September 16, 2004

The Lure of Virtual Numbers

AT&T today announced among other things that they will join other VoIP providers in offering additional numbers from different geographical area. These numbers are called “virtual numbers” and are associated to the primary numbers and when calls are received for a virtual number, the call will be diverted to the primary number. The service objective is the same as that of Foreign Exchange service or toll-free service of PSTN, except now it is applied to consumer market as well.

Before Skype became the darling, Vonage was considered by many regulators and industry luminaries to be the pacesetter. Virtual Number service was often mentioned as an example of revolutionary services afforded by VoIP technology. Subsequently almost all the VoIP providers started to offer the same service at almost the same price of approximately USD5 per month. Indeed they all allow for any number of virtual numbers to be associated with the primary number. But AT&T will issue a maximum of 9 virtual numbers. I guess the research folks at AT&T Labs have a valid reason for this restriction.

Not being a business guy, I wondered the business model behind this service. How is it that the service is so inexpensive? Indeed, VoIPuser gives away virtual numbers in UK and will terminate the calls to not just any SIP or IAX2 destination, but also landlines in selective countries for, get this, free! For me this all the more remarkable, till I realized that they are taking the kickback charges they receive for terminating the call, to pay for the forwarding of the call.

Given the service offered by VoIPuser (and soon to be joined by LibréTel), one clearly observes that VoIP technology is not needed in the access to offer virtual number service. More importantly, another “revolutionary service” afforded by VoIP turns out to be an arbitrage play. What happens to the viability of the business plan of this service if the “bill and keep” regime advocated by many VoIP players is indeed instituted?

Update: I should have included an analysis of Skype related service SkypeIn. The service offered by VoIPuser and LibréTel is equivalent to what SkypeIn will be. This means SkypeIn fee is bounded by that of VoIPuser (which is 0) and USD5 per month. Also, Skype can offer a new service to PSTN users like VoIPuser and LibréTel, that is offering PSTN LD service. The fee will be bounded by VoIPuser (which is 0) and SkypeOut (per minute by destination based charge).

Second update: Please visit VoIPuser forum to read some comments on this entry from one of its founders.

Posted by aswath at September 16, 2004 12:00 AM
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