Long Distance

It is the rare company that does not spend sizeable sums of money paying long distance service bills. Long distance charges are typically the largest telecommunications expense in a firm, and can often cost $1,000 per employee each year.

Fortunately, there are ways to reduce the cost of this service. Long distance rates have steadily dropped over the past ten years. By identifying programs that best suit your calling patterns and volume requirements, you should be able to save anywhere from 5 to 35% off your current bill.

This buying guide is designed to give you the facts you need to select the right carrier for your firm. You can choose to read this guide from beginning to end, or jump directly to a section of interest by clicking on the links above.

History

Until the antitrust breakup of ATT in 1984, choosing a long distance carrier was very simple. Virtually everyone used ATT for both local and long distance calls.

The 1984 breakup split ATT into a long distance company, which retained the ATT name, plus seven "baby bells." While ATT would handle calls that went between area codes, the seven baby bells handled calls within an area code.

More notably, the breakup gave other long distance carriers the right to compete with ATT to handle long distance calls. As a result, hundreds of companies emerged to compete for the new long distance market. MCI and Sprint became among the best known, but many others attained some level of success.

Although opened to competition, the 1980s long distance market remained heavily tilted in favor of ATT. ATT had a high-quality network in place to carry long distance calls, while most other firms relied on patched-together networks that provided lower quality sound and much less reliability.

By the late 1980s, however, the situation began to change. Sprint, MCI and a few other firms installed fiber-optic networks that were the equal of ATT in terms of quality and reliability. In addition, legislative changes made it possible for anyone to use alternative carriers without requiring users to first dial a long string of access numbers. The result was a rapidly declining market share for ATT.

In the past few years, the long distance market has continued to become more competitive. Excess network capacity has allowed most smaller carriers to lease high quality long distance lines at low rates. This has placed downward pressure on rates offered by all the carriers, particularly for smaller businesses.

The recent passage of the Telecommunications Act of 1996 should translate to even more competition for your long distance service business. Eventually, all the baby bells will be allowed to offer long distance service, adding several large competitors to the competitive mix.

Industry Overview

The long distance market can be categorized into three major tiers. The largest companies, including ATT, MCI, Sprint, and (more recently) LDDS Worldcom, rely heavily on advertising and promotions to market to business and residential customers. All four firms offer high-quality national networks, and can provide service to almost any location in the U.S. In addition, these firms offer a wide variety of sophisticated telecommunication services.

A second tier of carriers consists of large telecommunication carriers that do not offer the breadth of service of the big four. Carriers such as Frontier, Cable and Wireless, and LCI typically utilize a combination of proprietary installations and leased networks installed lines to carry traffic. In terms of marketing, these companies often turn to direct promotion rather than large advertising budgets to build their customer base. The second tier carriers tend to offer all the same services as the largest firms, but may not be able to efficiently provide large-scale telecommunication services.

A third tier of companies consist of many smaller firms with a more regional or local focus. These firms almost always lease their network capacity from the largest carriers, and are known as resellers. Regional firms often rely on alliances or local sales reps to attract customers, with some of the fastest growing firms using multi-level marketing arrangements to quickly build a customer base. Although these firms tend to offer decent line quality, they tend not to offer many of the added services a business may require.

Pricing

For some companies, choosing a long distance service simply becomes a matter of finding the best price. The highly competitive nature of this industry ensures that better rates can almost always be found.

Unfortunately, the carriers do not make it all that easy to compare offerings. Although all carriers work on a basic per minute rate charge, each tinkers with how they are billed. Sales reps will often quote their lowest rates as a proxy for their entire calling program, conveniently omitting mention of different rates for calls to distant locations or during prime time hours.

Additional factors make a kiwi to kiwi comparison even more difficult. Monthly charges, varying minimum call lengths and volume discounts can increase or decrease your final bill fairly significantly.

In the end, though, long distance service can be fairly cheap. Almost any business should be able to obtain rates of 14-15 cents per minute. Firms that regularly call more than 20,000+ minutes per month, should be able to find rates of 12-13 cents per minute. At these levels, it can make sense to consider signing up for dedicated service, where even lower rates are available.

Switching long distance carriers is as easy as calling the company of your choice and specifying which program you wish to join. If you are hesitant to switch all your phone lines to an unfamiliar carrier, you may want to try switching a few lines as a test. If you are satisfied with the service and savings, you can then switch over your remaining lines.

Service

Although long distance is by and large a pricing game, there are a number of service factors to watch out for, especially when considering a smaller carrier.

One key factor is the business hours of technical support. Generally, carriers will offer either 24-hour or 9 to 5 service. With carriers offering 9 to 5 service, any after-hour calling problems will need to wait to the next day to be resolved. As a result, these carriers may be a poor choice for businesses that make calls after hours or on weekends.

A second area to investigate is operator availability. Not all carriers offer operator service. If you typically use services such as collect calling or operator-assisted international dialing, you should make sure the carrier you choose offers operator service. However, if you seldom need this assistance, you can gain additional savings by choosing a carrier that does not offer this service. (Note: When you need operator service, you can simply dial a carrier's access code + 0. However, per use charges can be fairly hefty.)

If the threat of network failure has kept you with larger and more expensive carriers, it may be reassuring to know that the threat of breakdown is very remote. If network security is an important concern, you are better off using two or more carriers and splitting your traffic. While this solution may reduce the volume discounts your receive from either carrier, it will be far more secure than using any single carrier. It is worth pointing out, however, that this is not necessarily a failsafe measure because of the extensive reselling that goes on in the industry.

Buying Tips

Understand Your Calling Patterns

Before you start comparing programs, you need to understand your company's calling profile. The best way to do so is to examine a recent phone bill. Break out where the calls went, when they were made, and how long they lasted. Use this analysis and information about your total call volume to direct your comparison of programs, focusing on rates that apply to the majority of your calls.

Remember to Negotiate

Once you have determined the best program for your company, it is time to make a deal. Depending on the size of your account, you will have varying leverage to negotiate below the published rates. Often, it is simplest to agree upon specific discounts, such as calls to a branch office or within your state. Any adjustments you agree upon should be made in writing to avoid annoying fights down the road.

Avoid Signing up for Long-term Contracts

Carriers often offer lower rates to entice customers to sign up for a multiple-year contract. While signing up for long terms of service can also help you obtain low rates, we recommend that you avoid plans that lock you in for more than 12 months. Because the industry is changing rapidly, you will want to keep your options open to take advantage of lower rates in the future.

Watch out for Monthly Minimums

Make sure to build in a cushion when signing up for service that requires a monthly call minimum. If you fail to meet this minimum, most programs will simply bill your company the difference. To be safe, your calling volume should be at least 15% above a given threshold.

Review Your Long Distance Service

Like spring cleaning, it can be useful to take stock of your telecommunications holdings on a yearly basis. Instead of giving long distance sales reps the cold shoulder, ask them to fax you the program specifics, and file the information. Programs can be reviewed all at once at a later time.