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Technology Stocks : Qualcomm Moderated Thread - please read rules before posting -- Ignore unavailable to you. Want to Upgrade?

To: John Biddle who wrote (33113)	3/5/2003 7:08:59 AM
From: John Biddle	Read Replies (2) \| Respond to of 197272

Bells Head for Lower Ground With Flat-Rate Pricing By Scott Moritz, Senior Writer 03/05/2003 06:55 AM EST thestreet.com Spying a threat to their lush, rolling consumer turf, the local phone giants are racing to stake their claims on the dusty flatlands of fixed-rate pricing. The Baby Bells are ready to ring up a whole new price war, spurred by year-over-year sales declines and a thundering herd of rivals invading residential markets. As a measure of how serious the threat to the local consumer business has become, New York-based Verizon (VZ:NYSE - news - commentary - research - analysis) has broken with decades of per-minute pricing to offer its first flat-rate calling plan. The move seeks to answer the wildly popular offers by AT&T (T:NYSE - news - commentary - research - analysis) and WorldCom's Neighborhood by MCI. And as if that weren't enough, in another groundbreaker, both SBC (SBC:NYSE - news - commentary - research - analysis) and Verizon are preparing service offers that let customers share a block of calling time between conventional phones and wireless phones. Granted, these moves sound like little more than modest marketing adjustments. But while the new plans may offer an apparent competitive advantage for individual companies, they're certain to intensify the price deflation already gripping a staggering group, observers say. Indeed, analysts and investors warn of massive implications as an already unstable industry says so long to succulent minutes and hello to arid unlimited calling. "All the regional Bells are re-evaluating their offerings," says Stratecast Partners analyst Mike Smith, who consults to all the major telcos. "In an ideal world, they would stick with their usage-based plans and not have to evaluate moves like this. But I think they are recognizing a serious threat on the voice front." Sacrifice It goes without saying that the Bells cherish the high margins of selling 10-cent-per-minute phone service that costs barely a fraction of that to provide. Parting with that in itself represents a terrific sacrifice, but making things worse is that flat-rate plans stand to dramatically and permanently lower the ceiling on monthly phone bills. A typical flat-rate plan gives customers unlimited, round-the-clock local and long-distance calling for a fixed monthly price, usually somewhere around $50 to $60. While that would raise some customers' bills, the reality is that the type of customer attracted to the offer tends to spend more than $60 each month. "The monthly bills on these flat-rate plans top out at about $55 per month. People who are spending $90 to $100 per month will be migrating over," says Smith. "It's going to happen, and the [Bells] need a plan that addresses it." The average monthly combined local and long-distance phone bill has been falling gradually but steadily in recent years. Long-distance prices have fallen from 20 cents a minute to around a nickel. Now, as more $90 monthly customers take the $55 plan, the average bill could drop sizably. While the new pricing structure appears inevitable from individual companies' point of view, it will create greater pricing pressure and lead to more of the deflation already punishing the industry, says CIBC analyst Tim Horan. Steeper drops in residential revenues certainly present a bigger than normal challenge to the Bells, but that's only half the story. The Bells are preparing to win back the customers and calling traffic they've lost to wireless services. Wired That's not necessarily good news for outfits like AT&T Wireless (AWE:NYSE - news - commentary - research - analysis) and T-Mobile, which both recently started to wave the white flag on price wars and give-away minutes. In recent weeks, both companies announced they would scale back some of their ridiculously large 1,000-anytime-minute plans. Two of the largest wireless companies -- Verizon and SBC's Cingular venture -- have plans to bundle wireless and conventional phone offers into shared blocks of time. That causes some observers to predict that new wireless pricing wars are ahead. Though wireless pricing seems to be temporarily stable, one analyst jokes that the 1 million-anytime-minute offer is probably just around the corner. But focusing too much on the near-term effects of more price competition misses the bigger point about where the industry is heading, says Stratecast's Smith. While the Bells are forced to play by the rules of long-distance bullies AT&T and WorldCom today, the prize is shrinking before their eyes. The market for local and long-distance phone service is sinking fast. The price war only accelerates their decline, says Smith. In the end, these companies have to differentiate themselves, says Smith. "For the Bells, the competitive environment couldn't be more clear. DSL [digital subscriber line] and wireless have to be your top priority. AT&T and WorldCom can't compete with that."