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Unlimited Long Distance

By Telco3 min read

The latest VOIP plans announced by Engin (also here) sound pretty hot – unlimited local and national calls for a very low monthly charge. It’s plans like this that have in the past struck fear into the hearts of resellers. That word “unlimited” has some scary connotations.

So let’s deconstruct this with some cold, hard, mathematics. Primus were one of the first resellers to offer a plan that included “all you could eat”, and they did so using a sound understanding of the call profiles of their customers. So I ventured into a few residential customer databases that we do billing for to extract some aggregate statistics – one of my favourite pastimes.

The average number of calls (for a phone line each month), and average total minutes for each call type look like this:

  • Local: 60 calls, 400 mins
  • National: 13 calls, 100 mins
  • Mobile: 23 calls, 50 mins

Now, if we use a local termination cost of 2c per minute, and a national call cost of 5c per minute (and this doesn’t allow for a proportion of either type of call to be fully on-net and therefore have zero marginal cost), the cost of the included calls for an average user comes to about $13.

The word average is the important one – it will average out over a customer base. They will lose money on some customers who call tons, but they will more than make up for this on the customers who barely use it at all.

This means there is enough margin there even if all they make is those calls. Of course, they will make much more than that – in particular calls to mobiles (which is an ever growing part of every phone bill). This is where Engin (and other resellers) make most of their profit. At 27c per minute (with an all-important one-minute minimum), they will make a very healthy margin on all of these calls of probably 30%+.

So the lesson to resellers is simple: do your homework (or get a hotshot analyst to do it for you). You don’t need the cost structure of a carrier to offer products like a carrier – just some knowledge and a spirit for innovation.

This was also posted at [Billing Bureau].

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