Telecommunications tariff

Last updated June 08, 2024

A telecommunications tariff is an open contract between a telecommunications service provider and the public, filed with a regulating body such as state and municipal Public Utilities Commissions and federal entities such as the Federal Communications Commission (FCC).^[1] Such tariffs outline the terms and conditions of providing telecommunications service to the public including rates, fees, and charges. ^[2]

Reasons for tariffs

At a minimum, tariffs imposed must cover the cost of providing the service to the consumer. The consumer may be the final user or an intermediary such as a service provider. If a telecommunications operator cannot recover its costs, it will make a loss and the company will go bankrupt. Tariffs must also be used to cover maintenance, additional research and other indirect costs associated with providing the service. However, telecommunications service providers must be careful not to over-price each service, as prices have a direct influence on demand for that service (see supply and demand). Such an operator must constantly balance the need to provide cheaper rates, especially if there is strong competition, with the cost of maintaining the service at an optimum quality that is acceptable to the customer. If an operator charges too much, it risks alienating its customers, resulting in a loss of traffic and therefore revenue; if they charge too little, they will have insufficient capital to maintain the network's quality of service. Over time this will result in customer attrition.

Components of tariffs

Tariffing systems vary from country to country and company to company, but in general they are based on several simple principles. Tariffs are generally made up of two components:

Standing charges: these are fixed charges that are used to pay for the cost of the connection to the nearest exchange and the equipment to monitor that customer's phone line or service connection. They are usually paid on a monthly basis, and called rental.
Call charges: these charges are variable and are used to pay for the cost of the equipment to route a call from the caller's exchange to the recipient's exchange. These call charges can be calculated on a fixed per call basis, a variable basis depending on the time or distance of the call, or a combination of the two. Call charges can even vary at different times of the day. For many local calls the charge is zero; see flat rate .

These components form a basic tariff system but, as telecommunication advances, tariff structures become increasingly more complex.^[3] Usually there is the option of calling collect (in the UK known as reversing charges), where responsibility for charges normally paid by the caller is accepted by the recipient. Tariffs^[4] also depend on the bandwidth provided. For example, dial-up modem connections are charged at normal telephone costs, but connections such as DSL are usually charged using a completely different accounting system due to their always on nature.

Special tariffs

Increasingly, in some countries, the call charges are fixed at a monthly rate and included as a supplement to the standing charges, known as inclusive calls.

Emergency calls can invariably be made without charge.

Most countries have a number sequence that enable the caller to make calls without charge, sometimes known as free calls or freephone, these are usually used by companies for their sales line (in the UK these are 0800 and 0808 numbers and in the US they are 800, 888, 877, 866, 855, 844 and 833).

Tariffs substantially in excess of the normal rate, known as premium rate , are used for information services, competition entries and pornography calls.

These telecommunications tariffs originated with the advent of public phone service. In these times, the services provided were less complex, and customers were able to simply read the tariffs to understand how much they would be charged for each type of call.^[3] Additionally, only a few telecommunication industries participated in the market, facilitating decision-making. As the market became increasingly competitive, the need for regulation decreased. In 2001, the U.S. Federal Communications Commission (FCC) declared the telecommunications market was fully competitive in the United States, and eliminated the need to file tariffs with federal regulatory agencies. However, to continue operating, many state and local governments still require telecommunications tariffs.^[5]

Impact of tariffs on traffic

Call minutes are highly elastic against price, this means that the demand for call minutes varies greatly according to price. A slight decrease in price leads to a great increase in call minutes. The higher the price, the more this effect is noticeable, for both business and residential customers on international or local calls. This means that it is often the case that more revenue is achievable at lower prices, that is, E < -1.^[6]

Internet traffic research show that the traffic intensity is directly affected by the tariffs charged in connecting customers to their Internet Service Provider (ISP).^[6] For example, a circuit-switched network provider charges different tariffs at different times of the day. It was noted that at the time that the rates decreased, the traffic intensity logged by the ISP increased dramatically and then decayed over time at an exponential rate. The conclusion of the research was that by varying prices over time, a telecommunications service provider can reduce the level of the traffic intensity at peak periods, resulting in lower equipment costs because of the reduced need to provision to meet peak demand, which in turn leads to increases in long-term revenue and profitability. See Time-based pricing .

Related Research Articles

In telecommunication engineering, and in particular teletraffic engineering, the quality of voice service is specified by two measures: the grade of service (GoS) and the quality of service (QoS).

Premium-rate telephone numbers are telephone numbers that charge callers higher price rates for select services, including information and entertainment. A portion of the call fees is paid to the service provider, allowing premium calls to be an additional source of revenue for businesses. Tech support, psychic hotlines, and adult chat lines are among the most popular kinds of premium-rate phone services. Other services include directory enquiries, weather forecasts, competitions and ratings televoting. Some businesses, e.g. low-cost airlines, and diplomatic missions, such as the US Embassy in London or the UK Embassy in Washington, have also used premium-rate phone numbers for calls from the general public.

A fee is the price one pays as remuneration for rights or services. Fees usually allow for overhead, wages, costs, and markup. Traditionally, professionals in the United Kingdom receive a fee in contradistinction to a payment, salary, or wage, and often use guineas rather than pounds as units of account. Under the feudal system, a Knight's fee was what was given to a knight for his service, usually the usage of land. A contingent fee is an attorney's fee which is reduced or not charged at all if the court case is lost by the attorney.

Universal service is an economic, legal and business term used mostly in regulated industries, referring to the practice of providing a baseline level of services to every resident of a country. An example of this concept is found in the US Telecommunications Act of 1996, whose goals are:

A toll-free telephone number or freephone number is a telephone number that is billed for all arriving calls. For the calling party, a call to a toll-free number from a landline is free of charge. A toll-free number is identified by a dialing prefix similar to an area code. The specific service access varies by country.

<span class="mw-page-title-main">Conference call</span> Telephone call with several participants

A conference call is a telephone call in which someone talks to several people at the same time. The conference call may be designed to allow the called party to participate during the call or set up so that the called party merely listens into the call and cannot speak.

In telecommunications, directory assistance or directory inquiries is a phone service used to find out a specific telephone number and/or address of a residence, business, or government entity.

Telkom SA SOC Limited is a South African wireline and wireless telecommunications provider, operating in more than 38 countries across the African continent. Telkom is majority state-owned (55.3%) with the South African government owning 40.5% of Telkom, while another 14.8% is owned by another state-owned company - the Public Investment Corporation (PIC), which is closely linked to the South African government.

In telecommunications rating is the activity of determining the cost of a particular call. The rating process involves converting call-related data into a monetary-equivalent value.

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A naked DSL, also known as standalone or dry loop DSL, is a digital subscriber line (DSL) without a PSTN service — or the associated dial tone. In other words, only a standalone DSL Internet service is provided on the local loop.

Bandwidth throttling consists in the limitation of the communication speed, of the ingoing (received) or outgoing (sent) data in a network node or in a network device such as computers and mobile phones.

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The termination rate is one of the three components in the cost of providing telephone service, and the one subject to the most variation.

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In the United Kingdom, an electricity supplier is a retailer of electricity. For each supply point the supplier has to pay the various costs of transmission, distribution, meter operation, data collection, tax etc. The supplier then adds in energy costs and the supplier's own charge. Regulation of the charging of customers is covered by the industry regulator Ofgem.

Traffic pumping, also known as access stimulation, is a controversial practice by which some local exchange telephone carriers in rural areas of the United States inflate the volume of incoming calls to their networks, and profit from the greatly increased intercarrier compensation fees to which they are entitled by the Telecommunications Act of 1996.

Tiered service structures allow users to select from a small set of tiers at progressively increasing price points to receive the product or products best suited to their needs. Such systems are frequently seen in the telecommunications field, specifically when it comes to wireless service, digital and cable television options, and broadband internet access.

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References

↑ "Tariffs". FCC. Retrieved 14 September 2013.
↑ "Telecommunications Tariffs: Frequently Asked Questions". MyFlorida. Florida Public Service Commission. Retrieved 14 September 2013.
1 2 "What is a Telecom Tariff?". wiseGeek. Retrieved 14 September 2013.
↑ "What is a Telecom Tariff India?". telecomtariff. Retrieved 17 June 2020.
↑ "Toll Free Calls and Telecommunications Tariffs". Phone Services. 11 September 2013. Retrieved 7 February 2014.
1 2 Vannucci, D.E., Kennedy, I.G., Barker, M., "Impact of Tariff on dial-up internet traffic: Modelling the subscriber response as a dynamic system", ITC18 Workshop for Developing Countries, Berlin, 2003.

Farr, R.E., Telecommunications Traffic, Tariffs and Costs - An Introduction For Managers, Peter Peregrinus Ltd, 1988.
Kennedy I.G., "Why is Network Planning Important?", Lecture Notes, ELEN5007 - Teletraffic Engineering, School of Electrical and Information Engineering, University of the Witwatersrand, 2005.