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November 2010

Meet Your New Cost Management Solution: A Tandem Hub Carrier

Meet Your New Cost Management Solution: A Tandem Hub Carrier

The information superhighway.  I wonder how far you can stretch that metaphor.  In what ways does the global communications network resemble Interstate 80, the highway that crisscrosses the U.S. from Teaneck, N.J. to San Francisco?

Well, if you liken cars to pulses of light and electricity, the analogy certainly works from a connectivity standpoint.  But from a revenue collection view, these highways are completely different.  Let me explain.  Our interstate highways and roads are essentially free.  Yes, portions of the highway system carry toll charges, but the vast majority of miles on the interstate system are free.  In fact, only 26 states charge tolls on their highways.

Now, imagine a highway system where you pay a toll at every on-ramp and off-ramp.  And when you get off the highway and cross from one local neighborhood to another, you pay another toll.  Well, this is precisely how interconnect revenue is collected in today’s telecom network:  It’s one vast and unwieldy maze of toll gates.

We call it a “national” information highway, but it’s actually more “feudal” than “national” because each toll collector in each jurisdiction has its own rules.  And the rules are so complex that you need auditors and a sophisticated cost management system to compute all the jurisdictions and rates.

Now if you’re a wireless operator, cable provider or CLEC, you do your best to calculate least cost routes and build out direct connect facilities so you can peer with the operators you send the most traffic to.  But it’s still a dog-eat-dog world where the big dogs (large incumbents) are at an advantage because they own most of the end office and tandem office connect points.

So are you tired of the high tolls, the jurisdiction scams, the surcharges, and/or the big expense of connecting your facilities to other telcos?  Well, if you are, then you’d do well to read my conversation with Surendra Saboo, COO of Neutral Tandem, who offers a unique but surprisingly simple solution to the interconnect problem.

Dan Baker, TRI:  Surendra, I understand that Neutral Tandem is a bird of a different feather who connects with neither residential customers nor businesses.  You act strictly as a tandem or aggregation point for one carrier to connect to others.  So can you briefly explain how your business works?

Surendra Saboo:  Sure, Dan.  Let me provide a simple example.  Let’s say AT&T takes a call from their own switch in Chicago and the party being called is a T-Mobile user in New York.  Well, AT&T uses it own network to take the call to New York, but in New York there’s a problem because they are not directly connected to T-Mobile there.  And in that case, they need to use the incumbent (Verizon) tandem switch to connect to T-Mobile.  And of course, Verizon charges a fee for connecting to that tandem.

So what Neutral Tandem says is “use us as an alternative for terminating your calls.”  We have a direct connection in New York to T-Mobile, Sprint, Verizon Wireless, and other carriers, so we save you the cost of that tandem connection fee in New York.

Sounds like a peering hub for voice.

That’s exactly what it is, but we don’t use the word “peering” because that implies it’s free.  We like to say we’re a “tandem hub.”

Frankly, we feel this is exactly what the market has been missing up to now.  Rather than work out elaborate deals with multiple operators and spend a lot of money connecting to far flung switches, you can connect to one party, Neutral Tandem, via SIP or TDM, and we can connect you to everyone else at a reduced cost.

The mathematics of this is pretty straightforward.  The “N Squared” formula shows that as your number of switches grows, the number of potential connection points expands exponentially.  For instance, if you have six switches, the number of unique paths using the formula  N * (N-1)  is 30.  And the way to simplify the problem is to go to a hub and spoke model where you only need 6 connections to have every switch connected.

The math makes sense, but it’s no small feat to become a tandem hub player because carriers are reluctant to sign interconnect agreements with small players unless it drives traffic.

Actually it took us years to work with different carrier organizations and steadily persuade them to connect with us.  In the beginning, we had one switch in Chicago and our goal was to convince carriers like Comcast, T-Mobile and Sprint to send traffic through us in that market.

And usually, when you first connect to a carrier, they allot you only a limited capacity, so you have to grow that traffic and build a relationship of trust.  In our early days, it was a tough hill to climb because carriers saw little benefit from working with us: We could only connect them to two or three other points.  Today, we can connect to everyone in the Chicago market, so I’m of much greater value to any new customer I approach.  And blanket coverage of a market can spell the difference between taking 10,000 minutes versus five million minutes of traffic.

Then, once we gained regional power in Chicago, we expanded to New York and then to other cities where we replicated our business model.  Today we serve over 155 markets across the country and can terminate calls to over 500 million assigned telephone numbers.

Your business seems like a common sense way to lowering interconnect costs, but why is it that your approach wasn’t used many years ago?  Plus, firms like Level 3 had the competitive reach to get into your business, so why didn’t they?

Well, we knew the idea was a powerful one and that’s why we ran in stealth mode for a few years.

Now we have connections to over 100 carriers across the country.  So at this point we have a “first-mover” advantage over others trying to get into the business.  For instance, I can say, “I can take all your traffic in Chicago that’s going to an alternative carrier because I’m connected to all 120 end offices in Chicago.  So, for a new player, even if they offer a 50 percent discount over our own rates, it makes it hard for them to win the business, because they don’t have the breadth of coverage to drive the amount of traffic we do.  Meanwhile, we can say to a client, I can give you a discount for all your traffic in Chicago.”

As for Level 3, we have seen some sales activity from them, particularly with wireless companies.  But  Level 3 has a very broad product line and they’re not focused on tandem interconnections like ours so we’re able to specialize in this area and it’s been well received by our customers.  In fact, we’re billing in excess of 8 billion billable minutes of traffic each month.

Does a carrier need to reach a certain traffic volume for you to work with them?  What are your restrictions?

Dan, we work with carriers large and small.  Since we are strictly a tandem or aggregation player who doesn’t compete for residential or enterprise business, small carriers are comfortable working with us.  Of course, we have large clients as well.  One of our biggest is AT&T.  And for small-to-medium carriers who are tired of the funny games that go on in the interconnect business, we are a refreshing change.

Take Cox Communications.  They are putting in a new wireless network and they ”home“ their network to our tandem so if anybody has calls terminating to them, then they either connect to Cox directly or go through Neutral Tandem.

Now, as our business has evolved, we not only terminate local calls, we also route  long distance calls.  Now I can take a call in New York, D.C., or Dallas and take it to Chicago and keep it all on my network.  In addition, we are increasingly connecting people coast to coast across an Ethernet backbone.

And early in September we announced our intention to buy Tinet, an Italy-based global carrier in the IP transit and Ethernet wholesale market, for $94 million.  So that gives us our first formal entre into the European market for tandem hubs.

Aside from interconnecting carriers, I understand you’re getting into managed services as well.  Please tell us what that’s about.

Since we connect so many operators, we’re in a great position to offer services from the cloud.

For instance, we now offer a centralized voice mail service on a pay-as-you-use basis.  The beauty of this service is the operator no longer needs to deploy voice mail service on its own.  Neutral Tandem deploys the platform at our expense.  And it’s on a modern, next-generation voice mail platform so I can do things like convert voice mail messages to text and send them via SMS.

This is a major enhancement over what’s in place today.  For instance, most voice mail services in wireless today are tied to a particular home MSC (Mobile Switching Center).  And an operator like Sprint has hundreds of MSCs across the country.  So when a call comes in to you and you don’t pick up, the call is routed to your local MSC, no matter where you may have traveled in the country or world.  Now that’s a very inefficient system to maintain because you have hundreds of facilities as opposed to one central location.  Plus, with the legacy systems, you can’t easily push out the new services.  Only smartphones have visual voice mail, but folks with standard cell phones don’t get the latest services.

So we think we’ve got a strong ROI story for upgrading lots of older generation of voice mail systems.

Finally, Surendra, from a cost management and revenue assurance view, how do you interface to carriers?  What’s your bill look like?

For revenue assurance, we use Razorsight to manage bills we receive from other carriers.  In terms of our invoices, we use INTEC to bill for our originating switched access traffic, and we use internal systems to generate bills for all of our other products.  NT generates its invoices in an industry standard billing format, so it is easily processed and understood by our customers, and by bill verification firms.

This article first appeared in Billing and OSS World.

Copyright 2010 Black Swan Telecom Journal

 

About the Expert

Surendra Saboo

Surendra Saboo

Dr.  Surendra Saboo has been Neutral Tandem’s COO since 2006 when he joined the company.  Formerly he was vice president of Product Development and Operations for Voice Services at Comcast Corp.  Prior to joining Comcast, Dr.  Saboo was the Chairman, CEO, and founder of Teledigm, an e-CRM software product company in Dallas.

Neutral Tandem became Inteliquent in 2012.

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