The new economy of voice

Go treat yourself to five minutes of free high-quality phone-to-phone call(s) from JaJah - from anywhere to anywhere. Behind the cute retro interface is a pretty standard callback service, with callbacks initiated from the Web. These services, a couple of years ago, initiated the driving down of international call costs. Even Telkom, the slow-moving dinosaur miraculously still alive in South Africa, got the point and in SA it is today often cheaper to call abroad than to make a domestic call from their phones because of the competition introduced through callback.

What does JaJah do? You provide two numbers (A and B, say) on the JaJah website, and their computer (one presumes...) places two calls in order to connect the parties. Why is this (and other callback services) cheap? If A calls B from a normal phone, A has no control over how the call is routed since A's telephony service provider will relay the call at a price previously announced to its customers. If A initiaties the call through JaJah, however, JaJah can use a (previously determined) point X from which the sum of the costs of connecting X to A and X to B is a minimum. The cost of the triangular connection is usually less than that of the direct call, in the same way that the direct flight from Johannesburg to London is hardly ever the cheapest ticket on the route (which was via Sofia for a long time).

Why might such a point X exist? Well, A and B can normally receive calls for free (US cellphones are the major exception) and hundreds of operators in different countries will have agreements with the operators of A and B respectively to accept calls from them. The operators are much more readily able to negotiate lower prices than end-users are and JaJah's job is simply to identify the operator with the lowest prices to A and B and route the calls via this lowest-cost operator X.

Why should traditional telephony operators be very, very afraid? If JaJah can connect my cellphone to practically any phone in the world for close to the price of a local South African call, why would I buy any service from Vodacom (my GSM operator) other than (practically free) incoming calls. Vodacom will be left to negotiate interconnect prices with other operators - its sole remaining source of income - and customers in the juicy local market for which it holds a license will provide practically no real income at all.

Why is this outcome likely? A service like JaJah needs very little information to connect A and B - just the two numbers, and the authentication of an account holder. Traditionally, this has been (partly) via caller ID, in traditional callback. There are nowadays very many ways of conveying this information - the Internet, SMS, mobile data services etc. - and operators already using them.

Callback operators perhaps need to make their services a little easier to use and they certainly have a lot of competion from pc-to-phone operators like Skype but for many applications callback remains a threat to traditional telcos - the very basis of which is free incoming calls and the great ease with which a few bytes of data (the two numbers) can be passed around the world.

This posting should not be construed as providing investment advice.

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