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Phone wars yield savings . . . confusion

If the 1980s had the cola wars, the brand battle of the '90s may be over the phone lines.

Nickel nights, seven cents per minute - a handful of change will let you call mom in California or granny in Ireland. Or so the phone companies say. Some even offer perks like frequent-flier miles for callers willing to switch dial tones.

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The long-distance price war breaking out in a TV spot near you is being driven in part by the revolution in personal communication. As more people try to reach out and touch someone - by telephone, fax, beeper, cell phone, the Internet - the big telecommunications companies want to become your lone provider for all these technologies. The long-distance line gives them entree into your home - and wallet.

For consumers, the price war does hold out the prospect of savings on long-distance calls, at least for frequent users. But many people remain confused by all the pitches, and are tired of getting calls, usually at the dinner hour, from telemarketers with names like Kyle or Monique.

"Consumers are bewildered and frustrated with today's pricing system," says David Butler of Consumer's Union, a lobbying group in Washington.

The battle for America's ears took a major turn this week when AT&T slashed its rates, answering Sprint's and MCI's five-cent salvo. While the discounts may cut into corporate revenues, deregulation and the amount of money at stake in tomorrow's telecommunications markets make the competition almost inevitable.

Hard-wiring of America

Indeed, Americans, already legendarily hard-wired, are rapidly becoming more so. More than 40 percent of Americans now regularly log onto the Internet - up from 14 percent just four years ago. An estimated 80 million people are expected to own a cell phone by the end of this year. Only 5 percent of US households don't have a telephone - a long way from the days of the party line.

"We crave experience, and reaching out to another human being is another form of experience," says Joyce Gioia, a strategic futurist with the Herman Group in Greensboro, N.C. "The more high tech our lives get, the more we will balance that out with high touch."

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In fact, per-minute long-distance plans like the one introduced this week by AT&T may soon become pass themselves. In the future as the telecommunications industry envisions it, rather than paying a cable bill, an Internet fee, and separate long-distance and local charges (to say nothing of cell phone tabs), consumers would simply buy communication in bulk from one company.

"In the years ahead, what people will be purchasing is a bucket of communications. In that little pail will be their Internet, their entertainment, their wireless..." says Burke Stinson, spokesman for AT&T. "The newer generations are not going to distinguish between day and evening rates; they're not going to distinguish between local and long-distance calls. It's almost going to be like electricity coming into the house."

AT&T has taken a step toward this with its purchase of the Tele-Communications Inc. cable company, and companies such as Qwest Communications already offer such bundled services.

Allison DeRussy is the type of caller the new plans are aimed at.

"Everybody we know lives somewhere else," says the Washington-area graduate student. She and her husband have family scattered from Massachusetts to California, and the long-distance phone bill to prove it.

Ms. DeRussy, who just switched companies, estimates that Qwest's bundled service - Internet and long-distance - will save her 40 percent on her $175 a month bill.

Thanks to technological advances, it now costs phone companies very little to allow people in Portland, Maine, to say hello to friends in Portland, Ore.

This has contributed to the price wars, the latest of which started when Sprint introduced its five-cents-a-minute-evening rate. This was quickly matched by MCI. But their day rates remain higher - in the range of 10 cents to 25 cents a minute. AT&T's new seven-cent plan offers the same rate, whether you're calling at 8 a.m. or 8 p.m.

"This is of great benefit to the consumers. My gut reaction is: Finally!" says Dominique Hanssens, a marketing professor at the University of California in Los Angeles. He likens the price wars to what happened with air fares after the airline industry was deregulated.

But consumer groups say the new plans benefit only the 25 percent of callers who spend $25 or more on long distance each month. For those who don't have a child away at college or a boyfriend in another state, the new plans may actually increase the phone bill, says Samuel Simon of the Telecommunications Research and Action Center, a consumer group.

Your monthly bill

With the $4.95 to $5.95 monthly fees, callers would have to spend about 200 minutes on the phone to see any savings - as opposed to the 80 minutes a month Americans currently average. Also, he says, new charges such as those for universal lines are contributing to higher bills.

"The days when you paid for the amount of time you spent on the phone are gone," says Mr. Butler of Consumer's Union.

Clearly, some don't like the rate schemes. Beatrice, a resident of Malden, Mass., ditched her long-distance carrier after she got tired of paying mounting fees. "I only talk locally, so why should I pay?."

For the 40 percent of Americans like Beatrice who go more than a month between long-distance calls, the new "dial-around plans" such as 10-10-321 and 10-10-220 offer options beyond the big three.

But no matter what, "you're going to have to roll up your sleeves, take a pen and paper, and do the math," Mr. Butler says.

(c) Copyright 1999. The Christian Science Publishing Society

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