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Do You Really Know All About FX Service Now?

Foreign-exchange (FX) service is familiar to telecommunications managers; they know what it does and what it costs. Or do they? Diverstiture has brought change and uncertainty to the realm of telecommunications, and FX service is no exception. Consider the much-publicized backlog of private-line circuit orders at AT&T. Consider AT&T Communications' restructured private-line tariff, currently in abeyance. Consider the local exchange carriers' access service tariff (effective last May), which offers LATA-wide termination, $25 surcharges and local-usage rates that vary depending on whether the end office has converted to equal access. Clearly, today's telecommunications manager needs to approach FX service with caution. A Simple Concept

The concept of FX service is simple: it allows the use of local telephone service in a distant city (open end) via a private line from the customer (closed end) to that distant city. The interstate privateline circuit has a fixed, mileage-sensitive cost, and the telephone service in the distance city's local calling area has a usage-sensitive cost. For the FX service to be justified, the combination of these two costs must be cheaper than the cost of using an alternative long-distance service.

Prior to diverstiture, AT&T provided both the long-haul circuit and the local service. Today, AT&T Communications provides the long-haul circuit under its private line tariff 260. The local exchange carrier provides the local service under the access service tariff NECA (National Exchange Carrier Association) FCC Number 1. The customer can arrange for both parts of the service or can request that AT&T arrange for the local service on the customer's behalf. Area of Confusion

The costs associated with local service at the open end of the FX seems to be the biggest area of confusion. Indeed, just what service is available at the open end is confusing. Prior to diverstiture, the open end of the FX provided a presence in the distant city. Calls to both the primary and extended local calling areas were priced at the appropriate rates for business subscribers--generally message-unit charges. Calls beyond the local area were provided at the appropriate long-distance rates. When the exchange carrier's access tariff went into effect in May, the situation changed considerably. Tariff Provisions

Under the current tariff, NECA Tariff 1 switched access service, as it applies to the provision of FX service, allows for LATA-wide termination of calls. A LATA, or local access and transport area, corresponds to a particular geographic area. With LATA-wide termination, the local calling area has been expanded. FX service from end offices that have not been converted to equal access is provided under Feature Group A (FGA). FGA is one of four specific transmission arrangements availabe for switched access service. The usage rates for intraLATA calls is a flat $0.0367 per minute, independent of the distance of the destination from the terminating office. Three Rate Groups

Three rate categories combine to make up the cost of FGA switched-access service: local transport, end office and common line. The local-transport category provides for facilities to the end office where the traffic is switched to complete transmission. Local transport contributes $0.0057 to the FGA access rate. The end-office category provides for the local end-office switching and the end user line-termination function to complete transmission. These contribute $0.0044 and $0.0036 to the FGA access rate. The common-line category provides for use of telephone company common lines for access to the end user, and contributes $0.0236 to the FGA access rate. The open-end termination of an FX line is exempt from the $25 monthly special-access surcharge assessed on private-line facilities. However, the customer must provide written certification that the termination is an open end of an FX to qualify for the exemption.

LATA-wide termination at less than $0.04 per minute sounds promising. It simplifies the calculation of local charges and offers access to a larger calling area at local rates. A comparison between the old message-unit pricing and the new flat-rate pricing provides some useful insight into the cost impact of the current switched-access service tariff. A Typical Example

Consider an FX groups from Allentown, Pennsylvania to New York City. Assume tehre are 4,000 calls monthly with an average length of four minutes. The cost of carrying this traffic on toll is $0.40 per minute. The cost of carrying it on a group of four Band 1 WATS lines is $0.24 per minute. [The analysis used for this article was performed using the MIND-Voice product for network design and optimization produced by Contel Information Systems of Great Neck, New York.] To examine the local calling charges, assume there are three FX lines between the cities carrying 14,250 minutes out of the monthly total of 16,000 minutes. Many Cost More

Under the current access service tariff, the FX service would cost $1400 ($870 for the three lines and $530 for the local usage.) At $0.10 per minute, the FX group is economical and could service calls to the entire 212 area code (New York City) and all or parts of the surrounding 516, 914 and 203 area codes. However, under the New York message-unit structure, which previously applied to local calls, the primary calling area covers most of area code 212. These local calls cost $0.02 per minute. So if all the FX traffic was going to New York City, the new access service is more expensive. Furthermore, the extended calling area includes portions of area codes 516 and 914 closest to New York City. These local calls cost between $0.02 and $0.11 per minute. Depends on Destination

Figure 1 compares the cost of FX service under the current tariff with the cost under the message-unit structure for various mixes of call destinations. It shows that unless a substantial portion of the FX calls are destined to outlying areas, the new access-service tariff would increase the cost of FX service.

The previous example illustrated a case where the new access-service tariff does not substantially affect the decision to use FX service. FX at $0.10 per minute is far cheapter than WATS at $0.24 per minute, and FX service remains a viable alternative. Another FX Example

But consider an FX group from Los Angeles to New York City. Assume the same 4,000 calls monthly with an average length of four minutes. The cost of carrying this traffic on toll is $0.50 per minute. The cost of carrying it on a group of four Band 5 WATS lines is $0.31 per minute. To examine the local-calling charges, assume there is one FX line between the cities carrying 7,330 minutes out of the monthly total of 16,000 minutes. Only one FX line is considered because this is a case where the FX is marginal. Even with free local calling, no more than one FX line would be economical.

Under the current access-service tariff, the FX service would cost $2280 ($2,010 for the FX line and $270 for the local usage), At $0.31 per minute the FX service is no cheaper than WATS and is not cost-justified. However, under the New York message-unit structure, which previously applied to local calls, if all the FX traffic was going to New York City, the FX service is cheaper than WATS and may be cost-justified. Equal-Access Factor Figure 2 compares the cost of FX service under the current tariff with the cost under the message-unit structure for various mixe of call destinations. It shows that the new access-service tariff can increase the cost of FX service to the point where it is no longer economical.

Whether or not a telecommunications manager sees the $0.04 per minute for LATA-wide calling as a benefit depends on what traffic the FX lines are servicing. But even this rate may not be available for long. The $0.04 per minute is based on discounted premium rates that apply to FGA switched-access service in end offices not converted to equal access. Once an end office is converted, the discount no longer applies, and the rates become more expensive. The $0.0051 flat-rate charge for local transport becomes mileage-sensitive and increases to between $0.0057 and $0.0491; the $0.0044 charge for end-office local switching increases to $0.0064; the $0.0036 for end-office line termination increases to $0.0079; and the $0.0236 charge for common line access increases to $0.0524.

Once equal access becomes a reality local calls from an FX will cost between $0.0724 per minute and $0.1158 per minute for calls terminating over 100 miles from the FX. This represents a 200 to 300-percent increase. Discount/Non-Discount

Figure 3 compares the cost of FX service using discounted and non-discounted premium access rates for various mixes of call destinations (mileage from ope end). It shows a significant increase in local usage charges, regardless of the call destinations. Non-discounted premium access rates may apply to FX service sooner than a telecommunications manager would expect. During the transition to equal access, the tariff allows for a prorated application of the discounted and non-discounted premium access rates, depending on the volume of calling to equal-access end offices. Thus, even though the FX itself might terminate at a non-equal-access end office, the premium access rates will apply to calls that are distined to equal-acess end offices. Special Access Service

NECA Tariff 1 also defines the cost of an FX termination at the closed end. The Special Access Service section applies. This portion of the tariff currently is suspended, but it specifies local channel and channel mileage rate elements. These provide for a communication path between the customer premises and the telephone company, and for the actual physical transmission facilities between the two points. The tariff also specifies a channel interface that defines the type of facilities. Finally, the $25 special-access-service surcharge is specified. Under the tariff as it now stands, the flat-rate portion of the closed-end charge would be $188, with the mileage-sensitive component varying from $52 to $224 for distances of eight to 200 or more miles. Long-Haul Costs

Another area of uncertainty is the cost of the long-haul circuit. AT&T Communications' Tariff 3 has not been accepted but its proposed rates for private-line circuits could bring increases of 30 percent of more. In the previous examples, the cost of a private line from Allentown to New York City would increase from the current $290 to $380 per month.

Today's telecommunications manager faces real difficulties when making any decisions about FX service. The time to secure new service is unclear, although AT&T is reducing its backlog on orders. The tariffs relating to all cost elements are in flux. For the closed-end termination, the FCC must act on the Special Access Service tariff. For the interstate private-line circuit, proposed rates promise increases of up to 30 percent. For terminating service at the open end, rates will change as end offices are converted to equal access. Be Aware of Rulings

What the final settlement of these rate elements will be is unclear. What is clear is that the telecommunications manager must remain alert to future rulings that affect FX service.
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Author:Graham, J.A.
Publication:Communications News
Date:Feb 1, 1985
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