Long-distance rates begin creeping higher

March 27, 1992|By Leslie Cauley | Leslie Cauley,Staff Writer

After seven years of steady declines in long-distance phone rates, it appears that the good fortune of consumers has finally run out: Phone rates are on the rise.

Long-distance rates are creeping up for the first time since the 1984 breakup of AT&T according to a new survey by Consumer Action, a San Francisco-based consumer advocacy group. The survey covered basic rates, which do not include prices for discount calling plans.

Although the increase was slight -- 1.86 percent over the past year -- the handwriting is on the wall, said Ken McEldowney, Consumer Action's executive director.

He predicted that prices will continue to edge up as the top three long-distance companies persevere in their costly slugfest for a bigger share of the residential long-distance market. The consumer group said long-distance rates had dropped about 40 percent from 1985 to 1991 before this latest turnaround.

The long-distance companies don't deny that basic rates are going up. But they contend the increases are necessary because of increasing costs.

"I don't think anyone would deny that we saw some [cost] increases in 1991, but I would also point out that there were decreases in certain product prices," said David Schmieg, president of consumer services for US Sprint.

As part of their campaigns to woo customers, American Telephone & Telegraph Co., MCI Communications Co. and US Sprint have rolled out new discount calling plans, beefed up customer service and turned out calling cards that offer a variety of services.

At the same time, the companies have stepped up their national advertising and telemarketing efforts.

Coupled with new regulations from the Federal Communications Commission that required the companies to engage in more paperwork last year when signing up new customers, the price decline was bound to skid to a halt, Mr. McEldowney said.

"None of this is free," he said. "The money has to come from somewhere."

According to Consumer Action, some of that money is coming from increases in basic rates.

For AT&T, the cost of a dozen long-distance calls in the 1992 survey totaled $20.50, up 0.44 percent compared with last year. For MCI, the bill was $19.87, up 1.22 percent. Sprint's charges were $20.33, up 3.94 percent. The charges were for direct-dialed long-distance calls that were not associated with any discount calling plan.

Mike Balhoff, a telecommunications analyst with Legg, Mason, Wood, Walker in Baltimore, said he expects basic rates to continue to increase as the three companies look for ways to beef up profits.

One way to do that, he said, is to increase rates for what is basically a captive audience -- people who don't make enough calls to justify signing up for a discount calling plan.

"AT&T has made it clear it intends to raise prices in areas where it feels it won't hurt them," Mr. Balhoff said. "MCI and Sprint are following suit."

AT&T's share of the long-distance market has recently stabilized at about 65 percent. AT&T is followed by MCI with 15 percent of the market and Sprint with about 9 percent.

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