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.