FROM BILATERAL TO HUBBING

International Carrier to Carrier Business

AGENDA

n  Financial principle supporting the exchange of voice traffic

n  Bilateral
•  Negotiating a good bilateral deal

n  Hubbing

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VOICE - FLOW CHART

H1
OLO 1

OLO 1’ H2

OLO 1"

O1 O2

H3
OLO 2

H4
OLO 2’

Origin Destination
H5
ITSP

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 BILATERAL NEGOTIATION

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VOICE - FLOW CHART

H1
OLO 1

OLO 1’ H2

OLO 1"

O1 O2

H3
OLO 2

H4
OLO 2’

Origin Destination
H5
ITSP

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BILATERAL - INTRODUCTION

n  Bilateral prerequisite

n  Existence of direct interconnection between the 2 operators involved in the deal

n  Both way relationship

•  Operators are buying and selling each others
•  Not a buying only relationship
•  Not a selling only relationship

n  Willingness / necessity to exchange traffic

•  Cost & revenue optimization
•  Quality improvement
•  Diversity and security

n  Bilateral are fundamentals, even in the most competitive environment

At worldwide level, most international traffic is still exchanged under bilateral agreements rules.

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DON’T CONFUSE BILATERAL EXCHANGE AND BALANCE

n  We do still audit international carriers team of operators, that are MAINLY following their traffic and
building their negotiation strategy based on:

n  Balance of the relation

•  Volume balance

•  Financial balance

Payment received from the foreign operator

–
Payment done to the foreign operators

n  This is not enough and could lead to terrible decision

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OUTGOING CALL STRUCTURE

n  Outgoing calls are generated by:

n  Operator end user customers
n  Other Licensed Operators in the country
n  Foreign Wholesalers

Margin
Local loop
End user retail price National network
Operator Internal Cost
Wholesale retail price international network
Operation cost
Settlement / termination rate paid to foreign operator

n  Outgoing call are a source of revenue and should be as well a source of profit

n  Some international carrier team are still forgetting this aspects, considering that out going call are
only a cost
•  Focus on the settlement rate paid for the delivery.
•  Considering that “outgoing cost” should be balance by “incoming settlement”

n  Don’t confuse bilateral exchange and balance

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INCOMING CALL – COST STRUCTURE

n  Incoming call

Margin
Local loop
Settlement rate received from National network
Operator Internal Cost
foreign operator international network
Operation cost
Settlement rate paid to OLO

n  Incoming call should be terminated

•  On your network
•  On networks of other licensed operators of the country

•  This represent a cost that should be considered

n  Incoming are not only a source of revenue

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WHICH TRAFFIC TO CONSIDER?

n  It is commonly understood that traffic involved in bilateral between operator A and operator B is the
traffic from country A and the traffic from country B.

Operator A Operator B
Country A Country B

n  Is it right?

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WHICH TRAFFIC TO CONSIDER WITHIN THE BILATERAL?

n  Is the traffic sent by Operator A and terminated via B

n  Only the traffic generated by it’s end-user customers?

n  Its end-user customer traffic + OLO traffic?
n  Its end-user customer traffic + OLO traffic + wholesalers traffic?

n  Is the traffic sent by Operator A and terminated via B

n  Terminated only on operator B network?

n  Terminated on operator B network and on OLO networks from country B?
n  Terminated on operator B network + on OLO networks from country B + in other countries?

n  Same question concerns the trafic sent by Operator B and terminatd by A

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WHAT ABOUT NETWORK COST

n  Bilateral prerequisite is the existence of physical direct interconnection

n  Optical fiber interconnection
n  Microwave interconnection
n  Satellite interconnection
n  IP interconnection
n  …

n  Network is a key element, that should be considered

n  It’s a long-term commitment
n  Network cost are there, even if there is no traffic

n  But as long network is there, up and running:

n  Network cost should be considered as fixed cost
n  Network cost shouldn’t be added in the routing decision
•  Except if increase or decrease of capacity is requested

n  We will consider network cost later on. For the time being we will only consider them as
existing and fixed cost

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 HUBBING

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HUBBING

n  As long you have no direct interconnection, you should use a transit point to deliver your traffic to the
destination

n  Various names are used to designate this transit services

•  HUBBING or REFILE or SPECIAL TRANSIT
•  They are all the same, they all consist of delivering indirectly traffic between one origin O
and a destination D

n  Transit services have always existed, in the past they were call SWITCHED TRANSIT or TRADITIONNAL
SWITCEHD TRANSIT but due to complexity of the original model, and especially to frauds which did
hurt a lot destinations, “traditional” switched transit did disappear
•  Some group or alliance are still using it

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VOICE - FLOW CHART

H1
OLO 1

OLO 1’ H2

OLO 1"

O1 O2

H3
OLO 2

H4
OLO 2’

Origin Destination
H5
ITSP

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HUBBING

n  Simple way to deliver traffic, as soon no direct relation exist.

n  The hub H, which transit the traffic is:

n  Fully responsible of the traffic toward the destination.
•  Destination doesn’t know were the traffic come from.
•  Destination see only that the traffic come from H and that H is paying it
n  Invoicing O and on the basis of its records

O D

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HUBBING

n  O doesn’t know how the traffic will be delivered.

n  H doesn’t commit on quality of services

n  H doesn’t control the network from end to end

n  H doesn’t commit on the effective delivery

•  H is just transiting the call, transferring it to other operators for termination
purposes

n  O know only that the traffic should be / could be delivered to D

n  If it arrive to the destination

n  If somebody answer the phone

n  While sending its traffic in hubbing O should monitor carefully its traffic.

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HUBBING

n  Quality is a K element, for:

n  The satisfaction of it’s customers

n  The efficiency of the communication

n  The length of the call

n  Operator revenues

•  Customer are paying only if traffic is getting through

•  Revenue are directly dependent of call duration

n  O should
n  Supervise the quality (ASR, PDD,…)

n  Get warranties on CLI transmission

n  Try to get performance commitment

n  Try to get the Highest Level of Quality at the best Price

n  Find best Balance between Quality and Price

n  This is very important it’s profitability

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PRICE VERSUS QUALITY

n  What are the consequences of reduced price/quality ?

n  No CLI n  No Call Back + Less Call Completion

n  Reduces Voicemail Usage

n  No Roaming n  Inbound Roamers Not Reachable

n  Low ASR n  Fewer Calls Completed

n  (Excellent Price)

n  Shorter Call

Duration
n  More Call Attempts
n  Network Saturation n  Reduced Customer
Satisfaction

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PRICE VERSUS QUALITY

ALL OPERATORS STRIVE TOWARDS ZERO-COST

WITH NO CUSTOMER COMPLAINTS

Strong Focus on Price, Strong Focus on

Lower Focus on Quality Optimizing Margin

Loss in potential margin Maximize

Margin

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PRICE VERSUS QUALITY

Call attempts ASR Retry Call Volume Cost Margin

Profile
cost 1 000 Duration
Best Cost Routing 0,35 720 60% 50% 2,50 ' 1 800 ' 630 810
Least Cost Routing 0,30 405 30% 50% 2,00 ' 810 ' 243 405
Optimal 0,30 1 000 100% 2,50 ' 2 500 ' 750 1 250

Retail rate used as reference 0,80 Gain or los 405

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 NEGOCIATING A GOOD BILATERAL DEAL

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TO HAVE A WHOLE VISION OF THE MARKET

n  Traffic delivery is based on financial arbitrage

n  Traffic could be rerouted instantly

•  If capacity if available (off course)

n  Delivery of your outgoing traffic on direct route should be cheaper than delivering it over hubbing
n  Network is there and paid
n  If not what the interest of maintaining a direct relation?

n  Termination and LCR cost should be known

for termination of traffic into the destination network

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YOUR COUNTERPART MAKE THE SAME ANALYSIS

n  How much does it cost to terminate traffic on your network?

n  Tariff of bilateral?

n  Tariff on the wholesale market?

•  Tariff on the wholesale market could be based on
•  Other bilateral agreements passed by you
•  Priced offer using national interconnection
•  Termination using local retail tariffs
•  On-net
•  Off-net

n  You need to know how the other operator could deliver it’s traffic into your network, into your country?
n  Legally
n  Illegally

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VOLUMES COMMITMENTS

n  Per minute price isn’t all - All is about money

n  Volume should be considered

n  Volume * price/minute = Revenue
n  Volume * (price/minute – cost/minute) = Margin

n  Do I need to secure incoming volumes?

n  Yes, I’m in competition on my market and if traffic doesn’t arrive on my international circuits I
will make less Revenue and margin

n  No, where ever the traffic come, it will generate the same revenues and margin
n  No, as if traffic isn’t deliver via the international interconnection it mean that it’s delivered
illegally, than its all about fight against fraud and bypass

n  Outgoing traffic

n  What is the interest of committing outgoing volumes?
•  Is it cheaper than LCR, on medium term?
n  What is the risk of committing outgoing volumes?

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NEGOCIATING A BILATERAL AGREEMENT

n  Could I improve my revenues and margin via a bilateral agreement?

n  Should the prices of the bilateral agreement be symmetrical or asymmetrical?

n  What if I’m accepting higher prices than LCR tariffs?

n  What will be the impact for my outgoing traffic?
•  Should I maintain it on our direct?
•  Should I reroute it using LCR?
n  What will be the impact on my Incoming?
•  Will generated incoming margin and revenue counterbalance and cover the over cost paid for
my international outgoing traffic?
•  Will generated incoming margin and revenue be higher than if traffic was received via LCR?

n  What if I’m committing volumes?

n  Do I get the volume?
n  Is it possible to get additional volumes from wholesalers?
n  Is it possible to force my counterpart to over commit granting additional margin?

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PREPARING THE NEGOTIATION - WHAT DO WE NEED TO KNOW

n  Outgoing volumes

n  Generated by our own end-user customers
n  Available from OLO
•  If we have a good price to the destination
•  What is the expected “good price”
n  Available on the wholesale market
•  If we have a good price to the destination
•  What is the expected “good price”

n  Termination price to the destination

n  Bilateral agreement
n  Wholesale market
n  National interconnection

n  Expected incoming traffic from the origin

n  Revenue generated by incoming traffic and associated termination cost

n  Incoming traffic received on bilateral
n  Incoming traffic received via national interconnection
n  Incoming traffic received via retail tariffs
n  Fixed termination cost
n  Mobile termination cost

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 THANKS FOR YOUR ATTENTION

Antoine Barba

Partner
+216 53 11 05 60
+33 6 07 72 36 89
antoine.barba@clarity-conseil.com

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