AT$T gets more for less

Posted on June 8, 2006 - 3:05pm.

from: SF Gate

David Lazarus

AT&T gets more for less

If you're an AT&T long-distance customer and you don't make a lot of calls, there's a good chance your monthly bill will be going up as a result of new "minimum usage" fees.

AT&T says on its Web site that long-distance customers "enjoy great rates usually with a small or no monthly plan fee." It says it needs to charge (or in some cases increase) monthly minimum usage fees "in order to keep these rates low and still recover our costs of providing basic service."

Industry analysts and consumer advocates say this just doesn't ring true.

"Carrier costs are not going up to provide long-distance service," said Lisa Pierce, a vice president at Forrester Research who specializes in telecom issues. "If anything, the cost has been coming down."

She said it seems more like AT&T is taking advantage of the fact that many long-distance customers, whose service is often bundled with other AT&T services like local calling and Internet access, would have a hard time switching providers.

Pierce said it appears that AT&T is looking for new ways to boost revenue from one portion of its operations at a time of enormous expenditures elsewhere in the company's business.

For example, AT&T says it's spending $4.6 billion to roll out video service to 19 million homes nationwide as part of efforts to compete with cable providers.

"They're basically saying that they have a captive audience (for long-distance) and, gee, isn't that swell," Pierce said.

Beginning July 1, AT&T will introduce a $5 minimum usage charge for its One Rate Simple Plan. If a customer makes only $4 in long-distance calls in any given month, say, AT&T will tack on an extra $1 fee to meet the $5 minimum.

Postcards notifying customers of the change were mailed out recently.

As of Aug. 1, meanwhile, AT&T says it will raise the existing $7 minimum usage charge to $9 for about a half-dozen other plans. These plans include Simplified Calling, One Rate Basic, One Rate 12 Cents and One Rate Off-Peak California.

Other plans to increase

Then, on Sept. 1, AT&T says it will raise the minimum usage charge for a dozen other plans from $9 to $9.99. These plans include True Reach Savings, One Rate 7 Cents, One Rate 9 Cents, One Rate 10 Cents and Simple Minutes.

"It definitely has nothing to do with the per-minute cost of long-distance," said Linda Sherry, a spokeswoman for Consumer Action, a San Francisco advocacy group.

"The only cost that's going up for long-distance carriers is customer retention," she said, "but that's a normal business expense."

John Britton, an AT&T spokesman, declined to comment on the cost of providing long-distance service. He said AT&T's higher minimum usage fees reflect the company's commitment to network reliability.

"AT&T is focused on providing high-quality service to customers," Britton said. "We adjust our prices and portfolios from time to time to keep providing the high-quality service that represents the AT&T brand."

He declined to say how many of the company's millions of long-distance customers will be affected by the higher minimum usage fees. Most of the plans receiving higher charges are no longer offered to new customers.

"The vast majority of our customers spend more than the minimum amount," Britton said.

A spokeswoman for Sprint said that company's long-distance plans don't include minimum usage fees. She said Sprint has no intention of increasing fees for older plans that might have such charges.

A spokesman for Verizon, which acquired MCI earlier this year, said neither Verizon nor MCI offers long-distance plans with minimum usage charges. He said he's unaware of any older plans that might carry the fees.

AT&T has been steadily abandoning long-distance plans that don't guarantee the company a certain amount of profit each month. All long-distance plans available on the company's Web site include monthly fees.

In March 2005, SBC's chief exec, Ed Whitacre, testified in Congress that his company's then-pending $16 billion acquisition of AT&T would have no adverse effect on consumers.

He was asked by Rep. Ed Markey, a Massachusetts Democrat, if he would pledge not to raise residential phone rates once the merger goes through.

According to reports of the hearing, Whitacre assured the congressman that the deal would "have no impact on the consumer marketplace."

Markey persisted. If that's the case, he said, would Whitacre publicly pledge that rates won't go up?

"I can't pledge that forever, but don't see anything that would impact that in the foreseeable future," Whitacre replied.

"How long is the foreseeable future?" Markey asked.

Wouldn't make a pledge

"I can't make a pledge for any specific length of time," Whitacre answered. "I can't give you a specific number of days or years. I really don't foresee it."

Less than seven months after the SBC-AT&T merger was finalized in November, rates are now going up in the form of higher minimum usage fees.

AT&T says it's the leading long-distance service provider in the country but doesn't disclose its exact number of customers.

According to reports, however, AT&T had about 30 million long-distance customers when the company was purchased by SBC. For its part, SBC had about 22 million.

For the sake of argument, let's say only a quarter of the merged company's roughly 50 million long-distance customers are enrolled in plans affected by higher minimum usage charges.

And let's say only half of those are light users and would see their monthly long-distance bills rise. Let's say the typical bill goes up by just $1.

That seemingly conservative estimate translates to $6.25 million a month in extra revenue, or $75 million a year.

Forrester's Pierce said many observers have been worried that the recent flurry of consolidation in the telecom sector would reduce competition and prove detrimental for consumers.

"There's been a lot of concern that prices would rise," she said. "Well, here we go."

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( categories: AT&T | CALIFORNIA )