Low-speed frame costs on the rise

While rates for many telecom services have long plummeted, some users find themselves paying up to twice as much today for low-speed frame relay as they did 18 to 24 months ago, according to industry watchers and those footing the bills.

While rates for many telecom services have long plummeted, some users are paying up to twice as much today for low-speed frame relay  as they did 18 to 24 months ago, according to industry watchers and those footing the bills.

The carriers say they need to regain profitability and can no longer offer low-margin services at yesterday’s prices.

Bay State Milling in Quincy, Mass., encountered the phenomenon when it began renegotiating a frame relay contract with Sprint . Not only did the company’s bills increase approximately 10% across the board, but also the price of one 128K bit/sec link in Florida doubled, says IT Director Kim Yaworsky.

Bay State, which has a frame network that spans seven states in the U.S., has been paying $360 per month for T-1 access on its 128K bit/sec frame relay link in Indiantown, Fla., since 2001, the last time the company renewed its two-year contract. When the company started renegotiating its contract last month, Sprint came back with a price of $886 per month for the same line, which only covers local access for Bay State’s frame connection.

“They just won’t budge. We understand prices going up, I expected that, but not [by that much],” Yaworsky says.

After pressure, Sprint reduced the price of the link to $700 per month, but Yaworsky is still disappointed. “We are resigning with Sprint. We’re happy with everything else; their service is great. But now we’re just signing a one-year deal,” he says.

Many carriers are increasing their low-speed frame prices. Most long-haul service providers also are moving in this direction.

“Pricing on frame relay proposals is rising on lower-speed services. This is such a repeatable trend one can easily generalize,” says David Rohde, an analyst at consulting firm TechCalibur. “Users who have a low-speed frame network that is served by one provider can expect difficulty with contract renewals.”

That’s what MoldFlow, a software company that makes products for the molded plastic parts industry, ran into with AT&T  when it was time to renew its multinational frame relay contract. MoldFlow has a frame relay network that connects multiple sites in the U.S. and two overseas on links that max out at 256K bit/sec, says Rick Thimble, manager of IT at the Wayland, Mass., company.

AT&T’s contract proposal had prices that were nearly 20% more than MoldFlow was paying. “I was surprised,” Thimble says. “We simply did not have any more dollars in the budget to support the higher prices.”

Thimble considered lowering bandwidth at each site to reduce the cost of his contract, but he feared that would lead to bottlenecks because MoldFlow regularly ships software code between offices. The company explored different service options with AT&T, including its IP Enabled Frame Relay service, but Thimble says that would have cost more than a new frame contract.

“It got to a point where we could no longer do business with AT&T,” he says. MoldFlow is ditching its frame relay network for a fully managed IP VPN service from Cable & Wireless.

“We will have four times as much bandwidth in most locations, and we’re paying less for it,” Thimble says. AT&T did come back to MoldFlow to make the company aware of its managed IP VPN service, but at that point it was too late, he says.

Although AT&T tried to increase MoldFlow’s frame relay contract by 20%, the carrier says that its low-speed frame has gone up only 5% on average, says Steve Sobolevitch, vice president for AT&T Business service pricing. AT&T chalks up most of the increase to local access charges, but also notes the need to raise prices to drive up revenue throughout the industry.

Sprint says that’s why it raised its rates.

“Some of the low-speed ports are not profitable,” says Bob Landon, senior director of strategic pricing at Sprint. The market changed mid-2002, which “allowed us to reassess pricing. It gave everyone an opportunity to reassess the profitability of services,” Landon says. “We have some customers that signed contracts a couple of years ago with prices that are simply no longer available.”

“We’re not trying to gouge people; we’re trying to make money so we can produce a profit,” he adds. Users could see 10%, 20%, 30%, 40% and even 50% price increases depending on the number of low-speed frame relay nodes they have, he says. For example, a customer with 500 56/64K bit/sec frame relay connections could see rate increases at the higher end of Sprint’s range compared with a customer that may have 10 to 20 low-speed lines in addition to 10 to 20 high-speed frame relay lines.

The pressure to increase revenue is driving rate increases, but low-speed was never as profitable as high-speed frame. Supporting low-speed frame relay is more costly for carriers, says Rick Malone, principal at consulting firm Vertical Systems Group. It costs as much for a carrier to maintain a low-speed port as it does a high-speed port, but the latter brings in “three to four times the revenue,” he says.

Despite its Chapter 11 filing, WorldCom  is raising rates.the company says it, too, has increased low-speed frame relay prices three times over the past six months by 5% to 8% per instance.

There are steps customers can take to help keep price increases in check, experts say:

• Avoid long-term contracts.
• Work with multiple services providers. Diversifying network providers is sometimes more difficult with small to midsize networks, but it shows an incumbent carrier that a user is willing to take new business elsewhere.
• Keep an eye on the incumbent local exchange carriers that say they plan to more aggressively go after new business and may offer lower rates this year.
• Talk with your incumbent carrier about next-generation data services such as Multi-protocol Label Switching offerings.