Equal access refers to the right of a customer to select the carrier they wish to use when making a domestic or international long distance call. The most common types are pre-subscription or pre-select and call by call. Pre-subscription is where the caller makes the decision once, and every call is automatically sent to the carrier they choose. Call by call is where the customer chooses which carrier he wants for every call by dialing one or two digits before the called party number to tell the local exchange carrier where to send the call for termination.

Call by call is the most common. It is quick and inexpensive to implement because it requires only a modest change to the local exchange infrastructure, to direct the calls to the carrier selected by the caller. Its simplicity greatly increases the number of carriers that can be licensed to compete in the market.

Pre-Select/Presubscription, by contrast, is cumbersome and costly. It requires the creation and maintenance of a database of every exchange line and the carrier pre-selected by the subscriber for that line. It requires a balloting initiative to gather each customer's preference. And, if executed correctly, will need an independent database administrator to supervise the ballot, collect the letters of authorization to change carrier and maintain the database of customer carrier selections. Finally, there will be supplemental capital expense to make the carrier select information readily available to all of the switches in the network so that calls are quickly and accurately routed.

Thus, it is probable that if you intend to serve the consumer, business and enterprise markets you will need to have determined how to compete call by call.

For more on this question see presentation titled LD Competition Drivers.

The more equal the access, the greater the addressable market and the lower the cost of customer acquisition. It is in the interest of every new market entrant to request the following:

1. All customers must choose a carrier. There is no default.
2. Because only the local exchange carrier (LEC) knows who to bill, and their payment history, the LEC should be required to invoice and collect on a non discriminatory basis on behalf of all LD carriers.
3. If the local exchange carrier is permitted to provide long distance service and presubscription is the preferred method of long distance carrier selection then:
       a. There should be an independent database administrator appointed to oversee the creation and operation of the database.
       b. Allow the person who pays the bill rather then the subscriber of record to choose the carrier. This eliminates the delay and cost that is otherwise required to update the subscriber line database.
       c. Establish a maximum number of days from receipt of subscriber's letter of authorization to change and its implementation. At most 10 ‚ 15 calendar days should be permitted. And a further 60 ‚ 90 day period where the carrier selection can only be changed due to poor quality of service. This avoids "slamming". Slamming is the practice of switching long distance carriers on an exchange line without the subscriber's permission.
       d. Establish a standard cost to switch the long distance carrier on an exchange line. Commonly between $3.00 and $5.00.
4. If call by call is the preferred method of long distance carrier selection, then:
       a. Establish minimum service requirements for any prospective licensee, for example:
           i. Facilities in the Country.
           ii. Customer care infrastructure.
           iii. Submission of a network development plan.
   This is necessary because most long distance markets can support no more than four long distance carriers. Markets that have more then that are not fostering long term competition. Few serious investors will invest in the Country's telecom infrastructure because they anticipate that the dramatic price reductions that always follow liberalization will drive returns below their cost of capital.
   b. Require the incumbent local exchange carrier to seek approval for the budget to condition his network for call by call carrier select. Until the incumbent's budget is met, permit it to seek reimbursement from all carriers who use the network on a call by call basis. All carriers must pay this fee on a non-discriminatory basis, including the incumbent because they will account for 60 ‚ 80% of the traffic.
       c. Require that the local exchange carrier (LEC) be the collections agent and assume any bad debt. Commonly LECs receive 6 ‚ 8% of the gross amount billed, excluding taxes for this service. If they are serving as a billing agent only, then the fee should be closer to 3% of gross receivables, plus tax.
5. Establish the rules and the ability to enforce them for the interconnect agreement between the LEC, mobile service operators and new market entrants. The most common approach is to require that the carriers accept a default interconnect agreement that sets the maximum tariff for use of the LEC/mobile carrier network, billing and collections and other terms where a dispute will exist between negotiating parties. Unless they can negotiate one independently within in a maximum time, usually 90 calendar days.

For more on this question see presentation titled Desirable Regulatory Framework and Incumbent Benefits from Collections Services and the Interconnect Recommendations white paper.

There are six areas of the interconnect agreement that need to be addressed:

1. How will the physical exchange of traffic take place between carriers?
2. What is the settlement arrangement for traffic that is exchanged between the carriers?
3. What are the tariffs applicable for the exchange of traffic and the basis for calculating them?
4. What responsibilities will the incumbent assume for billing retail customers?
5. What reporting will the incumbent provide to permit the new market entrant to monitor for anti-competitive practices?
6. What is the dispute resolution procedure when competitive abuse is detected?

For more on this question see presentation titled Interconnect Recommendations.

To establish the value of a local partner's contribution, think about the value added from having a license. If the license is a scarce commodity, your local partner's contribution is significant. Why? The value of the license alone is set by the number of carriers permitted to offer service, and the degree to which the regulatory environment favors competition. However, if the license is one of many, then the contribution is modest, and compensation should be determined by how useful your local partner will be in day to day operations. For example, what is his ability to secure the:

1. The authorization to provide retail services and basis for service access (dial around, pre-subscription, local access number)?
2. The authorization for landing rights and use of indivisible Rights of Use (IRUs) for space or fiber transport?
3. The authorization to repatriate cash earned in the Country as a hard currency?
4. The authorization to collect cash for retail operations?
5. Permission for offshore data management? Why? For efficient capital utilization, billing should be managed through ASPs. Thus, it is vital to have the right to import and export customers' personal data to the ASP's hosting center.

There are three stages of service launch: Execution, consolidation and integration. These stages are referring to the level of flux in the market. The more fluid the market environment, the greater the importance of deployment speed and operating a lean network and MIS infrastructure.

Execution
Usually the first two years after the market is liberalized. Year 1 is characterized by the retail price and the average cost for terminating international traffic dropping by 70%. In the second year average termination rates will fall by a further 30%. In parallel, only about 15% of the long distance minutes will switch from the incumbent to all of the competition. During this time, every month it takes to launch will reduce the return on your investment. Therefore, make extensive use of application service providers for speed and to avoid committed capital costs and make the best possible use of dedicated network facilities.

Consolidation
By the third year, the rate at which long distance rates fall has slowed to 5-7% per annum. About 30% of the traffic will be shared amongst the new market entrants. Those carriers that over invested will be leaving the market, creating opportunities to buy network, MIS infrastructure, customer lists and usage histories at a significant discount. You will also have a much better idea of what sells and therefore the direction of product development. When the capital and fixed operating expenses to develop the portfolio of products that your customer base will use are made ensure that the minimum usage forecast will be sufficient to cover the cost of delivery.

Integration
Year three onwards. All telecom services are seen as commodities. After three or more years of competition, there is no shortage of supply and therefore the margins available are less then 10%. Customers are buying based on convenience and habit, so customer churn is between 2-5%. In order to stimulate additional revenue and margin, the carrier needs to deliver value added services. In general 10% of the revenue each year must come from recently introduced services. The organizational focus should be cost reduction. Perhaps converting the remaining ASP agreements into licenses for the use of the software or perhaps outsourcing some functions like call center?

For more on this question see presentation titled Deploying LD Services and LD Competition Drivers.

A carrier's core functions are:
1. The ability to sell.
2. Enroll the customer.
3. Complete a call to any telephone in the world.
4. Bill and collect.
Additionally, be able to track and retain the customer. Beyond those core functions there are the "cost of business" functions whose absence will result in failure of the carrier, for example interconnect negotiations, government compliance and lobbying. To the greatest extent possible use outside resources for the cost of business functions and dedicate resources to your core functions.

For more information on this question see presentation titled Deploying LD Services and Creating a Local Services Business Case.

In every newly liberalized call by call market, 30 to 50% of the long distance minutes used are never collected. Thus, revenue assurance is a critical business function. There are four areas that must be addressed before offering service:

1. Call data record (CDR) generation and rating
     a. Are all calls generating a CDR?
     b. Are all of the CDRs being passed to the rating system in a timely manner?
     c. Are the rated CDRs readable for invoice generation?
2. Invoice Generation
     a. Are the correct plan rates being applied to each account?
     b. Are taxes being applied correctly?
     c. Can the invoice be generated?
3. Billing
     a. Can the bill be printed and delivered?
4. Collections
     a. What is the collection process?
     b. Can a customer's failure to pay one long distance bill be the basis for blocking access to all LD service?
     c. Can non payment for LD be the basis for suspending access to LEC services?

For more on this question see presentation titled Billing System Considerations.

Over 40% of the World's international traffic is refiled. Meaning the carrier that terminates the call is not the carrier that sold the call. Tariffs in the wholesale market are much lower then those available through bilateral arrangements. After launch and for the first 12 to 18 months of operations, to get the best use of facilities, you should limit the number of reseller relationships you establish. Three is sufficient to ensure the payment of market rates. You will be able to negotiate terminating prices at least weekly, and it should be possible to get agreement between your suppliers on 95% of the dialed digits used to rate the calls. This is vitally important, to ensure the correct funds are accrued to pay for the termination service bought.

For more information on this question see presentation titled Importance of Wholesale ILD.

It is unusual for carrier's carriers to publish any quality of service information, so it will be incumbent on you to test their networks frequently to ensure that they meet your quality expectations. The most common measures are:

Post dial delay (PDD) ‚ How many seconds after dialing the last digit do you receive a busy tone or phone ringing at the far end? Most Countries' networks operate between 7 and 13 seconds.

Answer Seizure Ratio (ASR) ‚ What percentage of the last N calls (N is a number you choose. Usually at least 10) completed? The ASR will vary by the maturity of the terminating Country's telecom infrastructure. Markets that have few phones per capita (teledensity) tend to have low ASRs and those with high teledensity have high ASR. Generally an ASR of at least 55% is acceptable.

Perceived Voice Quality of Service (PVQoS) ‚ How does the call sound on a scale of one to five? Three is the quality of a cellular call. Five is a local call places between fixed exchange lines. Below three is unacceptable.

Average Call Duration (ACD) ‚ A proxy measure for PVQoS. Measures the average talk time to a destination. It is useful measure, if it is used to compare carriers, or to track the quality of a carrier's network to a destination over time.

There are three objectives that usually drive the local exchange service offer:

1. Potential and margin for inbound interconnect minutes of use (MoU)?
2. Sources and geographical concentration of outbound MoU?
3. Opportunity to leverage technological superiority to deliver a comparable set of products at lower cost?

In practice that means:

1. Building local network facilities, only when confident of a high level of customer acceptance E.g. to multi dwelling units or in the major business districts.
2. Selling dial up Internet accounts.
3. Offering value added premium services like voicemail, 3-way calling etc in a bundled package.
4. Use of soft-switch infrastructure to enable share access to premium services by subscribers. Thus reducing the capital employed to deliver premium services.

For more on this question see presentation titled Creating a Local Services Business Case.

Whatever you decide to offer, keep the benefits of using your service simple and easy to understand. Why? When a market liberalizes your marketing communication must address three challenges. (1) There is a choice, and (2) how to make the choice. Only when the prospective customer has understood these, will they be receptive to (3) why one carrier offers a superior service to another. Given this challenge, if you offer complex products, the product benefits might not be understood.

Further, the need to keep it simple parallels the importance of not undertaking more pre-launch organizational complexity than necessary. To launch, you need to have the ability to enroll a customer, complete a call to any telephone in the world, bill and collect. The simpler that is, the quicker service can be offered and the less likely you will make a mistake and get a reputation as a poor quality service provider!

Finally, you don't know what will sell! Its far better to get some customers, look at their calling patterns (numbers called, time of day, day of week, destinations, etc) and then design pricing plans that will match those calling patterns. Initially offer a plan that is 5-8% less then the market-leading rate. It is a powerful message, which will attract price sensitive customers, and will help you to gather the usage data to design the products that will retain your target customers.

Typical telecom carrier income statements reflect a long term net margin between 3-10% for voice services. Therefore undercharging in the short term will have a very damaging effect on your carrier's ability to cover its cost of capital. Your price must reflect the message you want to communicate to the market. Are you the low price leader? A position you can only assume if you have a cost of service differential you can maintain for 18 months. Or, are you targeting customers that have a pre-existing commercial relationship with you? In most cases, new market entrants will offer services that:

1. Can already be purchased.
2. Incur very low costs to switch.
3. The customer premises equipment is interoperable with all of your competitors.

Thus, the ceiling price has to be low enough to attract those willing to try a different service provider, but not so low that it triggers a price war.

If you don't have existing customers who know and trust your brand or don't feel that you have a sustainable lower cost of operations, then instead of offering the lowest price, try offering a free trial to overcome their reluctance to try the service. Then reward those trial users with competitive prices. This approach has the extra benefit of gauging the potential for your service, and therefore how much physical infrastructure and fixed overhead you will need to serve the market. This is the most important input to your cost plus pricing model. A cost plus pricing model is the most common way to calculate the target price for a service. It is the estimated cost per unit, plus a target margin. Accuracy depends on how close actual demand is to assumed demand. Volume below or above this target will have a significant impact in the cost per unit and therefore the companies net margin. Finally, if you use a cost plus model to develop the price per unit include all of the costs of development e.g. the cost of service for the free trial.

For more on this question see presentation titled Deploying LD Services.

What you have achieved in the past is an important indicator of the company's value. However, the valuation multiple is set by how well prepared your business will be for the future? An investor is looking for the fatal flaw! The one or two market characteristics that your business relies on for its success, and what you have done to prepare if they change. This analysis will be based on their own information sources, principally industry consultants who are current on market dynamics; industry analysts who follow companies that address the market; and direct contacts with other companies that address similar market. In addition they will request meetings with your key customers, prospective customers, distributors and suppliers.

Here are the questions most commonly posed when developing a "fatal flaw" analysis:

In the face of competition, an incumbent carrier will eventually develop skills in data mining. That is, interpreting customer behavior and marketing the services that they believe will reduce the number of customers willing to try another carrier and increase the revenue from each customer. However, to buy the time to develop those skills their immediate reaction will be: