Least Cost Routing
In international voice telecommunications, Least Cost Routing [LCR]
is the process that provides customers with cheap telephone calls.
An LCR team monitors call initiations and routes from 20 to 100
suppliers for over 500 destinations across the world to maintain
a competitive cost base and acceptable call quality.
Telecoms carriers act as both telecom service suppliers and customers.
Each Telco buys and sells call termination with other carriers to
create a number of routes of different price, quality and capacity
to a given country. The terms of these relationships are defined
in 'Interconnect Agreements'.
In a deregulated market, such as EU may be either:
- Licensed alternative operators - such as Cable
and Wireless, Energis [UK] or Jazztel [Spain]
- Public Telephone and Telegraph [PTT] operators in
other countries - such as T-Systems [Germany], Telefonica [Spain],
NTT [Japan] or Telstra ]Australia], who establish offices or a
point of presence [POP] in a major telecommunications hub city
such as London, New York, Hong Kong or Amsterdam. The major US
carriers, Sprint, Verizon, AT&T and Global Crossing in the
US also have POPs in these hub cities.
- Niche carriers - specialise in termination
to a small number of destinations, sometimes through the use of
Interconnect Agreements must ensure they avoid 'Call Looping',
where for instance, carrier A buys Venezuela from carrier B who
buys it from A. Hence, when a single call comes in to carrier A,
it goes to B and back to A again, over and over until all the circuits
are taken up with the one call. If it does terminate on an overflow
route, the carriers may bill each other many times over for the
Buying - Costing - Routing - Pricing - Margin Management Cycle
The LCR team in a carrier follow a cycle:
- The buyers negotiate with suppliers and get a new price schedule
- The prices are loaded into the software to calculate and compare
- A route is chosen, fixing a cost-for-pricing
- New prices are issued based on the costs-for-pricing.
- The new routes are implemented on the switch
- The traffic volumes and margins are monitored through reports
from the billing system.
- Loss-making traffic and odd routings are investigated
- Either the billing system has its data corrected or routing
and pricing action gets taken.
Carrier Interconnect Agreements specify the terms under which parties
do business. These include:
- Standard terms of payment and dispute resolution
- Terms of price notifications - industry standard is currently
seven days for price increases while price decreases take effect
on the day of notification.
Current margins in the carrier-carrier market are around 5% - 10%.
This means re-routes or price increases must be made quickly to
a destination where the current route is going to increase in price.
Since the price increase itself has seven days' notice, it must
be issued within twenty-four hours of the cost increase to avoid
This puts a significant pressure on the carrier's LCR team, who
must process the offers from their suppliers quickly and accurately.
Number Plan Management and Analysis
Unlike commodity markets which operate on agreed definitions and
arbitrating bodies, the carrier-carrier market has no agreed definitions
of its destinations.
Every carrier uses the International Telecommunication Union E.164
standard for country codes, but each carrier uses different codes
for destinations within a country, usually because it is using different
suppliers within that country.
So one carrier's codes for California may not be the same as another's.
This applies especially to mobile operators.
While the difference in price between a call to a land-line and
a call to a mobile may not seem much at 9 UK pence, the volumes
can be one hundred thousand minutes a day or more, leading to losses
of over £250,000 a month.
When a carrier's dial code table can contain three thousand items,
comparing codes is a critical and complex part of the process. The
theory of dial code relationships actually involves the mathematical
theory of lattices and code comparisons have to be done with computer
Number plan management monitors changes in suppliers' dial codes
and adds or removes codes from the company's own code tables to
improve costs. Implementing the changes across the company's switches,
billing systems, calling card and other IN platforms is a significant
task for the engineering and billing departments.
Optimization and Arbitrage
One aim of LCR teams is to optimize the routing price.
This occurs when Carrier A's team identifies that Carrier B defines
a code range as being fixed-line [cheap], whereas Carrier A defines
it as mobile [more expensive].
Carrier A will send that range to Carrier B, pay a low fixed-line
rate and charge at a high mobile rate - making much more profit.
If Carrier B does not notice that Supplier C also defines that
range as belonging to a mobile operator and charges a higher rate,
it may find itself caught in the middle of an arbitrage, and sustain
five- or even six- figure losses in a very short time.
A true instance of a single misreading of a price schedule sustained
a loss of over two million dollars in one month.
Route and Call Quality
The LCR team must also consider route and call quality.
The quality of route to a destination can vary considerably between
suppliers and even from week to week from the same supplier.
Quality is usually measured by the combination of:
- The Answer-Seize Ratio (ASR = call attempts answered / call
- Post-Dial Delay (PDD)
- Average Call Duration (ACD).
ASR - A low ASR is taken to mean that callers
cannot get through to the other end and hence that the route is
congested or low-quality.
PDD- Post-dial delay is the time from dialing
the last digit to the time a caller hears ringing. Callers often
interpret a PDD of more than three or four seconds as meaning that
there is no connection at all.
ACD - If the average call duration is very low,
it is taken to mean that the call quality is so poor that people
cannot have a conversation and hang up. This matters to calling
card operators because people do not re-purchase card services that
give a low ACD.
Responsiveness of th supplier's technical team is also important
- if there is a fault or low quality, they need to be assured the
supplier will fix it, and not just say that it is the best they
The key tasks LCR software include:
- Load prices schedules and code tables automatically
- Compare dial codes correctly
- Turn the carriers' name-based price schedule into a dial code-dependent
termination cost schedule
- Put costs in order
- Incorporate quality considerations
- Produce costing and routing schedules in a format suitable for
pricing analysts and engineering
- Transfer data into the billing system
LCR software varies from home-grown [Excel, Access, Visual Studio]
applications to commercial products offering integration with the
switch and billing systems.
Commercial solutions can cost over $1million for an installation
- the simpler the software, the more complex the surrounding manual
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