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least cost routing (LCR)

Contributor(s): Matthew Haughn

Least cost routing (LCR) is a pricing strategy used by telecommunications providers to select the lowest cost carrier for bandwidth provision when connecting a call.

By helping reduce the costs of data transmission, LCR allows for telecommunications providers to minimize costs by selecting call routes that require the least amount of point-of-presence (POP). The mechanism also helps ensure competition among bandwidth providers and can be an important part of VoIP and IP telephony.

Generally, LCR applies to interstate or international communications, where the provider chooses a carrier to complete a call originating within one state or country from the exchange in which the call is received. In the case where a customer uses an out-of-state number, the call still has to be routed to be completed. LCR can also be used to ensure quality connections for callers connecting within a state or country.

Telecom providers may have several or hundreds of choices when it comes to choosing routes for lowest cost. Bandwidth cost comparisons and negotiations may be made by a department of employees in an LCR-specific team within the telecom organization. Software or devices called lowest cost routers are used to make cost comparisons, which might be compared weekly, monthly or quarterly.

This was last updated in November 2018

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