XO Adds to VOIP 'Peer Pressure'

One of the largest CLECs in the U.S., XO Communications Inc. (OTC: XOXO), has joined the Stealth Communications Inc. VOIP peering cooperative, creating a database of almost 10 million phone numbers that can connect to each other without ever touching the PSTN. (See Stealth Intros VOIP Peering.)

Stealth CEO Shrihari Pandit says his company's “VOIP Peering Fabric” (VPF) creates a “private VOIP Internet” where the voice traffic of more than 100 operators can now be exchanged purely in the IP domain. This novel idea completely cuts out the RBOCs and ILECs, which make a business of collecting PSTN termination fees from CLECs.

With members like XO signing up, some believe the idea is catching on. XO is the largest participating member in the VPF to date. XO serves businesses and telecommunications companies in 70 metropolitan markets via a national facilities-based IP network.

XO spokesman Chad Couser isn't divulging the financial terms of XO’s participation in the network, but he says the value will grow as the peering network grows. “You're basically buying an Ethernet connection,” Couser says. “It all depends on the amount of traffic that could be terminated over IP, and that amount will increase as the number of members grows.”

Stealth's Pandit says the peering network is connecting a quarter of a billion VOIP minutes per year, or 100,000 calls a day.

How? Stealth operates a large ENUM database now containing nearly 10 million phone numbers that can connect through the VPF. (See ENUM Heads for Primetime .) When an XO customer places a call, a query is sent to the ENUM database looking for the number the user has dialed. If the number is found, routing instructions are sent down to the router nearest the caller, which routes the call through the VPF. No PSTN. No charge.

For participating CLECs like XO, this means it has one less call to route through the PSTN. Pandit says that creates an attractive “bill and keep” scenario wherein the CLEC collects revenue from the voice customer, yet doesn’t have to pay a PSTN termination fee to the RBOC/ILEC. (See VOIP Peering: Incumbent Killer?)

While the peering business is still in its infancy, Pandit believes it may one day threaten the reciprocal termination business of the RBOCs and ILECs.

“If this were to continue down the path to other large CLECs, and other regional CLECs come into the system, what it means is all the competitors of the RBOCs and ILECs will now be able to send calls among one another for free,” Pandit says.

“This means they [CLECs] will be able to reduce their operating costs a lot, and it means significant revenue loss for the RBOCs and ILECs.”

Stealth has been around since 1995, and has yet to break the 10-employee mark. “It is a well-kept secret in the industry,” says the CEO.

— Mark Sullivan, Reporter, Light Reading