Understanding Local Loop Pricing

After you have all the configuration information to order your circuit, you should turn your attention to your local loop. The term local loop refers to the copper wire or fiberoptic cable connecting your building to the switching hardware of your carrier. The reason it’s called the local loop is because a local carrier almost always delivers it. Even if you order a dedicated circuit from your long-distance carrier, the carrier will still subcontract with a local carrier to deliver the circuit to your hardware because it saves lots of money by doing so.

Even the biggest carriers don’t have a battalion of technicians in every town in the U.S. They also don’t have an existing network of cabling that connects every business and home in every city. The good news is that the local carriers are perfectly set up with the network and technicians to install local loops. Because the long-distance carriers don’t want to rebuild the wheel when it comes to local service, they simply contract with the people who are already established.

 Remember  A POP, or Point of Presence, is a building, or a suite in a building, where your long-distance carrier houses its network hardware. If you wanted to physically lay your hands on the massive computer system that routes your calls and generates call logs that spawn your billing, you need to visit a POP. A CO, or central office, is the local carrier’s POP equivalent. The local loop of your dedicated circuit terminates at the POP of your long-distance carrier (if you’re ordering a long-distance circuit) or at the CO of your local carrier
(if you’re ordering a local circuit).

The first point to determine about the local loop is its cost. Your carrier should provide you with a price quote for the loop, typically when you negotiate the contract. If the contract procedure takes more than 30 days, be sure to get a new price quote before you place the order. The cost for local loops fluctuates over time and you might be looking at a loop that is $10 to $20 less than the price you negotiated, or $100 more. It’s best to validate the price before you get locked into a contract for 12 months. If the local loop is too expensive, there are cheaper alternatives.

Understanding the elements of local loop pricing

The cost of a local loop is based on three primary elements:

• The cost to terminate the circuit into your carrier’s network: This is frequently called a chan term, short for channel termination. Basically, you pay for the connection between your long-distance carrier and the local carrier. If you order a circuit to your local carrier, you still pay for a chan term, even though your local carrier is just terminating the circuit to itself. Blame it on the profit assurance department working overtime.

• The mileage between the POP or CO and your building: Carriers use this equation to determine this charge:

  Rate x Mileage per channel x 24 = Local loop mileage per T-1  

  Basically, the rate is determined by the mileage and based on an individual phone line. Because most people buy T-1s, the mileage then has to be multiplied by 24 because a T-1 is equivalent to 24 individual phone lines. The mileage is calculated based on airline miles (your sales rep may say that the distance is measured as the crow flies) between your building and the carrier’s POP, not based on the distance it takes to drive between the two locations. That’s nice if there’s a big, impassable mountain between your corporate headquarters and the POP.

• The cost to terminate the circuit into your building: This is the second chan term that you are charged for. Whenever a dedicated circuit connects into a carrier, either the company delivering your circuit into your carrier, or your carrier who contracted with someone to pull the cable from your office, is going to charge a monthly fee for the connection.

Investigating your pricing options

If you receive local loop pricing for a dedicated circuit that seems a bit high, you have other options. You need to keep the local loop fee in mind when you make your decision about which carrier to use. If one carrier charges an average of 2.5 cents per minute for your calls, but its local loop fee is $1,250 per month, it might be cheaper to use another carrier that charges you 3.5 cents per minute but charges $250 monthly for its local loop. You simply have to crunch the numbers to determine which scenario is cheaper. If you make 100,000 minutes worth of calls, you will save the extra $1,000 on the difference between the two rates. If the scenario is different and you only have 40,000 minutes, the $1,250 local loop fee ends up costing you $600 more at the end of the month.

When it comes to local loops, you do have a few options to reduce the cost:

• Find a closer Point of Presence (POP): Not only does your physical location affect the cost of the local loop, but so does the physical location of the connection to your carrier. If your business is located in a big city, there might be multiple POPs into which your local loop can terminate. Usually, the automated pricing system for your carrier chooses the closest POP, but it isn’t 100 percent accurate. If you have a ridiculous quote from your carrier, you can ask the carrier to check out other POPs in the area.

• Order the local loop yourself: You can call your local carrier, or other competing local carriers, to receive quotes for the local loop. Your long-distance carrier negotiated local loop pricing with the local carriers quite a while ago. If your local carrier is running a promotion or special deal on local loops, you might get a better deal if you order the local loop yourself. You have to coordinate the connection between your local carrier and your long-distance carrier’s network, but this little bit of extra work can save you money in the long run.

• Move your office closer to your carrier’s POP: This might sound like an extreme measure, but if the main expense for your business is your long-distance bill, it might be worth it. Depending on the nature of your business, you could even go so far as to rent a suite in the same building as the local carrier’s POP.