`Reaching out' by phone for a lot less. AT&T rate cut will put pressure on MCI, others
The latest good news for long-distance customers is that it may soon cost a lot less to reach out and bend somebody's ear. Significant cuts in long-distance rates proposed by AT&T will benefit consumers -- but squeeze the profits of other long-distance companies and push them to cut rates as well.
``It's not a price war. It's an effort to pass through lower costs,'' says Stuart Ganes, a telecommunications analyst with Shearson Lehman Brothers.
``But it's got to put pressure on the others because AT&T still has 80 percent of the market and they're closer now to MCI's prices,'' Mr. Ganes says.
In a filing with the Federal Communications Commission, AT&T proposed rate cuts amounting to more than $1.5 billion. The cuts come, AT&T says, because it has not been charged as much as expected by local phone companies for long-distance access to customers.
If approved by the FCC, regular long-distance rates would be cut June 1 by 11.4 percent during the day and evening and by 2.7 percent weekends and late at night.
Toll-free 800-service day rates would be chopped by 9.8 percent and night and weekend rates by 2 percent. Rates for WATS service would be cut 12.8 percent in the day and evening, and 5 percent late at night and on weekends.
Similar rate reductions by MCI are still expected. Although tough on MCI, the move makes it even more difficult for companies such as GTE's third-ranked Sprint service, which isn't currently profitable.
All this is said by experts to be good news for consumers in the long run, despite the fact that the weight of long-distance access costs (which have mostly been paid by long-distance companies) is being shifted more on the customer. The federally mandated charge to residents for long-distance service is scheduled to rise from $1 to $2 on June 1.
Although AT&T's cuts are expected to benefit high-volume long-distance users --such as corporations -- the most, analysts say that may not be so bad for individual users.
``We all benefit, because the whole point is to keep big business from going off the system,'' says Richard Vietor, a telecommunications expert and professor at the Harvard Business School.
``At current rates it's often cheaper for them to develop their own long-distance networks. But if these big guys leave, we're all going to be paying much more for long distance. This move will keep many of them from switching,'' Professor Vietor says.
At the heart of the proposed rate decrease is the fact that the $1 fee has cut AT&T's access cost and, because its profits are set by federal regulators, decreasing rates is one way of keeping within authorized limits. The $1 charge effectively contributed $1 billion toward the $1.5 billion cost of the rate decrease.
``The phones, the wires, the telephones -- we either pay for these in our long-distance rates, or we pay for them in local charges,'' says Vietor.
``Right now 15 cents out of every 30 cents of the average long-distance revenue-minute go to pay local operating companies for these.''