You buy eggs by the dozen and gasoline by the gallon. But soon your enterprise could be buying your phone services by the IP port speed rather than by the line.
XO Communications, a Reston, Va.-based CLEC providing service in 22 states, announced a new pricing methodology Jan. 16 for its IP Flex, IP Flex with VPN and XO SIP products, all integrated, IP-based voice and data services. Charges now will vary according to port speeds, ranging between 1.5 Mbps and 45 Mbps (essentially T-1 to DS3); specific calling plans, ranging from 2,000 to 50,000 minutes a month; and additional features selected (call center or VPN, for example).
Telecom negotiator Hank Levine says the attorneys at Levine, Blaszak, Block & Boothby as well as the consultants at TechCaliber, both Washington, D.C.-based firms where Levine is a partner, are watching enterprise response to the new pricing methodology closely.
It’s just XO now, Levine observes, but if second-tier vendors like Sprint and Qwest notice that they’re losing big deals or lots of circuits because enterprises find XO’s new pricing attractive, they could adopt similar pricing models within a few months. And that could put pressure on AT&T and Verizon to price according to bandwidth, potentially by mid-year, he adds.
Third-Largest CLEC Is At It Again
It may not be AT&T, but XO is a carrier with influence. It’s the third-largest CLEC in terms of competitive carrier access lines, with 3.1 million, following only AT&T and Verizon Business, according to research by Chicago-based New Paradigm Resources Group Inc. [VR 9/27/07]. It boasts 130,000 customers, including 326 of the Fortune 500.
XO announced in January 2007 that its IP voice traffic grew 80% in 2006, to 1.5 billion minutes nationwide in December 2006 from 822 million minutes in January 2006. Its XOptions Flex – recently renamed XO IP Flex – now is available in more than 75 metropolitan markets. [See the full map at www.xo.com/about/network/Pages/maps.aspx]
But XO must be hopeful that its new pricing methodology will generate more profits. The CLEC reported losing nearly $61.5 million on almost $1.1 billion in revenue for the first nine months of 2007, according to its most recent quarterly filing with the U.S. Securities and Exchange Commission.
This isn’t the first time XO has shaken up pricing structures in an attempt to grow business, notes Levine, who describes XO’s services as a good fit for an enterprise that has 100 locations with three or four T-1s each and is willing to move a T-1 at each location from its incumbent carrier. The CLEC started offering the option to pay a premium for T-1s instead of paying for usage a few years ago, he notes.
Pricing Up For Higher-Minute Bundles
The main reason for XO’s pricing methodology switch: “Simplicity,” says XO spokesman Chad Couser.
“Pricing by lines is a TDM model and in an IP environment, voice traffic is just packets, just like any other traffic,” he adds. Charging based on bandwidth “takes out a lot of variables” in telecom pricing, like the number of lines. Instead, enterprises now will determine how much bandwidth their current lines consume and add that to their data traffic, Couser says.
Tom Hayden, systems administrator and telecom manager at Benefit Advisors, in Livonia, Mich., would appreciate more simplicity. Benefit Advisors provides voice and data to six end users with a bundle of 2,000 minutes and a 1.5-Mbps circuit purchased from XO. The CLEC’s new pricing should allow him to order just one service instead of multiple phone lines.
Meanwhile, Chris Lee, a telecom consultant and XO customer, is hoping the CLEC’s changes will save his company money. The managing director at Source Loop, in Fairfax, Va., who describes XO IP Flex as a good fit for enterprises or branch offices that want voice and data on a single pipe without the need for a PBX, says he can’t get advanced features, like unified messaging. But the service provides basics like voicemail, caller ID and three-way calling.
Lee uses a Cisco router to connect his office’s eight analog voice lines to XO’s network. He bought a pack of five voice lines and pays an extra $30 a month for the three additional lines, which include unlimited long distance. He says his savings under the new pricing will depend on what XO ultimately charges for a T-1 and minutes of voice use.
But enterprises also could wind up paying more. While XO declined to provide Voice Report with specific pricing information – saying only that it will vary by market – an anonymous XO representative shared the following pricing (calculated for the downstate New York area) with Voice Report:
• $60 for 2,000 minutes a month; overage minutes at 4.0 cents each;
• $137 for 5,000 minutes a month; overage minutes at 3.4 cents each;
• $275 for 10,000 minutes a month; overage minutes at 3.2 cents each; and
• $1,000 for 40,000 minutes a month; overage minutes at 1.9 cents each.
A T-1 with 12 voice lines used to include 50,000 minutes for $790, the rep says. Now a 1.5-Mbps IP port (equivalent to a T-1) with a 40,000-minute block costs $1,419.
The 2,000- and 5,000-minute bundles are cheaper than they were under previous pricing, the rep says. Bundles of 10,000 minutes or more are more expensive, however, at least in downstate New York.
Your enterprise would have to make exactly 60 calls an hour, every hour of the business day, just to break even with XO’s bandwidth pricing, estimates Lisa Pierce, a principal analyst at Cambridge, Mass.-based Forrester Research Inc., who also has been privy to XO’s new prices. The cost of a T-1 in each market will depend on whether XO can buy unbundled loops or whether it has to buy special access from carriers like Verizon, Lee says. An unbundled loop is 40% to 60% cheaper than buying special access, he adds. (