Phone giants fight back against cellular
By Joelle Tessler
KNIGHT RIDDER NEWSPAPERS
Wednesday, June 12, 2002
Those huge buckets of minutes promoted by the wireless phone business are stealing customers from the long-distance companies. Now the long-distance giants are fighting back.
In February, AT&T rolled out a flat-rate, all-you-can-eat calling plan in a bid to hang onto customers who make the most long-distance calls. In April, MCI responded with a flat-rate plan of its own but took the concept a step further -- folding in local calling with unlimited long-distance service.
These new plans are a sign of where the industry is headed, telecom experts say. In the years ahead, phone companies will move away from charging for calls by the minute. Instead, customers will be able to call across town or across the country for as long as they want for one monthly charge.
"We are increasingly moving to a flat-rate, all-you-can-eat, any-distance world," said Jeff Kagan, a telecom consultant based in Atlanta. "If you go out five years, most customers will be on these plans."
The long-distance business has been heading in this direction for some time. Following the lead of the cellular industry, the three big long-distance carriers already had been offering calling plans with large buckets of minutes.
'Simplicity and clarity'
Sprint, for instance, has been selling 1,000 minutes of state-to-state calls for $40 a month since 1999 and last year rolled out 500 minutes for $25 a month.
Now AT&T and MCI are lifting the caps on call volumes altogether. The AT&T Unlimited plan, launched in February at $19.95 a month, provides unlimited calling to AT&T's 50 million residential long-distance customers. (Calls to non-AT&T customers are 7 cents a minute.)
MCI's Neighborhood Complete plan, introduced in April at $49.99 to $59.99 a month, provides unlimited local and long-distance calling to anyone.
"The whole concept that the meter is ticking with long distance is going away," said Lou Delery, vice president in consumer long-distance services for AT&T.
The carriers expect the new plans to be popular among customers tired of spending hours trying to figure out complicated bills.
"Consumers are demanding simplicity and clarity," said Harry Campbell, Sprint's vice president of marketing and sales for mass markets.
But Chris Murray, Internet and telecom counsel for Consumers Union, warned that these programs make sense only for people who make a lot of long-distance calls. Low-volume users will actually spend more with a flat-rate plan, he said.
Although calculations vary -- particularly for plans that include local service -- Murray said customers who make at least 220 minutes of long-distance calls a month can probably save money with the new programs.
However, the average residential customer made 116 minutes of long-distance calls a month in 2000, according to the Federal Communications Commission.
The cellular challenge
In many ways, the changes in the long-distance business are a response to popular wireless plans that offer unlimited calling or very large buckets of minutes. "These plans have started to change consumer behavior," Kagan said. "People like not having to watch the clock and not having to worry about getting a `gotcha' bill if they talk too much this month."
What really scares the long-distance companies is that many consumers are abandoning their land lines for wireless phones -- especially for long distance.
Robert Saunders, senior analyst with the Eastern Management Group, estimates that about 40 percent of cellular subscribers use their cell phones to make long-distance calls from home. "People see their wireless minutes as free because they've already paid for them," he said. "So these flat-rate phone plans are about getting people to look at making calls from their land-line phones as free, too."
In recent years, long distance has become more and more cutthroat. Hundreds of providers have entered the market, driving long-distance rates down well over 50 percent since the 1984 breakup of AT&T.
More is on the way. In 1996, Congress agreed to allow the Baby Bells to sell long distance in states in which they can persuade regulators that they have opened their monopoly local phone networks to rivals.
The long-distance companies are responding by entering the local phone business and offering their own plans that bundle both types of service. "This is a way to protect themselves," said IDC analyst Ross Sealfon.
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