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Selecting a Wholesale DID Origination Provider Part 2: Monthly Recurring Cost and Non-Recurring Costs

Posted by Jason Tapolci on Nov 9, 2012 5:15:00 AM


As mentioned in Part 1 of this 3-part series, today’s VoIP market is booming. With this increased interest in VoIP comes a wave of service providers and wholesale VoIP carriers. Obviously, this surge of providers can make selecting the right provider overwhelming. In part 1 of this 3-part series, we talked about the three main types of providers as well as identifying and selecting a provider based on their footprint and DID features. Going through this initial process will provide a short list of service providers to analyze more closely. The next step in this process is deciding how to purchase usage (per min or per port), identifying MRCs (Monthly Recurring Costs) and NRCs (Non-Recurring Costs), and what to look for in a contract.

Before selecting a wholesale DID origination provider, a long term partner, you will need to decide how to purchase your usage services. There are two ways to purchase usage, either by the minute or by the port. A per minute model will bill you for each minute of every call. Simply put, you pay for what you use. A per port model requires you to determine the number of concurrent call attempts at peak hours and to purchase enough ports to cover these calls. Purchase too many ports and you are wasting dollars. Purchase too little and your end users receive busy signals. Deciding how to buy your usage services depends on a few variables. First, determine how you are selling or packaging your service to your end users. Secondly, measure how much traffic you currently manage or have. And lastly, consider your experience in the telecommunications industry.

Let’s assume we are selling an all-inclusive service, like Vonage, for $24.95/month. Let’s also assume we manage less than 1 million minutes per month and that we are new to the industry. In this example, using a per minute model, at least initially, would be suggested. Based on known industry statistics, the average residential end user consumes 500 minutes per month and the average business end user consumes 1000 minutes per month. Having this information allows us to back into our average cost per all-inclusive line (500 minutes x $.0035/minute = $1.75 in total usage per residential end user or 1000 minutes x $.0035/minute = $3.50 in total usage per residential end user).

Using the same scenario but with more traffic and telecommunications experience, perhaps a per port model would be a better option. This scenario will require much more management to maximize port utilization. When buying per port, it is not financially responsible to purchase the same number of ports as end user lines sold. Numbers can vary but in terms of lines to ports, it is typically a 2-to-1 ratio. This is where managing your peak usage is very important and dollars can be lost or gained. Typically more established and experienced organizations purchase service this way because they have people who manage port aggregation and bottom line costs. A good rule of thumb to use when deciding on a per minute or per port model is this; if you average 5,000-10,000 minutes per port (total minutes/total ports), a per port model might work well. If your per port aggregation is less than 5,000 minutes per port, you may want to look into a per minute model.

Once your usage model is determined, the next step is to review and negotiate MRCs and NRCs. MRCs are Monthly Recurring Costs and are typically associated with DIDs (local and toll-free), ports (usage), and 911 costs. MRCs are set when you negotiate your agreement and are billed to your account on a monthly basis. Where you purchase from (ILEC, CLECs, or a wholesaler) and how much you are willing to commit to will determine the MRC for each item. NRCs are Non-Recurring Costs and are typically associated with DID activation fees, LNP (local number port) fees, rogue 911 calls, capacity augment charges, port-out fees, etc. These are one-time charges but can add up quick if not managed tightly. In part-3 of this series, we will talk more in depth about reviewing and auditing your service provider bills.

The final step of this section focuses on the wholesale DID origination provider’s agreement or TOS (terms of service). There are four main areas to keep a close eye on when negotiating an agreement; contract length, minimum commitment, contract renewal, and liability and indemnification.

The contract length is important, especially in our industry, due to the brisk pace of our industry. It may be best to negotiate a contract terms less than 1-year. Any contractual agreement length greater than one year could pose to be a future threat. Most ILECs and CLECs will want at least 1-year terms, if not 3-years. Some wholesale providers, like VoIP Innovations, offer a month-to-month agreement giving their customers flexibility.

In section 1 of this white paper series we spoke about minimum commitments and the importance of finding the sweet spot between getting the best price for the least amount of commitment. If you do think you can cover a minimum or you think you will grow into a minimum, think twice! Failing to meet a minimum commitment does not alleviate your responsibility from paying that minimum commitment. If you commit to $10K and only do $5k in business, you will be billed for $10K. Many companies get into trouble by not hitting their minimum commitments. This is the quickest way to kill your GPM (gross profit margins).

Contract renewal is important for two reasons. First, you can renegotiate your agreement and secondly, it defines your future relationship with that particular carrier. Most carriers will have their agreement auto-renew for the same time-frame as the initial agreement, however you may find it more conducive to have the agreements renew on a month-to-month basis. Most people will forget when their agreement is expired and could get caught in a bad agreement for an unacceptable period of time. Renewing on a month-to-month basis eliminates this worry.

Finally, most agreements are littered with legalese. They can be overwhelming and difficult to read. Therefore, be sure to focus on the “liability” and “indemnification” clauses. Contracts are between two parties and they are a partnership, so one sided agreements don’t fit with the spirit of a partnership. As long as the liability and indemnification clauses are written to not hold each party liable or that each party indemnifies the other party, you have a partnership.

In last section of this 3-part white paper we will be discussing service quality, customer service, and account billing. Each function is equally important and each one can have the same devastating effects on your business if done incorrectly. We will discuss what to look for, what to stay away from, and how to choose the best service provider.

Topics: Telephone, Telephony, Technology, Telecommunications, Voice Over Internet Protocol, origination, Hosted PBX, termination, Entrepreneurship

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