'Keep talking, Aunt Elsa!'; Saving big money on long-haul calls
When it comes to long-distance service, Ma Bell is brooding over a few rebellious children. Four small, independent companies are finding they can turn a profit by undercutting the Bell System's long-distance rates. And the idea is catching on with consumers.
In March 1980, the largest of the discounters, MCI Telecommunications Corporation, expanded from its exclusively business clientele to the residential market. From an initial 500 residential customers in Denver, MCI now serves 500, 000 in 180 US metropolitan areas. Last month alone, the Washington, D.C., company netted almost 100,000 new residential customers.
The impressive growth posted by MCI and the other cut-rate independents is balanced by the fact that they only handle about 2 percent of the nation's long-distance calls. Nevertheless, the success of these tiny companies is the latest sign of the important changes in store for the telecommunications industry and the millions of consumers who use it, observers say.
In this decade, they say, the whole idea of regulated monopoly phone service will be replaced by a competitive industry where consumers have options in the type and quality of service they want. Industry observers expect long-distance rates to remain low even as local telphone service jumps substantially.
At stake, however, is not merely the cost of telephone service, but also the flood of information services - including stock quotations, news, and computer banks - that soon will be fed electronically into the home.
In the current business of providing discount long-distance rates, three companies besides MCI are expanding into the residential market - Sprint (Southern Pacific Communications Company), City-Call (United States Transmission Systems Inc.), and Metro 1 (Western Union Company).
Increasingly, consumers are turning to the discounters because they find they can save money.
As soon as Bob Compton heard that MCI was coming to Indianapolis, he signed up for the service. ''It cut my phone bills just about in half,'' the Indianapolis salesman says, from an average $130 monthly to $65.
An MCI customer, for example, can call 10 minutes from Chicago to Boston for -minute call in the evening costs $1.69 on MCI and $2.85 on Bell.
Subscribing to the discounters is fairly simple, too. The only equipment needed is a push-button phone (or a special adapter for a dial phone). Then, by paying a monthly service fee - usually $5 or $10 depending on the type of service - customers dial a local phone number, punch in their personal five- or six-digit authorization code, and the area code and number they want to reach.
With some of the discounters, the authorization code works in any city served by the system. That feature can save frequent travelers as much as 80 percent compared to a Bell credit card call, says Mike Hughes, public information manager for United States Transmission Systems Inc.
Parents with children away from home also can avoid accepting collect calls by giving their authorization code to their children, says Amy Flores, public relations manager for the Sprint system.
However, observers warn, the discounters do not save everyone money.
Their lower rates do not include monthly subscription fees, the added cost of having a push button phone, or the possibility of paying message units to call into the discounter's system, warns Jay Grossman, spokesman for the American Telephone and Telegraph Company (AT&T), which owns the Bell System.
Heavy users of long distance will save the most, says Joe Waz, deputy director of the National Citizens Committee for Broadcasting, a nonprofit consumer group in Washington, D.C. Industry officials agree that consumers must spend $20 to $25 monthly on long distance before they save significantly.
Even then, Mr. Waz says, consumers should make certain that the locations they call frequently are served by the discounter.
Unlike Bell, the discounters do not reach everywhere. ''Our goal is to serve the whole country, but it's probably years off,'' admits Gary P. Tobin, public relations director of MCI, which now serves 180 metropolitan areas. Although the discounters' networks are growing rapidly, reaching the thinly populated rural areas is not as lucrative as the high-volume market between major cities.
Using the City-Call system, one caller was able to telephone friends in Nashville, Tenn., and Chicago, but family and friends in Bloomington, Ind., Durham, N.C., and Claremont, Calif., were unreachable on the system.
Another drawback is the number of digits needed to complete a call. ''It helps to be a fast dialer,'' quips Waz, explaining that a long-distance call on the discounters' systems requires punching in 22 or 23 digits. A similar Bell call requires 11.
Some customers say the transmission quality of the discounters is not quite as good as the Bell System. ''It's a little harder to hear, but overall I'd say it's comparable (to Bell),'' says MCI user Compton.
''AT&T is like the Cadillac, and the rest of them are a Chevette,'' says a sales representative of TDX Systems Inc., adding that the quality has nevertheless improved dramatically in the past two years.
TDX is one example of the new breed of companies rising to challenge AT&T. Unlike the discounters, they only serve businesses in four cities. But from three of them, TDX can reach every location in the country. Because of a June ruling by the Federal Communications Commission, the Vienna, Va., company has been able to lease WATS wires from AT&T. Therefore, when one of their clients wants to place a phone call, a TDX computer decides whether to transmit over a direct tie-line it owns, over one of the discounters' lines, or through WATS - striving to put calls through the cheapest route possible.
But what implications does this price-cutting competition have for the future?
''The potential for harm (to the consumer), especially charges for local service, is mind-boggling,'' Waz says. ''We don't know how government is going to handle that.''
The US Senate passed late last month a bill that directs the Federal Communications Commission to give the discount companies equal access to Bell's lines.
This is a shift from the AT&T concept of universal and affordable telephone service, says AT&T spokesman Grossman. Currently, Bell charges ''artificialy high'' long-distance rates to subsidize expensive local service, he says, and averages long-distance rates by distance, not by costs. AT&T could charge much lower prices for calls between major cities and still turn a profit, Grossman says. But it would not be able to make up the high cost of hooking up distant rural areas.
''We're getting into an era now where people are going to be asked to pay for what they use,'' he says. As a national average, ''you could probably expect local basic rates to double over the next decade.'' A New England Bell official estimates that local rates could even triple by 1990. Many areas may replace monthly flat rates for local service by charging customers for the number and duration of their local calls.
AT&T's claim that long-distance subsidizes local rates is disputed by some industry observers. Others, while agreeing with it, don't expect local rates to increase as drastically.
Chris Mines, senior analyst with the Yankee Group, in Boston, guesses local rates in 1985 will be about 25 percent higher plus the rate of inflation. ''Eventually, you could see a doubling,'' he says. ''Pay phones might go up to a quarter or 50 cents.''
Politically, however, state regulatory commissions are not likely to go along with drastic hikes in local phone rates, Mr. Mines says. And AT&T eventually may have some competition in local service.
With a few technological innovations, cable television stations or utility companies, reading their meters electronically, could hook into homes and carry telephone signals, he says. These competitors will be vying for the lucrative market of feeding information into homes - home computer hookups, stock quotations, and news will be available electronically. Local phone service may just be part of that service, Mines says.
Waz agrees that a home phone will one day be only part of a household's telecommunication access. ''As people grow increasingly reliant on telecommunications as a substitute for travel, and as home computers and other devices grow more popular, the phone bill could become as important as the monthly gas bill.''
Comparing phone rates for a 10-minute call* Bell Day Evening Night- 5/11 p.m. weekend NYC-LA $4.80 $3.12 $1.92 Chicago-Boston 4.39 2.85 1.76 Atlanta-Dallas 4.39 2.85 1.76 Miami-Denver 4.39 2.85 1.76 New York-Boston 3.86 2.51 1.54 MCI Day Evening Night- 5/11 p.m. weekend NYC-LA $4.00 $1.85 $1.33 Chicago-Boston 3.66 1.69 1.21 Atlanta-Dallas 3.66 1.69 1.21 Miami-Denver No service yet New York-Boston 3.22 1.49 1.07 Metro 1 (WU) Day Evening Night- 6/11 p.m. weekend 11 p.m./7 a.m. NYC-LA $3.90 $1.80$1.30 Chicago-Boston 3.50 1.70 1.20 Atlanta-Dallas 3.50 1.70 1.20 Miami-Denver 3.70 1.80 1.30 New York-Boston 2.90 1.40 1.00 Sprint Day Evening 5 p.m./8 a.m. NYC-LA $3.98 $1.63 Chicago-Boston 3.51 1.45 Atlanta-Denver 3.86 1.59 New York-Boston 2.93 1.21 City-Call Day Evening Night- 8/11 p.m. weekend 11 p.m./8 a.m. NYC-LA $4.07 $1.63 $0.81 Chicago-Boston 3.63 1.45 0.73 Atlanta-Dallas 3.60 1.44 0.72 Miami-Denver 3.87 1.55 0.77 New York-Boston 3.07 1.23 0.61 *These rates do not reflect the monthly subscription rates of the discount companies.