When dealing with Telecom companies there are always some areas where their salespeople might use a little non-disclosure. Here are five things that your telecom carrier doesn't really want you to know about.
1. Local Calling
Many telecom carriers will charge an additional MRC (monthly recurring cost) in order to offer you an unlimited amount of local calling. Buyers typically see the idea of unlimited local as a good idea. However most of the time is not economical for them. For instance, local calling really only applies to the area directly around your company (about 2 or 3 miles) or essentially calls that go to your local CO (Central Office). Local calling is not calling within your region which is typically much more costly. Most companies on average do about 10% local calling when compared to their total minutes used. Unless this number is over 15,000 minutes it's typically a better idea to get a measured rate for local calling (usually about 1 cent per minute) because the usage costs will be nominal and the reduced MRC for your voice circuit will be less. This is an area where telecom carriers try to upsell you. (just say no to the large fries and soda)
2. Bundled Minute Packages
A lot of carriers offer customers a bundle of minutes at a fixed cost. These are sometimes part of a larger bundle of services or sometimes sold along with traditional voice circuits. Often what the carrier does is uses a blended rate for pricing out the bundled minutes based on their LD rate (Interstate usage) and the regional rates (IntraLata Intrastate/ InterLata Intrastate usage). This rate will typically scale based on the volume of minutes used typically anywhere from 3 cents a minute to sub 2 cents a minute. The reality is the average company uses about 60% of their total minutes on LD traffic and about 30% of their total usage on regional traffic. An LD rate is usually much less than regional rates because regional rates are tariffed and are typically fixed per state. The blended rate means you are usually paying a higher rate across all calls when assuming these averages. In my 10 years in the industry you would be surprised at how accurate the averages tend to be. The other problem is most people buy more minutes than they actually need so they can always rely on a fixed cost for usage. This sounds good but it means they waste a lot of cost with the unused minutes. The bottom line is in most scenarios it is better to negotiate fixed measured rates with your carrier upfront and only pay for actual usage. You will almost always come out ahead economically. The only exception to that rule is when your company does a high percentage of regional calling like a non-profit or heath care care provider where customers are localized. Here you may do better with minute bundles if your state has high regional calling rates.
3. Ethernet Access Types
Many companies sell Ethernet access solutions in the marketplace today. Ethernet is becoming much more popular than traditional T1s or other types of TDM access. The reason for this is that the costs are coming down for these higher bandwidth options. Plus a company can usually find better scalability with an Ethernet access solution. The problem is that not all Ethernet solutions are alike and customers need to know what they are buying. Many telecom carriers sell Ethernet access through the local LEC (baby bells) or through some other wholesaler. Rarely are they using their own metro fiber for the last mile as this can be very expensive. When carriers buy Ethernet loops from the LEC or wholesalers they have two options usually - use switched ethernet services or use standard point-to-point Ethernet services. Most carriers choose switched Ethernet services because they are often cheaper and they can be more competitive with their costs.
The problem is switched Ethernet means they are using IP aggregation. This is when the local LEC provides last mile fiber to the end user company but then runs that traffic back to a single aggregation point with many other customers in the area buying the same type of access. The issue is that you still have a single point of failure much like buying TDM (or T1) services unlike the benefit of being on a SONET network with fiber (ring topology). The other issue is that the last mile path back to the aggregation point is typically sold as BEST EFFORT meaning it gets no prioritization on that last mile carrier's network. The path is also unprotected unlike TDM circuits which are protected. This can cause problems for applications that are sensitive to latency like voice, video, or Citrix. Other companies offer Ethernet another way as well by bonding legacy access like T1s or copper lines together with hardware so they can hand off Ethernet to the customer. The problem here is that customer isn't getting fiber and can still have the same access issues they experience with older access types like bad copper pairs in older buildings or issues at the CO (Central Office). When buying Ethernet services you should ask your carrier exactly what you are getting and how it is to be delivered to you. If you have a voice, video, or latency sensitive application you may want to opt for a standard point to point Ethernet solution which includes a Premium COS or have your carrier buy a Premium COS from the LEC to prioritize the switched Ethernet traffic (most will offer this but not all do).
When looking at Ethernet services keep in mind the following - Ethernet provided over a telecom carrier's own fiber (SONET based) is always best. Next would be standard point-to-point Ethernet. Switched Ethernet would be the next best option with bonded solutions being the worst. Make sure your telecom carrier is upfront with you on what they intend to provide.
4. Taxes and Surcharges
In the telecom industry there are more taxes and surcharges than services. Most people would have to be a lawyer and a CPA to figure out all the nuances to taxes and surcharges in our industry. When carriers sell their services or quote solutions they typically do not address how taxes will be applied. Customers don't find out how high their taxes are until the get their first bill and are shocked by all the different surcharges. Here are couple things you should know about taxes.
Some taxes are legitimate in that they are always treated the same and must be charged by all carriers the same way. These are typically local, state, and federal taxes. One of the exceptions is the USF fund. USF is a tax that carriers charge that they need to send to federal government to fund rural telecommunication services. The interesting thing about USF is that carriers have the right to charge it anyway they want to and apply the USF differently across products. At the end of the year they are accessed what has to go back to the government but they may often keep the excess that was collected. Also the USF was intended for Interstate traffic only but many companies will charge USF on data services even if they never leave the state. You need to be aware of this and when buying services that will remain in your state like a private line you need to ensure that your carrier won't apply USF to these circuits.
There are many surcharges you will see that only fund the carriers themselves but are disguised as tax-like fees. These include things like access recovery charges, property charges, billing fees etc. All of these fees go straight back to the carrier to cover their costs of doing business in certain areas. It is a way for them to decrease their operational expense by charging it back to the customer. Sometimes these do not apply for some services or areas you are buying but get applied anyway.
As an educated buyer you should always do the following when buying telecom services. Ask about estimated taxes upfront. Ask telecom providers to explain what taxes will apply to all of your services and make sure you are not getting charged erroneous fees or USF on Intrastate traffic. Most telecom companies have a tax department that can estimate your taxes before you buy and can explain how they treat taxes across services.
5. Evergreen Clauses
Some carriers will include evergreen clauses in their standard master service agreements. These basically state that at the end of your contract unless notified in writing the carrier will automatically renew your contract. Sometimes carriers will renew your contract for the original term meaning if you had a three year term and the contract automatically renewed they would expect three more years out of you. In many states this is illegal and the carrier can only renew you for one more year. Also the way the renewal is usually worded you need to contact the carrier 45 to 90 days before the end of the contract in order to go month-to-month and not be renewed. Carriers tend to hide these evergreen clauses deep in their agreements and they typically don't bring it up during the sales cycle.
Customers should know whether they will be subject to evergreen clauses before they buy services. Most times these clauses can be negotiated out of the contract. If they are not, a customer can simply send a letter in writing stating they do not want to be renewed as soon as their service begins in order to protect themselves from these clauses. Keep a copy of the letter for your records.
In conclusion, make sure you cover all of these areas before buying telecom services as it will help to reduce your overall costs and protect your operational efficiency. Always ask a lot of questions upfront in the sales cycle and get as much disclosure about what you are buying as you can. If you feel the telecom provider isn't disclosing all of this information don't buy from them.
