VoIP operators turn up the heat on African telcos

By   |  February 27, 2007

Over the last year, the cost of phoning from Africa to international destinations in Europe and North America has fallen dramatically under pressure from cheaper prices available in the grey market using Voice over IP (VoIP), according to a new report published by Balancing Act this month.

In 2005 almost all African telcos sampled in the report were charging US$1 or over per minute to the main international destinations. By 2006, only 19 were still charging over US$1 per minute for the same destinations. Just over half the carriers are now charging US25 cents for these calls. Carriers in countries as diverse as Algeria and Kenya are now offering call rates close to US25 cents a minute.

According to one of the authors of the report, Russell Southwood:”Greater competition in key markets and the legalisation of VoIP have pressured all carriers – including mobile carriers – to lower their rates to users. This is good news for Africa in general and business on the continent in particular. Cheaper international phone calls help make Africa globally more competitive and more capable of attracting new jobs through things like call centres.”

Southwood says that grey markets flourish where there is a lack of competition in telecoms markets. The report found that typical grey market operators are: young, extremely resilient when it comes to retaining their customers, IT-savvy and entrepreneurial. They are able to obtain international calling minutes to sell at between US3-4 cents a minute and exist on the margin between this and the grey market rate. These rates are nearly always considerably cheaper than those offered by existing carriers.

“Grey market operators have all the skills you might look for in an African country and it is only the failure to legalise VoIP that keeps them ‘out in the cold’. Where countries (like Kenya) have legalised VoIP, it has allowed these local entrepreneurs to raise money and start new companies,” Southwood

The report notes that the mindset of many policy-makers and regulators has changed significantly in the last three years. Many are now admitting privately that it is not a case of if VoIP will be legalised in their country but when.

All of these changes have accelerated adoption of VoIP by Africa’s fixed and mobile carriers and the report tracks the progress so far. A surprisingly large number of carriers are now using some form of Internet Protocol (IP) to carry traffic between places at a national level and more have plans to switch to this method within the next 12 months.

The report looks at how the changes brought about by legalised VoIP create new market structures and the kinds of business strategies required to stay competitive. One sign of the changes was the recent announcement by the Johannesburg Internet Exchange Point (JINX) that it will introduce VoIP peering for its members, enabling them to exchange VoIP traffic between each other.

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