Flat-rate T-1 lines hitting the street
By David Rohde
Network World, 11/16/98
One of the most nettlesome WAN planning problems - contending with costly and unpredictable T-1 access prices - is beginning to lose its sting.
AT&T and MCI WorldCom last week confirmed to Network World that they are now offering regional and national flat-rate T-1 access on a case-by-case basis. The flat-rate plans - which consultants say cost as little as $300 per month per line for big users - are a radical departure from the age-old method of pricing local dedicated access from the customer premise to long-distance carriers' points of presence (POP).
For most users, the Big Three carriers still purchase T-1s from local carriers and pass along the charges, resulting in rates that vary wildly by state, city and often even local telephone exchange.
But now those rates, which can easily top $600 per month, are being discarded for some lucky customers in contract negotiations.
"I just did a deal for flat-rate access for $325 per T-1," says David Bower, president of inTelesystems, a Dallas consulting firm specializing in negotiating telecom contracts.
The deal with AT&T came after Bower's client agreed to put AT&T voice and data services on the same T-1 lines at offices throughout the country.
Likewise, Reynolds Metals several months ago got a flat T-1 access deal from AT&T for about 80 of its locations nationwide as part of a contract overhaul, says Debbie Shashaty, lead communications consultant for the Richmond, Va., maker of Reynolds Wrap and other consumer and industrial products.
"I wouldn't be surprised if you saw more and more of this sort of thing," Shashaty says.
Still others are enjoying a variation on the new negotiated plans: tiered flat rates for T-1s and other access speeds. MBNA Bank in Wilmington, Del., has a deal with AT&T for one access price for T-1s, another for T-3s and so on for intermediate speeds, says Kelsey Hill, executive vice president of telecommunications and network services for the bank's IT subsidiary.
The urge to converge
For the carriers, the motivation for the new plans is simple: to get customers to install T-1 access to their POPs in as many branch offices as possible before regional Bell operating companies, competitive local exchange carriers (CLECs) and new long-distance carriers lop off part of a user's voice or data traffic.
Many branch offices that can't typically justify dedi-cated access for one major-carrier service can do so if they put long-distance voice, legacy data, Internet and potentially local phone calls on the same pipe, explains Hank Levine, a partner at the Levine, Blaszak, Block & Boothbay law firm in Washington, D.C., who negotiates user contracts with carriers.
"In exchange for discounting the access, the carriers are getting exclusivity with the customer," he says.
Dedicated-access prices literally are all over the map, with smaller cities running $700 or more, and even a difference of $250 or more per month between a city and its suburbs (see map).
But with flat-rate plans, "$300 is the kind of number that's getting thrown out there," Levine says.
The trend is accelerating now that AT&T and MCI WorldCom each own numerous CLEC city networks. "Now that these guys own MFS [Communications] and Teleport , their own cost is as low as $150 per T-1," Levine says.
Carrier officials confirm that this form of convergence - where at least the local piece of multiservice traffic, if not the actual long-distance transport, is carried over the same network - is driving the deals.
"We do like to have dedicated access into our customer locations," says Steve Sobolevitch, AT&T's strategic pricing manager for high-speed services. "It gives us the opportunity to sell our entire portfolio of our products."
AT&T quietly began making the flat-rate offers about a year ago because "some of our users found that it is an easy way for them to purchase the service," Sobolevitch says.
MCI WorldCom will provide a regional or national flat T-1 access rate on a case-by-case basis "for an order that is a significant size," says a company spokesman.
In particular, MCI WorldCom is providing this incentive for users choosing its On-Net service, which groups voice, data and Internet traffic into a service bundle over MCI WorldCom-owned end-to-end facilities.
A Sprint spokeswoman would say only that the com-pany has unspecified promotions at various times, but rivals say Sprint is making some flat-rate offers as well.
Avoiding the trap
Discount or not, some users simply don't need T-1 capacity.
For example, retailer Pier One Imports maintains T-1 access to AT&T only at nine zone offices and distribution sites, leaving the chain's 750 stores with dial-up access, says Stan Miller, Pier One's manager of production network services in Fort Worth, Texas.
For his planned AT&T frame relay network, Miller says he'll install standard 64K bit/sec access lines dedicated solely to connecting 750 Pier One stores with AT&T's basic 56/64K frame relay ports, rather than purchasing T-1s for multiple voice and data services.
"Once you get past 56/64K access lines, you have to get a full T-1," Miller says. "And whatever the cost delta is, even if it's only $30 or $40 per month, I have to multiply that by 750, and that's a staggering amount."
AT&T's flat-rate gambit appears to be closely tied to its recent moves that raised the price of basic 56K bit/ sec frame relay service but helped users by reducing prices for higher speed frame relay connections (NW, Nov. 9, page 33).
For example, Reynolds Metals' flat-rate T-1s will be partially needed to support 128K bit/sec frame relay ports at most sites throughout the corporate network, Shashaty says.
The move is also part of a commitment by AT&T Chairman and CEO C. Michael Armstrong to begin simplifying user contracts while at the same time branching out into corporate IP services.
At a private June meeting of the Enterprise Networking Technologies Users Association, an AT&T user group, Armstrong conceded that "we've got to be simpler in our contracts" while "offering all of the services that you need."
And some users who currently give their branches only switched access are, indeed, champing at the opportunity to trade up to dedicated access - if they can grab the new deals.
Specialized corporate lender Congress Financial has maintained dedicated access only at its New York headquarters, using MCI WorldCom dial-up service at nine U.S. branch locations, says Andrew Stratford, the firm's vice president of telecommunications.
But after Stratford told his sales representatives he's considering installing 384K bit/sec videoconferencing at all the sites, the representative told him a standard flat-rate T-1 offer may be on the table next year for users his size.
"Sooner or later he says there's going to be a standard flat-rate offer and you'll be able to use as much as you want," Stratford says.
Read before you sign
Naturally, no deal is perfectly simple in the telecom world, and experts note a few caveats in the flat-rate T-1 access trend.
First, carriers generally apply the rate to 80% to 90% of the country, excluding really isolated areas, Levine says. Many of those areas are exclusively served by small, independent telephone companies. Those telcos often have out-of-whack, private-line pricing that no long-distance carrier can sufficiently discount to bring into the flat-rate deal, Levine explains.
Second, the offer may not be available to customers located an unusual distance from the carrier POP, says AT&T's Sobolevitch.
Finally, even the official variable price lists come with standard 20% volume discounts that can sometimes be bumped as high as 40% in negotiations.
So be sure the flat rate gives you at least that much in savings over the official tariffed prices, Levine says.
Contact Senior Editor David Rohde
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