Voice over IP

ISPhone, Updated

With open source and proprietary parts, an industry veteran has built a competitive product that offers advantages to even the smallest ISP.

by Gerry Blackwell [May 6, 2008]

Times change, businesses have to adapt. Any entrepreneur knows this. But nowhere is it truer, perhaps, than in the telecom and Internet industries.

Just ask ISPhone Inc., the Traverse City, Mich.-based IP telephony wholesaler we first wrote about in 1999 when founder and president Victor von Schlegell was just getting his company off the ground.

ISPhone survived, thrived, and still caters to small and medium-size ISPs—"we're a phone service enabler for service providers," is how von Schlegell describes the company—in large part because it was willing and able to adapt to the topsy-turvy of the telecom industry.

When a press release came over the ISP Planet transom recently announcing a new ISPhone product that allows service providers to integrate their Asterisk switching systems with RADIUS-based authentication and billing, we were intrigued. This didn't sound like the ISPhone we remembered. Maybe it was time to revisit.

Wayback
Back in 1999, von Schlegell saw ISPs—even small ones—waking up to the fact that they could diversify and increase ARPU (average revenue per user) by adding IP-based phone services to their mix, and he saw a business opportunity for himself.

ISPhone would buy long distance services in bulk from new competitive carriers and wholesale it to fledgling ISP phone service providers. The ISPs could still turn around and retail long distance to their customers at prices far below what telcos were charging.

"Part of the original model," von Schlegell explains, "was that we'd create a network of service providers that would in effect be a community—and they'd terminate calls to and from one another."

ISPhone would provide the interconnection among customers and to and from the public switched telephone network (PSTN) through its IP phone gateways.

But not long after we talked to von Schlegell in 1999, the North American long distance arbitrage market started to go south. As competition among carriers heated up, rates plummeted, and margins for arbitrageurs like ISPhone were pared to razor thin.

"Just terminating calls inexpensively, which we still do, was no longer enough," von Schlegell says.

Moving on
ISPhone provides call termination for all its customers, including the North American ISPs it once thought would be its exclusive clientele. But North American ISPs now represent a minority.

As the arbitrage opportunity dried up here, the global spread of telecom deregulation opened up new arbitrage markets overseas. Today, of ISPhone's 2,000-plus customers, "most" are offshore—in Africa, parts of Asia, the Middle East, and Eastern Europe.

In most countries outside North America, telephone service was exclusively provided by PTTs (Postal, Telegraph, and Telephone companies) that were sometimes corporations and sometimes government ministries (imagine competing against the FCC). But because the powerful World Trade Organization (WTO) has mandated telecom deregulation, governments that want to play in the new globalized economy are having to loosen the hold of their PTTs on the industry. And on lucrative phone service revenues.

"Some are moving pretty quickly," von Schlegell says. "Some are moving as slowly as they can."

He sees a continuum of regulatory climates. In some countries, offering telephone service in competition with the PTT is still a black market activity. Participants are not only shut down when found but may end up in jail.

And then there are various shades of gray, starting with countries where competitive telephone services are still illegal, but the government turns a blind eye. At the other end of the spectrum are "white" markets, places like the U.S., Canada, Australia, and most Western European countries, where "anybody can do anything."

About 10 percent or 15 percent of ISPhone's customers are in black market countries, 30 or 40 percent in white markets, the majority in gray markets. Von Schlegell can track the spread of telecom deregulation as the number of enquiries the company receives from a country or region starts increasing.

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