Demystifying MPLS Pricing – Part 1: The Local Loop

During our recent “Making the Transition to MPLS” webinar, an attendee commented on how complicated comparing MPLS pricing across carriers can be.  It’s a concern we’ve heard before, and we wanted to devote a few posts to the subject.  We’ll start by explaining the basic parts of every MPLS quote.

MPLS Local Loops:
Local Loops are the  connections between any location and the nearest providers Point of Presence (POP).  Also commonly refereed to as the “last mile”, local loops costs generally depend upon distance.  For locations within the US,  your last mile provider is likely AT&T, Verizon or Qwest. These providers are collectively refereed to as Local Exchange Carriers (LECs).  For a small percentage of locations, the last mile provider may be a smaller company  like Embarq or Windstream. These Independent Local Exchange Carriers (ILECs) typically operate in smaller regional markets.
The international market for local loops can be quite unpredictable, especially in countries where a single firm poses a monopoly.  It can take much longer to confirm pricing and availability for international locations.
The provider from which you purchase your network services will not generally mark up local loop costs, and in rare cases may be willing to discount the cost.
Flat Rate mileage bands are typical in local loop pricing (i.e. a standard local loop charge of $250 for any location within 25 miles of the nearest POP).

Average Costs for MPLS Local Loop Circuits:
Local loop costs for locations in and around major cities will see costs between $100/month and $300/month, while more remote locations may  be two or three times.  Bonded T1s loop charges are typically a multiple of the single T1 costs, with some discount for underlying number of T1s.
DS3 Local loop costs can range from $1000/month to $6000/month. Here again locations in major cities and their surrounding suburbs will see average local loop costs in the $1500/month to $2500/month range.
Ethernet is has become an attractive option for local loop access to MPLS networks (speeds range between 10Mbps-100Mbps).  Ethernet local loops are typically priced individually due to greater distance sensitivity.

Flat Rate Local Loop Pricing (Unlimited Mileage):
Many larger organizations (20 or more locations) request flat rate local loop pricing across their entire network.

Flat rate pricing allows network managers the flexibility to plan future expansion with a precise knowledge of cost per additional location. There are however a few challenge to be mindful of.  Networks heavy on rural locations could end up being significantly more expensive.  Most network providers will factor this into the flat-rate cost and add a cushion for unexpectedly high local loops. In most cases flat rate pricing will prove more expensive than alternative pricing models.

We’ve often seen a combination of pricing models within a single network. The network provider may offer flat rate pricing based on mileage bands for example:

- 0-25 miles $150
- 26-50 miles $270
- Greater than 50 miles, location specific pricing.

This allows for some predictability in pricing, while mitigating the risks associated with remote locations.

When making your procurement decisions, you’ll need to consider carefully the higher marginal costs that may accompany more predictable future network costs.

We’ll cover Port costs in an upcoming post.

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