Dedicated private lines : Consolidate circuits, Volume and term discounts, Update pricing

Consolidate circuits
When numerous data circuits terminate at the same customer location, it is possible to consolidate the smaller circuits into one large circuit, especially in the case of point-to-point circuits. As previously explained, the first leg of a dedicated private line is the local loop. In many cases, a business can consolidate its various local loops into one circuit with greater bandwidth.

For example, a manufacturer in Marietta, Georgia, was expanding into other states. When a new facility was opened, a new 56-Kbps dedicated private line was installed from the Georgia office to the new facility. The cost of each 56-Kbps line was based on the local loop charges in Marietta, the IEX mileage, and the local loop charges at the new location (see Figure 1). The Marietta local loop charge was $150 on each of the five lines. In total, the business paid $750 for 280 Kbps of bandwidth.


Figure 1: A company in Marietta, Georgia, has five data lines connecting to remote sites in other states.

When the company had five dedicated 56-Kbps lines, the BellSouth account manager helped it cut its cost. The business consolidated all of the traffic from the five data lines onto a single T-1 data line that gave the business four times more bandwidth at a cost of only $350 per month (see Figure 2).


Figure 2: Five local loops are replaced with a single T-1 connection.

In another example, a pharmaceutical research facility in Wisconsin paid more than $10,000 for a dozen T-1s used for voice and data. The telecom manager cut the cost in half by consolidating all of the T-1s onto a single T-3.

Volume and term discounts
Dedicated line charges are nonfluctuating charges, so volume discounts usually do not apply. Data services are more subject to term discounts. The simplest way to cut the cost of data services is to sign a term agreement with the carrier. Unlike other telecom services, data term agreements can be as long as 7 years. Table 16.1 shows how data circuit discounts are often structured.


Table 1: Typical Monthly Pricing for Data Circuits

Update pricing
The tariffs filed with state and federal regulatory bodies describe carriers’ service offerings and detail pricing information. From time to time, carriers update their tariffs. Prices usually go up, but sometimes they go down. The phone companies also might add a short-term promotion, to stimulate sales activity.

Once or twice a year, you should contact your carrier and find out the latest pricing for the services they currently use. If the new pricing is lower than your current pricing, ask the carrier to upgrade you to the latest offering. Carriers always say “this pricing is only available for new customers, not existing customers.” Sometimes, however, a sympathetic account manager will implement the new low pricing anyway. It helps if the customer has some leverage in the negotiations.

LATTIS.PRO

Some consultants use LATTIS.PRO to check circuit pricing. The software instantly tells you prices for circuits throughout North America. The prices will be broken down according to each circuit element. LATTIS, which is a fee-based service, is located on the Internet at www.triquad.com/lattis.html.

Add promotions to the account
Consider the following example: A Sacramento, California, publisher had a dedicated T-1 line connecting to a marketing office in Phoenix, Arizona. The T-1 was provided by Qwest and cost $1,365 each month. The publisher learned from a friend that Qwest was waiving local loop charges in Sacramento for all new orders for dedicated T-1s. Armed with this information, the publisher approached Qwest and requested the promotion.

The publisher’s long-distance contract with Qwest was about to expire. The account executive did not want to lose the account, so he added the promotion to the publisher’s T-1 bill. Waiving the local loop charges saved the business $185 per month.

Dedicated private lines : Correct mileage errors, Disconnect dead circuits, Network diagram audit

Correct mileage errors
Dedicated private line pricing is based on bandwidth and mileage. The further the distance between the two points, the greater the cost. A T-1 between Baltimore, Maryland, and Baton Rouge, Louisiana, costs more than a T-1 between Baltimore and Buffalo, New York. The mileage is based on the exact distance “as the crow flies” between the two central offices at the endpoints of the circuit. Customers are sometimes misbilled because of incorrect mileage calculations.

In some cases, the carrier’s mileage calculations are incorrect. A common sense review of the phone bill and CSR may expose an erroneous calculation. Most carrier account managers will take the time to help you double-check your mileage charges. If an error is found, the carrier will correct the pricing and refund the overcharges.

Disconnect dead circuits
When a telecom service is no longer used, the customer should immediately cancel the service. In many organizations, the telecom department quits using a service and forgets to tell the accounts payable department. Consequently, the phone bills continue to be paid every month. Many customers wrongly assume that no longer using a service tells the carrier, “We’re done using this service, please quit billing us.”

Carriers never close accounts unless a customer tells them to. If they did, they would risk canceling a customer’s legitimate service. Because data accounts have flat-rate pricing, inactive accounts still generate the full amount of revenue for carriers. They make sure the customer has canceled the service prior to forfeiting this revenue.

For example, a New York-based travel agency paid for services it no longer used. Through a partnership with a nationwide travel company based in Philadelphia, the New York travel agent sold tickets for cruises, hotel rooms, and vacation packages. Each of its five offices in New York was equipped with a computer terminal that connected directly to the nationwide travel company’s reservation office across dedicated private lines. The nationwide company supplied a special computer terminal, and the New York agency was responsible for paying for the dedicated private lines each month.

After a few years, the two companies decided to end the partnership. The nationwide travel company picked up the computers, and the New York travel agency figured the project was closed out. The agency’s accounts payable clerk continued to pay for the service for the next 2 years. The company never canceled the dedicated private lines with its carrier.

Years later, an outside auditor noticed the data lines terminating in Philadelphia. Once he found out the two companies were no longer business partners, the services were canceled. Correcting this error created thousands of dollars in monthly savings for the company. Even though the problem was the customer’s fault, the carrier still issued a significant “good faith” refund to the customer.

Cancel dangling circuits
When a customer cancels a point-to-point data circuit, carriers sometimes fail to disconnect the circuit at both locations. This results in being billed for a dangling circuit, which is like the tin can phone with only one can. Dangling circuits are most prone to show up when a private line is furnished and billed by two separate carriers.

Phone bills for dedicated private lines usually do not give enough detail to detect dangling circuits. You must call customer service and ask for the addresses of both circuit locations. You can also check the CSRs for the circuits. Local carriers and some long-distance carriers, such as AT&T, keep CSRs. The carrier’s CSRs always specify the locations of the origination and termination points of a dedicated private line. If the CSR only lists one location, it is probably a dangling circuit that should be disconnected.

Network diagram audit
An organization’s IT department usually maintains a network diagram. If a circuit is no longer used, the IT staff erases it from the network diagram. If the staff forgets to cancel the billing with the carrier, the organization may go on paying the bill for years. An effective way to locate unused data lines is to match up the company’s internal network diagram with the actual phone bills. The diagram reflects exactly what data services are in use at each location, and the phone bills reflect the actual services that are currently being billed.

Dedicated private lines: to lease or buy, local loop, missing discount and promotions

Dedicated private lines
Dedicated private lines work like the toy phone children make by connecting two tin cans with a string. The tin can phone can only be used to communicate between two points across the string, such as between two tree houses. Like the string, dedicated private lines connect two separate points. For this reason, dedicated private lines are often called point-to-point circuits. Other names are dedicated circuits and leased lines. A state university, for example, may use dedicated private lines to share data between the main campus and its various satellite campuses.

The original data networks consisted of dumb terminals connected to a mainframe computer across dedicated private lines (see Figure 1). Data processing required a giant mainframe computer. It was more cost effective to have one mainframe computer at a central location than to have a computer at each remote site. The word “dedicated” means the phone company reserves the phone line from point A to point B just for you. The line is called private because no one else can use it.


Figure 1: The original data network consisted of dumb terminals at remote sites connected to the mainframe computer at the home office.

The monthly cost of a dedicated private line is based on distance and bandwidth. The longer the distance, the greater the cost. The greater the bandwidth, the greater the cost. The bandwidth of most dedicated private lines is 56 Kbps, 256 Kbps, or 1.544 Mbps. Dedicated lines are expensive because the customer ties up the carrier’s line all the time, preventing that line from being used by other customers.

The telephone companies appreciated the revenue from sales of dedicated private line service, but they feared that their networks would run out of room. As data networking began to be used by more and more businesses, the telephone companies could see that one day they would not have enough lines to meet demand. They had two choices: build more phone lines or figure out how to get more data across existing lines. They chose to do both. Engineers went back to the drawing board and came up with a brilliant solution: circuit switching.

Even though circuit switching (and eventually packet switching) is a more recent technology, dedicated private lines are still used in most data networks. Depending on the application, dedicated private lines require the use of the following types of data communication equipment: modem, channel service unit, data service unit, channel bank, or a PBX. A networking specialist normally helps a business decide what equipment is needed in a given application.

To lease or buy?
Data networks require the use of customer premise equipment (CPE). Some examples of data networking CPE are modems, channel service units, data service units, channel banks, network adapters, routers, and switches. Some businesses choose to purchase the equipment at the time of installation, while other companies prefer to lease, or rent, the equipment. The lease payment is normally included as a line item on the carrier’s monthly bill.

Once a data network is up and running, most businesses do not give much attention to the invoices. Consequently, a business may end up leasing or renting a piece of equipment indefinitely. The business may be able to save money by purchasing the equipment outright, rather than making monthly payments.

The local loop
If the two endpoints of a dedicated private line are in the LATA, then the LEC will provide the service. For example, a hospital in Salt Lake City, Utah, has a 56-Kbps dedicated private line to a pediatrician’s office across town (see Figure 2). Because the private line starts and ends within the same LATA, U S West provides the service. The same hospital may also have a 56-Kbps dedicated private line to a laboratory in Las Vegas, Nevada. Because this private line crosses LATA boundaries, an IXC, such as Sprint, provides the service.


Figure 2: Local loops.

This interlata private line consists of three parts: the local loop in Salt Lake City, the interexchange mileage, and the local loop in Las Vegas. The local loop in Salt Lake City is the connection from the customer’s premise to Sprint’s nearest central office in the same city. The IXC mileage is the middle portion of the line and runs between Sprint’s central office in Salt Lake City and its central office in Las Vegas. At the other end of the line, in Las Vegas, the local loop is the connection from Sprint’s central office to the customer’s premise.

The two local loops are actually services provided by the LEC in each city, but all three charges will appear on one bill from Sprint. Sprint will procure these services for the customer from the LEC. Sprint will bill the customer for all three portions of the circuit. For the two local loops, Sprint will pay wholesale prices to U S West and Nevada Bell.

Local loop pricing is based on bandwidth and the distance to the central office. The further out the business is, the greater the cost. The bill for the middle portion of the private line is based on mileage and bandwidth. A good rule of thumb is that dedicated private lines generally cost $1 for every 1 or 2 miles. The following sections offer some basic strategies for saving money on dedicated private lines.

Check for missing discounts and promotions
When negotiating contracts for data services, telephone companies send out their best field sales representatives. Managers often get involved to ensure that the deal is closed. After the contracts are inked, the highly-polished, high-powered account team turns the service orders over to a data entry clerk, who is probably required to enter orders and answer customer service calls at the same time. The new service is installed, and the new account will be established with no glitches, but the special discounts and promotions frequently “fall off” the account. The end result is that the customer ends up paying the nondiscounted tariff list price for the service.

Most large businesses manage their telecommunications centrally. For example, a large Midwestern printing company with many offices around the country had complex data services with MCI. The telecom department at the corporate office negotiated specific discounts for MCI’s data services. The pricing structure was complex and offered different discount percentages on different services. For example, access T-1s received a 10% discount, frame relay permanent virtual circuits (PVC) received a 15% discount, and interstate dedicated private lines received a 20% discount.

After the contracts were signed, it took MCI many months before the discounts appeared on the bills. Some locations never saw any discounts, or the discounts were applied at incorrect percentages. Access T-1s that should have had a 10% discount instead received only 5%. On some services, the discounts fluctuated each month. The bills for the Tampa, Florida, office may have been accurate in July, but in August, the discounts had vanished. In September, the discounts were back, but at incorrect percentages.

The situation continued for many months. Every month, the corporate telecom department spent days auditing the bills and weeks negotiating invoice credits with MCI. The root of the problem was never pinpointed but it probably had something to do with having such a large, multilocational account processed by a “legacy” billing system. Antiquated billing computers (called “legacy” because they are so old) are still used by most of the large carriers, because they are hard to replace when they are in use every month.

After a few billing cycles, the MCI account team was very discouraged by its inability to correct the problem, and the company was only responsive when the customer hinted at changing to another carrier.

Customers should scrutinize their bills for the first few months to ensure that all discounts are in place. If discounts and promotions are missing, the carrier should correct the errors and issue a refund of past overcharges. If the situation continues, the customer may be justified in switching carriers. Customers must carefully review their carrier service agreement to see if they are justified in canceling the contract and moving to another carrier.

Miscellaneous cost management strategies

Miscellaneous cost management strategies
Data networking is highly complex, but invoices from carriers are surprisingly simple. The next few sections offer a few miscellaneous practical strategies that nontechnical people can use to minimize the expenses of a data network.

Avoid billing errors with centralized control
Most of this book focuses on how a company can manage the external relationships it has with its telecom suppliers. Many large companies wind up overpaying because the internal relationships are mismanaged.

Most large organizations have an IT department that manages their companywide computer network. But the telephone bills associated with the network are managed by a separate department—the telecom department or the accounts payable department. The people who plan and order the services are different from the people who manage the costs. Even though the ones paying the bills might not understand what they are paying for, they can still successfully manage these costs.

The following is an example of a company whose internal processes ended up raising its telecommunications expenses. An aircraft maintenance company in Ft. Lauderdale, Florida, processed the telephone bills for all of the company’s locations. The company’s Austin, Texas, location ordered a new T-1 and informed the telecom department in Ft. Lauderdale. The Austin office handled all the negotiations and coordinated the installation with AT&T. Once the T-1 was installed, the Austin office was no longer concerned about pricing issues. The manager in the Austin office had an “if it ain’t broke, don’t fix it” attitude.

The Ft. Lauderdale office began receiving invoices for the new T-1, but it could not determine if the charges were correct. The Austin office misplaced the copies of AT&T’s proposals and contracts, so it was impossible to verify the pricing. The corporate telecom department felt the charges were too high, but the manager in Austin wanted to ignore the situation because he was losing face. In the end, internal politics prevented the telecom department from efficiently managing the T-1 billing, and the company ended up overpaying AT&T for the entire 3-year term. The company’s upper management should have established some strict guidelines for negotiating, ordering, and verifying all telecom services.

Free e-mail
Prior to the widespread use of fax machines and the Internet, businesses subscribed to e-mail service provided by carriers such as AT&T. The e-mail messages were transmitted across the carrier’s network. Pricing for the service consisted of a monthly fee and a usage charge based on the number of characters sent. The service was expensive, but it was quicker and less expensive than overnight mail. Most businesses have replaced this type of e-mail service with Internet-based e-mail. A small number of businesses still have active accounts with carriers and still pay the invoice each month, even though the service is not used. The customer should cancel the service with the carrier and try to negotiate a refund for the previous few months’ service.

Medium and large businesses pay their ISP for e-mail accounts in addition to the charge for monthly access to the Internet. Many ISPs will give their customers e-mail. This expense can also be eliminated by using one of the numerous free e-mail services available such as hotmail.com.

Avoid fraudulent charges
One of the latest telecom scams is “cramming” bogus Internet charges on a customer’s local telephone bill. Most businesses do not question these charges and the thieves make easy money each month. LECs allow other companies to add charges to the LEC bill because it earns a billing fee. The charges are listed with a legitimate sounding name such as “Web hosting” or “Internet,” and may be as high as $100 per month. In some cases, the thieves copy elements of the company’s true Web site and build a phony Web site. The bogus Web site should be canceled, and the fraudulent company should give a full refund of all past charges.

Use a contingency plan
One of the fundamental strategies for managing a mission-critical data network is to have a backup plan, normally called a contingency plan. If the primary carrier’s data network fails, then the data traffic can be redirected to a secondary carrier’s network. In addition to being a backup plan, a two-carrier contingency plan also has cost management benefits.

For example, a Boston brokerage firm has a dedicated T-1 connection to Wall Street provided by WorldCom. The brokerage firm also installed a 56-Kbps line with Sprint to be used in case of a WorldCom service outage. The data networks of the telephone carriers rarely fail, so the brokerage firm may never use the Sprint 56-Kbps line. Nonetheless, using two carriers can be a strong negotiating tool for the business. When the WorldCom contract expires, the brokerage house will be able to negotiate very aggressive pricing with WorldCom. WorldCom would rather trim its profits on the account rather than lose it entirely to Sprint. Most small- and medium-size businesses do not bother with contingency plans.

What is a T-1?

What is a T-1?
When telecom professionals say “T-1,” they probably mean one of the following four definitions:

- Access T-1: A connection from the customer’s premise to a long-distance carrier that provides access to the public-switched network. Access T-1s are generally provided by the local telephone company, but it is common for customers to receive a bill directly from the long-distance carrier (see Figure 1).


Figure 1: Customers use access T-1s to connect to their long-distance carriers.

- Internet T-1: A connection to an ISP. Medium to large-size companies use Internet T-1s for e-mail, Internet access, and Web hosting (see Figure 2).


Figure 2: Customers use T-1s to connect to their ISP.

Point-to-point T-1: A dedicated private line between two customer sites. Customers use these fixed connections for data and voice traffic between locations. If voice traffic is carried on the T-1, this is called a tie line, because the T-1 ties the two locations together (see Figure 3).


Figure 3: Customers use point-to-point T-1s to share data and voice traffic between locations.

- T-1 Bandwidth: Equals 1.544 Mbps, the capacity needed to carry 24 simultaneous phone calls.

T-3 service
T-3 service has 44.736 Mbps of bandwidth available. T-3s are normally only used by corporations and large universities. A T-3 has the capacity of 28 T-1s and can carry 672 simultaneous voice conversations. One T-3 usually costs the same as 8 to 10 T-1s.

All of these examples use dedicated private line technology. Circuit switching and packet switching are different technologies, but they are still measured by bandwidth.

Network evolution

Network evolution
The methods for sending and transmitting data across telephone lines have changed over the past few decades. Data networks have evolved over a series of generations. Some of the more significant data network milestones are the mainframe computer, the personal computer, LANs, WANs, the Internet, intranets, and extranets. Many companies incorporate all of these technologies in their corporate data networks. IBM calls this combination of an organization’s networks its “enterprise network.”

Mainframe computer networking
In the beginning, mainframe computers handled all data processing. “Dumb” terminals displayed the results of the mainframe computer’s work. Remote dumb terminals connected with the mainframe across expensive leased telephone lines.

For example, a national hotel chain used a mainframe at its home office to handle reservations. The dumb terminals at each hotel property connected to the mainframe for data processing and to access reservation records. The connection took place across telephone company leased lines. The phone companies “dedicated” the leased lines for the hotel chain’s use only, so they were very costly, but there was no other way for the hotel to do business. It was too expensive to purchase a mainframe for each hotel to do data processing, and each hotel still needed access to the home office’s reservation records.

Personal computers
The greatest distinction between mainframes and PCs is that PCs allow individuals to process their own data without the need to be connected to a mainframe computer. Using a modem, one PC can dial up another PC and share data. So, for example, the hotel chain could scrap its mainframe and use PCs at each location for data processing, but each hotel would still need to connect to the home office to handle reservations. Depending on the amount of traffic, a dial-up modem connection may be more cost effective than dedicated lines, but it would not be as reliable.

LANs
LANs are simply two or more computers connecting to each other in one location. For example, the network used by a small law firm consisting of a server, a printer, and five personal computers is considered a LAN. Figure 1 is an example of a LAN


Figure 1: Typical LAN.

WANs, MANs, and VPNs
A WAN is two or more computing devices in separate locations connecting to each other across telephone lines. Figure 2 shows an example of a typical WAN. WANs connect with dedicated private lines, circuit switching, packet switching, or a combination of these services


Figure 2: WAN.

Most WANs can also be called VPNs. A truly private network means that in addition to owning the computing equipment, the user also owns the phone lines that connect the computers. Some universities and corporate campuses have private networks. Building a physical telecommunications network is very difficult and very expensive; few organizations use private networks. Instead, they have private communications over lines owned by the phone company. This is not a private network; it is a “virtual” private network.

When telecommunications professionals use the term VPN, they are usually referring to large businesses that transmit voice and data across a data network. A metropolitan-area network (MAN) simply refers to a WAN that is contained within one metropolitan area.

What is data networking?

What is data networking?
Today, most companies, large and small, use data networking technology in their day-to-day business. An automobile parts manufacturer in Chicago sends electronic production reports to two separate manufacturing sites across two dedicated T-1 lines. A florist in San Diego uses an ISDN connection to the Internet to rapidly communicate with her suppliers and customers. The WAN of a Nebraska-based medical insurance company connects 29 different offices, uses 24 separate phone companies, and costs slightly more than $100,000 per month.

Each of these data networking examples requires both computer and telecom technology to work correctly. In all three cases, the companies use computer and telecommunications technicians to install and maintain the network. The expertise of these technicians is invaluable. They have spent years mastering leading-edge technologies that are perplexing to the average businessperson. In most organizations, however, it is a business- person who is responsible for the data network. The most efficient, cost-effective data networks rely on the expertise and savvy of technicians and businesspeople.

Numerous resources that explain the inner workings of the technological aspects of a data network are available. The purpose of this book is to provide businesses with strategic advice on managing the expenses of voice, data, and wireless telecommunications services.

In its simplest definition, data networking is “two or more computers communicating over a medium.” The communication may be considered local such as the connection of multiple computers across the inside wiring of a Chicago office building. Or the communication may be across a wide area such as a computer in Denver connecting to the Chicago office across telephone company lines. In the first example, the medium is the inside wiring in the Chicago office. In the second example, the medium is the telephone company phone lines.

LAN and WAN
LANs are normally wired with company-owned inside wiring. It costs the company nothing to transmit data across this medium because it owns the wiring. In the case of a WAN, a business transmits data across a long distance, or wide area, such as from Dallas to Chicago. WANs use the phone company’s network, so the phone company bills the customer each month for this service. Because this is a cost management book, we will deal with the telecommunications offerings and billing associated with WANs, not LANs. Within this context, our definition of data networking is “two or more computers communicating over a telephone line.”