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.

BREAKING DOWN '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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