in the realm of every VoIP operator should link to my network rather than the SS7 aggregator - and then we can put the termination fees into our own pocket. Often the operator which propose these solutions are the one with the biggest traffic - so in reality they will get most of the termination fees.

Everybody at the VoIP operator level know that termination fees means very little when trunking over IP. If the operators does not get any revenue from termination fees - why not just do the right thing and interconnect directly with your competitors? In the long view everybody wins - lower cost for the operator and lower cost for the end user.

However, one way to look at termination fees is of course as a source of income. The UK regulatory body Ofcom have stated in a 2006 report (page 9) that around the revenue on cell phone termination are around 15% (which equals to GBP 2 billion). Other figures may apply elsewhere. This only shows that ther is a lot of money in termination fees. No wonder everyone want a part of termination fees - even the VoIP operators.

Given the difficulty for VoIP operators to create fruitful direct interconnects, the only sane solution will be to create Neutral VoIP Exchanges (NVEs). I will be the first one to state that such NVEs are not easy to creat correctly. However - we see that such exchanges exists on a international level, thus it would be possible to have these on regional levels also. The major issue is having a database and a set of APIs which VoIP operators uses to perform call routing. Doing this correctly is not a cheap thing - just take a look at the cost of running these on a SS7 level.

Would regional or international NVEs slowly terminate the needs for call termination? My guess is that this is going to happen. Not because operators do not want the income. Big VoIP have a interest in termination fees - while smaller operators do no. If the total number of subscribers using smaller operators than the sum of what big operators have, then the answer is given.

What about incumbents in this landscape? Incumbents are on the SS7 layer rather than on the VoIP layer even if they offer VoIP services. Their mind set are SS7 and the way to bill things on that layer. It is also not very likely that incumbents will lie down and die soon because of a lot of new and smaller VoIP providers out there. Maybe they will lose a big marketshare - perhaps so big that their offering on ISDN or Analogue will be have so few users that termination fees become too small to matter.

My estimate is that termination fees will slowly fade away and within the next 2-4 years they will simply disapear.

Lastly - setting up a NVE can not be done by a VoIP provider due to "lack of trust" from their peers. It has to be set up with a 3rd party which have no stake in either customers, traffic or termination fees. However, there is good money to be made setting up a NVE.