Wednesday, April 11, 2007

What's the Incremental Cost of Terminating a Minute?

Well over a decade ago, as part of an exercise to determine the actual incremental cost of terminating a minute of voice usage, I calculated that incremental cost could not be less than three cents a minute. The reason? Any service provider terminating a minute of long distance traffic, for example, would have to pay an access fee, and then there's the cost of the billing infrastructure to send a bill or comply with government regulations, which would add some fraction of a cent per minute.

It doesn't appear those costs have changed much, at least for most rural telephone companies. The cost to originate, by the way, seems to remain at about one cent a minute, with the actual usage of a switch costing about 4/10 of a cent, one analyst who continues to run cost studies reports.

Embarq SVP Bill Blessing, additionly, says that the cost of operating a soft switch is in fact not less than operating a legacy Class 5 device. Transport, access and plain old overhead continue to be where the cost drivers remain, not switches.

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