Telecom Arbitrage

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DEFINITION of 'Telecom Arbitrage'

An arbitrage strategy used by telecommunications companies that enables their mobile or cellular phone customers to make international calls without paying long-distance charges by dialing certain access numbers. The companies engaged in this arbitrage are paid an interconnect fee by the mobile networks, and they use part or most of this fee to buy international calling routes at low prices.

INVESTOPEDIA EXPLAINS'Telecom Arbitrage'

Telecom arbitrage works because the cost of long-distance calls has plunged to such an extent in recent years that it may be comparable to, or even lower than, the cost of domestic mobile phone calls. While the margins on this arbitrage activity are very slim, telecom companies benefit because their mobile customers use up their monthly calling minutes in making these "free" long-distance calls. Even though such customers do not pay long-distance charges, they indirectly pay for them through their monthly calling plan charges.

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RELATED FAQS
  1. Is there a difference between financial spread betting and arbitrage?

    Financial spread betting is a type of speculation that involves a highly leveraged derivative product, whereas arbitrage ... Read Full Answer >>
  2. Has increased data usage affected the telecommunications sector in developed countries?

    The big news in the telecommunications sector for developed nations is bigger, cheaper data. Global data traffic is expected ... Read Full Answer >>
  3. What are the goals of covered interest arbitrage?

    The goals of covered interest arbitrage include enabling investors to trade volatile currency pairs without risk as well ... Read Full Answer >>
  4. What are the main factors that affect stocks in the telecommunications sector?

    It is tempting to think that share prices in different sectors are controlled by unique underlying principles, but this is ... Read Full Answer >>
  5. Has deregulation helped or hurt the profitability of companies in the telecommunications ...

    Deregulation is almost always a double-edged sword in terms of business profitability. The profits of legally protected monopolies ... Read Full Answer >>
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