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

Long-distance pricing : Peak or off-peak

Long-distance carriers offer lower pricing for off-peak calling to encourage callers to wait until the evenings. This makes more room on their network during peak times. Carriers are racing to increase their network capacity to keep pace with the fast growth of call volumes. At certain peak times, such as Thanksgiving Day, the majority of the public-switched network is in use, so many callers are unable to complete their calls. Lower off-peak rates should keep this from happening on normal working days.

Save money using off-peak calling
It is impractical for most businesses to shift their calling to the evening hours to take advantage of lower off-peak long-distance rates. A business that transfers computer data using modems and dial-up long-distance calling may be able to postpone these calls until the evening off-peak hours and save money.

A more practical suggestion is to compare the off-peak calling time offered by different carriers. If one carrier’s off-peak time starts at 7 p.m. instead of your current carrier’s 8 p.m. start time, maybe you should switch carriers. Telemarketing call centers that operate in the evenings can definitely profit from this suggestion.

Peak or off-peak

Long-distance pricing : Intralata, intrastate, interstate, and international calling

Even if your long-distance bill contains no errors, the pricing still makes the billing difficult to understand. Numerous factors, such as the following, affect the rates of a long-distance call:

The termination point of the call: Is it intralata, intrastate, interstate, or international?

- The time of the call: Is it peak or off-peak?

- Whether or not the call is outbound, inbound, or calling card;

- Whether or not the call is switched or dedicated;

- Whether or not a virtual private network is in place.

Intralata, intrastate, interstate, and international calling
Long-distance bills usually separate the traffic into intralata, intrastate, interstate, and international calling. Long-distance carriers’ international and interstate rates are listed in the tariffs they file with the FCC. Intrastate and intralata rates are listed in the tariffs filed with the state PUCs.

The interstate and international rates on one calling plan will be the same for all of a business’ locations. For example, a business with locations in Illinois and Maine will pay the same rate for interstate calls at both locations. The intrastate rates, however, will be different. Intrastate pricing is governed by the tariff filed with the PUC in that state. The carriers set these rates based on the economic, competitive, and regulatory influences in each state. Intrastate rates in Illinois are about $0.08 a minute, while in Maine they may be as much as $0.30.

Intralata calls on a long-distance bill will have their own rate. The local carrier normally carries these calls, but many businesses have moved this traffic to their long-distance providers. Many long-distance carriers use the same rate for intrastate and intralata pricing, but the traffic is usually still separated on the actual phone bill.

In addition to having long-distance traffic itemized by interstate, intrastate, and intralata, the phone bill will also have a section for international calling. Calculating the true cost per minute for international calls is difficult, because a different rate is used for each country, but the bill combines all the international calling together. To effectively check international rates, you must spot-check individual calls in the bill’s call detail section.

Call rounding
Long-distance rates may be whole numbers, such as 10 cents per minute, but more often they are expressed as fractional numbers such as 10.5 cents per minute. When customers double-check the rates on their long-distance bill, the rates are usually a little higher than the quoted rate.

Table 1 shows an example of call rounding. The customer was promised $0.069 per minute but is actually paying $0.071 per minute. On a large account, this 3% differential may be significant. If you have a legitimate error on your account, beware that your account executive may say, “The rates are a little high due to call rounding.” This can only be true if the differential is less than a penny. If the difference is more than a penny, you probably have a different error on your account.


Table 1: Call Rounding