Communication Solutions

iBasis (News - Alert) and TDC, the national carrier of Denmark, have announced a strategic outsourcing agreement for TDC’s international voice services.

 

As explained by Chris Ward, Senior Director of Marketing, at iBasis: “TDC is essentially outsourcing all of its international VoIP service and all of the operations and network assets associated with that to iBasis in an exclusive arrangement lasting five years, with the exception of the Nordic countries. In other words, iBasis will provide phone service between the Nordic countries and they will terminate calls from the rest of the world into those Nordic countries and they will handle all of the international traffic coming out of TDC to the more than 200 countries around the world.”

 

“TDC can now just focus on their retail business and services and the technology initiatives associated with that in developing these services, and so forth,” says Ward.

 

“TDC will continue to provide international phone service to their retail customers but we’re essentially partitioning their switch in Copenhagen so that the outbound international traffic goes directly to iBasis,” says Ward. “Part of the agreement includes iBasis taking over their U.S. operations in New York, which are very small – fewer than 10 employees – and the network assets and office space. So iBasis is now simply TDC’s international voice service provider.”

 

“It’s somewhat similar to what we did with KPN in that KPN essentially outsourced its international voice business to iBasis,” says Ward. “We acquired that business from them in exchange for iBasis stock. In the case of TDC, iBasis is essentially acquiring their international voice trading business for about US$10 million in cash.”

 

“During the five years that the outsourcing arrangement is in effect, it’s expected to generate approximately US$80 million in new annual revenue for iBasis as it carries about 2 billion minutes per year of voice traffic for TDC,” beams Ward.

 

Ward notes, “The bigger part of the story is that we’re seeing a real trend in international voice: carriers are looking to ways to be much more efficient about how they provide international voice service to their customers. It’s a highly commoditized business and it requires some specialization in managing the LCR [Least Cost Routing], for signal timing] and in managing the international agreements. Like any other commodity business, unless the carriers can achieve a massive scale in international VoIP, it’s just not a profitable business for them and it just doesn’t generate either the margins that their retail services business generates and indeed needs to generate. From a business management and business model standpoint, it’s not really a very good fit. It makes much more sense for them to be able to focus their resources, both human, capital, and technological, on the retail initiatives that promise much higher margins, whether it’s fixed mobile convergence [FMC] or migrating their networks and services to IP. That’s the case with TDC – they’re investing heavily in initiatives such as FMC and that’s really where they really want to focus, and that’s why they’re really outsourcing their international voice business to iBasis.”

 

“We’re also getting a lot of interest from other, similar carriers in the marketplace for establishing the same type of arrangement with us,” says Ward. “This seems to be a major trend.”