By Bill Ranney
You’ve just read Steve Michael’s ad for a great business in sunny Florida that you’d love to acquire, but you don’t want to manage agents who are 600 miles away. Then you open this month’s phone bill and your local and long distance calling charges have sky rocketed. If these costs could only be reduced! While these two scenarios are worlds apart, cost saving solutions to them employ one common thread: T1.
What is T1? There are two types of transmission circuits in use today, analog and digital. An analog connection is typically the one you have to your carrier’s central office, a single twisted pair of copper wires carrying a single telephone conversation. For each simultaneous call you wish to make, you need an additional pair of wires. For each pair of wires you have, you are charged another monthly line fee.
If you could physically see an analog transmission, it would appear as a jumble of irregular waves moving down the wire. A digital circuit, however, is simply the transmission of regularly shaped pulses – a bit stream consisting of ones and zeros. A one is represented by a pulse; a zero is represented by no pulse.
To use a digital transmission system for voice conversations, the voice signal must first be changed from an analog signal to the digital pulses. This is accomplished by some very interesting electronic equipment, such as a card in your telecommunications switch or by telecommunications equipment known as a channel bank.
To cut through the mystique, T1 is simply a designation for one particular digital transmission service offered by most telecommunications carriers. To be specific, T1 is a digital transmission link that can carry 1.544 Mega bits (1,544,000 pulses) of information per second. These bits can represent either voice, data, video, images or all of them combined. For voice transmission, the T1 circuit is channelized so it can carry 24 separate voice conversations simultaneously. Think of the T1 span as a pipe with 24 separate slots, with each voice call occupying one slot. For data, video, and imaging, the channels can be combined or segmented to create larger or smaller pipes within the T1 pipe. Thus, one could have 15 voice conversations, a video program, and a host of remote operator stations all communicating across a T1 span at the same time.
Physically, T1 is two twisted pairs of copper wires, one which carries the signal into your premise and one which transmits the signal out. Where one needs to have 24 distinct circuits to carry 24 analog conversations, T1 reduces this number to two twisted pairs when the conversations are converted to digital T1 format. This can lead to significant cost savings in your telephone bill.
How can T1 help me save? There are many ways T1 can be used to reduce telecommunications costs. Two of these ways to save are cost reduction and cost avoidance.
Local Loop Cost Reduction: For a business with six or more telephone lines connected to the central office, it can make economic sense to replace these with a T1 circuit. Let’s use an example of a business with 20 trunks and just suppose these trunks are each costing you $50 per month, for a total of $1,000 per month. Your local telephone company quotes you a monthly T1 charge of $200 plus a switching fee (usually called a DACS charge) of $10 per line, plus an installation charge of $500. You will have to add some equipment to your site to allow access to the digital T1 (such as a channel bank or a T1 card). Suppose you can lease this T1 equipment for $180 per month. Your total monthly charge has just been reduced to $580 per month (T1 cost plus DACS charge plus channel bank lease) saving you $420 per month or over $5,000 per year!
This T1 can carry inbound DID traffic as well as inbound and outbound calls. Since the actual number of lines to break even is different in each location around the country, the key is to be sure that you understand all the charges associated with the T1 so you can make a rational economic decision. Be aware that in some areas of the country it is not (yet) economically feasible to run T1 to the central office for local calls. With the advent of competition in the local loops, this may change.
Cost Avoidance on Long Distance Calls: Did you know that Access Fees make up to 45% of the cost of each long distance telephone call? Access fees are the charges that the long distance carriers must pay the local carriers for the privilege of using the local network for delivering the long distance telephone call. Dedicated T1 access to your long distance carrier can greatly reduce your long distance per minute charges. Most carriers will reduce your per minute charge by approximately 30% for having a T1 connection directly into their POP (point-of-presence, which is where you connect to their network). In theory, this T1 by passes the local carrier so they cannot charge the access fee to the long distance company. The long distance company then passes some or all of these savings on to you. T1 to a long distance carrier is also a good way to connect inbound 800 calls, by passing the local carrier and avoiding the access fees.
These dedicated T1 spans can carry up to 24 voice conversations at once. Unless you have a T1 digital phone system, T1 conversion equipment, such as a channel bank, is still required. You will also pay a monthly T1 circuit fee for the T 1 connection. This monthly circuit fee can usually be offset by reducing the number of lines to the local carrier, which were formerly used for long distance traffic. Voilà, your monthly phone bill is magically reduced.
Dedicated point-to-point T1:. Recall that Florida TAS? The economics and managerial problems associated with that acquisition improve greatly if you could answer all the calls at your existing location. Upon further study, telecommunications traffic theory indicates that you will not have to add as many operators at your existing location as there were previously at the newly acquired location. Depending on your size, you might be able to replace ten operators with just two. By reducing your labor cost, the economics of the acquisition look even better. The problem you now face is how to answer the calls at your existing business location. A dedicated point-to-point T1 provides the perfect solution. This dedicated point-to-point T1 can carry up to 24 channels of traffic (or 48 with compression) at a fixed monthly fee. You pay no per minute costs and have no restrictions on the traffic the T1 transports.
Thus, the T1 allows you to transfer all the inbound DID traffic from the acquired business to be answered at your home office. Further more, your home office can draw dial tone for call-out lines directly from the remote location central office, saving you even more on toll charge calls to your newly acquired customers. You can also save on office space. You only need to have an “equipment closet” in the new city to house a channel bank. You will also need to add some channel bank equipment at your home office.
This call transport is completely invisible to your new clients. With the exceptional quality and high speed of the T1 transmission system, your new clients will not realize their calls are now being answered hundreds or even thousands of miles away. T1 provides you with a quicker return on the purchase of the Florida TAS and avoids the necessity of managing a new group of operators. Your only trips to Florida will be for fishing or sitting on the beach.
By the way, for any long distance point-to-point T1, it really pays to shop all the long distance carriers and also any CAPS (competitive access providers, such as MFS or Teleport) which may service your area. T1 charges can be $500 per month from one carrier and $2500 per month from another, depending on the location of each carrier’s POP. Don’t assume that because one carrier is high they all are going to be.
In today’s competitive world, reducing operating costs and shortening payback time on investments is paramount. Implementing digital T1 can help you do both.
Bill Ranney is president of Transnet Engineering, Inc. which supplies telecommunications and data network interface equipment such as T1 channel banks, CSU/DSUs, voice and data multiplexers, routers and bridges to telephone answering services, executive suites, voice mail services, interconnects and many other types of businesses. Mr. Ranney can be reached at 303-413-0665.
[From Connection Magazine, March 1996]