When bandwidth exchange Arbinet launched its global number portability solution earlier this month, it announced the registry would be free for six months. The gambit highlights how confident the carrier is in its wholesale platform despite a murky portability marketplace, as CTO Steve Heap explained to CommsDay.

“When we talked to carriers, they’re in a real Catch-22 position,” he said. “They know that they have some problem, but they don’t know how much of a problem they have, because they don’t really know how many ported numbers there are in their traffic streams. Getting their engineering teams involved in designing a solution to help them query this system - it’s hard to make that business case, because you’re saying, ‘I don’t really know what’s going on. All I know is I have pain. Well, how can I afford to pay then? I’m not really sure, because I don’t know how much pain I’ve got!’“

That problem spurred Arbinet to devise a hefty free trial period. “We said okay, we’ll give you the access to this registry at no cost through May 2010. That will allow you to set this up - although some people are faster than others at doing that. It will allow you to use it for at least several months, so you can go through the billing cycles and see what the benefits have been. If you decide that it has been worthwhile you can just carry on, and we’ll start billing you in June 2010. And if you decide it hasn’t been worthwhile and you’re happy with the old way of doing things, okay, just stop querying us.”

Heap said the company has already signed two customers but said many large carriers made operational decisions at a glacial pace. “Some people will take a month to even think about whether they’re going to do this. That was the main reason for the timeframe,” he explained, adding Arbinet chose to exclude its US portability database to avoid minor operators gaming the system. “There was so much chance of little guys coming and doing all their US queries for the next six months and then disappear again that we decided not to include the US database in this. So it’s basically seven countries.” The portability registry currently covers Australia, Brazil, Germany, Italy, Sweden, Switzerland and the Netherlands, with Arbinet soliciting additional market recommendations from trial customers.

“The reason we started in Europe is the European Community mandated number portability across all the countries in Europe maybe eight or 10 years ago. So there’s a lot more progress in terms of the percentage of numbers that have been ported in Europe. The US is significant, but Europe is probably the next one. The other reason we picked Europe is there are a lot of intra-Europe mobile traffic and there are significant differences between the termination costs to TIM in Italy, for example, and H3G in Italy. There’s more commercial pain in Europe than perhaps in other parts of the world,” Heap explained.

“Then we’ve got people using it not for voice, but for SMS purposes. An SMS message has a different termination cost if you send it via someone as opposed to sending it directly to the operator themselves. Then we got requests: ‘Brazil’s becoming a bit of problem for us. Australia’s becoming a bit of a problem. Can you get Australia and Brazil?’ So outside of Europe, the next stage was driven by requests from our customers.”

DEFINING THE PROBLEM: “The problem the international carriers and wholesalers and the rest have is that number portability is being implemented in many countries around the world,” Heap said. “Within a country, it’s necessary for all the carriers to sort out how they’re going to route calls within that country.

So there’s a query database in the country, or they’ll have some method of making sure a call goes to the right mobile carrier and on to the right customer when a call is made in that country. But if you’re outside the country, you have no knowledge of that. You have no visibility of that. And for some time, the industry sort of ignored that to some extent.”

Heap told CommsDay the advent of 3G had thrown the problems of blended billing for interconnection into sharp relief since operators have generally been permitted to charge higher termination rates in order to recoup costs. “What’s been happening over time is that as more and more people port their numbers - in Finland it’s up to 50% or something like that - that problem that was swept under the carpet to some extent is becoming more problematic. If an international carrier wants to set up a direct route to a mobile operator in a country, they’re in a position where they don’t actually know what calls to send them because they don’t know what numbers really belong to that carrier anymore.”

Making matters worse, Heap said ported call volumes rarely tracked to expectations based on the proportion of ported numbers. “The percentage of ported numbers can vary greatly from one day to the next, with no apparent reason,” he said. “This sort of strain that’s floating around in the industry caused us to say, ‘There must be a better solution to this, where we’re all just sort of poking and hoping.’ But why should only in-country people have access to this information? The people outside the country actually need it as well. They need it to determine how to best route the call. If we put something in place which enables the originating carrier to query a database, and we respond back with the identity of the distant operator, then they could route directly or route to their partner. At least they’d know how much they should be charged for that call. They can monitor.”

Arbinet began tackling the problem three years ago, approaching regulators with an eye toward scoring access to national routing databases. “We get both the original database plus daily or hourly updates, gathered from the source in the country. We normalize it, because they all have a different format and they all approach the problem differently. Basically, we’re interested in which carrier owns the number today. We don’t care about the history of it or who the customer is,” Heap said. That approach has thrown up its own problems, as some markets don’t require a centralized database and rely on a patchwork of private agreements.

NEW REVENUE DRIVER: Queries will cost less than a tenth of a US cent once billing begins in June, and although Heap declined to be drawn on revenue forecasts he admitted the service had a strategic importance launching at the end of a rocky year. “The strategy obviously hinges on how we think the industry will evolve,” he said. “I think the move to VoIP is enabling many carriers to interconnect with other carriers that they simply couldn’t afford to do in the past. If you go back to the TDM days, in order to interconnect to another carrier you needed to assign some dedicated switch ports that were quite expensive, and you had to set up a direct circuit - which itself was quite expensive - between you and the other partner. And so the further away you were, the more that circuit cost, because you were buying a number of T1s or a number of DS3s, and generally those are priced based on distance in addition to capacity.”

Those price barriers are melting in the VoIP world as everything about the interconnect is shared, Heap elaborated. “There’s no particular port assigned to an interconnect. There’s no particular transmission circuits or capacity assigned to an interconnect. Now carriers can interconnect with a lot more people than they used to do in the past. You then face the question of, ‘Okay, I can now interconnect with someone, but how do I know what calls to send them?” Especially if you’re doing retail service provider to retail service provider, what you’re really trying to sell them are calls to your numbers. The industry has talked about peering for some time, but in effect that’s what you’re doing. A query service, which portability’s a part of, is a way of answering that question.”

But finding new revenue streams doesn’t mean the industry isn’t without considerable challenges in the near term. “I think the whole world of international call termination is getting more complex by the day,” Heap opined. “It’s getting more complex because there are many more competitive carriers. Portability is adding to that challenge, because it ships numbers around based on the decisions of individual consumers. Terminating voice calls efficiently, which is really the way that you stay in business, is becoming harder and harder over time. The thing we’re worried about internally and spending our time thinking of solutions for is how can you terminate calls as efficiently as you can at the quality people want and at the lowest possible cost? And how can we have that as automated as we can, so what the end service provider decides to buy from us is at the best price we can muster? Most of our technical thoughts are going into improving efficiency, improving quality and coping with the increasing complexity of routing.”

Heap said Arbinet’s roots as a bandwidth exchange meant it was well-positioned to tackle these issues. “We’re starting from a pretty good base, but there’s a lot of complexity in using all of this portability information and this peering information to choose the right carrier to route each individual call to. There’s a lot of discussion in the industry about high-definition voice. If you bring in different service capabilities, you’ve then overlaid a new piece of decision making in the jigsaw, because then you’re saying, ‘Ah! This is high-definition voice, I’ve got to route it this way. This is just an ordinary voice call, I can route it this way.’ It’s just coping with that complexity that I think Arbinet is good at, but we’ve got to continue to evolve that ability over the next two to three years to stay at the head of the pack.”

Heap admitted the recession had not been kind to Arbinet but said the carrier was hardly unique in that regard. “I’m not sure how TeleGeography tries to count the total number of international traffic that’s floating around, but it’s down overall,” he said. “Many originators of traffic, whether they’re prepaid calling card users who’ve lost their jobs, or they’re cutting back on how much they can spend, or they’ve gone back to their home countries. They’ve cut back on usage. Businesses have cut down on usage. In the wholesale space, there’s another factor that calls are often handled by multiple carriers, and the failure of one carrier doesn’t mean that traffic gets handed to someone else. It just disappears on some level. The original call was there, but there’s one less person in the route. That’s had an impact on the industry as well.”

But the struggle is likely to be good for the industry in the end. “What I think will come out of this is an increasing focus on quality, and the least number of people in the path in order to get both quality and a good price,” Heap predicted. “I think the end result of what everyone has gone through is some wholesalers have disappeared already, and some more will probably disappear as we go along. But the end service providers, the ones who’ve obviously got the customers making the calls, and they still need help getting those calls terminated in a good quality, highly efficient way. That’s where we’re positioning ourselves. Our balance sheet puts us in a good position to be there and be ready to support them as traffic starts to increase again.”