Tuesday, March 08, 2005

Why T1 Prices Have Tumbled

If your long term contract for T1 line service is expiring soon and you've checked recent prices online, you may be in for quite a shock. If not, take a second and see what our quote engine at T1 Rex comes up with. Go ahead, it will open in another window.

So how much cheaper are today's T1 prices? 25%, 33%, maybe 50%? What's THAT all about?

T1 or T-Carrier used to be one of those staid propietary digital line services that you only got through your local phone company. You probably didn't use T1 unless you needed it to support a call center, medium to large PBX system, Internet service for a corporation, or point to point private line. Now it seems like everybody is looking for T1 service.

There are two reasons for the T1 boom. First, even small and medium businesses are being driven to install digital lines to support their point of sale terminals, accounting systems, supply chain integration and online presence. Just today I stopped by a popular restaurant for a dish of frozen custard and noticed that they had hooked up an inexpensive wireless router and were providing free WiFi Internet service to their customers.

Very few businesses are too small or unsophisticated for an Internet connection anymore. The smallest will use an ADSL or sometimes a Cable modem service. Those services are really intended for consumers and are offered on a "best effort" basis. In other words, no service guarantees. A business that depends on its network to process credit cards, order supplies, and communicate with the home office will probably want at least a fractional T1 and likely a full T1 line.

So why are prices going down and not up with all the demand? First of all, the technology has been improved. The original T1 transmission scheme was implemented in the 1950s and was intended for internal use between phone company offices to carry phone calls in bulk. This is also called trunking. When it was made available to businesses, the installation costs were high because the copper pairs used must be carefully chosen and regenerators must be installed if the span is over 6,000 feet. Only a single T1 circuit could typically be provisioned in a 50 pair wire bundle because the T1 signals would cross-talk or interfere with each other.

That's all changed in the last ten or fifteen years. A new line coding scheme called HDSL (High Speed Digital Subscriber Line) is far more forgiving of minor defects on the two pair of unshielded copper wires it uses and doesn't need signal regeneration until it reaches 12,000 feet from the phone company office. Don't let the DSL in HDSL fool you. This is a guaranteed service that provides the same T1 interface at the customer premises as legacy T1. Only the modulation scheme has been updated to more modern standards. An even newer standard, HDSL2, provides T1 service using only a single copper pair. That's basically a standard phone line. When HDSL2 is available, T1 service can be provisioned more quickly and easily, and thus more cheaply, than ever before.

The other big change in the cost structure has come from competitive carriers entering the marketplace as the result of deregulation in the telecommunications industry. A few years ago, you might have had one place to go for T1 service and they knew it and priced accordingly. Now, you might get a dozen options through a telecom broker like the one we work with. There are many competitive digital line service companies vying for your business. Competition has brought lower prices. Note that the actual installation may be handled by the local phone company because they own the copper phone lines by law. However, the actual voice or data service and any long distance private line service can be provided by competitive carriers, also called CLECs.

So are T1 prices likely to continue falling? Probably not indefinitely. As business conditions improve, excess capacity in the telecom industry is going to get used up. Supply and demand may well cause prices to rise at some point rather than continue to fall. That's something to consider when deciding whether to lock in the current low rates on a one, two or three year contract. You should also know that higher rate digital services, such as DS3, OC3, and Ethernet have seen price reductions similar to T1. This is part of what is enabling enterprise level VoIP as a cost reduction measure.

Whatever your bandwidth needs, don't renew your contract until you check your options. Visit T1 Rex and use our free quote service now.

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