Expert View

August 24, 2005
Least cost routers: Defining telecom cost saving

BANGALORE -- TELES Communication Systems, the telecom products division of the publicly-traded corporation TELES AG, Germany, focuses on the development, sales and marketing of innovative telecom products for carriers and corporate customers. With over twenty years of experience in the telecom sector, TELES markets public switches, GSM gateways and least cost routers (LCR). TELES pioneers the LCR concept in the liberalised Indian telecom scenario.

Convergence Plus spoke with Devasia Kurian, managing director, TELES Communication Systems to find out about LCR technology and how it integrates with customer equipment. Excerpts from the interview:

Convergence Plus: What is LCR technology?

Devasia Kurian: Telecom liberalisation has given freedom to choose among multiple service providers, negotiate tariffs and avail services from various providers. But the flexibility of the PBX equipment used at customer premises is normally restricted to one, at most one more provider for backup purposes. The LCR enables the customer to connect to multiple service providers, like ISDN, GSM, CDMA or VoIP, and choose among providers on a call-by-call basis, thereby resulting in optimal costing. Refined equipment help to make the choice on the basis of tariffs, QoS, time of the day, etc.

CP: How can corporates cut costs using the LCR in today's Indian telecom structure?

DK: A number of scenarios would be possible based on services required and tariff agreements with various service providers. Some common scenarios applicable to any corporate are:

Landline to mobile cost: The share of landline to mobile calls in the total telecom corporate billing is increasing drastically, and has reached 50-70 percent for most of the corporates. Typical corporates with around 2,000 employees have the landline-to-mobile component of Rs. 6 – 7 mllion per annum. The usage of a LCR, GSM gateway, brings down the cost to Rs. 2 – 3 million, a whopping 66 percent saving. The concept is simple: Landline provider normally charges Rs.1.20/minute to route mobile calls through his network, whereas a mobile-to-mobile call is charged at Rs. 0.40/minute. The GSM gateway converts landline-to-mobile calls to mobile-to-mobile calls, thereby reducing the bill by 66 percent.

STD cost: CDMA providers are aggressive in bringing down the STD rates all over India. A CDMA gateway in the corporate premises helps to route STD calls through the CDMA provider, thereby bringing reduction in costs, which could be even more than the above 66 percent.

ISD cost: Quite a few providers offer cheaper ISD rates to particular destinations. Corporates could route calls to the cheapest service provider depending on the destination. The convergence bill would bring in the possibility of having VoIP providers as an alternative provider. This will dramatically reduce the costs incurred by the corporate customers today for ISD calls.

CP: How does the LCR integrate with the customer equipment?

DK: Typically, customers have a PBX, where the employees are connected on one side, and various land line service providers on the other side. LCR interfaces with the PBX on a digital or on analog line. When employees make an outward call, the calls are passed to the LCR, which chooses the least cost service provider for the particular destination and hands over the call.

LCRs can interface with the PBX on a digital or analog interface. Digital gateways are qualitatively far better for reasons like faster call setup (approximately seven seconds versus 14 seconds), better voice quality, higher reliability, etc. Multi-channel digital equipment are available, which reduce the space, installation and maintenance requirements. Commonly-available, single-channel analog equipment are quite cumbersome for higher loads, but maintain a better price value ratio at lower loads like one or two channels.

CP: How does a CIO decide whether or not to procure this equipment for their organisation?

DK: Step 1: Analysis of a telephone bill: The total telephone bill has to be divided into components like landline, mobile, STD, ISD, etc. If any of the components seem to be very high, then one should check, if there are alternate providers available, who could bring down the cost and by how much. To bring down the cost, he needs to procure LCR.

Step 2: Cost benefit analysis: The cost of the equipment and the savings per month need to be compared.

A sample calculation for a GSM gateways could look as follows:

Saving per channel/minute = Rs. 0.80
Saving per channel/hour = Rs. 48
Saving per channel/day = Rs. 1152
Saving per channel/month = Rs. 34560
Saving with a 30-channel gateway 10 lakhs

This is the case, where a 30-channel gateway is running at full load for a month. This might be the case with a domestic call center, but not the case in most corporates where employees might be in the office only during a time period of 10-14 hours per day, and holidays also need to be considered. In this case, maybe 30-40 percent of the above saving might be realistic, which still amounts to Rs. 3 – 4 lakhs.

Step 3: Equipment dimensioning: Two things need to be considered to calculate the number of channels required for the equipment -- the number of simultaneous calls during peak time and total capacity required. Both could be obtained from the PBX records and the number of simultaneous channels required could be calculated.

Step 4: Equipment technical compatibility: Next step is to confirm that the interfaces are available in the PBX and they are compatible to the equipment provided by the vendor. If the PBX does not have the interfaces available, there should at least be a provision to add the interfaces.

Step 5: Capex or Opex: The final step is to decide on the financing model. Equipment vendors are offering alternatives to a buyout, like rental, profit sharing. The rental model foresees a fixed rent for the equipment every month, whereas profit sharing is about sharing the monthly cost saving with the equipment provider. Hybrid models like profit sharing for three months and then buyout could be one of the optimal models.

CP: What products does TELES offer in the LCR scenario for corporates?