Does LRN Billing Mean Higher Costs for VoIP Consumers?

Within the past weeks, many VoIP service providers were taken by surprise by changes in the market for U.S. termination, as large VoIP wholesalers began to implemented LRN billing and intra-state billing for U.S. termination traffic.  In many cases, the changes were made with little or no notice to wholesale customers.

These wholesale carriers are now charging for calls based on the LRN (Local Routing Number) instead of using the actual dialed digits (also known as DNIS or Dialed Number Identification Service). When LRN based billing is implemented, a ported telephone number is likely to be billed to a different rate center - with a higher cost - than the one the one the end customer dialed.  The adoption of LRN routing is a consequence of local number portability (LNP), the FCC mandated practice that allows consumers to 'port' their phone number to the phone company of their choice.

Concurrent with the switch to LRN billing, many wholesale carriers also forced wholesale customers to a tariff with higher costs for  intra-state or intra-LATA calls.  When "intra" billing is applied, a call is rated based on the caller's phone number (also known as ANI) as well as the DNIS. If both the ANI and the DNIS belong to the same state or LATA, then a higher "intra" rate is charged.

These changes create challenges for the typical VoIP service provider:

The first challenge is that many VoIP service providers do not have a billing system that is able to handle LRN and intra billing. Billing is a stressful endeavor under normal circumstances.  Many smaller VoIP service providers simply can not cope with the load of either transforming or upgrading their billing system to accomodate these changes.

The second challenge is that the underlying cost for services on routes that bill determined by LRN or intra-state, as compared to routes that bill based solely on the dialed digits.  The former will generally increase the average per minute cost. When a VoIP provider can't charge their end user accordingly, profit margins must decrease. 

In the past, providers did not pass on these jurisdictional costing distinctions to end users.   In fact,  standard industry practice dictates that providers offer flat-rate or all-you-can-eat pricing plans for U.S. customers.   That may soon change. 

Although there remain some exceptions to the LRN billing trend, the practice seems to be nearing the tipping point.  Given the drastic changes in the underlying cost structure, I would not be surprised to see these costs passed on to consumers in some form.