International Telecommunications Routes - Commitment Deals

As de-regulation continues to spread and technology improves, settlement arrangements are being replaced by commitment deals. The main types are the minutes swap and pay or play deals.

In a minutes swap, carriers agree to terminate a certain amount of designated traffic for each other. For example, A agrees to terminate one million minutes of B's of French Orange Mobile traffic and B agrees to terminate half-a-million minutes of A's UK Vodafone traffic – the difference in volumes reflecting the difference in the official costs of terminating the traffic.

In a pay or play deal, A agrees to pay B a fixed sum to terminate up to a given volume of traffic, with excess minutes charged at a higher rate. The two types of deal can be put together, producing a back-to-back pay or play minutes swap.

A swap deal can go wrong like this: if carrier A falls short on its traffic commitment while B meets theirs, A will lose money. A will not be making the revenue charging people for the traffic it was going to send to B to terminate, while A must pay to terminate the traffic B is sending it.

A pay-or-play deal can go wrong for A if it gets so little traffic that the effective cost (amount committed / minutes actually sent) rises above what it is charging for the traffic. It can also go wrong if A gets too much traffic and starts to pay the higher price for traffic above the agreed level.

Protecting against these losses becomes important. If a carrier has too much traffic, it must find a way to deliver it without it affecting the deal it has. It must 'by-pass' the deal. The de-regulated telecoms markets in the major hub cities of London, New York, Hong Kong, Tokyo and Amsterdam provide many such opportunities.