When is 3¢ Per Minute Not Really 3¢ Per Minute?: A Primer on Call Rounding
Part 1
By Yosef Rabinowitz, Managing Director of TBRC Cost Recovery, LLC-A Telecommunications Audit Company
In exchange for guaranteed low rates, many businesses sign a term agreement with their long distance carrier. The contract specifically states what the rate per minute will be, and indeed, each call is calculated based on that rate. In a perfect world, your telecommunications carrier would tally up all of your minutes for the month and multiply by the contracted rate to arrive at your bill. In many cases, though, at the bottom line, the average cost per minute comes out higher than what’s clearly written in the contract; sometimes by as much as 100 percent. How do phone carriers pull this off legally and within the framework of their contract with you? The method is call rounding.
A Penny Here; A Penny There
As a general rule, the various types of rounding combined will add about 10 percent to 20 percent to your phone bill overall. If your average telephone call is longer than five minutes, read no further. Rounding will have very little impact. But if the bulk of your calls are very short (i.e. under one minute), watch out! You might be getting ripped off. After reading this article, you’ll understand how rounding affects the cost of a phone call. The next time you negotiate a contract for long distance phone service, you’ll know what to insist on.
There are several ways that a carrier can manipulate the cost of a phone call. Most are subtle and the results are based on convenient mathematics (convenient for the carrier, that is). They include time rounding, call-length minimums, decimal rounding and cost minimums. In many cases, they can easily turn a monthly telephone bill of $25,000 into $30,000 or more.
| Example #1 For our purposes, we’ll use a rate of 3 cents per minute and nearest-penny rounding unless stated otherwise.
The most well-known form of rounding is six-second versus full-minute. A 36-second phone call will cost 2 cents with six-second rounding and 3 cents with full-minute rounding. On average, full-minute rounding will add 10 percent to 15 percent to the real cost. Here are some examples:
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Multiplied over a full month of telephone calls, this difference can add up to hundreds, or even thousands of dollars.
Hidden Trap
While you can typically determine if you have six-second rounding just by looking at the call lengths (i.e., 2.1 or 2:06 versus 3), some carriers display the fractions of minutes but bill in full-minute increments. The best way to check is to find a phone call, for example, that is 1.5, 2.6 or 3.4 minutes and verify the math.
| Example #2 Even with six-second rounding, many carriers (including the major companies) secretly raise the cost of a call by billing a minimum amount of time (i.e. 18, 30 or 60 seconds). A company with a lot of short telephone calls can easily get taken for a ride with this alone:
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In this scenario, call-length minimums add at least 11 percent and as much as 200 percent to a typical short call. To determine how your company’s calls are rounded, look at a page of call detail from a recent telephone bill.
Tips to Consider
Insider Tip #1: When quoting rates, telecom salespeople will refer to these types of rounding as 18/6 (“Eighteen and six”), 30/6 and 60/6 respectively. The first number is the minimum length per call and the last number is the increments thereafter. 6/6 is the best option.
Insider Tip #2: Even the carriers that use 6/6 or 18/6 rounding on domestic calls tend to have at least a 30-second minimum (30/6) on international calls.
As if time rounding wasn’t enough, there’s more. In Part II, we’ll expose how carriers hit you with a double whammy and manipulate the actual phone cost itself through decimal rounding and cost minimums — all perfectly legal, and all under the radar. We’ll also include some tips on how to combat these practices.
About the Author
Yosef Rabinowitz is managing director of TBRC Cost Recovery, LLC, a telecom expense management firm located in New York City. His company helps companies and not-for-profits of all sizes recover money from billing errors and to contain costs going forward, typically on a contingent-fee basis. TBRC is jointly owned by Shanholt Glassman Klein Kramer & Co., CPAs, PC, in New York. Yosef can be reached atyosef@tbrc.com.
When is 3¢ Per Minute Not Really 3¢ Per Minute? A Primer on Call Rounding – Part 2
By Yosef Rabinowitz, Managing Director of TBRC Cost Recovery, LLC
In part one of this two-part article that appeared in the June 22, 2005, issue of The Business Edge, we examined how long-distance carriers round up the length of a phone call so that they can charge more than the rate that is stated in your contract. In part two, we expose how telecom carriers hit you with a double-whammy and further manipulate the actual cost of each call through decimal rounding and cost minimums. It’s all perfectly legal; and all under the radar. We’ll also introduce you to methods for combating these practices.
For our purposes, we’ll assume a rate of 3¢ per minute with 6/6 rounding, unless otherwise indicated.
Nearest Penny vs. Next Penny
For a call that lasts 2.4 minutes, the raw cost is 2.4 x $0.03 = $0.072. A carrier that rounds to the nearest penny will bill this call at 7¢. A carrier that uses next-penny rounding will bill it at 8¢. Those pennies can, and do, add up.
| Example #1 – Decimal Rounding Consider decimal rounding. Two decimals round to the penny. Three decimals round to the tenth of a penny. And four-decimal rounding is to the hundredth of the penny. Since a rate of 3¢ multiplied by tenths of minutes only goes to a maximum of 3 decimals, we’ll use that in our example:
Two-decimal billing adds about 10 percent to the overall cost versus three-decimal billing. The longer the average call lasts, the less this will affect the bottom line. Example #2 – Penny Minimum vs. No-Penny Minimum
Penny-minimum rounding adds 66 percent to the cost of calls that last 18 seconds or less. At a contract rate of two cents per minute, it would increase the cost of these calls by a whopping 150 percent! |
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Call rounding can add a significant “surcharge” on your long-distance telephone bill. It may be unavoidable, but it can be minimized. If your company is small and uses a standard “switched” service, ask your carrier for 18/6 and nearest-penny rounding. “No-penny minimum” is generally not available to switched customers. Those carriers that offer three-decimal billing to switched customers tend to charge higher rates per minute that more than offset the effect of rounding.
On the other hand, for companies large enough to use a dedicated circuit or “T-1″ connections for long distance, there are carriers that offer 6/6, no-penny minimum and four-decimal rounding. Mathematically, this arrangement is unlikely to ever add more than 0.3% to your phone bill, and therefore, is the closest thing to our “perfect world” scenario on the market today.
About the Author
Yosef Rabinowitz is managing director of TBRC Cost Recovery, LLC, a telecom cost savings firm located in New York City. His firm helps companies and non-profits of all sizes recover money from billing errors and contain costs, usually on a contingent-fee basis. TBRC is jointly owned by Shanholt Glassman Klein Kramer & Co., CPAs, PC, in New York. Yosef can be reached at yosef@tbrc.com.
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Tags: phone bill audit, telecom cost savings, telecommunications audit
