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

Telecom Cost Management : Rate increases

Another problem revealed in the contract quote is the potential for rate increases. A few times each year, the major long-distance carriers increase the gross rates listed in their tariff. Over the past decade, a typical rate increase is 3% per quarter. Under this system, a customer’s rates will have increased by more than 30% over a 2-year period.

For example, Acme Manufacturing spends $10,000 per month in long distance. Its current contract is about to expire, so the company’s AT&T account executive offers a new contract. The proposal shows that the new pricing plan will drop Acme’s monthly billing to $8,000. Acme, excited about saving $2,000 per month, signs a new contract with AT&T, which explains that the only way to get these great prices is with a 3-year agreement.

Every quarter, AT&T implements a 3% to 5% rate increase, and most customers never notice. If a customer notices the increase, he figures it is because employees are making more calls than before. After 2 years, Acme’s bill is back up to $10,000, thanks to the rate increases.

AT&T then informs the customer of a new pricing plan that will cut the bill by $2,000 per month. The account executive says AT&T will be happy to void the current contract as long as it is replaced with a new 3-year contract. Rather than pay an extra $24,000 over the course of the next 12 months, the customer signs the new contract. And, you guessed it, every quarter the rates are incrementally raised, starting the cycle all over again.

The only way out of such a cycle is to bite the bullet and complete the third year of the contract. At that time, the customer will have maximum leverage to negotiate a better plan with the current carrier or may then switch to a lower cost carrier that guarantees its rates, such as Qwest, McLeod USA, and a host of resellers.

Carriers do not guarantee their rates because they fear certain market forces that could affect their revenues, such as inflation and new technologies. Ten cents a minute for long-distance calling is used as a benchmark today. If all the carriers guaranteed to charge their customers only 10 cents a minute, inflation would eat away the carriers’ profits. New technologies such as free voice calls over the Internet also threaten a carrier’s revenue potential.

The average phone company executives are eminently more concerned with pleasing their stockholders than they are with pleasing their customers. “Creating stockholder wealth” is the mantra for most companies. Sometimes the only way to take care of stockholders is to neglect customers.

Telecom : Tariffs

Tariffs are filed with both the state and federal government. Tariffs governing interstate services are filed with the FCC, while tariffs governing intrastate services are filed with the state’s Public Utilities Commission (PUC). Telecom tariffs contain information on services offered, terms and conditions, and pricing. When a customer signs up for a new contract with a long-distance carrier, the contract always refers back to the tariff, and many of the specifics, such as price, are not documented in the contract itself.

The following quote is from an AT&T contract that illustrates that the rates are not disclosed in the actual contract but listed in a tariff. The two-page contract was offered to a customer with a 24-month term commitment and a $1,000 gross monthly revenue commitment. This contract is probably the most common long-distance contract in force today, and it serves as an accurate representation of the industry as a whole.

The service and pricing plan you have selected will be governed by the rates and terms and conditions in the appropriate AT&T tariffs as may be modified from time to time ¼ AT&T reserves the right to increase from time to time the rates for the services provided under this tariff, regardless of any provisions in this tariff that would otherwise stabilize rates or limit rate increases¼ (AT&T’s Business Service Simply Better Pricing Option Term Plan Agreement).

The contract quote reveals that rates are not specifically listed; instead, the customer is referred back to the “rates and terms and conditions in the appropriate AT&T tariffs.” The sad news is that the average customer never sees the tariff. In many cases, the actual phone company sales representative who is offering the contract has never viewed the tariff either and is only familiar with the sales literature, proposals, contracts, and billing. I have negotiated more than 200 long-distance contracts. In only one case was the actual tariff provided to the customer, and in that instance, it was not because of a pricing issue.


The carriers

Long-distance carriers are not all alike. Some are small, specialized carriers, while others such as WorldCom are giant carriers offering a wide variety of services. The following sections explain the types of carrier that typically offer long-distance service.

AT&T, Sprint, WorldCom, and Qwest all brag that they can be a “one-stop shop” and provide all the telecom services a business customer needs. Some people in the industry call these supercarriers, because they can offer not only long-distance service but also local service, data service, and wireless service. The main advantages of supercarriers are that customers can receive one consolidated bill, and the carrier might offer some services at cost. For example, Qwest may give rock-bottom pager pricing in hopes of also securing a customer’s data and long-distance business.

Regional carriers

In certain regions, a single independent long-distance carrier may earn a large share of the market. Through referral marketing, these long-distance carriers build a loyal following in their region. Later, they hope to break into the national scene. Two regional carriers that have successfully competed in the national marketplace are Frontier and McLeod USA. Regional carriers usually have low rates and are very attentive to their customers, but they struggle to manage large accounts with multiple locations.

Supercarriers are eager to win as much market share as possible, so they allow their services to be resold by other companies. With a reseller such as Network Plus, a customer uses AT&T’s network but receives a phone bill from Network Plus. During the 1990s, resellers’ rates were very low so many customers switched to resellers. However, resellers are limited in the range of services they can offer, and they are not very good at troubleshooting customer problems. This is because they do not control the physical network or the actual billing records, only the rebilling records.

Agents are like resellers in that they do not have their own physical network of lines. Unlike resellers, they do not pretend to be an actual phone company. Instead, they are simply sales agents for long-distance carriers. Telecom technicians sometimes become agents for long-distance carriers. They are highly trusted by their customers and can earn extra commissions by selling long distance.

Most agents work alone or in a small firm. They represent numerous long-distance carriers and can usually offer the lowest rates in the industry. During a sales presentation, an agent may present proposals from two or three carriers. They are generally more loyal to their customers than to the carriers they represent. Agents usually give better customer service than the actual carriers, but an agent’s recommended carrier may not always be the best carrier for the customer. Agents are likely to recommend the carrier that pays the greatest commission, which may or may not be the best carrier for the customer.

Most agents say they are consultants, but consultants never say they are agents. Consultants are independent of carriers and receive compensation only from their clients. Agents are paid by the telephone companies they represent.

Consultants are usually people who have worked for the carriers for many years. Because of their experience, they have become experts in their specific field. The two most prevalent types of consultants are cost management experts and technical experts. Unlike agents, consultants always make unbiased recommendations to their clients.