Tips on buying prepaid switching equipment

You’ve decided to get into prepaid, but what do you do first? Should you buy your own prepaid calling card switching platform or partition services on someone else’s prepaid switching platform? Perhaps you don’t want to mess with any kind of switch, preferring to sell cards as a distributor for a company that handles the backroom while you concentrate on marketing. What are the costs, benefits and drawbacks associated with these choices? Following is a guide that addresses factors to consider when answering these questions.

Buying your own switch

More equipment is required than just the switch. You will need a billing system and also a good software package that allows you to replicate the latest gimmicks your competitors are employing on the street.

There are basically three different types of switch solutions available, all of which have advantages and disadvantages depending on your requirements and technical capabilities.

  • PC-based switches: This type of solution typically comes as a turnkey package that includes the switch, the billing system and the application software. This means easy integration. PC-based switches tend to have a low cost of entry and accommodate rapid upgrades for new features and technologies. The main drawback of this solution is that PC-based switches generally are used in relatively low-capacity shops and being PC based can mean the switches are less robust.
  • Open architecture switches: Also called “programming required switching.” The advantage of this type of solution is flexibility. This type of switch has scalability and generally accommodates new technology rapidly. Normally you buy the switch from one source, the application software from a second source and the billing solution from a third, possibly leading to finger pointing if you have a problem. Finally, open architecture switch solutions have a more expensive cost of entry than PC-based solutions.
  • Closed architecture switches: This type of switch solution comes as a turnkey package including the switch, the billing and the software application. These switches have scalability and robustness associated with open architecture switches and the advantage of a single vendor source to solve any technical issues that may arise. The disadvantage associated with this type of switch is slower integration of new technologies and applications, because the manufacturer decides what new applications it will introduce to its customer base and what hardware solutions it will support. Similar to the open architecture switch, there is a higher cost of entry than the PC solutions.

Owning your own switch

Let’s assume you have a made a decision to purchase your own switching equipment and have decided on one of the three types of solutions above that best suits your personal situation. Now you may ask, “What else do I need to know?”

Purchasing the switch is the first step. Once this decision is made, there are numerous other variables you must consider if you are going to be successful in this business.

How will I pay for the switching equipment? You can always use cash, but you should think about conserving that precious commodity and try leasing. The monthly payment on a $100,000 equipment purchase with an annual interest rate between 8 percent to 12 percent will be approximately $3,133 to $3,321 per month.

  • Where will I locate my switching equipment? You can locate the equipment at your office, thus taking advantage of low-cost rental space and immediate access to the equipment 24 hours per day. If you choose this option, you will pay a premium for your local Tier 1 loops to connect to your carriers. Alternatively, you can locate your equipment at a professional telecom site. Here the cost of your local Tier 1 loops will be less, but the colocation cost for your switches will be higher, and you may have limited access to them.
  • What about carrier access, and how will I connect up to them? Will you connect to the carriers using TDM or VoIP? If you choose VoIP, will you use H323 or SIP? Don’t forget to make sure the switch you just purchased is compatible with TDM and VoIP, or you will need to purchase additional equipment to convert the protocols of your carrier to a compatible protocol used by your switch. Note the VoIP protocols of H323 and SIP are the future, and your equipment should handle both.
  • What about carrier deposits? Every carrier that will provide you with domestic or international origination and termination will require a sizeable deposit. You are going to need multiple carriers to ensure you have competitive rates. (About this time you may be realizing that it may not have been such a good idea to pay cash for the switching equipment you just bought.)
  • What about call completion percentages and voice quality? Your reputation and longevity as a company depends on this. You must make sure that you work with carriers that have high call-completion rates or your customers will go elsewhere. Your cost per completed call will go up if the inbound leg of the call is completed while the outbound leg of the call is not completed due to poor quality circuits.
  • What about least cost routing (LCR)? LCR is very important and must be monitored continually. You have multiple carriers in your switch for several reasons — you need to ensure that calls are completed. In other words, you must have redundancy. And you want to take advantage of different carriers giving you competitive rates to different countries. Hence, you build your own LCR using routes from different sources, and you continually groom them. This is a business of fractions of a cent. The net result is that you stay competitive, or you don’t stay in business.
  • What about the expertise to run my switching equipment? All of the switch manufacturers offer training for a cost, but it takes time to learn the finer points of your switch, the billing system and, especially, the software applications. Skilled technical help is not always readily available and running a system requires a level of sophistication that can be expensive to hire.

Purchasing your own equipment can appear to be the answer to taking the next step up the food chain from distributing somebody else’s calling cards. You want to be in control of your destiny and buying a switch may seem to be the answer, but there is an alternative.

The author is president of and a partner in World Communication Group Services (WCGS), a switch partitioning and colocation service provider. He also is a member of the Intele-CardNews Editorial Advisory Board. He can be contacted at or (801) 362-2904.

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