cost increase

Least-cost routing

In international voice telecommunications, least cost routing (LCR) is the process that provides customers with cheap telephone calls. Within a telecoms carrier, an LCR team will be choosing routes from between twenty to over one hundred suppliers for five hundred or more destinations across the world on a weekly or even daily basis to maintain a competitive cost base and acceptable call quality.

Telecoms carriers as suppliers and customers

A telecoms carrier will buy and sell call termination with other carriers. A carrier such as Telewest or France Telecom will be interconnected with other telecoms carriers and so will have a number of routes of different price, quality and capacity to a given country. In the de-regulated EU, these will be licensed alternative operators (e.g. Cable and Wireless / Energis in the UK or Jazztel in Spain) or the ( PTT)'s of other countries, such as T-Systems (Germany), Telefonica (Spain), NTT (Japan) or Telstra (Australia), who establish offices or a point of presence (POP) in a major telecommunications hub city such as London, New York, Hong Kong or Amsterdam. The major US carriers, Sprint, Verizon, AT&T and Global Crossing in the US also have POPs in these hub cities. There are also niche carriers which specialise in providing termination to a small number of destinations, sometimes through the use of grey routes.

The carrier-carrier market is not trading in the same sense that stockbroking houses trade with each other. Whereas brokers and banks may buy and sell the same stocks or bonds with each other in the same day, carriers have to be very careful not to do that. If carrier A buys Venezuela from carrier B who buys it from A, one call will come in to carrier A, go to B and go back to A again, over and over until all the circuits are taken up with one call. If it does terminate on an overflow route, the carriers may bill each other many times over for the same call. This is called looping and is very undesirable.

Buying->costing->routing->pricing->margin management cycle

The LCR team in a carrier follow a cycle: the buyers negotiate with their suppliers and get a new price schedule; the prices are loaded into the software to calculate and compare termination costs; a route is chosen, fixing a cost-for-pricing; and new prices are issued based on the costs-for-pricing. The new routes are implemented on the switch and finally the traffic volumes and margins are monitored through reports from the billing system. Loss-making traffic and odd routings are investigated, and either the billing system has its data corrected or routing and pricing action is taken.

Carriers sign interconnect agreements with each other specifying the terms under which they will do business. As well as the usual terms of payment and dispute resolution, these will include the terms of price notifications. The industry standard is currently seven days for price increases while price decreases take effect on the day of notification. Because the margins in the carrier-carrier market are around 5% - 10%, re-routes or price increases must be made quickly to a destination where the current route is going to increase in price. Since the price increase itself has seven days' notice, it must be issued within twenty-four hours of the cost increase to avoid losses. This puts a significant pressure on the carrier's LCR team, who must process the offers from their suppliers quickly and accurately.

Impact of Mobile Number Portability in the VOIP and LCR Environments

Mobile number portability also impacts the internet telephony, VOIP (Voice over IP) and least cost routing (LCR) businesses. Mobile number portability is a service that makes it possible for subscribers to keep their existing mobile phone number when changing the service provider (or mobile operator).

VOIP is clearly identified as a Least Cost Routing (LCR) voice routing system, which is based on checking the destination of each telephone call as it is made, and then sending the call via the network that will cost the customer the least. With GSM number portability now in place, LCR providers can no longer rely on using the network root prefix to determine how to route a call. Instead, they now need to know the actual current network of every number before routing the call. A voice call originated in the VOIP environment which is routed to a mobile phone number of a traditional mobile carrier also face challenges to reach its destination in case the mobile phone number is ported.

Therefore, VOIP and LCR solutions also need to handle MNP when routing a voice call. In countries without a central database like UK it might be necessary to query the GSM network about the home network a mobile phone number belongs to. As VOIP starts to take off in the enterprise markets because of least cost routing options, it needs to provide a certain level of reliability when handling calls.

MNP checks are important to assure that this quality of service is met; by handling MNP lookups before routing a call and assuring that the voice call will actually work, VOIP companies give businesses the necessary reliability they look for in an internet telephony provider. UK-based messaging operator Tyntec provides a Voice Network Query service, which helps not only traditional voice carriers but also VOIP providers to query the GSM network to find out the home network of a ported number.

In countries such as Singapore, the most recent Mobile number portability solution is expected to open the doors to new business opportunities for non-traditional telecommunication service providers like wireless broadband providers and voice over IP (VOIP) providers.

Last but not least, in November 2008 the North American FCC (Federal Communications Commission) released an order extending number portability obligations to interconnected VOIP providers and carriers that support VOIP providers.

Number plan management and analysis

Whereas markets in commodities such as pork bellies or oil have agreed definitions and arbitrating bodies for the commodities they trade, the carrier-carrier market has no agreed definitions of its destinations. Every carrier uses the International Telecommunication Union E.164 standard for country codes, but each carrier uses different codes for destinations within a country, usually because it is using different suppliers within that country. So one carrier's codes for Cali may not be the same as another's. This applies especially to mobile operators. While the difference in price between a call to a land-line and a call to a mobile may not seem much at 9 UK pence, the volumes can be one hundred thousand minutes a day or more, leading to losses of over £250,000 a month. When a carrier's dial code table can contain three thousand items, comparing codes is a critical and complex part of the process. The theory of dial code relationships actually involves the mathematical theory of lattices and code comparisons have to be done with computer software.

Number plan management monitors changes in suppliers' dial codes and adds or removes codes from the company's own code tables to improve costs. Implementing the changes across the company's switches, billing systems, calling card and other IN platforms is a significant task for the engineering and billing departments.

Cherry-picking

One aim of LCR teams is to cherry-pick. This happens when Carrier A's team finds that Carrier B defines a code range as being fixed-line and so cheap, while Carrier A defines it as mobile and so more expensive. Carrier A will send that range to Carrier B, pay a low fixed-line rate and charge at a high mobile rate - making much more profit. The damage to Carrier B if it does not notice that its supplier, C, also defines that range as belonging to a mobile operator and charges a higher rate. Caught in the middle, B can sustain five- or even six- figure losses in a very short time. At one company where the author worked, a carrier customer sustained a loss of over two million dollars in one month because it misread a price schedule and insisted it was right.

Route and call quality

The LCR team also has to take route and call quality into account. The quality of route to a destination can vary considerably between suppliers and even from week to week from the same supplier.

Quality is usually measured by the Answer-Seize Ratio (ASR = call attempts answered / call attempts), Post-Dial Delay (PDD) and the Average Call Duration (ACD). If the average call duration is very low, it is taken to mean that the call quality is so poor that people cannot have a conversation and hang up. This matters to calling card operators because people do not re-purchase card services that give a low ACD. A low ASR is taken to mean that callers cannot get through to the other end and hence that the route is congested or low-quality. Post-dial delay is the time from dialing the last digit to the time a caller hears ringing. Callers often interpret a PDD of more than three or four seconds as meaning that there is no connection at all.

Additionally, the team may take into account the responsiveness of their supplier's technical team: if there is a fault or low quality, does the supplier fix it or just say that it is the best they can do?

LCR software

The key tasks LCR software must do are: load prices schedules and code tables automatically; compare dial codes correctly; turn the carriers' name-based price schedule into a dial code-dependent termination cost schedule; put costs in order; incorporate quality considerations; produce costing and routing schedules in a format suitable for pricing analysts and engineering; and transfer data into the billing system.

LCR software varies from home-grown Excel spreadsheets, through Access and Microsoft Visual Studio applications to commercial products offering integration with the switch and billing systems costing up to £500,000 for an installation. The simpler the software, the more complex the surrounding manual processes.

Related Ideas

Least Cost Routing is also used to describe a type of equipment installed on customers' premises. An LCR box is programmed with prices from the companies supplying telecoms services to that company and the box routes each call to the appropriate supplier.