Least Cost Routing - Making savings against BT

Least Cost Routing / LCR has been around for over 20 years. At some point you've probably had someone try and sell you an alternative telephone contract with promises to save you money. If you've ever wondered how (or indeed if) this actually works, this information sheet is for you.

First things first - are you currently using BT?
BT, or British Telecom as was, used to be publicly owned, that is the infrastructure was paid for by the British taxpayers and any profits (or otherwise) were paid back into the treasury's coffers. When BT was privatised, one of the reasons for the sell off was to open the industry up to competition to force standards up and prices down.

Different people have different opinions as to whether this was a good thing and whether it has achieved its aims, however the point is that BT are required to operate in a way which allows competition, whereas the same rules do not always apply to other suppliers such as cable companies like NTL.

Therefore, this document is aimed specifically at those who use BT. If you are using a cable company you will probably find that you are already paying a lower line rental and paying less for calls than on a standard BT rate.

OK, so I'm using BT. How can anyone provide a service to me?

Would I have to change my number or have someone visit my house or office to install equipment?

BT are required, by law, to allow you as a BT customer to "route" your calls over alternative suppliers if you wish to do so. When you make a call at the moment, your call goes from your phone to a local BT exchange, from there it travels by any appropriate route to the local exchange closest to the person you are calling, and from there to their phone. There isn't a fixed route between exchanges; the actual route taken might not be the most obvious one geographically but will depend on available capacity and may potentially take a detour to avoid faults.

In practice, not all of the available routes are maintained by BT, although it'll be BT's routes you will be using by default. If you switch to an alternative supplier then the path taken between the two local exchanges will be changed to use a route maintained by another company. That other company charges you for the call, and pays a bit back to BT for the "local loop" part, ie the bits at each end up to the local exchanges.

This is all a massive over-simplification, but hopefully it explains the principle. There are tens if not hundreds of companies able to offer alternative routing, and of-course they don't all maintain their own sets of cables; instead they simply bulk-buy minutes of call capacity at a reduced cost from the bigger operators and sell them on to you at a price which represents a saving to you and - hopefully - a profit to them.

The result is that you retain your BT line (and BT phone number), and continue to be billed by BT for your line rental, and pay separately for your calls to your new supplier.

How can anyone do this cheaper than BT?
Well firstly, BT themselves could reduce their prices if they wanted to. Indeed they do have many opt-in schemes which allow you to make savings ("Business Choices","BT Commitment" etc). It is surprising just how many BT customers don't actually take up these options, but this is also the simplest explanation for the price difference between BT and its competitors. Huge numbers of people just never get around to switching, and it is not in BT's interests (or specifically in the interests of its shareholders) to encourage them or to drop the rates it charges them.

Secondly, BT has an relatively old network to maintain, and the newcomers often therefore have newer, more reliable and lower maintenance hardware to look after.

In practice, as far as competitive pricing is concerned, the alternative suppliers compete amongst each other and offer broadly similar rates as each other, yet all of them undercut BT significantly. As an example, you can expect an alternative supplier to charge around half of what BT charges for a long distance (ie "national rate") daytime call. Savings to international destinations can be far bigger than this, whilst calls to mobiles (and premium rate numbers) are typically very close to BT due to way the revenues from each call are paid to the mobile (or premium rate line) operators.

What about other services?
Incoming services such as 0800 (free call) and 0845 (local rate call) numbers are usually much cheaper with alternative suppliers. Services which are heavily integrated with the telephone system such as 1471 and Caller ID continue to be provided by BT.

How does it work?
You need to tell your local exchange to route the call via an alternative supplier, and that alternative supplier needs to know about you so that they can charge you for your calls.

Usually you would sign up with a provider and they would give you a four digit access code which you prefix your calls with. Remembering to dial the code is not too bad, but since when you forget your new supplier doesn't make any money they usually make it easier for you by providing a small box to plug into your phone socket to dial the prefix for you automatically, although if you have an office and an internal exchange you would probably program that directly.

A new option is to have your local BT exchange programmed with your preferred supplier so that all calls go through them automatically. Known as "carrier pre selection", you can still make calls via BT if you wish - you simply have a prefix for your BT calls instead of your normal calls.

The astute amongst you will have realised than in principle you could have accounts with several suppliers and choose whichever is best for individual calls. This is called "least cost routing", although given the similarity in rates between most suppliers other than BT this job is best left to an internal exchange unless you really make lots of calls. Another thing you may have noticed is that if you don't use the prefix your call goes via BT - that is, if you don't like your new supplier you simply don't use them!

Since this only affects outgoing calls your incoming calls are not affected. In particular, your telephone number does not change. Similarly if you decided to take advantage of a new 0800 0845 or 0870 number this would simply route through to your existing number and would be an alternative to it not a replacement.