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The Gradual Decline of Huge Margins in the Telecommunications Industry

Updated on April 5, 2012

The Historical Business Model

The telecommunication companies and carriers have had it good for the past few decades. They've established themselves in a standardized manner throughout the country, and have a stranglehold on the infrastructure as well. As it stands now, the mobile and landline industries tend to be natural monopolies. This means that by its very nature, the marketplace cannot support a large number of players given the heavy barriers to entry as well as the limited nature of resources such as mobile spectrum and public land.

As a result, this has been one of the highest margin industries ever. It's no secret to anyone that the cost of sending an SMS message to the carriers is virtually zero. Thus any charges incurred by customers for making use of this facility is 100% profit. Over the years, nothing has emerged that can present a viable alternative to this business model. So far, only VoIP has the ability to disrupt it and provide customers with lower costs and better features.

This would be great if all the VoIP companies in the world learn to work together and implement a standardized system out of which they can present a united face to the telecommunication industry. But another barrier is that the telecom providers also have a stranglehold on the wireless data networks which need to be used if mobile VoIP is ever to gain significant traction.

VoIP PBX Systems
VoIP PBX Systems

Propelling VoIP to the Forefront

Another relic of the old way of doing things is the telephone number. Unfortunately, this concept is so ingrained in people that they tend to use it even when there is no need to. For example, all SIP calls can be made using an SIP address which is similar in form to an e-mail address. We all know that an e-mail address is easier to remember, write down and recognize than a telephone number. And yet the way things are structured today, even an end to end SIP call will make use of telephone numbers if they are from different providers. If the two telephone numbers are from the same VoIP provider, the service will internally determine that the call can go over the Internet. But in the absence of an external public database mapping SIP addresses to telephone numbers, the call has to perforce drop down to the PSTN line, incur charges, get reduced in quality and only then reach its destination.

It's still early days for VoIP. Something needs to happen to break the inertia which will allow SIP addresses to become more common than they are today. Until and unless people find the need to give up a regular telephone number, they will always be beholden to the telecom carriers who control them.

For a business wanting to obtain a hosted PBX system, VoIP is the best option today. It's a free market and there are many SIP providers will be able to provide the functionality you need.

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