In the late 1990’s, Deregulation was hitting and the most aggressive rate in the industry was a “dime a minute.”   It was a simpler time when customers wanted a consistent flat-rate.  Local phone carriers like Pacific Bell and Nynex had the IntraLATA market cornered and charged for calls based on the distance they travelled.  It was a time when consumers could pay more for an in-state call than a call to Europe.

Eventually, the telecom environment began to shift. Because competition was growing fierce, rates began to decrease.  Additionally, technology was being developed that helped the consumer.  The first equipment to hit the market was dialers.  Dialers applied a carrier access code to calls to avoid paying the higher IntraLATA fees of the local carriers, instead routing the calls through whichever long distance carrier a customer had an established flat rate.

The flat rate plans were beneficial for the consumers, as they made it easy to judge costs and reconcile invoices.  These plans were not as positive for large telecom customers – the carriers and telemarketers.   The minimum rate that could be charged for a call was one penny.  If they had a 2.5 cent per minute rate, a call that lasted only a few seconds was effectively charged  10 cents per minute ($0.01 / 0.1 minutes  = $0.10/min).

The problem was eventually solved by adding 4 decimal rounding instead of the traditional 2 decimal rounding. Customers could now utilize the invoice summary and divide the total usage by the total minutes and end up with the exact rate that they had contracted for, be it $0.03/min or $0.0270.

The general consumers were enjoying the flat rate decks; however, the carriers were having a challenge with them.  The networks were not charged a flat rate, but a unique rate for every local carrier (LEC) they terminated calls to.  A call that completed to GTE may have been $0.015 per minute; a call to a new cell phone company $.07 per minute, and a call to a remote competing LEC $.15 per minute. The carriers reached a point where they had to adjust their pricing in order to match what they were being charged with what they were charging because they were losing money. Their solution was to develop a new pricing plan- LATA/Tier.

Local Access Transport Areas (LATA’s) are geographically specific areas that used to delineate the boundary of when a call had to be transferred to a long distance carrier in order to be completed.  When Deregulation allowed competition for the IntraLATA traffic, they lost some of their importance; however, the carriers saw them as a new way to construct a pricing deck. 

Long Distance Carriers took all of the local carriers in each LATA and grouped them together according to type. The traditional RBOC’s were in one tier, wireless providers in another, and CLECs and the upstart VoIP companies in a third tier.  Each carrier had their own method of selecting which local carriers went into which tiers and each carrier had their own contracts with those local carriers. The end result of this was that the market was flooded with different LATA/Tier rate decks that represented a wide variety of rates.

 Customers were also becoming savvy. The dialers of years past were now being replaced by more advanced phone systems capable of Least Cost Routing (LCR) and the LATA/Tier rate decks were exactly what they wanted.  The wireless traffic might be less expensive on Wiltel, so those calls would be sent to them, while the traditional RBOC traffic might be better on QWEST, thus that traffic went to that carrier.  Consumers that had LCR decks made the most of them.  They “cherry-picked “ the least expensive LATA/Tier rates from one carrier, and then routed all of the more expensive traffic on another carrier that offered them a flat-rate.

The carriers eventually took note of this trend.  Those carriers that offered flat-rate products added language to their contracts that stated that 80% of a customer’s traffic had to terminate to the Tier 1 RBOC carriers. At the same time, the LATA/Tier carriers were seeing “cherry-picking” within their own rate deck.  There was no consistent industry matrix in which Local Carriers belonged in the same tier.  Each carrier had their own tier classification based on what they were being charged by the local carriers.  The result was that if a carrier declared that Citizens Telecom in Rio Vista was tier 4, that did not mean that another company could put it in tier 3, or tier 5.

To rectify the issue of “cherry-picking” within the LATA/Tier pricing structure, the carriers released a LATA/OCN deck.  This method did not group multiple Local Carriers into a single tier, hoping that their aggregate cost was still low enough to afford them some profit, but instead it allotted one rate for each local carrier, identified by their Operating Company Number (OCN). 

The new LATA/OCN rate decks were very complex; however, for those customers that were able to load them on their LCR systems, they were very profitable.  Several years had passed since the “dime a minute” rates had ruled the market, and now sub-penny rates were being released for selected OCNs.  The customers with LCR systems exploited the new LATA/OCN decks and routed the more expensive traffic to their LATA/Tier or Flat Rate carriers.

By this time, everyone thought that telecom had finally reached its most complex state.  There were rate decks in the market that practically mirrored the exact cost the carriers were being charged by the LECs.  But once again, the industry was about to get more complicated. Customers started to notice that the LATA/Tier and LATA/OCN rate decks did not seem completely accurate.  Some of the calls to specific NPA-NXX’s were being charged a higher rate, as if it was a different OCN.

The reality was that the number being dialed did indeed belong to a different OCN.  Because there was a constant need for phone numbers, the LECs were being pressured to return blocks of numbers to the numbering administration.  In order to identify the correct OCN for a phone number, customers now had to look at  not only the NPA-NXX (area code and first 3 digits of the phone number), but the NPA-NXX-XX.

By the time the LCR decks were upgraded to handle two more digits in the look-up tables, yet another change occurred – Local Number Portability (LNP).  Customers were moving their cell phone numbers from one wireless provider to another. Because the various wireless providers were usually in the same tier, the net effect to the rate charged to terminate the calls was not an issue, as it was likely the same regardless of the wireless carrier.  The problem with LNP began in 2006, when customers began moving their traditional RBOC land-lines to VoIP bundled service providers like Vonage or COX.  This took a phone number that used to be tier 1 and had a cost of $0.01 and moved it to a competing LEC in Tier 6 that had a cost $0.06.

The movement of traditional land-lines from Tier 1 to higher tier carriers was slight in 2006, accounting for only about 5–7% of calls.  By the end of 2008, 15-25% of all calls were hitting ported numbers that were now in higher tiers. By 2009, this had increased to 45%.

 This was a huge problem to the LCRs used by the telecom consumers.  The reality is that the phone number they dialed did belong to the more expensive local carrier, but they had no way of knowing that until after they were invoiced.  The only entities that were capable of matching a full 10 digit phone number to the local carrier providing service for it were large long-distance carriers.  End users did not, and still do not have access to a database that can provide them accurate information to help them adjust their LCR tables.

In 2008, prices finally hit rock bottom.  Dedicated rates had dropped to the sub-penny level and network costs were starting to pinch the carriers.  The carriers were not seeing the profit they needed to, and as a result, they re-evaluated their networks, maintenance, usage and opportunity costs.  The opportunity costs were the biggest issue.  The networks saw that they had many calls taking up 30 seconds of network time before connecting to the far end, only to be dropped after a few seconds.  The result of this was that their network was shouldering a call for 4 or 5 times longer than they could recover as billing time. 

The source of this issue was telemarketing companies whose campaigns were generally targeted to reach either live humans or answering machines.  If a campaign targeted for one, hit the other, their software was set up to quickly disconnect the call.  This resulted in 30-50% of the calls they made having a duration of 6 seconds or less.  The carriers addressed this issue by rolling out a Short Duration Call (SDC) policy that charged 1 penny for short duration calls in excess of a set threshold (generally 10%).  When this hit the market in late 2008, Telemarketers fled from one carrier to another in an effort to avoid the fees; however, eventually all carriers ended up following suit and issuing SDC policies.

In 2009 long distance rates increased because the carriers realized that they had to return to a profitable state.  This created another wave of customer migrations as everyone tried to avoid the rising costs. 

As the rates went up, yet another powerful dynamic hit telecom – the economy.  This economic recession permeated the U.S. causing everyone to cut back. When faced with either losing the traditional home land-line or giving up a personal cell phone, many people opted to cancel their land-line.  The days of the flat-rate plans with a requirement of 80% RBOC were now a thing of the past.   In 1995, not everyone had a cell phone, but everyone had a landline. In this day and age, it is nearly impossible to find a calling profile where 80% RBOC traffic can be maintained.

The bright spot in all of this transition is Data.  Through the years, as the industry was consistently lowering the cost for voice calls; however, data costs were mostly ignored. This trend appears to be changing, as many large voice carriers are now renewing their efforts to be competitive in the data world and are decreasing prices for Internet Ports and MPLS networks.