Dedicated Long Distance
What is a T1 line and how do I use dedicated T1 long distance service
to save money on my telephone bills ?

Lets start off with a definition of a T1. If you're not a technical person, don't let the definition scare you, just concentrate on the first paragraph of the definition. The rest of this presentation will be geared towards the lay person. You may also wish to consider that if you have a $4000 per month long distance bill, and there is a way to cut that in half, is it worth $2000 per month for you to take the time to read this article so you can completely understand how to do it ?

Click here first to read the definition of a T1.

Index:
All about Long Distance T1
Who should use T1 long distance ?
What are the costs involved in switching to T1 ?
What are the cost benefits of using a T1 ?
What are other benefits of T1 long distance ?
Are there any drawbacks or limitations to T1 long distance service ?
ANI and DNIS
Example side by side comparison of switched vs T1 long distance and savings realized. 

All about Long Distance T1

A long distance T1 can be used to lower the cost of long distance service by removing the cost of one of the three legs of every long distance call. When you make a long distance call from a standard telephone line, the call is first originated by your local telephone company and switched to your long distance carrier to carry the "long haul" portion of the call. The long distance carrier then carries the call to the terminating local telephone company who rings the phone on the remote end and carries the call over the "last mile" to the recipient of the call. The local telephone companies on each end charge the long distance carrier to originate and terminate the call. Let's say each local telephone company in this example charged the long distance (LD) carrier 1.5 cents (per minute) to originate and terminate the calls, and the long distance carrier's cost to carry the call over his network was 2 cents. The LD carrier's total cost for the call is 5 cents per minute, and if he sold it to you at 6 cents per minute, then his profit is 1 cent. If you could cut out your local telephone company's role in switching the telephone call to your long distance carrier by getting a telephone line that goes directly to your long distance carrier's switch, then you would save 1.5 cents per minute on each call, or, even more. Because T1 long distance customers are volume users, which helps drive down the cost of the long distance carrier's network, the LD portion of the call may be discounted as well. You might wind up paying 3.5 cents per minute from this long distance carrier. So, how how do you do this ?

Long distance carriers place most of their switches in local telephone company Central Offices (CO's) where the local phone company also has a switch. These switches sit side by side and are connected together by trunks. This situation is called a "tandem". A long distance call from a standard telephone line first goes to the local phone company's (local exchange carrier or 'LEC' ) switch, where he passes the call over a trunk to the LD carrier's tandem switch and charges him an origination fee.

Instead of using standard lines that go directly to your local phone company's switch, you can lease a T1 "local loop" from your local telephone company (or competing local provider) that goes from your premises directly to the long distance carrier's switch. This circuit or "pipe" is leased to you for a flat monthly fee, the amount of which is determined by the distance of the circuit. It is completely private, always on (dedicated) and belongs entirely to you.

As mentioned in the definition of T1 above, a T1 can carry 24 voice channels. Technically, you could get leased DS0 (1 voice line) to your long distance carrier's switch, but in practicality the long distance carrier's switches are only set up to handle multi- DS0 circuits like T1, T3 and above. It's not practical or cost effective for them to do otherwise, so you will be referred back to the LEC who will aggregate DS0 calls before passing them to the LD carrier on higher order wire or fiber interface. 

Who should use T1 long distance ?

Generally speaking, the rule of thumb is if your long distance bill is over $2500 per month then you should consider a T1. The actual amount varies depending on your distance from the nearest "co-located" or tandem central office, which determines the local loop cost, the difference between "switched" and dedicated rates in your area, the cost as compared to standard lines from your local phone company, and associated fees charged by the local and long distance providers. You also need to purchase or lease special equipment to for your office to multiplex (mux) and demux the 24 voice channels.

What are the costs involved in switching to T1 ?

• Local Loop monthly recurring charge plus install fee.
• Cost to lease, buy or upgrade Customer Premise Equipment (CPE).
• Installation Labor
• Minimum volume commitment if applicable.

Local Loop - The least you will ever pay for a T1 local loop is around $100 per month. $200 is really cheap. If your office is very far from the CO, you could pay as much as $1200 per month or more in some parts of the US. $200 - $700 is the normal range in any metro area. When you wish to buy dedicated service from us, we will get you the local loop quote from the long distance company. Although you can lease your local loop independently from your long distance carrier, it is usually more convenient and cost effective to let your long distance carrier get the loop for you, and your long distance calls and loop charges come on one bill from one company. Installation charges are usually a couple hundred dollars but are often waived on a 1, 2 or 3 year term.

Equipment - Multiplexer equipment and a Channel Service Unit (CSU) are required to interface the T1 line to your telephone system. This equipment comes in two forms. These days most companies have modern digital telephone systems.  Your system must be equipped with the capacity to handle T1 lines. If it is, you buy or lease T1 and CSU cards. The T1 cards often have an integrated CSU. The main purpose of a CSU is to insulate your equipment from the phone company's line so that a mishap on one side of the CSU doesn't damage the equipment on the other side. You will also usually need some type of ancillary cards and possibly software or firmware upgrades for the phone system. Consult your equipment or service vendor to find out exactly what you will need. If you don't have a digital telephone system, then you can use an external multiplexer, more commonly referred to as a "channel bank".  You can lease a channel bank for one T1 for between $75-$150 per month depending on the term. You may purchase a refurbed unit installed for as little as $2200. Refurbished equipment is very plentiful in the telecom industry.

Labor - Obviously you need to pay someone to install the equipment and necessary wiring. This is a good point to mention that the telephone company only delivers service to the "demarcation point" or "demarc" in or on the building. In an office or apartment building, this is normally a room or closet where all the telephone company wires come in to. On a house or small stand alone building it is no more than a box mounted on the outside wall of the building. You or your landlord are responsible for installing the wires from this point to your office. If you have, or will have, 4 unused wires coming from the demarc to your equipment, you likely won't have to install additional ones unless the wires are old or in poor condition.

Volume Commitment - Some long distance carriers make you commit to using a certain dollar volume of service per month to get their best rate. In most retail situations you would not experience this from any carrier I quote you, however if you did sign a contract of this nature, you are responsible for some or all of the unused portion of the commitment for the duration of the contract. This is called "take or pay", but you're going to pay no matter what !

What are the cost benefits of using a T1 ?

• Reduced long distance rates.
• No subscriber line charge (EUCL) charge.
• No PICC fee.

Reduced long distance rates - dedicated interstate rates can be as low as 1.9 cents per minute for high volume users in the right location.

No subscriber line charge (EUCL) charge - You local telephone company charges you a "subscriber line charge" also known as EUCL charge on each individual line for access to your long distance carrier. This charge varies from $5-10 per line depending on the state. I recent had a client in Texas with 40 lines who decided to get a long distance T-1 primarily to avoid the subscriber line charges.  They were around $7 but the local phone company is raising them to $10 per line. This saved him $400 per month on EUCL charges alone, which was enough to pay for the local loop, plus he now receives the reduced long distance rate.

No Presubscribed Interexchange Carrier Charge (PICC) - Amazingly in addition to the EUCL charges the local phone company receives, the long distance carriers are forced by law to pay a PICC fee on each business line to your local phone company, which is basically for the same purpose as the EUCL charge. The norm is between $2.75 - $4.25 per business line. Incidentally, it might torque you a bit to know that the long distance carriers only have to pay the local phone company as little as a penny for this fee while they are charging you the $2.75 - $4.25 per line and putting the difference in their pockets and lying to you about it the whole time. This is a huge profit center for them, and if you call the long distance carrier up and ask them why they are charging the amount they do, their customer service reps will lie, because they aren't trained truthfully, and they will tell you they charge that amount because the FCC mandated that they charge you that amount. That's not true at all. The FCC mandated that the long distance carriers could collect a fee, if they wanted, in order to be reimbursed for what they had to pay the LEC. When this fee was first introduced, the FCC recommended amounts to collect which were close to what the LD carriers had to pay, but over time this fee has been very greatly reduced and now the carrier pays far, far less but they aren't telling you that. They have never been required to collect any PICC fee from you at all.

What are other benefits of T1 long distance ?

• Digital all the way to your doorstep or desktop provides excellent quality.
• Fast call set up time. Digital calls are set up more quickly than analog lines.
• Faster modem or data connections on individual lines.
• ANI and DNIS caller ID and call routing features.

Are there any drawbacks or limitations T1 long distance service ?

• No inbound calls except toll free - You can not receive telephone calls on a long distance T1 unless they come in on a toll free number. Toll free numbers can terminate on any voice channel. If someone calls you on a toll free number you pay for the call. This is perhaps the biggest limitation of a long distance T1.If you get a local service T1 or PRI, this problem is resolved, but then you will pay considerably more for those local lines plus you'll pay switched long distance rates instead of dedicated. However, we sell a couple of carriers that will offer you dedicated rates on your local service T1 or PRI. This is a huge benefit ! Since these companies are selling both the local and the long distance, they really don't need to pay themselves for originating your call in their own switch.
• Requires backup lines for security - A T1 delivers 24 voice channels over one set of 4 wires. If something happens to that set of wires or your customer premise equipment, you lose service on all 24 channels. The customer premise equipment (CPE) also runs on electricity. If the power goes out, you will only be able to use the telephones as long as your backup batteries or UPS last. For this reason, I always recommend that T1 customers have at least one standard switched telephone line come in so that telephone calls can be made in the event of a power outage or equipment failure. On a standard Plain Old Telephone Service (POTS) the telephone company supplies the electricity to power the line and the ringer, so even if that power goes out, you can still make calls as long as you have a telephone that doesn't rely on external power to operate. The local phone company has generators and batteries that enable them to power the lines for extended periods of time in case of power outages and emergencies.
• You pay to make local calls - You will be charged the long distance carrier's intralata rate to make local calls. In some places this is not such a bad thing. In others where local calls are free or very inexpensive for businesses, you would want to have some local service phone lines, perhaps your backup lines, to route local calls over these lines first, if your company makes a significant amount of local calls.  If they don't, then you may not need to worry about this. Many modern telephone systems have the ability to "least cost route" calls. You'll service technician will need to program these routes into your system.

ANI and DNIS

Two nice features of T1 service are ANI and DNIS.

• ANI—Automatic Number Identification. SS7 (signaling system 7) feature that  identifies the number of the calling party. ANI does not work the same way as caller ID. With ANI you will be able to see the number of the calling party regardless of whether or not they have their caller ID blocked on outbound calls. This is how 911 knows your telephone number even when it's blocked from being sent. It's how credit card companies know it's you calling to activate your new credit card when you dial that toll free activation number. They or any other company who has ANI can see your telephone number unless your local telephone company does not support this feature, which is rare.  By identifying the calling number, your company can route calls to the appropriate customer service representative. It also provides your company with invaluable customer information and calling statistics so they can track and analyze the source of your business, and focus resources on growth areas.
• DNIS—Dialed Number Identification Service, also known as the called party number. This information can be used to tell your PBX or Key System how to route the outgoing call and also track dialed calls and generate statistics for analysis.

Example side by side comparison of switched vs T1 long distance and savings realized. 

Okay, now that we've covered all the basics, let's use a practical example to see how much money a company might save switching to a long distance T1 for their long distance service.

Let's say the company currently has 32 standard analog business lines they are purchasing from their local phone company.  Their business is nationwide and they don't make many local telephone calls. They offer a toll free number for their customers to call in on, and their vendors and other businesses use one of their regular numbers to call them. It would be rare that more than 8 lines would ever be used simultaneously for receiving direct dialed calls and placing outbound local calls. Their long distance usage is $4,000 per month. Their local usage is $75. This company is a great candidate for dedicated long distance. Lets say this company is in Houston, TX and they are paying 5 cents per minute for interstate long distance and 7 cents per minute for all in-state calls. A long distance a company has offered them "dedicated" rates of 3 cents interstate and 5.5 cents TX intrastate. It will cost our TX company:

$2,300 in equipment upgrades, 
$   700 for service tech to install new equipment and program phone system for least cost routing, and a
$   200 installation fee for the T1.

A $3,200 total one time charge to upgrade to T1 long distance.

A comparison of the summaries of their current local and long distance bills versus what it would look like if they switched 24 of their lines to a long distance T1 would look like this:

As you can see, a tremendous savings is realized, enough to pay back the cost of the required equipment upgrade with labor plus a $200 local loop installation fee in less than 2 months. From then on out, it's a savings of $27,732 per year. Do you know any employees that would like and extra $27k per year ?

Author: Tom Shore, 2/24/2002
Copyright © 2002