Least cost routing

In voice telecommunications, least-cost routing (LCR) is the process of selecting the path of outbound communications traffic based on cost. Within a telecoms carrier, an LCR team might periodically (monthly, weekly or even daily) choose between routes from several or even hundreds of carriers for destinations across the world. This function might also be automated by a device or software program known as a "Least Cost Router."

Telecoms carriers often buy and sell call termination services with other carriers. A carrier such as Telewest or France Telecom will be interconnected with other telecoms carriers and might have a number of routing options of different price, quality and capacity to a given country. In the de-regulated EU, these will be licensed alternative operators (e.g. Cable and Wireless / Colt in the UK or Jazztel in Spain) or the (PTT)'s of other countries, such as T-Systems (Germany), Telefónica (Spain), NTT (Japan) or Telstra (Australia), who establish offices or a point of presence (POP) in a major telecommunications hub city such as London, New York, Hong Kong or Amsterdam. The major US carriers, Sprint, Verizon, AT&T and Level 3 in the US ajay also have POPs in these hub cities. There are also niche carriers which specialise in providing termination to a small number of destinations, sometimes through the use of grey routes.

"Trading" in the telecom carrier-carrier market is very different from the "trading" conducted in financial markets by brokers and banks. Whereas brokers and banks may buy and sell the same stocks or bonds with each other in the same day, carriers have to be very careful not to do so. For example, if carrier A buys USA from carrier B who buys it from A, one call will come in to carrier A, go to B and return to A, continually until all the circuits are taken up with the one call. If it does terminate on an overflow route, the carriers may bill each other many times over for the same call. This is called looping and is very undesirable.

The LCR team in a carrier might follow a cycle:

(1) The buyers negotiate with their suppliers and get a new price schedule. (2) The prices are loaded into software to calculate and compare termination costs. (3) A route is chosen, fixing a cost-for-pricing, and new prices are issued based on the costs-for-pricing. (4) The new routes are implemented on the switch and finally the traffic volumes and margins are monitored through reports from the billing system. (5) Loss-making traffic and odd routing are investigated, and either the billing system has its data corrected or routing and pricing action is taken.

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