Why has it taken us this long to welcome Senior Research Manager Paul Brodsky—an A+ podcast guest—to TeleGeography Explains the Internet?
I brought Paul on to discuss our most recent voice report, but we couldn’t help getting into a whole lot more.
We talked about the history of telecom and how voice and internet networks compare—and how that is impacting voice traffic and revenue.
It’s not often on the show that we explore histories dating back a century or more, but this context is useful for understanding changes in how humans communicate in 2023.
Paul and I also discuss the cash cow that voice once was and what's happening now. Voice enthusiasts will appreciate that we discuss the history of OTT and VoIP technologies and how they've disrupted the market. We couldn't leave out mobile, especially as Paul came to TeleGeography from a mobile provider. You can listen to the whole conversation below.
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Key Takeaways
Traditional, Metered International Voice Minutes Are Declining, but Human Communication (Talking) is Not Decreasing; It's Just Shifting Technologies
The TeleGeography Voice Report, which has tracked international voice traffic since 1989, shows that the number of international long-distance minutes delivered over traditional carrier networks has been declining every year since 2015. This decline was the first since the Great Depression, according to FCC data tracking US international voice traffic since the 1930s.
The primary reason for this decline is the rise in popularity of internet-based Over-The-Top (OTT) applications like WhatsApp, Viber, and Skype. These apps allow users to make voice calls over the internet using packet switching technology, which is fundamentally different from the older circuit-switched technology used by traditional phone companies.
While traditional carriers may now use IP (packet switching) within their own networks for efficiency, they still count and meter these calls as traditional voice. The decline thus reflects a shift in how people communicate, moving away from carrier-billed per-minute calls towards apps often included in data plans. However, the guests emphasize that people are not talking less; the volume of conversation is likely continuing to increase, just through different channels not tracked as "metered voice minutes".
The Fundamental Shift From Circuit Switching to Packet Switching Underpins the Disruption of the Traditional Voice Market
Historically, telephone systems used circuit switching, requiring a dedicated electrical circuit to be established between two points for the entire duration of a call. This method was resource-intensive and inefficient, making long-distance and international calls particularly expensive.
Telephone companies, often operating as government-sanctioned monopolies, made deals to provide universal service, cross-subsidizing rural or residential lines with high prices charged to businesses and for long distance calls. Innovation in this era was slow. The advent of the internet, based on packet switching, changed everything.
Packet switching breaks data (including voice) into small pieces (packets) that can travel independently and be reassembled at the destination, using shared network resources much more efficiently. This technology made it possible for OTT providers to offer voice services over the internet, bypassing the traditional circuit-switched networks and their pricing models. This technological shift, combined with liberalization of telecom markets, allowed new competitors and technologies (like VoIP and mobile data networks) to emerge, leading to significant price drops and the disruption of the voice "cash cow."
Despite Declining Revenue and Consolidation, the Traditional International Voice Business and Its Underlying Infrastructure Still Play a Role
Although metered international voice minutes and associated revenues are declining, the traditional voice business is not entirely gone; it still represents a significant global revenue stream, estimated at around $50 billion.
A key component of this is the international wholesale market, where operators buy and sell the ability to "terminate" calls (deliver them to the final recipient's network) in countries where they lack direct connections. This wholesale industry requires significant scale to operate profitably due to slim per-minute margins and has undergone considerable consolidation in recent years.
Mobile termination, specifically the cost and process of delivering a call to a user on a particular mobile network, is another aspect that remains relevant, partly because the recipient's mobile operator has a natural monopoly over that final step. Furthermore, the continued reliance on traditional telephone numbers as identifiers for many popular OTT voice applications (like WhatsApp) shows a persistent link to the legacy system and infrastructure. The underlying physical infrastructure for carrying calls, even those that transition to IP within a carrier's network, often still utilizes facilities originally built for circuit switching, such as central offices.
