Flate rate Long Distance is Here!
WSJ:
November 6, 1998
Sprint Raises the Stakes
In the Long-Distance War
By REBECCA BLUMENSTEIN
Staff Reporter of THE WALL STREET JOURNAL
NEW YORK -- It has come to this in the brutal long-distance phone war:
all-you-can-eat specials.
First, it was a dime-a-minute calling, introduced by Sprint Corp. in 1995.
Then came $100 bribes and frequent-flier awards to entice consumers to
switch. Next came five cents a minute, first offered on Sundays by MCI
WorldCom Inc. and more recently, all weekend by AT&T Corp.
Now Sprint has upped the ante: $25 a month for unlimited calls on
weekends, while during the week Sprint will charge its usual 10 cents a
minute. AT&T said it will match Sprint's move, which critics said only
offers savings for those who use the phone for more than five hours of
weekend calling a month.
New Competitors Move In
Observers say there is more to come. Already, upstart Qwest Communications
International Inc. is charging consumers five cents a minute for all calls
once they pay a monthly service charge of $14.95.
Sprint's plan seems to confirm what some are now predicting: a price war
that could shake the foundation of the long-distance industry. This battle
could ultimately make long distance more like a utility than the high-cost
luxury it once was. And the per-minute charges that have defined the
industry for decades could become a thing of the past -- just like the
kitchen timers some people used to set to remind themselves to get off the
phone.
The chief reason is that the $80 billion-a-year long-distance industry is
faced with an unprecedented host of new competitors. Upstarts such as
Qwest have been adding massive amounts of capacity through new nationwide
fiber-optic networks. This capacity is forcing down prices and should be
furthered once the Baby Bells make their long-awaited entrance into long
distance, a move that many experts believe will happen next year.
"These new companies have the ability to be highly profitable -- not at
five cents a minute or three cents a minute. But at a tenth of a penny,"
said Mark R. Bruneau, president of the business strategy group at
consulting firm Renaissance Worldwide Inc.
Soon, observers say per-minute charges could be largely replaced by
flat-rate fees similar to those offered by many Internet and wireless
companies, providing almost unlimited use for a set amount per month.
Chasing Growth
All of this is why traditional long-distance companies are chasing growth
in other markets such as data, the Internet and the traditional (but still
hugely profitable) local markets.
"There is a real need to grow in new service categories," said Blake Bath,
a Lehman Brothers analyst. The average cost of a domestic voice call has
fallen from 16 or 17 cents a minute a few years ago to about 11 cents
currently, and will fall into "the middle single digits over the next five
years," he predicted.
That has potentially huge implications, especially for AT&T, which has
steadily seen its share of the consumer long-distance market fall even as
it continues to rely heavily on revenue from it. AT&T Chairman C. Michael
Armstrong acknowledged the pressure recently in a session with analysts,
saying it "would be very unrealistic for me to think that prices are not
going to go down." AT&T's strategy is to cater to high-use customers,
while shedding those who call long distance so infrequently that it costs
the company hundreds of millions of dollars annually to maintain their
accounts.
Matching the Offer
In response to Sprint's offer, AT&T said Thursday that most consumers
would be better off with its One Rate Plus plan, which charges consumers
$4.95 a month, then gives them weekend calls at five cents a minute and
weekday calls at 10 cents a minute. Still, AT&T said it would match the
offer for customers who request it.
An MCI WorldCom spokesman said the company has offered five cents a minute
on Sundays for more than a year under a plan that also charges 25 cents a
minute during daytime hours on weekdays and 10 cents during off-peak
weekday periods. "The average consumer makes $20 worth of long-distance
calls a month," said MCI spokesman Brad Burns. "Clearly, Sprint is going
after a niche."
But the latest offers from Qwest and Sprint come as a reminder that the
profitable market-sharing situation that AT&T, MCI and Sprint have long
enjoyed could come undone.
Rather than a price war, AT&T officials said long-distance companies are
beginning to pass on savings from falling access fees that the Bells
charge for originating and terminating long-distance calls. More
reductions will come as the charges fall further, said Jack McMaster, vice
president of the company's consumer-markets division. |
