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

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.

Sample bill

Sample bill
Figure 1 is a sample bill for a fictional dedicated private line between two customer locations in Seattle, Washington, and Dallas, Texas. Data networking bills give little detail. Because the charges are fixed each month, the carriers must figure that the customers do not want much detail.

Figure 1(a), the first page of the bill, shows the customer has monthly charges of $2,557.55. Under the heading “Balance Brought Forward,” we see that last month’s charge was the same amount. A bill auditor notices these details because it confirms that this is a fixed monthly cost. The bill does not fluctuate because there is no charge for voice or data messages transmitted. This section of the bill also reveals that the customer still has not paid last month’s bill. Bill auditors take note of this because carriers are less amicable with their deadbeat customers.

Figure 1(a): Sample data circuit bill: page 1.

Figure 1(b), the bill’s second page, reveals that it is T-1 service. The bill does not indicate whether or not this is an access T-1, an Internet T-1, or a point-to-point T-1. A seasoned bill auditor knows the monthly pricing for access and Internet T-1s is about $500 to $1,000, so this must be a point-to-point T-1.

Figure 1(b): Sample data circuit bill: page 2.

The heading “Discount Plan Savings” indicates that the customer has signed a term contract and is getting a discount. An auditor would double-check the discount amount and find the customer receives a discount of 38.5%. The half-percent is suspicious; carriers usually give their discounts in whole numbers. It is possible that the customer is only receiving a partial discount.

To completely audit this bill, more information is needed. It is especially important to verify the addresses of the two ends of the circuit. Our hunch is that this is Acme Manufacturing’s point-to-point T-1 connecting the Dallas and Seattle offices. For more detail on this circuit, we should match this circuit to the company network diagram and we should contact Telephone Company B.

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.