Regulatory and competitive forces have created a unique opportunity for enterprises to significantly reduce voice costs in addition to maintaining or enhancing service levels. These forces have also provided significant access cost reductions to the carrier industry, which it has primarily kept for itself in the form of higher margins and costs for enterprises.
Enterprises can now leverage these same carrier tactics to achieve carrier economics for their voice services. Using a voice cost optimization (VCO) service puts enterprises back in control of their voice environment and delivers impressive cost reductions and service level improvements. According to my research, enterprises have achieved savings of up to 60%.
To better understand the challenges, I contacted Chris Lee, CEO of
Cloud Age Solutions, who responded to a series of my questions. This is a summary of our conversation, edited for conciseness and clarity.
GA: What are current opportunities for lowering voice call costs?
CL: If an enterprise uses name-brand carriers in a typical carrier contract, then the potential for savings can be substantial.
Large toll-free users typically get charged $.007 - $.01 per minute for dedicated termination (TDM) or IP termination for U.S. traffic. The effective cost savings for doing this ‘like a carrier’ is approximately 35% - 50%—a weighted average across traffic origination types. If an enterprise has more wireless origination, this number is at the high end of the range. International originations share similar opportunities.
Outbound long-distance cost depends on the destination and jurisdiction. Depending on the type of voice service used, the largest opportunity is for International and Intrastate. We can get weighted average term rates around $.0007 - $.0020 depending on where and what carrier terminates the call. The savings equates to about 50%+. International call rates are similar. Some retail VoIP offers bundle in minutes, but I have found there is a lot of ‘breakage’ (a la non-pooled wireless plans), which tend to drive the rates up pretty high.
GA: How are voice costs calculated by carriers?
CL: This calculation depends on the voice model employed by the enterprise. Several factors involve access (connectivity) such as TDM (T1, PRI, or channelized DS3) or SIP (Internet, broadband, Ethernet, or MPLS). It also includes usage separated into outbound and toll-free inbound usage. Savings on UCaaS and CCaaS may also be possible, depending on how access and usage are bundled or unbundled into the services.
GA: What is the cost reduction for toll-free and outbound voice services?
CL: Switching to a service like dedicated Internet access reduces costs per bandwidth purchased and consumed, assuming the customer is using MPLS.However, the largest portion of cost reduction comes from the usage component.
The outbound usage cost savings will depend on the services and rate structures in place. For example, suppose an enterprise has SIP trunking in place that provides unlimited local area calling but contains a metered rate plan for any domestic and international long-distance calls. Voice optimization in this model would be a mix of providers to route domestic and international long-distance (LD) traffic to lower the cost currently billed by SIP trunk providers.
The following factors will drive the cost savings for outbound usage:
- Intrastate LD is still significantly overcharged by the carriers, so I figure 60+% savings on this usage
- International LD will drive a 50+% reduction for many countries
- Domestic LD will also drive a 60+% reduction as typical usage plans still have rates near $.01 or higher, and the “street” rates are in the $.0007 - .0015 range for most destinations as terminating access is all but gone.
Regarding toll-free services, many enterprises utilize an MPLS connection for access and then use a carrier’s IP terminated toll-free service over the MPLS. In this model, all usage gets paid on a per-minute basis. Domestic IP Termination traffic will benefit from the cost savings. Today, the rates that enterprises pay range from $.0080 - $.0125. These rates can reduce by 40% to 66%.
In the second and final part of this series, I’ll focus on the contract issues. Stay tuned!
