Categories of VoIP Businesses

In general, there are two major categories of VoIP business:

  • retail
  • wholesale

Most probably you have already used, or at least heard about, retail providers like Skype or Vonage that have become popular because their services are oriented to a mass audience. On the other hand, wholesale providers are rarely known because they operate in niche markets and usually directly serve other telecom operators or companies that generate more calls. The core differences between retail and wholesale lie in the target audience and quantity of calls.

Wholesalers usually work in the B2B (Business-To-Business) market and serve those clients that can guarantee big call volume (telecom operators, retail providers, and bigger enterprises).

Retailers can operate both in B2B and B2C (Business-To-Consumer) segments and deal with customers that produce lower call volume: residential clients, SOHO (Small Office and Home Office), and SMB (Small and Medium Business). However, there is no fixed breaking point between where a service provider becomes a wholesaler or retailer.


There are many different service providers: fixed and mobile operators, ILECs, CLECs, traffic aggregators and transit providers, calling card companies and call shops. However, all of them can be categorized into the three main groups: tier-1, 2, and 3. This section reviews the tiers, the role of voice traffic in retail and wholesale business models, and the purpose of telephone numbers, with a few use case examples.

Types of Providers

Tier-1 providers are big national and international operators. They are leading telecoms (Telefonica, BT, KPN, Orange, or Belgacom) which can ensure the most reliable network, the highest speed of data transmission, and the best quality of voice. Because these have the biggest network of telephone subscribers, the lower-tier providers seek to interconnect with tier-1 providers to have access to their network and to ensure the best voice quality. This can be done

Even though the demand for interconnection is big, tier-1 operators are not interested in collaboration with small VoIP companies, because they do not meet the minimal leased line prices order amount or have minimal traffic consumption.

This problem is resolved by tier-2 providers which collect traffic from smaller companies (ITSPs, calling card companies, call shop providers, or VoIP traffic traders) and terminate it through direct connections with tier-1 operators. Dealing with operators requires dedicated personal assistance, the highest priority of professionalism. In wholesale, this is usually handled by carrier relations managers (also called account managers) who have the necessary skills.

Moving to the middle tier, quality of voice and data decreases. On the other hand, tier-3 providers are more flexible and can easily adapt to the changing needs of their market. Usually, they serve a local or niche target audience, which has specific demands that cannot be meet by tier-1 and 2 providers.

Even though there are only three levels described here, in reality the chain of providers can be much longer due to the participation of intermediate VoIP transit operators. There can be two types of providers involved in the chain - those that have their infrastructure and those that do not. Those that do are normally named as providers, carriers, or operators, and those that do not are resellers (also called switchless resellers to emphasize the fact they do not have their own switching system).


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