Global Telecommunications Industry
The global telecommunications industry is comprised of approximately 10,000 carriers, of which about 1,200 are major carriers, including entities such as Telus Mobility, Bell Canada, AT&T, Verizon), often publicly traded (the “Major Carriers”), and the other 8,800 carriers are smaller carriers (the “Smaller Carriers”), generally private companies. Major Carriers deal directly with the public and whereas the Smaller Carriers have more limited dealings with the public and often deal mainly with each other. Dealings between telecommunications carriers are often referred to as “Wholesale Telecom”.
A significant activity of the Wholesale Telecom industry consists of placing long-distance voice calls between parties in widely separated geographies. In the past, these long-distance calls were often only effected between national telecom carriers or highly regulated Major Carriers through satellite link or submarine communications cables. In more recent times these calls have been effected using Voice Over Internet Protocol (VOIP) technology, which has afforded Smaller Carriers the opportunity to participate in long distance voice transmissions. It is not unusual to find three or more parties involved in a cross-border call from origin to termination point using VOIP technology. The involvement of intermediary companies in effecting the call is completely transparent to the caller and/or the recipient of the call.
The Wholesale Telecom business supported by VOIP technology tends to be a high volume low margin activity. Volumes are measured in minutes and currently aggregate a trillion minutes on an annual basis. Telecommunications industry revenue associated with cross border voice calls is estimated at $60 billion and is believed to be growing at 10% annually.
The Major Carriers work on what is known in the industry as 30/30 terms: a thirty-day billing cycle and a thirty-day grace period from the billing date for payment. Conversely, Smaller Carriers operate on much shorter cycles e.g. 7/1, 7/7, or 15/15. Major Carriers generally won’t extend significant credit to Smaller Carriers but expect to be granted credit on 30/30 terms. Smaller Carriers will extend credit to each other on a case by case basis, but this is an uneven process and is subject to the difficulty of confirming another Small Carriers legitimacy, communications quality and their trustworthiness for payments. Additionally, Smaller Carriers face difficulty in obtaining credit to operate their Wholesale Telecom business. Whereas Major Carriers are highly trusted financially sound parties and, consequently, obtain credit in the ordinary course of business without difficulty, Smaller Carriers often have difficulty obtaining lender credit, which can further constrain their dealings among one another.
The Wholesale Telecommunications Problem
The Wholesale Telecoms industry is fraught with a series of issues that constitute an impediment to a more orderly and fluid conduct of business. As noted above, Wholesale Telecom is a high volume low margin business, with margins often as low as 2%. A failure of one Small Carrier to pay another Small Carrier for minutes used to complete a long-distance call with another Small Carrier can often have major consequences for the unpaid Small Carrier. Credit losses can seriously harm a Smaller Carrier’s cash flow, profitability, solvency and, in extreme cases, viability. Most transactions between Smaller Carriers are international with another Smaller Carrier in a foreign jurisdiction, making financial risk assessment difficult, time consuming and expensive. There have been occasions when customers have built up trust over time with a supplier leading to larger and larger credit limits only to eventually default either through deliberate fraudulent activity or from a more honest inability to pay. Owing to the chain of intermediary companies in many cross-border calls, a default by one Small Carrier level or two up in the chain on any one long distance call can reverberate through all the entities downstream with attendant adverse consequences for those extending credit down the line. Legal remedies against these Smaller Carriers for breach of contract or non-payment are expensive and cumbersome to pursue with no assurance of eventual payment. Credit insurance, where available, is expensive and the recovery process arduous, without great certainty of recovery if a dispute between the parties underlies the collection issue.
Transaction Escrow Settlement Service
The essence of the TessPay solution approach is to allow the industry to adopt a lender funded pre-payment process, whereby all parties to a cross-border call have assurance of payment within the terms of the contract, inclusive of repayments to the lender financing the Smaller Carrier’s transaction(s). Under the TessPay solution business model each of the parties to a cross border call, excepting the Major Carrier, will prepay any party down the chain of Smaller Carriers and ultimately a receiving Major Carrier, for long distance minutes purchased from the other Smaller Carriers thereby eliminating the credit and collection issues that accompany the present approach to settling transaction values in successive layers of the call. The Smaller Carrier dealing with the Major Carrier will grant that the Major Carrier credit on normal 30/30 terms for minutes sold to the Major Carrier and look to a lender, to the extent required, to fund the payment it will, in turn, make to the next Smaller Carrier down the chain for purchased minutes.
Under the TessPay solution, transactions between the carriers will occur using TessPay Smart Contracts and settlement prepayments will be made using fiat currency held within TessPay Multi-Currency Wallets, which will be attached to the TessPay Smart Contracts. Under this structure, at the end of each 24-hour period, when the Major Carrier consumes minutes purchased in accordance with terms of the TessPay Smart Contract all the participants in the chain will see a release of fiat currency into their TessPay Multi-Currency Wallet as allocated and attached to their TessPay Smart Contract. The Smaller Carriers will have these fiat balances available in their TessPay Multi-Currency Wallet to then enter other TessPay Smart Contracts or at any time to request a withdrawal by bank wire transfer for fiat currency through the Depository (as described below).
The Major Carrier will not use TessPay Multi-Currency Wallets. On the due date of the 30/30 contract, it will pay the invoice of the first Smaller Carrier in the chain using fiat currency as it does at present, with one exception. The Major Carrier will make its payment to a designated bank known as the “Depository” referencing the TessPay Smart Contract ID. From the perspective of the Major Carrier the only difference in the process from current practice will be the advent of the TessPay Smart Contract, which contract will not alter the obligations of the Major Carrier but will have embedded immutable payment instructions that will assure Smaller Carriers and their lenders alike that the funds remitted by the Major Carrier will go to a designated bank account. The receipt of the Major Carrier’s payment into the designated Depository account will be the triggering event that releases the transfer of fiat currency within the TessPay Multi-Currency Wallets to the lender or other Small Carriers, allowing them to either fund further TessPay Smart Contracts or to request a withdrawal by bank wire transfer of fiat currency through the Depository.
TessPay Multi-Currency Wallets will be funded by lenders or Smaller Carriers by depositing fiat currency into the Depository operated by a major international bank. The TessPay Multi-Currency Wallets will constitute a closed loop system and only accredited telecommunications carriers and lenders will be eligible to use the TessPay system and fund their TessPay Multi-Currency Wallets through the Depository. This provision should alleviate most concerns that the system could be susceptible to money laundering by unscrupulous parties.
Under the arrangements envisioned by Tess, payments can be rapidly effected in minutes worldwide on a 24/7 basis without fees, other than those payable to Tess. Invoices will be issued automatically as per the terms of the TessPay Smart Contracts and the prospect of payment disputes between Small Carriers should be largely eliminated. TessPay will maintain the code list ORACLE and will operate pass-through switching CDR verification service with associated reporting to ensure that all parties in the cross-border call chain are secured. It is important to understand that TessPay will neither have visibility with respect to the parties to the carriers’ contracts nor the rates charged for the calls that go through the CDR verification pass-through switch. All TessPay Smart Contracts will ensure privacy, only the parties to the contract will be aware of the details of the contract. Smart Contracts will be referenced by a secure ID (not by name) and recorded and verified on a private permissioned blockchain.
These processes eliminate the need for management by a central trusted party and allow parties who do not trust each other either morally or financially to transact securely and efficiently without incurring the cost of credit verification and credit insurance.
Participants will be free at any time after settlement of a TessPay Smart Contract to request a withdrawal from their TessPay Multi-Currency Wallets from the Depository and receive by wire fiat currency from the fiduciary agent.
TessPay Smart Contracts
Smart contracts are computer protocols intended to facilitate, verify or enforce the performance of legally binding contracts between two or more parties. Smart contracts run on blockchain node networks beyond the control of the parties to the contracts, assuring the contracts will be executed as written once performance begins. TessPay Smart Contracts will operate on a private permissioned Hyperledger Fabric 1 blockchain. Hyperledger Fabric 1 is a blockchain framework implementation, hosted by The Linux Foundation. The TessPay blockchain will be constructed in concert with IBM, one of the major contributors to the Hyperledger project. The network will be highly scalable with consensus and integrity securely maintained by nodes, operated, in many cases, by Major Carriers as part of their technology infrastructure.
The objective of a smart contract is to provide security over execution of the terms of a contract that is superior to and less costly than conventionally monitored adherence to legal agreements. From a financial perspective, the advantages of a smart contract include minimized counterparty risk, almost instantaneous settlement times and increased transparency. In effect, payment streams can be securely automated to the benefit of all the transacting parties.
TessPay Smart Contracts will define: invoice date and interval; payment terms; rates; billing increments; code list; payment coordinates; authorized IP’s; protocols, CODEC’s, etc.
TessPay will enter into an agreement with a recognized international bank to operate as a fiduciary to hold fiat currency funds remitted by lenders and accredited telecommunications companies when making deposits to TessPay Multi-Currency Wallets. Such funds may only be withdrawn by lenders and accredited telecommunications companies upon the surrender of fiat balances held within TessPay Multi-Currency Wallets received by them pursuant to one or more TessPay Smart Contracts. Transactions with the Depository are anticipated to take place by wire transfer. For transfers out of the Depository, funds will be received within one business day of receipt of the transfer request. The only charges to be incurred by the telecommunications company will be the pass-through wire fee from the bank.
Fiat currency balances held within TessPay Multi-Currency Wallets constitute a closed loop special purpose system. As noted, the fiat balances may only be used by lenders and accredited telecommunications companies for purpose of prepaying minutes under cross border Wholesale Telecom contracts.
TessPay Service Fees
TessPay’s service fees will also be settled in fiat currency. TessPay will extract its service fees from fiat balances in multi-currency wallets when minute transactions settle in accordance with the provisions of TessPay Smart Contracts.