TM 10: Managing Long-Distance Services

Overview

Telecommunications managers today have a number of alternatives available when selecting long-distance services. AT&T remains the dominant long-distance provider. However, increased competition has increased in recent years driving down the cost of long distance service. Being acquainted with AT&T’s rate structure will help when comparing services of the competing long-distance providers. Companies need to monitor the changing services and options available to ensure that they are not paying more than necessary or paying for obsolete services.

Principles of Long-Distance Service Selection

The market for long-distance service is constantly changing. Political changes, technical, and economic factors are all impacting the costs and services associated with long-distance. To obtain the most favorable pricing, customers generally commit to a multi-year term and volume agreement. Long-distance carriers often will grant reviews for price competitiveness during the contract term. Prices have been declining and are now very close to the carriers cost, estimated to be approximately two cents per minute for domestic calls.

International calling rates have been decreasing, but remain higher than domestic rates, in part because regulators keep rates higher to subsidize the industry. There are factors helping to decrease costs such as the use of undersea fiber optic cables, competition in other countries, and alternatives available through the Internet.

Fixed costs that should be examined in any long distance service: 
·        Access circuits 
·        Universal Service Fund contributions
·        Access charges
·        Service fees
·        Surcharges

Long-Distance Alternatives

Understanding the characteristics of the various long-distance alternatives is essential. Message telephone service (MTS) is the most expensive long-distance alternative. MTS sometimes referred to, as “dial-one” service is directly dialed calls over the selected common carrier’s network. MTS is the default class of service provided unless a different service is arranged with the carrier. Businesses should seek out alternatives to MTS, whenever they are available.

State utility commissions regulate intrastate calls; therefore rate structures often differ significantly from interstate calls. Higher rate structures are almost always in place for intrastate calls compared to interstate calls. 

MTS has the following characteristics and features:
·        Minimum billing period is applied to each call, usually one minute.
·        Calls are billed in whole minute an increment, grace period applies, generally 6 seconds.
·        Initial minute is billed at a higher rate than subsequent minutes.
·        Calls may be billed in airline mileage bands.
·        Discounts allowed for evening calls.
·        LEC carries all calls over local trunks and switches them to the IXC.

Medium to large users of long-distance generally have access over T-1 lines directly to the IXC’s switch. IXC’s charge a fixed monthly fee for access and pass their costs from the local LEC for the T-1 line directly to the user. Most companies support three types of access; baseline access, coordinated access, and total access.

The principles characteristics of T-1 services are:
·        Usage must be high enough to justify the fixed access cost.
·        T-1 lines are terminated directly on the IXC’s switch.
·        Usage billed in 6-second increments after the initial period of 6 to 18 seconds.
·        T-1 access can be shared with toll-free, 900, frame relay access, and data and voice private lines.

Virtual networks are intended for large multilocation organizations. A database defines dialing patterns and code conversions, station restrictions, call routing, and other variables. Virtual networks have three rate categories:
·        On-net to on-net
·        On-net to off-net
·        Off-net to off-net

Toll-Free Service

Toll-free service allows calls to be received that are generally priced identical to outgoing calls under most carriers’ rate plans. The use of toll-free numbers may help a company reduce the costs for intracompany calling.

Business line toll-free calls have a lower fixed cost, but the usage cost is higher than other types of toll-free service. A disadvantage of this type service is that there is no way to determine whether incoming calls are toll-free or local.

T-1 based toll-free service allows the same T-1 line to be shared for both incoming and outgoing services. Use of the same carrier for both toll-free and outgoing service can result in savings sufficient to justify the cost of the T-1 line.

IXCs can route calls to alternative destinations based on one or more of the following variables:
·        Originating area code or prefix
·        Time of day
·        Menu choice
·        Overflow or congestion
·        Percentage allocation
·        Caller recognition
·        Call transfer

Other Long-Distance Services And Issues

IXCs can distinguish themselves and their services though innovative billing and service protection features. Machine-readable call detail information is useful as follows:
·        Comparing billing detail with the call accounting system to detect calls misallocated to your company’s
network if the IXC’s database is in error.
·        Accounts with forced account code dialing can integrate the detail with other elements of user charges for
charge-back.
·        Evaluate the effectiveness of services such as foreign exchange and tie lines.
·        Evaluate the effectiveness of voice private lines to augment switched services or study voice over IP.
·        Summarize calling by originating location, to determine when to add T-1 access lines.
·        Scan bills for automatic route selection problems.
·        Look for high-cost calls that should be blocked or carried by another method.
·        Identify calling card calls to determine whether toll-free service is more cost effective.

Things to watch for when negotiating long-distance contracts:
·        Shortfall Penalties
·        Volume Commitment
·        Competitiveness Review
·        Special Incentives
·        Price-List Changes

Telecommunications managers should also be familiar with the following services and issues; alternative operator systems, prepaid calling cards, dial-back services, aggregators and resellers, foreign exchange service, remote call forwarding, tie lines, and off-premise extensions.

IXC Selection Considerations

Interchange usage of outgoing, toll-free, and private line services combined with volume provides for the most favorable rates. Categories of long-distance users include: