Deciding whether to Get Dedicated or Stay Switched


The one decision in telecom that can impact your bottom line the quickest is the decision to replace some of your regular business lines from your local carrier with a single, large dedicated circuit from your long-distance carrier. This decision has such a profound impact on your phone bill because the per-minute rate for calls on a dedicated circuit may make up half the price you are currently paying for regular phone lines.

Understanding switched system costs

In order to make the comparison easy to understand, here’s a look at the standard costs you can expect to pay to set up a switched (that is regular) phone system. For the purpose of comparison, I assume that you have 24 phone lines and already have a phone system that can receive calls from a dedicated circuit and are adding one piece of hardware (either a free-standing multiplexer or a multiplexer card). To add phone lines to an existing phone system that meet these criteria, you can expect to pay the following charges:

  • A monthly recurring charge of approximately $35 per phone line: This is your standard monthly invoice that comes from your local carrier for the 24 phone lines. Any additional services on the line would, of course, cost extra. For now, I assume that all the enhanced features you need are going to be taken care of by your on-site phone system. Check your local carrier’s Web site or talk to a friendly customer service rep to get exact pricing. The monthly recurring charge for the 24 phone lines is $840.

  • A per-line installation fee of approximately $100 (one-time fee): Your local carrier is going to run wires to your office and drop them in your phone room, and that means you’re going to pay a charge for that work. This fee could be waived, slightly less, or considerably more, depending on your local carrier and the type of phone lines that you buy. Your budget should be about $2,400 for installation of 24 lines.

     Remember  Verify the cost of installation with your local carrier before this work is done!

  • Your per-minute cost multiplied by the average number of minutes you talk every month: A small business with good activity may use an average of 40,000 minutes per month, so I use that number as the baseline in this example. For the sake of simplicity, I also estimate that you are paying an average of five cents per minute for your calls. You should check your current long-distance contract or just divide the total cost by total minutes on your invoice to get your true estimate of the blended cost per minute. The minutes and the cost per minute give you an expected average of $2,000.

  • PICC fee: The primary interexchange carrier charge, or PICC fee, is a government tariff that is assessed to business and residential phone lines. The charge is applied on a per-line basis and can vary from $1.25 per line for residential lines to $4.75 per line for some business lines. Every local carrier has its own rate schedule, so I can’t give you a fair sense of the standard rate. You have to research this fee on your phone bill and apply the correct amount when you calculate the cost. For the sake of this example and for ease of calculation, I am making the PICC fee a flat $2 per line per month; so if you have 24 lines, that’s an extra $48 per month.

 Remember  Aside from these charges, the regular taxes you pay remain a fixed percentage of your usage. You may incur some additional maintenance fees for the hardware you need to buy, but as long as you buy quality equipment, it should be negligible in the overall scheme of things.

Understanding dedicated system costs

The costs you incur to install one dedicated circuit (such as a T-1 line) to replace the 24 phone lines of a switched system consist of the following:

  • Monthly cost for the dedicated circuit: In order to get those rock-bottom prices for long distance, you need to be directly connected to your long-distance carrier’s network. Your long-distance carrier probably doesn’t live next door to you, and the monthly cost of your dedicated circuit is based on how many miles of wiring needs to be used to get to you. The cost of the access varies from about $150 if you are a few miles away to possibly as much as $5,000 per month if you live far away from civilization. On the whole, a common access fee, commonly called a local loop fee, for the circuit is about $250 per month.

     Remember  You need to request a quote for the cost of this connection from your long-distance carrier. Simply provide your phone number and address to your long-distance carrier.

  • Installation cost for the dedicated circuit (one-time fee): The copper wires that you rent from your long-distance carrier have to be designed, assembled, and manually connected. Sounds expensive, doesn’t it? It is, and guess what! The cost is rolled up and passed on to your business in the form of an installation fee. The installation costs vary from carrier to carrier, but on average they run about $1,250 per dedicated circuit.

  • Additional hardware required (one-time fee): The installation of a dedicated circuit requires you to purchase a multiplexer and a device called a channel service unit (CSU) that boosts the signal on your dedicated circuit and acts as a testing device. Chat with your hardware vendor to find a good deal on this hardware and to ensure that it’s compatible with your existing phone system. If you’re lucky, all you need to do is buy a special card for your phone system — everything else is automatically taken care of. Multiplexers range greatly in price from $5,000 to $6,000 for a Coastcom brand channel bank set up for voice calls, to a less expensive Carrier Access channel bank (you can find those on eBay for a Buy It Now price of $300). Whatever you buy, ensure that you have a hardware vendor who can install it and will service it. For this example, I assume that you got a good deal on a used multiplexer and had to pay only $1,500.

  • Installation and programming of new hardware: When you buy the hardware, you still have to contract a hardware vendor to install it. As an average cost, I estimate that you’ll spend $450 to install, test, and turn on the new equipment.

     Remember  Get a quote before you hire a company to do this work.

  • Your dedicated rate per minute: I am giving a conservative estimate on this one by saying that you will be charged 2.5 cents per minute for out-bound calls on your dedicated circuit with the exact same call volume of 40,000 minutes per month.

Making the final cost comparison

Table 2-1 includes all the charges I’ve mentioned in the previous section, listed as either monthly charges or installation fees. For example, in the first and second columns, I show what you will pay for switched service. In the third and fourth columns, I list the monthly charges and installation fees for a dedicated circuit.

Table 2-1: Switched Versus Dedicated Comparison

Item

Switched Monthly Fees

Switched Installation Fees

Dedicated Monthly Fees

Dedicated Installation Fees

Line charges

$840

$2,400

$250

$1,250

Hardware purchase

N/A

N/A

N/A

$1,500

Hardware installation

N/A

N/A

N/A

$450

PICC line fees

$48

NA

NA

NA

Monthly usage costs (40,000 minutes)

$2,000

NA

$1,000

NA

Total Cost

$2,888

$2,400

$1,250

$3,200

After reviewing the two sides of the chart, you can see that adding a dedicated circuit costs $800 more to install than a switched system, but saves $1,638 every month in fees. In my example, the answer is simple; you can eventually recover the additional up-front cost in the very first month and still end up saving $838. The decision to move to a dedicated circuit is still a good idea even if you won’t recover your upfront costs until six months after installation. If you won’t reach a break-even point for a year or so, you may decide to stick with what you have.

 Tip  Dedicated circuits are available in packages of 24 phone lines called a T-1 or DS-1, but it may be financially advantageous to order a T-1 line even if you use fewer than 24 switched lines. There is generally a break-even point at about 17 phone lines where it is better to buy a T-1 line than to stick with a switched system. Of course, every business scenario is different, so you should enter all the relevant information into Table 2-1 to see what works for your company.




Telecom for Dummies
Telecom For Dummies
ISBN: 047177085X
EAN: 2147483647
Year: 2006
Pages: 184

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