A Dial-Around Or a Runaround? Agencies Probe Long-Distance 'Discounts'
By Caroline E. Mayer
Washington Post Staff Writer
Saturday, January 16, 1999; Page E01
Two government agencies are investigating the increasingly popular
long-distance telephone service known as "dial-around" -- accessed by
dialing seven extra digits, such as 10-10-321 or 10-10-345 -- to see if the
discount rates they advertise are real.
Federal Communications Commission Chairman William E. Kennard said his
agency and the Federal Trade Commission are studying how long-distance
companies are advertising their dial-around services to see if their ads are
"deceptive to consumers."
Kennard said he was concerned that long-distance companies are not
disclosing critical pricing information, such as monthly fees or minimum
charges. "A consumer may think a 5-cents-a-minute rate is great but may
not realize there's a $5 monthly fee" or a 30-cent minimum for each call,
Kennard said.
Three of the most heavily promoted dial-arounds are owned by well-known
and supposedly competing long-distance carriers: MCI WorldCom Inc.
(which owns 10-10-321 and 10-10-220) and AT&T Corp. (which operates
10-10-345, also known as "Lucky Dog"). But consumers wouldn't know that
from their ads, where the corporate names are notably absent.
FTC officials declined to comment on the agency's probe, but Jodie
Bernstein, director of the agency's Bureau of Consumer Protection,
cautioned consumers to "make sure you know what you'll be paying before
you make a call. There's no guarantee that dial-around means discounting."
"Consumers should not get the runaround on dial-around," said Kennard,
speaking this week with Washington Post reporters and editors. "We've got
to get the carriers to honestly disclose their charges. The ad may say you
can call 20 minutes for a dollar. That works out to five cents a minute and
sounds pretty good" -- until you find out that it's $1 for all calls [of] 20
minutes or less, he added. "If you only talk a minute, that works out to $1 a
minute, which is far greater than what you should be paying in today's
marketplace."
That's what happened to Shirley Tyler of Augusta, Ga., who had been
paying 9 cents a minute for long-distance through one dial-around company.
Then she saw a TV ad promoting a rival's rate of 99 cents for a 20-minute
call. "I broke it down per minute, thought 5 cents a minute wasn't bad and
used it for a while," Tyler said. Then she got a $66 bill for what she figured
should have cost $18.97. "If I made a call and the person wasn't home, I
only talked a minute -- but it cost me 99 cents. Why in the world would I
want to pay 99 cents a minute?"
When Tyler complained, she said, the company "would not budge. They
wouldn't give me credit, and without coming out and saying it, accused me of
being an idiot for not seeing or hearing that the rate was for calls up to 20
minutes."
Tyler was lucky she knew who to call. In many cases, Kennard said,
"consumers may have no one to complain to. . . . Some [dial-arounds] are
marketed in strange ways so consumers don't know what company they're
dealing with.
MCI spokesman Brad Burns said that legally, MCI WorldCom could not put
its name on the ads because the numbers belong to Telecom USA, which
was purchased by MCI. "We have to market under the Telecom USA
brands," Burns said.
AT&T decided to put a completely different name, Lucky Dog, on its
dial-around service because research showed "consumers identified more
with products than companies," said spokesman Mark Siegel. The new name
also allowed the company to be "out of character, more offbeat and
whimsical," even offering daily sweepstakes, Siegel said.
Sprint, the other major long-distance firm, tested a dial-around service in
three Southern cities for two months last year but decided against rolling it
out nationally. "We found there was some customer confusion in terms of
what the rates and savings were," said spokesman Steve Lunceford.
For the past six months, the FCC has received 250 complaints about
dial-arounds. An agency official said that number is a small portion of the
more than 30,000 complaints the agency receives annually but is "significant
and growing rapidly."
Complaints also are pouring into local government offices. New York State
Assemblyman Scott Stringer, who represents Manhattan's West Side, has
had enough inquiries that he's pressing for a new state law requiring
dial-arounds to play a recorded message about their exact rates before
consumers are connected to the number they're dialing. "We think the
commercials are totally misleading," Stringer said.
The ads that appear to have triggered the most complaints are for MCI's
dial-around service. On Thursday the ads were cited by consumer groups as
some of the most misleading, unfair and irresponsible commercials in 1998.
MCI spokesman Burns said the company is "confident our ads are very
clear. Evidence of our consumers being happy is that 85 percent of our
users" are repeat customers.
The dial-around concept is not new; years ago, it was used as an alternative
to traditional long-distance service when consumers only had access to
AT&T. To use a different carrier, consumers could punch in several extra
numbers and "dial around" AT&T service, which was available simply by
dialing 1.
Dial-arounds gained prominence two years ago when MCI began an
aggressive promotion of its 10-10-321 service in an effort to capture some of
AT&T's loyal customers. "A lot didn't want to completely leave AT&T but
were willing to dial around AT&T for savings," Burns said. Consumers didn't
have to pre-subscribe, either; they simply punched in the numbers and were
billed automatically at the end of the month.
The promotions proved successful, with 11 percent of U.S. households using
dial-around last year, according to the Yankee Group, a market research
firm. Last year, more than $2 billion in long-distance calls were made
through dial-arounds; this year, the market is expected to grow $2.5 billion to
$3 billion. "It all depends on the continued success of Telecom USA and
Lucky Dog," said Fred Voit, a senior analyst for the Yankee Group.
The market is growing despite a high level of dissatisfaction among
consumers, Voit said. In a recent survey, 20.5 percent of respondents said
they didn't save money while another 29.5 percent said they weren't sure.
"What this proves is that long-distance service today is all about confusion,"
Voit said. "You can save money on a dial-around; it all depends on how you
use it."
DIAL-AROUND TIPS
To use a dial-around service, consumers punch in seven numbers before
dialing the number they want. "Some people think that just because you have
to go to extra trouble and dial extra digits, you're going to save money," said
Bob Self, author of Dr. Bob's "Long-Distance for Less" books and
newsletters. "That's not necessarily true. It all depends on your calling
pattern," Self said.
"None of these dial-around services is inherently bad," he added. "What's
bad is if you use some of them across the board. You have to be smart
enough to take advantage of what they're offering to save money where you
can."
Before using dial-arounds consumers should know the rates they pay their
regular long-distance carriers. Then they should compare with dial-arounds
by asking:
What are the basic rates?
Is there a monthly fee? "Some carriers charge $4.95 a month so if you make
just one call with that carrier, ... that call will still be costly," Self said.
Is there a monthly minimum that you'll be charged even if you don't make a
lot of calls with that service?
Is there a per-call fee? Lucky Dog, for instance, charges 10 cents for every
call made -- in addition to its 10-cents-per-minute rate. So a one-minute call
costs 20 cents.
Is there a per-call minimum? Dimeline charges 10 cents a minute but has a
30-cent minimum per call, even for a one-minute call. 10-10-220 charges 99
cents for a 20-minute call; but if your call lasts less than 20 minutes, you're
still charged 99 cents.
What Dial-Arounds Offer Vs. What Consumers Get
Dial Around: 10-10-321 (1-800-866-3311)
Owner: Telecom USA (owned by MCI WorldCom)
Promotion: 50 percent off "basic" long-distance rates
The Catch: Discount kicks in only for calls 10 minutes or longer, and basic
rates are often highest offered by long-distance firms.
Dial Around: 10-10-220 (1-800-866-3311)
Owner: Telecom USA (owned by MCI WorldCom)
Promotion: 99 cents per 20-minute call
The Catch: Any call under 20 minutes costs 99 cents, no matter how long
you talk.
Dial Around:10-10-345 (Lucky Dog) (1-800-317-2657)
Owner: AT&T
Promotion: 10 cents a minute
The Catch: There's a 10-cent fee for every call (so a one-minute call always
costs 20 cents).
Dial Around: 10-10-432 (1-877-825-5432)
Owner: Qwest
Promotion: Nine cents a minute evenings, weekends; 20 cents weekdays.
The Catch: Add 4.8 percent surcharge for universal service fund (USF);
customers also may be paying USF charge to their regular long-distance
carrier.
Dial Around: 10-10-502 (1-800-569-8700)
Owner: WorldxChange Communications
Promotion: Five cents a minute for first 60 days, then 7 cents a minute.
The Catch: $4.95 monthly fee plus $1.49 USF.
Dial Around: 10-10-297 (1-800-787-7887)
Owner: Telco Choice (owned by Excel Communications)
Promotion: 10 cents a minute
The Catch: Add 4.4 percent surcharge for USF.
Dial Around:10-10-811 (Dimeline) (1-800-583-6767)
Owner: VarTec Telecom
Promotion: 10 cents a minute
The Catch: Three-minute minimum (so a one-minute call costs 30 cents) and
4.9 percent USF charge. Existing customers also may be paying $5 monthly
service fee -- if so, every other call, 10 minutes or less, is billed at 5 cents a
minute.
SOURCES: Telecommunications Research and Action Center (TRAC) and
Dr. Bob's "Long Distance For Less"
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