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.