Phone rivals launch long-distance war

January 07, 1995|By Michael Dresser | Michael Dresser,Sun Staff Writer

A long-running "war of confusion" in the long-distance telephone business turned into an old-fashioned price war this week as MCI and Sprint weighed in with aggressive responses to AT&T's recent gains.

The new outbreak of price-cutting took a toll on the stocks of AT&T Corp. and MCI Communications Corp. yesterday, with market leader AT&T dropping $1.375, to close at $48.25, and No. 2 MCI dropping 93.75 cents, to close at $18.06. But No. 3 Sprint, which surprised the industry with a bold flat-rate plan, recovered from early losses and gained 50 cents, to wind up at $27.125.

The latest outbreak of fierce competition in long distance could turn out to be good news for consumers, who have seen long-distance rates creep upward in recent years after a healthy drop in the wake of the AT&T breakup in 1984.

AT&T now controls about 60 percent of the market, while MCI has 20 percent and Sprint about 12 percent.

Both MCI and Sprint released plans Thursday aimed at countering the success of AT&T's heavily advertised True Savings discount plan.

Both of AT&T's challengers stressed simplicity in an effort to appeal to customers whose heads are reeling from a barrage of baffling claims and counterclaims by long-distance companies with competing discount plans.

But Sprint clearly out-simplified MCI, offering a no-frills plan under which consumers would pay a flat 10 cents a minute during evenings, nights and weekends and 22 cents during the peak 7 a.m.-to-7 p.m. time slot Monday through Friday.

Under the new SprintSense plan, distance would no longer be a factor in the price, making the cost of a telephone call from Baltimore the same whether it goes to Philadelphia or Seattle.

MCI's plan represented an expansion of its existing Friends & Family service, which offered a discount on calls to anyone in a customer's MCI "calling circle."

Now the 25 percent discounts will apply to anyone the customer calls in the United States, regardless of which long-distance carrier they use, as long as they spend $10 during the billing month.

Last year AT&T recovered ground lost to MCI by running ads attacking the Friends & Family plan and touting its True Savings, which offers increasing discounts off basic rates as consumers spend more on long distance.

MCI has counterattacked with its own negative ads, but AT&T's campaign managed to blunt MCI's once-robust growth. Jim McGann, an AT&T spokesman, said the company gained more than a million new subscribers in 1994.

Jeffrey Kagan, a telecommunications analyst in Marietta, Ga., said long-distance customers "don't have a clue as to what they're spending."

"There's a war of confusion being waged. And people want simplicity," he said.

Wally Meyer, vice president of marketing in Sprint's Consumer Services Group, said his company's research confirmed Mr. Kagan's observation. He cited a Sprint-commissioned study showing that only 38 percent of customers know how much they were paying for long-distance calls.

Mr. Meyer said the SprintSense program was geared for simplicity so that customers could know exactly what they were paying when they made a call. He said distance charges were unnecessary because the number of miles a call travels once it's on the network has little to do with the cost of carrying a call.

The Sprint executive said the new plan would be simpler to administer internally, producing cost savings that could be passed along to consumers. A $3 monthly fee will be applied for users who fall short of $25 a month in calls, but that fee will be permanently waived for customers who sign up within 90 days, according to Sprint.

Mr. McGann suggested that while Sprint's plan might be simple, its 22-cents peak-time rate is no bargain. "We know we can meet or beat that rate," he said.

He wasn't so sure about Sprint's weekend and evening rate. "We may have something to approach that, but that is pretty low," he said.

Mr. Kagan said Sprint's simplified calling plan is "a nice innovative idea" that will be attractive to customers who want a "no-brainer solution."

That doesn't necessarily mean it's the best bargain, Mr. Kagan said. According to his analysis, while Sprint's rates between 7 p.m. and 11 p.m. are the lowest, its daytime rate is the highest.

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