Demystifying T-1 Pricing

BOSTON (05/08/2000) - Most business managers know what a square foot of office space costs, but if you ask them the cost of a T-1 circuit between New York and Los Angeles, they probably couldn't tell you. That's because you can go to five different carriers and get quotes differing by thousands of dollars per year.

But aside from rates, little else distinguishes the data services sold by different carriers. In fact, long-haul T-1 lines are close to becoming a commodity. Every long-distance telephone company sells them, and for all intents and purposes, a T-1 line offered by one carrier is pretty much the same as one offered by another.

A big problem for telecom buyers is determining how much they should pay for data network services. This first installment of a quarterly feature series about telecom pricing aims to clear up some of the mysteries surrounding T-1 costs.

The real costs involved

Long-haul T-1 rates are based on the price of two local loops from the local exchange carrier to the closest long-distance carrier, plus the price of the long-distance portion of the circuit.

All three components are generally distance-sensitive - the greater the mileage, the more expensive the cost. It is common to see a price of $2.40 per mile for the long-distance portion of a T-1.

In this example, the long-distance portion of a circuit between Wheaton, Illinois, and San Mateo, California, costs $5,151 - $1,602 of that is a fixed charge and $3,549 is based on mileage.

A special access line is needed to link the interexchange carrier in Wheaton with the telco central office nine miles away. However, at the San Mateo end, the carrier's point of presence is collocated in the central office, making the local loop less expensive.

Note that price per mile isn't based on distance alone. In some cases, there will also be either a minimum charge or a fixed charge associated with the T-1.

Because of this, the price per mile is much higher for circuits less than 600 miles long. If you have similar needs, you may want to look for a provider that charges strictly based on mileage.

To get an idea of what you can expect to pay for a T-1 line between several major U.S. cities, check the chart below. These quotes only cover the long-distance portion of the line - local access charges and installation fees are extra. You should be able to drop the price to $1.75 or $2 per mile if you buy from discount resellers and commit to certain volumes and long-term contracts.

Where to buy

A few years ago, the only way to buy long-haul circuits was to go to a traditional long-distance carrier. Today, there is a pool of hundreds of companies to choose from. Not all are traditional facility-based companies that deploy and operate their own networks. Here are some options for getting a good deal on rates:

* Newer long-distance carriers such as Broadwing Inc., Level 3 Communications Inc. and Qwest Communications International Inc. are hungry for market share and offer competitive prices to win business from the traditional carriers.

* Resellers such as Global Internetworking and Universal Access buy bandwidth from major carriers and resell it. They usually have great prices due to their bulk purchasing power. It's possible to go through a reseller and pay less for a circuit than you would if you bought it directly from the carrier. Moreover, resellers buy capacity from multiple networks so they can give you backbone options as well as pricing options.

* Agents sell services under the brand name of certain carriers and resellers.

Look for an agent that represents three or more carriers. Agents with multiple carriers can research pricing within their portfolio of services and steer you to the best price available.

How to save

To get the best T-1 prices, follow these guidelines:

* Always get multiple quotes from many different carriers and resellers. Most companies pay more than they need to for telecom services. Perhaps the biggest mistake is to renew an existing contract for the same terms even though prices for certain types of bandwidth have substantially decreased. The only way to break this cycle is to get a quote from your current carrier and two or three others. You may find that you can get a better deal from a competitor.

* Buy bandwidth from a discount reseller. This gives you the quality of the underlying fiber-optic backbone at a reduced cost.

* Use the Web to research prices. Several Web sites will secure competitive bids for telecom services. You'll usually find a carrier that you've never heard of before offering incredible prices. This method is expedient because you can get multiple quotes without having to contact all the carriers and/or resellers yourself.

* Have an independent company perform a billing audit on your current rates. A thorough analysis of your telecom bills will often uncover instances of overbilling. These companies usually get paid by taking a percentage of the savings, so the service won't cost you anything upfront.

While price may be the ultimate determining factor in your purchasing decision, don't overlook other criteria such as delivery time and quality of service.

Now that you're familiar with T-1 prices and savings strategies, buying long-haul service from a carrier or reseller at a fair price is achievable in today's highly competitive marketplace.

Dunetz is vice president of engineering with Telco Exchange. The company's Web site at www.telcoexchange.com offers an online marketplace for high-bandwidth communication services from major carriers and ISPs. Dunetz can be contacted at kevin@cicat.com.

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