Long-Distance Runaround

Long-Distance Runaround

Long-Distance Runaround

Moneybox
Commentary about business and finance.
June 7 2000 12:24 PM

Long-Distance Runaround

Last week, AT&T was applauded for dropping a $3-a-month minimum fee charged to its least active long-distance customers--a move that the FCC suggested would benefit low-income customers in particular. Today AT&T is being hissed at because while it is dropping those fees, it's also raising most of its basic per-minute rates, which may mean many of its customers end up with higher bills after all.

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Since the opening up of the long-distance market, its biggest players--AT&T, MCI Worldcom, and Sprint--have competed for customers with a blizzard of special plans that improve on each firm's "basic rates." It's these basic rates that AT&T is monkeying with: They'll fall from 11.5 cents a minute to 7 cents a minute on Sundays (when AT&T says most long-distance calling goes on) but will rise to 29 cents a minute all other days (up from the old rates of 11 to 26 cents a minute, depending on the time of the call).

A long-distance company's basic rates are generally its worst rates--but finding the specific alternative plan that is the best deal for your "calling pattern" can require an absurd amount of homework, and the long-distance companies don't go out of their way to make the process particularly easy, because they can convert customer ignorance directly into profit. As an example, I set myself up with MCI not long ago, picking a plan with low weekday rates because I now work at home. What I forgot to grill them about was the rate on my calling card, which I learned from my first bill was almost $2 a minute.

What's amusing is that the FCC, which just last week was spinning the dropped fee as a triumph of regulation for the benefit of Joe Consumer, has responded to news of the stealthy rate hike with an old-fashioned let-the-market-decide shrug. A spokeswoman told the New York Times: "Any company that raises rates for their customers in this competitive marketplace will surely lose them."

Well, yes, sure, that's the idea, but it isn't any truer now than it was when AT&T charged a lower per-minute rate with a minimum monthly fee. AT&T plans what the Times refers to as "a consumer-education program in the form of a letter" telling its customers to do their homework and pick the best plan, etc. The fact remains that an astonishing 30 million of AT&T's customers pay basic rates, and it's hard to imagine that one more piece of junk mail is going to alert them to long-distance competition that has been the subject of massive marketing campaigns for years.

The background of all this is that the long-distance companies, which must pay fees to the regional Bell companies for access to their lines, are set to have those fees significantly reduced. What regulators want is for the savings to be passed on to consumers, and that's a fine goal for regulators, so long as they realize that it's at cross-purposes with the goals of any profit-making enterprise. "The companies have a fiduciary responsibility to their shareholders to not necessarily pass them on," a telecom analyst commented in a Times story last week on AT&T. "To the extent that prices don't fall, these savings increase long-distance profits." True enough. And the FCC can decide either that the results of the pursuit of profits work out to the benefit of consumers or that some regulatory steps are needed. But you can't have it both ways.