Google Voice – Calling Party Pays vs. Bill and Keep

Google has been in the press in the past couple of days for resurrecting Grand Central, a web based PBX system that, among other cool features, can forward incoming calls to several virtual and physical phones simultaneously. Some of the reports also say that for the moment Google Voice is only available in the U.S. and not in Europe and other parts of the world, as termination charges to fixed and mobile networks are higher. That’s an interesting twist on the different charging models for calls that are sent from one telephony network to another.

In the U.S., telephony networks use bill and keep (B&K), which means that the originating network can keep whatever it charges the caller and the terminating network routes the call to the destination free of charge for the originator network.

In Europe and elsewhere, calling party pays (CPP) is the standard interconnection charging model. Here, the terminating network charges an interconnection fee to the originating network. For fixed line networks this interconnection fee is around 1-2 cents a minute these days while for mobile networks it’s much more expensive, around 6-10 cents depending on the country.

Some people including me and for example Tomi Ahonen think that CPP is a good idea because:

  • Incoming calls on mobile phones are free unlike in the US, where B&K makes the mobile operator charge mobile users for incoming calls.
  • This in turn keeps many people from getting a phone, has led to relatively high priced flat rate plans or a high number of included minutes and thus keeps people from communicating more cheaply and getting more than one subscription or mobile device.
  • As a result mobile adoption in the US is still far behind that of most other industrialized nations.
  • Also, there is no incentive to increase coverage and capacity of networks since the terminating network is not getting paid for incoming calls so it doesn’t matter if they are connected or not. Outgoing calls are included in the flat fee as well so missing or bad coverage does not reduce revenue either.

The Internet Based Voice Centric Service Twist with B&K

So in general, CPP has been quite good for competition and network build outs. But here is a twist with Google Voice and Internet based voice centric services: In the US, while B&K doesn’t generate revenue for Google for incoming calls, it allows them forward calls to mobile networks for free, because the terminator pays for it. In the CPP world (Europe, Asia, etc.) Google would have to pay for those calls. As the users phone number for incoming calls would have to be a fixed line number for the service to be attractive to users, the difference in termination charges they could earn with the fixed line termination fee and the money they would have to spend on the much higher mobile termination fee makes the business model very different.

What this means is that in the US, Google just has to recover its own costs for running the servers and for interconnecting with the telephony network. In the CPP world, Google would in addition have to recover the cost for the difference between the fixed and mobile termination fee, which is anywhere around 4 and 8 cents a minute.

So it looks like this aspect of B&K is quite beneficial for Internet based voice centric service innovation. From a mobile operator point of view, the bottom line does not look as good because when people start using this service their traffic and workload increases while their revenues stays flat due to flatrate pricing. In effect the potential service upsale can easily be made by Internet based companies and mobile operators have no handle to promote their own services, if they had them. Maybe an incentive for them to consider moving to CPP to reduce competition from Internet based voice services? It would be an irony.

7 thoughts on “Google Voice – Calling Party Pays vs. Bill and Keep”

  1. Martin, there is strong evidence that the delay in US adoption was not due to RPP vs CPP. There’s also quite a bit of emerging evidence that CPP only results in a regulatory quagmire, high mobile costs and low average minutes of use. This post:
    points to an interesting paper by Prof. Stephen Littlechild as well as to an earlier post with an argument between Tomi and I that you might find interesting.

  2. The arguments in favor of CPP continue to baffle me; they seem to be willfully devoid of logic. The only defensible argument in favor of CPP is that it drives up carrier revenues. Why? Because carriers in CPP countries effectively ransom phone numbers: Want to reach my subscribers? Then you have to pay whatever I ask. I laugh when I hear people attempt to portray CPP as somehow more egalitarian than mobile party pays (MPP), given that it only serves to (a) line the pockets of carriers, and (b) transfer the costs of a service (mobile telephony) from the beneficiary to a blameless party (i.e., everyone who calls the mobile party). Hardly egalitarian. And ever wonder why European regulators have to be involved in the issue of “interconnect rates” whereas they don’t in MPP countries?

    To the Ahonen points:

    – CPP “incoming calls are free”: Nonsense! SOMEONE has to pay. It’s just the poor sap who calls the mobile party, rather than the mobile party himself.

    – MPP “makes the mobile operator charge mobile users”: Is that not where the cost burden rightly belongs?

    – MPP “keeps many people from getting a phone”: This is complete and utter hogwash. Singapore and Hong Kong have been well over 100% penetration for years (can that be said of Europe?) Even China is approaching 50% penetration — that’s 600+ million users, almost all under an MPP regime.

    – “Mobile adoption in the U.S. is still far behind”: Wrong. The U.S. has nearly 100% penetration:

    – With MPP there is “no incentive to increase coverage and capacity since the terminating network is not getting paid”: Calls are ALWAYS paid for; it’s just a question of who pays for them and how. Does Mr. Ahonen think that calls made under a flat-rate plan are not paid for either?

    What dis-incents U.S. carriers from improving coverage and capacity is the large buckets of minutes that airtime is sold in. Once the carriers have convinced you to pay a monthly fee for your monthly bucket, what they REALLY want you to do is never make a single phone call; after you pay your money, you represent nothing but cost to them. One way to minimize this cost is not to provide subscribers with overwhelming coverage and capacity. Consider, again, Hong Kong, Singapore, and China which do employ MPP but don’t sell minutes in big buckets. I can’t remember a single time in the past 10 years in which I experienced a lack of coverage in those places.

    If there were ever a poster child for how CPP retards innovation, Google Grand Central is it. The question is not whether the US should adopt CPP, but when Europe and Asia will abandon it.

  3. If you had to pay every time someone gave you a bunch of flowers, or delivered junk mail, would Interflora or UPS exist ?

  4. Actually, I think if you look into it, CPP vs B&K have no effect on payments between carriers unless the traffic is asymmetric. So, for normal P2P contact, you will call/SMS them, and they will call you back, resulting in a net-0 payment between carriers – even ones of unequal sizes.

    The only difference is for services where the traffic is asymmetric, such as call centers which receive a lot of calls and SMS ASPs, which generate a lot of SMS traffic.

    CPP results in SMS ASPs having to have connections to each carrier. This is a huge barrier for new entrants into the market, since they cannot poach the profitable ASP business.

    We also see the effects of CPP on the “free dial-up ISP” model, where the transfer payments from the incumbent telco more than made up for the cost of the ISP service. This is the same as the free long-distance and conferencing services operating out of Iowa.

    The payments the individual users make are independent of the termination charges.

  5. @Rick Beveridge | March 20, 2009 at 05:03 PM

    Your analogy seems to be that CPP is necessary for the commercial viability of carriers. Given that the two largest mobile markets in the world employ MPP, and that the carriers in those markets generate enormous volumes of cash, it would seem that this is not the case.

  6. @Jason Pollock | March 26, 2009 at 09:35 PM

    “CPP vs B&K have no effect on payments between carriers”

    Traffic is bound to be asymmetric between carriers, roughly proportional to the size of each carrier’s subscriber base.

    But the point isn’t really whether CPP is fair to cellular carriers, but whether it is fair to all calling parties: cellular, PSTN, or internet. Calling mobile phones in the US costs 2.1 cents/minute using SkypeOut. The same call to a mobile phone in France costs 20.3 cents/minute — because mobile carriers in France can charge whatever the like with impunity. Retail is where the unfairness of CPP is most evident. Indeed, why did SMS take off early in Europe? Because CPP makes calling mobile phones expensive.

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