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Internet-based telephone services are inexorably transforming the telecommunications industry. It’s easy to see why VoIP is popular as it offers a number of advantages for businesses. Chief among these are lower costs, particularly for businesses that need to make international calls on a regular basis.

There are other benefits too, including easy scalability to allow companies to expand their telephone systems quickly without the expense and lead times of installing more in-house equipment. This contrasts favorably with a conventional PABX.

There’s little doubt that VoIP is the future of telecommunications. BT is already committed to phasing out its traditional services in favor of a fully IP-based network over the next few years. For business phone users, the attractions of VoIp are already compelling. However, it’s important to understand how the market operates and some of the terminology involved in order to ensure that you’re going to get a good deal.

What is wholesale voice termination?

VoIP communication requires a wholesale provider of services, known as a tier 1 wholesaler. This is a company that buys connections between countries at a rate based upon the anticipated level of traffic. Generally speaking, the higher the volume of calls, the lower the rate. The wholesaler then sells these call services to other businesses, keeping a margin for itself.

The next step is call termination, or voice termination, wherein calls are routed from the provider to their final recipient. This recipient might be another VoIP user or could be on the PSTN telephone network. The wholesaler at this stage – tier 2 – of the process is providing the path via which a call can be routed over the internet.

In practice what happens is that the tier 1 provider has the rights to send calls over a physical international network. It carries the cost of the investment and technical equipment needed to make the services work, so tier 1 providers tend to be large enterprises. The tier 2 provider leases a part of the network from the tier 1 provider to allow it to sell call services to its customers.

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Popularity drives competition

As VoIP has become more popular and looks set to ultimately replace more traditional switched telephone services, so the market has seen a greater degree of competition. Customers are able to shop around for providers offering the best rates.

At the tier 2 level it’s possible to start a wholesale VoIP termination business with a relatively small investment, so recent years have seen many new companies springing up. These businesses can sell services under their own brands and offer low prices due to minimal overheads.

From the service user’s point of view, this makes it important to look at the track record of a business. If your company relies heavily upon phone services then it may be more important to look for a provider with a strong track record in VoIP, such as IDT, rather than merely shaving a few extra pennies off your calling costs by signing up with an unknown start-up.