Long-distance virtual private networks

Long-distance virtual private networks
Some businesses transmit data and voice calls across their own private networks such as on a college campus. Because all of the lines on campus are owned and maintained by the college, the college does not have to pay monthly phone bills for these calls. When someone at the college calls someone off campus, the public-switched network is used, and this usage is itemized on a phone bill.

Few organizations can afford to build their own private network, but they can still have some of the benefits of a private network by using a virtual private network (VPN). VPNs use public telecommunications infrastructure, but the carriers often provide more secure, private connections than a normal phone call would experience.

VPNs are used more for data than for voice calls. In today’s market, long-distance carriers will propose to a large client that the carrier be allowed to handle both voice and data traffic. Numerous technical issues must be clarified with the carrier if data traffic is to flow across the VPN. My objective is to explain how long-distance voice calls are affected by a VPN configuration.

VPNs connect all of a customer’s major locations through the long distance carrier’s lines. A location with dedicated T-1 service is an on-network site, while a location with switched service is an off-network site.

Save money with tie lines
Numerous businesses connect their locations with dedicated phone lines so that their computers can transmit data files back and forth. Without a private line, the business would have to send the data across normal phone lines using modems on both ends. If the locations are not in the same LATA, each call will be billed by the minute on the long-distance bill. If the call volume grows significantly, at some point it is more cost effective to pay for a dedicated connection. Private line pricing is based on bandwidth and mileage. To calculate the break-even point, simply compare the cost of a private line to the current cost of the dial-up calls.

A not-so-new trend in long distance is to migrate the voice long-distance calls across the same dedicated connection, as long as the connection can spare the extra bandwidth for the voice calls. In this scenario, the dedicated line is called a tie trunk because it connects two PBXs.

For example, a manufacturer in Maine made frequent long-distance calls to its office in Vermont. The company eventually automated its assembly line and had to share computer data between the two locations. Initially, the computers dialed each other and sent the data across normal phone lines. This became very expensive because the computers were calling each other throughout the day.

The telecom manager decided to install a T-1 line between the two locations to carry both voice and data long-distance calls (see Figure 1). This measure dramatically reduced the company’s costs, but it did not stop there. The Maine location made a large number of intrastate long-distance calls to customers and suppliers within the state. Maine intrastate rates are the highest in the country. In fact, some international rates are cheaper than Maine intrastate rates even though the actual distance is much greater


Figure 1: Tie lines.

To reduce the cost of the Maine intrastate calling, the telecom manager programmed his PBX to route all Maine intrastate calls through the Vermont office first. In doing so, these calls would be billed at the low interstate rate instead of the higher Maine intrastate rate. The call delay for the added mileage is undetected by the end user, for it happens in milliseconds.

Save money by moving to dedicated service

When considering moving from switched long-distance service to dedicated service, a simple cost comparison must be done. The up-front installation costs are normally factored in the first year’s numbers. The soft-dollar expenses of the additional time it will take to manage the conversion should also be considered, even though the financial impact is difficult to quantify. The potential cost savings of dedicated service are best illustrated in the following example.

Smith Designs is a young company that sells home decorations through a catalog and a Web site. The business has grown significantly over the past few years, and now the ordering and customer service is handled by a small call center staffed by 20 employees. Smith has always used switched long distance, but the long-distance representative is now proposing dedicated T-1 service. Table 1 shows the cost comparison.


Table 1: Switched Versus Dedicated Rates

Should we install a T-1?
When considering installing a T-1, you should ask your long-distance provider and your equipment provider the following questions:

- What equipment upgrades, if any, does your phone system require?

- What are the costs of these upgrades?

- Will the long-distance carrier cover this expense?

- What is the cost of installation for the T-1?

- Will the long-distance carrier waive this expense?

- What are the new domestic rates? International rates?

- How long will the installation take?

- How soon can the installation be scheduled?

- How much time will pass between the signing of the contract and the T-1 installation?

- Can we schedule the conversion to take place on the weekend?

- How will the conversion be tested?

Save money by removing dedicated service
T-1 monthly recurring costs have declined over the past few years. More and more customers are using dedicated long-distance service because of the tremendous opportunity to reduce costs. Some businesses, however, are doing just the opposite and are canceling their T-1s to cut costs. This is especially true for manufacturers that are closing facilities. When a facility is closed, a skeleton crew of workers remains at the old site for a year or two. They will make fewer long-distance calls and no longer need their T-1. They can instead allow their long-distance calls to be routed across regular local lines.

Save money by moving switched loose lines to dedicated
A common long-distance inefficiency is having switched long distance at a location that has dedicated service. A printing company routed its AT&T long distance across a T-1 for almost 10 years. When it ordered a new 800 number, AT&T’s customer service representative overlooked that the 800 number should be routed across the T-1, so the 800 number rang in on ordinary local telephone lines. Once the problem was discovered, AT&T agreed to redirect the 800 number to ring in through the T-1. This cut the company’s cost for these calls from $0.10 a minute to $0.06 a minute.

Is it switched or dedicated?

A switched connection is a temporary connection made between two points by passing through a switching device such as a phone company central office. A dedicated connection is a permanent connection made between two points.

Long-distance calls are either billed as switched or dedicated. Most phone calls are switched. All residential calls are switched calls. Figure 1 shows how a switched long-distance call works. When a caller dials a long-distance number, the local carrier’s central office interprets the “1 + area code” that was dialed and then switches the call to the long-distance carrier’s nearest point of presence. The long-distance company then carries the call across its network. On the long-distance carrier’s bill, this call will show up under the heading “Switched Long Distance.”


Figure 1: Switched long-distance call.

The term “switched” refers to the fact that the first leg of the call was switched at the local carrier’s central office. This also means the long-distance carrier is paying access fees to the local carrier for this call. Figure 1 shows how the access fees are charged on a long-distance call. For this reason, switched long-distance rates are normally 3 to 4 cents higher than dedicated long-distance rates. If the access fees could be avoided, then the long-distance rates the customer pays should theoretically be 3 to 4 cents lower. This is precisely the reason why dedicated long-distance rates are lower than switched long-distance rates.

Dedicated long-distance service uses a T-1 circuit from the customer’s premise that connects directly through the long-distance carrier’s point of presence. This dedicated line carries all of the voice long-distance calls. The calls bypass the local carrier’s network, so the long-distance carrier does not pay access fees for these calls, which results in lower rates for the customer. Figure 2 illustrates how a dedicated long-distance call works.


Figure 2: Dedicated long-distance call.

Although the long-distance rates decrease with dedicated service, the customer will have the added monthly expense for the T-1 circuit. Even though the local carrier provides the physical circuit, the T-1 is usually billed by the long-distance carrier. The long-distance carrier will charge a fee for securing the T-1 facility from the local telephone company. This fee is usually called “access coordination” and costs about $85 per month. T-1 monthly costs range from $250 to $1,200 per month, depending on the mileage from the central office and the discount amount. The greater the mileage, the greater the cost.

T-1 installation
The one-time initial T-1 installation typically costs $1,000. The long-distance carrier will normally waive the installation cost if the customer has some negotiating leverage. If you are a new customer with the carrier, it will almost always waive the cost of installation because it is eager to win new business. If you have had any recent billing errors or service issues, carriers will almost always consider your inconvenience and waive these charges.

Beware, however, that your long-distance carrier representative normally only quotes the installation costs associated with the T-1 line. He probably does not have the expertise to determine whether or not your telephone equipment will be compatible with that T-1 line. Prior to placing any orders with your long-distance carrier, it is imperative that you consult with your equipment vendor.

In some cases, the telephone equipment may need costly upgrades that could make the project cost prohibitive. If the equipment only needs minor upgrades, the long-distance carrier may issue an invoice credit to cover the expense of the new equipment.

National accounts (Telecommuncation)

A basic rule of economics is that the more a customer spends, the better pricing he receives. This principle is at the heart of long-distance carriers’ national account pricing models. A large national company with multiple locations, such as Holiday Inn, can aggregate all of its long-distance volume under one national contract with a single long-distance carrier.

Even though each individual hotel spends only $2,000 to $5,000 per month in long distance, collectively all the properties spend more than $1 million per month. Each location individually is not enough to turn carrier’s heads, but the opportunity to win the entire corporation’s longdistance business is enough to make carriers bring their best offers. Each hotel property will then pay long-distance interstate rates as low as $0.03 a minute, while an independent hotel may pay $0.10 per minute.

Ironically, long-distance carriers usually do not bring their best offers when bidding for a national account such as Holiday Inn. Instead, they steer the negotiations around a separate topic such as network reliability, network features, or billing features. These items are of the utmost importance to a national business, but differences between the carrier offerings are minimal. As stated before, long-distance service is more of a commodity today. Besides the customer service provided by the individual account team, the only thing separating one carrier from another is price.

Long-distance carrier national account teams are some of the best negotiators in the business world today. This statement is based on the dozens of national accounts with which I have worked. In almost half of the cases reviewed, I found that residential users spending $25 per month were able to negotiate lower rates than these Fortune 500 companies.

One Fortune 500 company was content paying $0.25 cents a minute for dedicated interstate long distance, because it was “too much hassle to have the long-distance carrier work on better rates.” The customer cited that the carrier was too busy with her numerous requests for the home office to worry about a remote site. This practice cost the company thousands of dollars each month in unnecessary overbilling, but the controller at that site refused to change anything.

Autonomy: Who is in charge?
Some national companies specify which vendors their remote locations may use. For example, Holiday Inn’s corporate office may mandate that each hotel use Sprint for long distance. This arrangement can prove very frustrating in the case of a franchise, where an individual owns and operates his own hotel under the auspices of Holiday Inn. With other national businesses, each location is autonomous; it can choose its own long-distance carrier. In this instance, the location should compare the difference in rates between its current plan and the national plan negotiated by the home office. The national account pricing may be very aggressive, and it may make economic sense to switch the long distance to the national plan.

When a remote location joins the national account of the home office, the phone bills might be consolidated. The remote site’s usage will show up on the home office’s bill. This creates additional internal accounting work for the customer.

The home office gets all the goodies
Most of the larger carriers can create a billing platform that allows the corporate office to be subsidized by the remote locations. This is accomplished by having every location pay the same rates, but the home office receives a disproportionate discount amount. So, for example, with a national chain of franchise hotels, each hotel may pay long-distance rates of $0.10 a minute, but the home office only pays $0.02 a minute. In extreme cases, the remote hotels may pay $0.12 per minute, while the home office has free long distance or is paid a commission check each month. Such an arrangement can be costly for a business, unless, of course, you are the home office.

Another problem with national account billing arrangements is that the home office “gets all the goodies,” as one consultant said. National account teams are encouraged to give premiums to their clients. If a national account bills more than a $100,000 a month in long distance, the account team will lavish the home office with gifts such as free prepaid calling cards, golf outings, free lunches, and vacations. These premiums have proved to be very instrumental in helping the account team retain an account. Such premiums have also influenced many customers to choose the wrong long distance for their corporation. The opportunity for personal gain sometimes outweighs a person’s ability to objectively manage his organization’s expenses.

Move away from a national account
Because of the numerous pitfalls associated with national account billing plans previously mentioned, it might be beneficial to cancel the plan altogether. A national account that allows its locations to manage their own expenses can set a pricing benchmark and require all locations to negotiate their own long-distance contract as long as the rates are below the benchmark. This is not easy, however, because bills are confusing and rates are normally difficult to interpret.

Normally, the greatest cost reduction strategy with national accounts has to do with remote locations separating from the national account. If the remote locations are autonomous and can choose their own long-distance plan, they should calculate the rates they are paying on their current bill with the national account and negotiate a better plan on their own if they are free to jump ship.

Telecom : Missing discounts

Missing discounts
The most common error on long-distance bills is a missing discount. The discount amount may be incorrect or missing altogether. Incorrect discounts often happen because an overzealous sales representative offered higher discounts than he was allowed to offer. When the order reached the carrier’s data entry staff, they lowered the discounts to the correct amount. If this happens, a customer should present the initial proposal to the sales representative and sales manager and demand that the billing be corrected.

Missing discounts on subaccounts
Companies with multilocation billing often experience billing errors, especially with Sprint. An East Coast real estate company had offices in three cities. The company switched to Sprint and had all three locations bill on the same master account. Sprint set up the account and gave each location the 35% discount the customer negotiated. The 35% discount is based on standard tariff discounts and an additional 10% custom discount. The customer examined the bills regularly and did not detect any errors.

Later, the firm opened two more locations and had Sprint add them to the account. When Sprint set up the two new subaccounts, it failed to implement the custom discounts, so those locations ended up paying higher rates. I have seen this error on at least a dozen Sprint accounts. After being notified, Sprint usually corrects the problem quickly and issues a refund.

Save Money on Telecommunication

Save money with association discounts
AT&T’s Profit By Association (PBA) plan gave it a highly effective marketing tool. A customer who was a member of one of many associations, such as AAA, received an additional 5% discount. The long list of approved associations allowed almost every business to qualify for the PBA discount. The plan was very successful in drumming up new business for AT&T, especially when sales representatives set up a new PBA through the local chamber of commerce.

If your business has no membership in a participating association, consider joining one if for no other reason than to cut your long-distance bill by 5%. One enterprising AT&T account executive in Illinois created his own Secretary’s Association. Any business that has a secretary can join the association by paying only a $10 annual membership fee. Because every company has a secretary, the sales representative was able to offer this additional discount to almost all of his prospects. Similar association plans are available with other carriers.

Save money with international discounts
Enrolling in an international discount plan can be an effective way to cut your long-distance bill. These plans give an additional discount on international calls to one or more countries of the customer’s choice. AT&T’s plan, called the Favorite Nation Option, gives the customer an additional 10% discount on calls to a single country. Other carriers offer a discount on a group of countries, such as Latin America or the Far East.

Save money with referral programs
From time to time, long-distance carriers may offer a referral discount plan. Before LCI merged with Qwest, it offered a Goose Eggs referral program. This program gave a company an additional 2% discount for every company it referred that switched its long distance to LCI. The goal was to refer 50 customers, which would result in a 100% discount. The customer would then receive his bill every month with “goose eggs” in the bill’s amount due section. Other referral programs apply discounts based on the bill volume of the company referred. So if the new customer spends $1,000 per month, the referring customer sees a $50 credit on her bill each month.

Points programs
Some carriers have created their own points programs similar to the airlines’ frequent flier mileage programs. For the past few years, Sprint’s Callers’ Plus Points program has been very successful. For each dollar spent on long distance, a customer earns one Callers’ Plus point. Every 50 points can be applied as a $1 invoice credit, or the points can be redeemed for merchandise from Sprint’s catalog. The catalog contains items such as televisions, hotel nights, and office supplies. The catalog is often an attractive option for a company controller, because merchandise can be secured without using money from a budget.

Participating in this program may be a hassle, but the additional 2% bill credit may make it worthwhile.

Save Money on Term agreements

Term agreements
Carriers normally offer 12-, 24-, and 36-month term agreements. The longer a customer will commit to a carrier, the greater discount the carrier will offer. The combination of the term agreement and volume commitment establish the discount amount.

On national accounts, carriers will normally push for an even longer term agreement, such as 48or 60-month agreements. Ironically, the longer your term agreement, the less attention you get from your carrier. The carrier knows that they have no risk of losing your business in the short term, so they focus their attention on their more volatile customers.

Save money with term agreements
Increasing your term commitment increases your discount amount. Carriers push the 36-month term agreement because they want to count on the customer’s revenue for as long a period as possible. The pricing difference between 24and 36-month agreements is often negligible, so the customer should choose the shorter-term commitment.

Many account executives offer a new 36-month term agreement as their standard offer. If the customer is a savvy negotiator, he can often secure the same pricing on a 12-month agreement. A rule that guides many consultants is to simply reject the long-distance carrier’s first proposal. Consultants know from experience that account executives rarely offer the best pricing with their first proposal. In this way, long-distance contract negotiation differs little from the negotiation done while buying a car.

In some cases, a customer’s current long-distance contract may be amended to increase the term. In other words, another year can be added to the agreement without requiring a new contract. In most cases, however, increasing the term agreement to secure lower discounts is normally done during the initial contract negotiation.

Some small areas of the country are not yet “equal access.” That means that customers in those areas can only choose AT&T as their long-distance carrier. For example, a Midwest aluminum siding company is located in a rural area surrounded by farm fields. Its facility uses more than $5,000 per month in long distance, but the company can only use AT&T. None of the other carriers have built a network out to this remote area. This business might as well sign the maximum term agreement available because it has no other choice of carrier. At least with a long-term agreement, it can secure the lowest rates available through AT&T.

A business that receives specialized services from one carrier that cannot be duplicated by another carrier should also sign a long-term agreement with its carrier. An oil prospecting business located in Texas spends more than $10,000 per month in long distance. Most of the billing is from calls made by field representatives who are in remote areas of the Middle East. The field representatives use calling cards for their calls. The telecommunications infrastructure is underdeveloped in the oilfields of the Middle East, and only AT&T can satisfactorily provide this service.

Other carriers would like to earn the company’s business, but the company cannot afford the risks associated with trying a new carrier. This business has no reason to not sign a long-term agreement with its current carrier.

Save money by avoiding shortfall penalties

If you are in a shortfall situation, you should contact your carrier immediately. Shortfall revenue is gladly accepted by carriers, but if the customer asks the carrier for relief, the carrier will normally negotiate an alternative. The key is to proactively address the situation before the shortfall charge is billed. The volume commitment can normally be reduced to the next lower level without having to sign a whole new agreement. Some of the discounts may be forfeited, however.

If the shortfall amount has already been billed, it is difficult for the carrier to simply waive the charges and reduce the volume commitment. Usually, the carrier will only waive the billed shortfall if the customer is willing to sign a new agreement with a new term commitment. I have seen customers in their last few months of a 3-year contract experience a shortfall and the only cost-effective way to avoid paying the shortfall is by signing a new 3-year contract. However, in this situation, the customer has little leverage and ends up paying high rates.

Contract value
Contract value is how carriers calculate how much money each customer is worth. Contract value is calculated by multiplying your monthly volume commitment by the number of months remaining on your term. For example, a customer at the beginning of a $1,000 per month, 12-month agreement has a contract value of $12,000. The same customer 10 months later is only worth $2,000 to the carrier. By studying the contract value of the entire customer base, long-distance company financial analysts can predict future revenues.

A customer in a shortfall situation should be aware that his carrier uses the contract value principle to guide him during negotiations. A wise customer considers this same principle when negotiating with her carrier. To clear up a shortfall, your carrier will always require you to increase your contract value. So a customer facing a $10,000 shortfall penalty must sign a new contract that promises the carrier at least $10,000 in future revenue.

Term agreements
Carriers normally offer 12-, 24-, and 36-month term agreements. The longer a customer will commit to a carrier, the greater discount the carrier will offer. The combination of the term agreement and volume commitment establish the discount amount. Table 13.1 illustrates how a typical long-distance carrier structures its discounts.

On national accounts, carriers will normally push for an even longer term agreement, such as 48or 60-month agreements. Ironically, the longer your term agreement, the less attention you get from your carrier. The carrier knows that they have no risk of losing your business in the short term, so they focus their attention on their more volatile customers.

Long-distance contract discounts

Long-distance rates are determined by applying a discount to the gross rate. The discount amount and the way it is applied differ between carriers. Each carrier offers multiple rate plans with varying discounts. Discount amounts even vary from one customer to the next. Most customers are content with their current rates until they become aware that lower pricing is available. Long-distance profit margins are high, which leaves plenty of room for customers to negotiate.

Volume and term commitments
The main factors that determine customers’ discount amounts are the volume and term commitments in their long-distance contract. In return for the customer’s promise to spend a certain amount for an extended period of time, the carrier offers a discount. The greater the volume and the longer the time, the greater the discount. Table 1 shows a typical discount structure used by long-distance carriers.


Table 1: Typical Long-Distance Contract Discount Structure

Most volume agreements specify the amount of net dollars spent each month. Net dollars are the actual dollars spent, not the prediscounted gross amount. AT&T’s Uniplan contracts calculate the volume using gross dollars on a monthly basis. Some volume plans are calculated annually. It is very important for customers to know if their volume commitment is net or gross and if the volume is calculated monthly or annually.

One-rate discounts
As the market becomes more competitive, carriers want their discount structures to be less complex so they can more efficiently set up new accounts. They also want potential customers to be able to easily compare their offer with other offers. That is why many long-distance companies are switching to one-rate billing with a level discount amount for all services, such as 30% off long-distance, paging, and mobile phones. If a carrier is trying to win a company’s long-distance business, the proposal is normally clear and easy to follow. The phone bills, however, are not as easy to understand.

Save money with volume agreements
A simple way to reduce your long-distance bill is to increase your volume commitment, which will result in a greater discount amount. Most businesses wisely undercommit to avoid a shortfall penalty, but if you have extra volume, you should consider increasing your volume commitment level.

Your carrier will prefer that you sign a new contract with the increased discount, but you should first press the carrier to modify your existing agreement. If the carrier is inflexible, and you are not comfortable with a new agreement, you can move your “overflow” traffic to another carrier with lower rates. This will definitely get your carrier’s attention. Many businesses use multiple carriers so their carriers never take them for granted. It is amazing how the level of customer service increases when a customer uses more than one carrier.

Save money with automatic discount upgrades
In many of its contracts, Qwest has a built-in clause to automatically increase a customer’s discount if its volume hits the next highest level. For example, a small tax accounting firm committed to $2,000 per month with Qwest and received a 35% discount. From January through April, the firm’s call volume doubled. In April, the bill passed the $4,000 mark, which is the next higher volume commitment level. Qwest automatically increased the discount to 40% for that month only. In May, the bill volume decreased again and the discount was back to 35%.

When is the true-up?
It is vital to understand how the actual long-distance usage will be reconciled against the contract’s volume agreement. Long-distance accounts experience a true-up either monthly or annually. With a monthly true-up, the customer is required to bill at least his volume commitment each month. If he falls short, the carrier will add the difference to the bill. Annual commitments true-up the account at the end of the contract year. Figure 2 shows an example of a monthly true-up from a Telephone Company D bill.


Figure 2: Sample of Telephone Company D’s monthly true-up bill.

This concept of the volume commitment true-up procedure is best illustrated with an example. Two brothers, Terry and Tony, each own their own summer resort. The business is seasonal; they rarely use the phone in winter. In the slow months, their long-distance billing is only $500 per month, while in the busy months, their billing rises to $1,500 per month. Table 2 shows a comparison of the billing for both brothers.


Table 2: Annual Versus Monthly Commitments

In January, Terry signs a new long-distance agreement that specifies a $12,000 annual net commitment. He understands that the true-up will happen at the end of the contract year in December. Tony follows his brother’s lead and signs a similar agreement, but Tony’s agreement specifies a $1,000 monthly net commitment. Tony does not read the fine print and is unaware that his account will experience a monthly true-up. Over the year, they used the same amount of long distance and have the same rates, but Tony ends up paying more than his wiser brother. At the end of the year, they compared their bills and found that Tony spent $2,250 more than his brother.

Usually, the true-up happens in the same period expressed with the volume commitment. A monthly commitment of $1,000 is reconciled each month. An annual commitment of $120,000 is reconciled at the end of each contract year. These guidelines hold true in all cases but one. The major exception to this rule is with AT&T’s Uniplan billing. Uniplan volume commitments are expressed monthly, but the true-up happens at the end of the contract year. Therefore, a seasonal business is not penalized in its slow months.

Long-distance pricing : One-time charges

When you make changes to your long-distance account, beware of one-time charges. These charges are often listed on the bill as “set-up charges” or “installation charges.” Even if the amount of the charges is correct, carriers can almost always waive one-time charges. They are not always willing to waive these charges, but they are almost always capable of waiving the charges.

Because one-time charges are manually entered into the billing computers, the chance for human error is great. A manufacturer in the Midwest recently experienced a significant billing error with its carrier. The company added T-1 service in its domestic facility and at one of its Latin American facilities. The associated one-time charges should have been $1,060. These charges were never quoted to the company in advance because it routinely adds service at its various facilities, and the company trusted that the carrier would always bill it correctly.

When the company received its bill from the carrier, the charge was $106,000. The amazing part of the story is that the customer paid the bill and only months later began to question the charges. Its regular monthly bill was over $100,000 each month, and the extra $106,000 was not significant enough to immediately draw attention. When the company first questioned the carrier, the carrier’s representative simply explained that the charge was a one-time charge for installation of the T-1 in Latin America, and that charges in Latin America are higher than they are domestically. After months of research, and hiring a consultant, the puzzle was finally solved.

One of the carrier’s representatives explained that the overbilling was due to a simple data entry error. The person typing in the order accidentally typed in $106,000 instead of $1,060. Once the carrier admitted its error, it put a refund credit on the customer’s next invoice.


One-time charges

Long-distance pricing : Outbound long distance

Long-distance calls are processed through the long-distance carrier’s network differently, based on whether or not the call type is outbound, inbound, or calling card. Because each call type uses different telephone company resources, the rates differ. When a carrier sets its rates, it has to consider the cost of access at the point of origination, the cost of transporting the call across long-distance lines, and the cost of access at the termination point. Figure 12.1 shows the different cost elements of a long-distance call.


Figure 1: The cost of a long-distance call has three parts: access on the point of origination, transport, and access at the point of termination.

In Figure 1, Jerry in Dallas, Texas, pays $0.12 a minute to call Linda in Atlanta, Georgia. His long-distance carrier does not own the physical phone lines from Jerry’s house to Linda’s house; it only owns the lines connecting the central offices. Lacking an end-to-end network, it must pay access fees to the local carriers on both ends for the use of the line. Access fees are between $0.02 and $0.04 per minute. Long-distance carriers argued for years that the access fees paid to local carriers are inflated and should be reduced. In this example, Sprint pays $0.06 in access fees and keeps the remaining $0.06.


Outbound long distance