Least Cost Routing in 2020

Least Cost Routing (LCR) used to be simple, but in 2020 it is crazy complex.

Least Cost Routing (LCR), is a term used in the voice telecom industry to describe the process by which voice service providers select which carrier to send an “off-network” call and determine the order in which they are sent if the selected carrier can’t accept the call or complete it. Historically, it was driven simply by price. However, because of the introduction of VoIP/SIP/Next Generation Network technologies, combined with the explosion in voice traffic, it has become an incredibly sophisticated, hyper-complex process that carriers contend with every day, every hour, every minute and every call.

As an example 40 years ago when the RBOCs and AT&T ruled the U.S. based telecommunications marketplace, AT&T would engage with international carriers to route calls to places where they didn’t have a network. They would connect to carriers like Belgacom, or Cable & Wireless. They simply would look at their per minute termination rates and put the carriers in least cost order for route choices in a manner that was simple, easy, & not that important. Of course, this was a time when AT&T was a monopoly and could charge whatever they wanted with no competitive pricing pressure, they didn’t really care what the termination charges were from carriers like Belgacom or Cable & Wireless.

Fast forward to 1996, with the new Telecommunications Act and the introduction of VoIP from Vocaltec, the entire industry was flipped upside down. Competitive options dramatically impacted pricing resulting in rapid per minute price decline and, simultaneously, the introduction of VoIP allowed a great number of competitors to enter the market with fewer barriers to entry.

The result has been a classic example of creative destruction. The industry of wholesale voice (now referred to euphemistically as interconnect voice) is entirely different today than it was in the late 1990s. It’s still necessary, and incredibly important, and will most likely be prevalent for the foreseeable future. Least Cost Routing (LCR) is now an outdated term. No carrier, voice service provider, or voice application provider, uses only price to determine how to route the call. Today, carriers examine additional elements that include:

• Quality

• Capacity

• Margin

• Special deals

• Type of call

• Destination

• LNP/MNP

• ON-Net/Off-Net

• Credit

• Financial goals

This data has to be considered for the routing of a voice call that may generate costs to the carrier of less than $0.003 per minute. As a result, carriers and voice providers are investing heavily into management tools and software solutions to provide massive automation and data management to reduce the cost associated with managing off-net voice traffic.

The industry should identify a new term for categorizing this portion of a carrier’s network operations, maybe “Super sophisticated voice call routing in real-time”?