The business operations covered under the clearinghouse umbrella actually consist of four separate (but closely related) concepts that come together to form a highly functional, diverse source of revenue for today’s service provider. All four components of the clearinghouse business contribute to the migration of business, technical, and supporting processes to the unified network that will underlie all communications transport in the future. In this way, clearinghouse operations are more than a short-term revenue source; they contribute to the completion and advancement of additional value-added services. The four elements of the clearinghouse business can be deployed simultaneously and employ the same common technical and management components for a single point of management and configuration.

Wholesale Minutes Exchange

For years, tier-1 and wholesale carriers have entered into long-term, high-volume contracts with other carriers for the exchange of telephony minutes. These contracts are typically based on fixed volumes over dedicated circuits between the two carriers. To maximize efficiency along these international routes, carriers have employed various compression techniques, including digital multiplexing compression equipment (DCME). These peer-to-peer relationships have yielded mixed results in terms of quality, and the equipment to achieve even modest compression rates of 4 to 1 has typically been expensive when compared to the cost of the switched infrastructure itself.

VoIP is rapidly emerging as the transport of choice for large-scale minutes exchange. The advantages of replacing DCME–based leased circuits with VoIP are numerous:

• compression rates of up to 12:1 with voice quality far superior to that of DCME
• equipment costs of less than half of DCME plus circuit switch, as most gateways provide both switching and compression equipment in the same chassis
• migration of underlying infrastructure to IP
• development and enhancement of broadband (bandwidth) sales internationally
• single management interface for both IP and public switched telephone network (PSTN) services

Large volumes of multimillion-minutes-per-month contracts are already taking place between major carriers, and (given the huge economies of doubling the traffic down the same cables at half the cost of equipment) this trend toward IP–based bilateral minutes exchange will rapidly accelerate in 2000 and beyond.

Traditional and Switchless Refile

Telephony transit or refile businesses have exploded in recent years as a result of the onset of competition and the simple economics of volume purchase of telephony minutes. In the classic refile model, providers in one region of the world act as concentrators of telephony minutes to achieve bulk termination rates that are many times lower than those that can be achieved by individual carriers terminating directly into a country. For example, a carrier in the United States could have a rate to Country X of US$.05 per minute, while carriers in other countries must pay twice that amount. By bringing telephony traffic to the United States before terminating to Country X, carriers can take advantage of the lower rate. In addition, the larger the volumes the U.S. carrier can achieve by pooling traffic from multiple providers drives its rate down even further, providing additional cost savings to the participating carriers and increasing the revenue of the U.S. carrier.

The VoIP model for refile is similar to that of traditional circuit switch in that it is based on pooling large volumes of minutes for a particular destination from disparate sources around the world. However, VoIP adds several key advantages that will drive additional traffic to existing refile hubs and provide the capability of building new refile businesses for carriers operating outside of traditional hubs such as the United States and the United Kingdom:

• All minutes originate on IP, eliminating the need for transport fees along the route to the hub.
• Compression rates of 12 to 1 along the originating routes are possible, allowing large volumes of traffic to be directed to the hub along a single E1–T1 IP link.
• Use of PSTN refile hubs is permitted for traffic overflow that cannot be terminated through direct IP connections, as a result of circuit or network congestion.

Beyond traditional refile growth, however, the biggest benefit of the IP clearinghouse model lies in the switchless refile capabilities offered by VoIP. Switchless refile is achieved when a carrier obtains partners on both the originating and terminating ends of the transaction and can direct traffic from Country A to Country B entirely over the IP network. Much like traditional refile, the clearinghouse operator maintains the buying relationship with Country B and purchases bulk termination from that provider. Unlike traditional refile, however, the clearinghouse need not bring physical user traffic to its country. It receives its accounting information based on IP signaling traffic, while user traffic follows that shortest IP route between Country A and Country B. Thus, the clearinghouse need not occupy physical voice circuits or bandwidth to provide refile services—traffic never comes to the middle country. In this manner, the clearinghouse operator can provide refile services—and reap the revenue associated with these—without investing in circuit infrastructure. The model is pure revenue at very low investment.

Clearinghouse and Settlement

The third component of the clearinghouse business is the pure financial and route clearing function. With the growth of small regional operators, ISPs, and ITSPs, the clearinghouse can provide worldwide termination services to emerging IP–telephony operators worldwide. While it is difficult and time consuming for these emerging operators to maintain termination relationships in dozens of countries around the world, a clearinghouse can provide single-point termination worldwide at a very low cost, as a result of the economies of scale from representing many small operators. In addition, the clearinghouse can provide financial settlement and termination services to its members, providing an additional source of revenue on each transaction. With the number of operators in many countries exploding as a result of deregulation and the low cost of entry of VoIP technology, the potential revenues available to clearinghouse operators are enormous. For example, a clearinghouse operator that can sign up just one partner in 30 different countries can generate more than 15 million minutes of termination revenue a month, with further growth opportunities in the future.

In addition, local and regional ISPs and ITSPs need more than just termination. They also require bandwidth, provisioning, and management services. To assure high-quality voice and fax transmission, VoIP providers look to major carriers for backbone access and QoS management. By offering VoIP clearinghouse services, operators can provide a turnkey package that includes IP connectivity worldwide, QoS management, and other services such as data access, virtual private networking (VPN), and peering. Thus, the potential revenue from clearinghouse services includes not only voice services, but connectivity and management ranging from small deployments of several E1s to large ISP contracts of multiple digital signal–3 (DS–3) connections and higher. Taken together, IP connectivity and clearinghouse services are very large revenue sources that generate healthy profits, help finance IP network buildout internationally, and drive toll revenue and expansion of IP capacity.

Enhanced Services Clearinghouses

Beyond the basic service offerings of large-scale movement of telephony minutes and global bandwidth provisioning, the long-term role of clearinghouse operators will be to go far beyond that of today’s global carriers. IP transport networks open up the capability of offering centralized enhanced services and applications to members to increase revenues and profits in the face of falling margins for plain vanilla termination. Whereas in the past it was very difficult to provide enhanced services such as global 0800 number and messaging services from a single location, IP removes circuit backhaul charges and creates a powerful model for centralized service provisioning and management. In a single location, a clearinghouse operator can provide global feature and application provisioning for its members—driving utilization of the network and providing additional revenue on a per-use basis. Examples of centralized enhanced services are already appearing in the VoIP industry:

• global 0800 services that member enterprises can use in all participating countries for routing to a centralized or distributed call center
• centralized messaging and broadcast services without PSTN backhaul charges
• global roaming services
• VPN offerings for large enterprises that provide a single interface and service logic, regardless of where the offices are located
• new services, such as video and multimedia, as they emerge

By leveraging the centralized intelligence of VoIP, carriers are truly laying the foundation for the advanced service offerings of the future. These applications will form the core of revenue and traffic growth in the future and determine the providers that are central to the communications network as it migrates from several unconnected networks to a unified transport infrastructure.