Carriers want less competition, more for long-distance

  • Thursday, December 27, 2001 9:00pm
  • Business

Associated Press

After nearly two decades of cutthroat competition that has forced long-distance phone prices down to pennies a minute, the nation’s largest carriers are quietly trying to reverse the trend through higher fees and less aggressive promotions.

Consumers would be hard-pressed to notice the shift though, because the big three carriers — AT&T Corp., WorldCom Inc.’s MCI Group and Sprint Corp. — continue to spend millions of dollars hawking discount plans on television and through telemarketing and direct mail.

But behind the facade, the companies have decided they no longer can afford the price wars, and they have launched a two-front offensive to get more money out of customers and offset declining long-distance revenue.

On one front, the companies are using outright rate increases; on the other, they are adding new monthly fees and raising little-noticed charges.

For most consumers, the result is the same: higher long-distance bills.

"They are presenting the per-minute rates as if they are still competing with each other, but with all the additional fees and monthly service charges and universal service fees, the overall rates are actually going up," said Marc-David Seidel, co-founder of ABTolls.com, an Internet site that specializes in comparing long-distance prices. "They know the majority of customers just pay attention to the per-minute rates."

Consumer groups and industry analysts say the new increases signal that price wars between the big-name players are coming to an end.

After a year of scattered increases, a wave of price hikes will begin to hit consumers Tuesday. AT&T and MCI, who together have two-thirds of the U.S. long-distance market, already have announced planned increases that will affect millions of customers.

MCI plans 14 separate price increases, including sharp jumps in state-to-state per-minute rates on popular plans such as the company’s MCI 5 Cents Everyday (increasing the peak rate to 10 cents from 9 cents), MCI 5 Cent Sundays (increasing the peak rate to 35 cents from 30 cents) and MCI 321 Direct (increasing to 12 cents from 8 cents).

The company also added a $5 monthly fee to one plan and increased the monthly fee on several others by $1, with one plan now charging a monthly fee of $5.95.

AT&T, which last summer raised rates by 11 percent for about half its subscribers, plans an increase that will hit all of its 60 million customers. The increase will come from a fee buried in the fine print of phone bills.

The carrier said as of Tuesday it will charge its long-distance customers a fee equal to 11.5 percent of their long-distance calling charges, up from 9.9 percent.

The fee often appears on phone bills in the "taxes and fees" section, on the line labeled "Federal Universal Service Fee," often abbreviated as USF or something similar. AT&T calls the fee a "universal connectivity charge."

Under federal rules, the long-distance carriers must pay the government a universal service fee of about 7 percent of revenues, an amount that goes toward subsidizing phone service for poor and rural customers.

The Federal Communications Commission allows carriers to recoup the fee from customers, but doesn’t establish a limit on how much the companies collect.

Consumer groups have long complained that the long-distance companies have used the universal service fund as an excuse to overcharge consumers.

Though the carriers pay almost 7 percent into the fund, most of them charge customers 9.9 percent, and now AT&T is planning to charge 11.5 percent.

AT&T says it has to raise the fee for customers to cover the USF owed to the government.

The government charges each carrier based on revenue data that are three to six months old, and that difference has become important now that AT&T’s long-distance revenue is dropping by 10 percent to 18 percent a quarter.

The company has said it will roll back the USF to earlier levels if the government changes its calculations to use current revenue figures.

But that’s of little comfort to consumer groups, who note that even the commonly charged 9.9 percent rate has a built-in profit margin of almost 3 percent.

Copyright ©2001 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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