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October 2011

Least Cost Routing and Rate Audits Not Delivering the Savings You Expected?  Here’s Maybe Why

Least Cost Routing and Rate Audits Not Delivering the Savings You Expected?  Here’s Maybe Why

Least cost routing (LCR) is supposed to be one of telecom’s greatest cost-saving innovations.  Yet our independent research suggests that many U.S. carriers with LCR programs in place are actually losing millions of dollars because the rates in their LCR databases do not reflect where traffic actually terminates.

Here’s the issue: Local number portability (LNP) has drastically changed the telecom landscape.  Our analysis of 2 billion CDRs in the past 3 months shows that 35 percent of all domestic LD phone calls are replaced with a ported number or Local Routing Number (LRN).  In fact, the impact of LNP is so huge that any LCR or cost management program that fails to take LNP into account is at best highly inaccurate — and at worst, a money loser because it’s sending traffic to high cost routes!

We get lots of questions and comments on this issue.  Here are some of the most common ones and my answers. . .

I thought the LERG (Local Exchange Routing Guide) database was the gold standard for call routing.

I wouldn’t say the LERG is extinct, but it is certainly not complete.  You can no longer look at the LERG tables and say, “My traffic terminated to such and such NPA-NXX, which belongs to company Z so a certain rate applies.” The LERG must be combined with local number portability to truly make sense of who and what is happening in your network.  The only way to be accurate anymore is to do an LNP dip for every individual call to get the true termination location.

You say 35 percent of LD Calls are ported to an LRN, but that numbers sounds way too high.

I agree: It does sounds high, but not when you consider the effect of number pooling.

Number pooling began when we started running out of phone numbers.  When a carrier launched into a new market, the code administer used to issue it a block of 10,000 numbers, such as the prefix 703-433 in local Virginia.

But these days, the administrator is liable to come back and say, “I am going to take back some numbers from you and give it to another carrier to achieve code efficiency.”  The administrator then assigns LRNs to the codes being assigned to the new carrier.  Pooling can also be used intra-company to support network and technical migrations.

Looking at the LERG, you may think a block of numbers is owned by a particular carrier and routing to a specific switch, but you’ll never know for sure unless you dip that called number to a full 10-digit level.

So why are carriers not applying post-LNP rates to their LCR and cost management audits?

Many are just not aware of the severity of the problem.  But beyond that, a post-LNP look is hard to audit.  Every month the number of records to check goes into the hundreds of millions or billions, and it requires that you independently dip every call against the Neustar LRN database, which is over 300 million records.  Then you need to feed that data back into your LCR solution or Cost Management Solution and do it in near real-time.

Many of our clients don‘t have the tools or they lack the ability to do that analysis to answer the question: “Am I being billed correctly?”

Another issue is an ability to go back in time.  In our netCLARUS system, we maintain LNP version control and in that way we can go back to a year ago and tell you the LRN a particular dialed number returned back then.

How does LNP affect the rating of Interconnect Bills and how widespread are LNP errors in the industry as a whole?

Our industry and client data suggests the problem is very widespread.  In fact, LNP not only affects engineering and LCR, it also impacts telco billing and audits.

We analyzed a wireless client’s interconnect bills and found that an LRN was being applied in only 1 percent of their LD calls! So comparing their 1 percent with the industry average 35 percent, we knew they had a problem.

Sure enough, the LD provider was not dipping its calls properly on the bill and was misrepresenting where the traffic truly terminated.  With our analysis, we calculated 7 percent more MOUs were actually ported and terminating to the cheapest rate category — wireless.  The net result was a 5 percent monthly overbilling, which represented millions of dollars on an annual basis.

In this case, we ran the client through our Rate Audit process to ensure their negotiated rates were applied to the bills received by third-party vendors (e.g.  LD providers).  By performing a simple look-up against the rate tables, they could see how LNP affected their billing.  We then gave them the data they needed to dispute their bills.  And because the data was so well-documented, the LD carrier could not dispute the findings.

To reiterate, the inability to reconcile called numbers with LRNs is costing operators many millions of dollars in LD overbilling.  And though most of our customers are wireless operators, the problem is not wireless-specific but applies to any operator who routes traffic and is billed based on terminating rate schedules.

So here are some action items that carriers who face LRN-related billing issues should consider:

  1. Ensure your LCR solution aligns with how third-party vendors rate.  Because LRNs represent 35 percent of LD calls, the old techniques are out the window.  If the LCR solution is not taking into account LNP, but your vendor is, there is a good chance it is not routing to the lowest cost.  To make the system work correctly, you need to build a common rating methodology across your third-party vendors and the LCR solution. . . which brings me to #2 below.
  2. Align your interconnect contracts for billing consistency.  Having your eight different LD suppliers maintain eight different methodologies to rate a call is a walking disaster.  We recommend you align all your LD partner contracts so they reflect the post-LRN method of rating calls.  Where this consistency will really pay off is delivering a better LCR program.
  3. Understand where your traffic is truly terminating and negotiate the best deals.  An enormous amount of time and energy is spent in meetings to negotiate the best rates with LD partners.  Yet ironically, if that energy were redirected toward analyzing the true flow and final destinations of your traffic, it sets the stage for a robust LCR program that will silently “bargain” on your behalf and reduce the need for lots of face-to-face negotiations.
  4. Don’t try to fit a square peg into a round hole.  Many operators are saddled with an underpowered tool for the problem at hand.  You cannot expect a cost management solution that only rolls up summary level data to deliver what you need.  A more intelligent tool is required that dips for every call and analyzes the gaps between your true termination cost and the actual billed amount.
  5. This article first appeared in Billing and OSS World.

Copyright 2011 Black Swan Telecom Journal

Brian Silvestri

Brian Silvestri

Brian Silvestri is Founder of SilverEcho Consuliting and provides technical and strategic business advice to companies in the telecom eco-system — including software, service and communications providers.

SilverEcho help companies map out business strategies by promoting collaboration across multiple departments with clear objectives, success metrics and timelines.

Based in Washington, DC, Brian is the former head of North American Sales for WeDo Technologies and prior to that was CEO of Connectiv Solutions, a specialist in traffic analytics and cost assurance, a firm that WeDo acquired.   Contact Brian via

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  • Will Apple Take a Bite Out of Carrier SMS Revenues?  Likely. by Brian Silvestri — Text messaging generates $20 billion of revenue each year for U.S. carriers alone.  But Apple’s lastest iPhones come with iMessage, a free embedded messaging service.  But while the long term threat to SMS revenue is clear, what strategies should operators be following today?  This article discusses the many factors operators need to consider, offering advice on how mobile operators can keep SMS profits rolling in as long as possible.
  • Least Cost Routing and Rate Audits Not Delivering the Savings You Expected?  Here’s Maybe Why by Brian Silvestri — Least cost routing (LCR) is supposed to be one of telecom’s greatest cost-saving innovations.  Yet Connectiv Solution’s research suggests that the LCR programs at many U.S. carriers are losing millions of dollars.  The story explains the traffic analytics steps service providers must take to ensure profitable LCR and other cost assurance programs.

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