As Long-distance Changes, So Do Habits Of Its Users

Posted: August 12, 1999

We're talking more and paying less. We pick up the phone more often but chat for shorter periods of time.

We call Mexico, Germany, Kenya, England, Brazil, Canada and other nations more often.

We'll try lesser-known carriers - Qwest, Frontier or talk.com - more often and we have less loyalty to the Big Three: AT&T, MCI WorldCom and Sprint.

We'll use a prepaid card, a dial-around number, a calling card, an Internet-based calling plan.

We'll switch carriers - more than a quarter of us switched long-distance companies last year - but are sick of trying to sort out calling plans and keep up with changing rates.

In short, we're a restless bunch of frequent communicators and long-distance customers, and even more restless and talkative the younger we are.

That's the assessment of the new American long-distance consumer, shaped by the deregulation, persistent telemarketers, $50 enticements to switch carriers, and long-distance rate wars of the last decade, according to telecommunications research groups.

The residential long-distance customer is now fixated on the price per minute of a long-distance call, analysts say.

That's one reason why a new marketing war for long-distance customers may be at hand, prodded along by MCI WorldCom's announcement Monday that it is lowering its off-peak rate to 5 cents per minute for customers who request it. Sprint announced a similar plan last month.

"The price per minute is the current issue of the day and the best price per minute is what they are competing on," said Robert Self, author of Dr. Bob's Long Distance for Less books and a Silver Spring, Md., consultant on pricing plans for long-distance companies. "It used to be focused on discounts and rates didn't matter. It was about saving 40 percent and saving 50 percent. It changes like women's hems."

But the saying caveat emptor goes a long way when dealing with the long-distance industry.

"If you are not out looking to find lower prices, and if you are not looking for the right service for your calling pattern, you could be paying as much as you were 10 years ago," Self said.

That's because long-distance companies frequently use what Self calls "water-bed pricing." That is, they lower one price and raise another, just as one side of a water bed sinks when you sit on it and the other side rises.

While per-minute rates are down in the evening, monthly fees and other costs, such as calls to an operator, are up.

Still, five cents per minute is a huge difference from prices in 1984, when the federal government broke up AT&T, spun off the Baby Bells, and sent us all out to shop for long-distance.

In 1984, distance mattered. A call from Philadelphia to San Francisco cost more than one to New York. If you called California from Philadelphia during the day you used AT&T and paid 74 cents for the first minute and 49 cents for each additional minute. (And those rates aren't even adjusted for inflation.)

Time of day mattered, too. That same call on a weekday evening cost 44.4 cents for the first minute, and 29.4 each additional minute.

When Germantown resident Erastus Dunn, now 65, was growing up, making a long-distance call was "a big deal," something his family did only in an emergency.

Now, "my grandkids think nothing of picking up the phone and making a long-distance call," Dunn said.

In effect, calling long distance is no longer a luxury item, and younger people have never perceived it that way.

Much of the decrease in long-distance rates has been driven less by competition and more by cuts in federal access charges for interstate calls - those are the fees that long-distance companies pay local phone companies to connect phone calls. They are the largest cost a long-distance company has.

In 1985, those underlying charges were 17.7 cents per minute (or 27.7 cents in today's dollars). Those same fees are 2.8 cents per minute today.

Not surprisingly, with long-distance rates falling, people are finding more reasons to use the phone. According to data compiled by Self, interstate and international calls by both business and residential customers totaled 148.8 billion minutes in 1984.

In 1998, people - and now faxes - were communicating for 520.1 billion minutes.

And young people were talking more than anyone, if their bills are any indication.

According to data as of September 1998 from the Yankee Group in Boston, on average, U.S. residential customers under 35 spent $32 per month on long-distance; those 35 to 44 spent $29.30; those 45 to 64 spent $27.80; and those 65 and older spent $19.30.

Younger people also are more willing to hopscotch from one carrier to another, and to switch away from the former Ma Bell, AT&T. According to the Yankee Group, as of September 1998, 70 percent of U.S. residential long-distance customers 65 and older used AT&T, while only 52.3 percent of those under 35 did.

And nearly 27 percent of long-distance customers under 35 used a carrier other than AT&T, MCI or Sprint, while only about 17 percent of customers 65 and older did.

Before 1984, there were no calling plans. Most people didn't even know there were other long-distance companies or that they could pay anything other than what AT&T charged.

Today there are so many companies with so many plans that some consumers have given up shopping around, despite the savings.

Mary Banies, 74, of Philadelphia said she was not interested in switching because rate plans are too confusing. "I can't make heads nor tails of them," she said. "This is for this. This is for that. I might give up my phone."

AT&T alone has several calling plans. One charges 15 cents a minute round-the-clock. Another has a fee of $4.95 and charges 10 cents. AT&T also has a plan for Internet-based calling, at 7.5 cents per minute; yet another is tied into its wireless phone plans.

Some of that confusion also is pushing people to try other ways of paying for phone calls, especially people who call internationally. A sales clerk at a Reading Terminal Market fish store, Like Ferrill, 26, said she left MCI two years ago because it was too difficult to keep track of rate changes. Instead, Ferrill, who spends $30 per month calling her family in Indonesia, uses prepaid calling cards for long-distance calls.

"All the time, rates change," she said. "For a calling card, you pay for that and you know what you are paying."

International calling also is on the rise, partially because of the rapid price cuts for such calls. In 1996, residential long-distance customers in the United States made just less than $9 billion in international calls, according to Atlantic-ACM, a telecommunications research firm in Boston. For 1999, the figure is expected to be $11 billion, and in 2002, $14 billion.

"That fits with the population changes we've been having," said Judy Reed Smith, chief executive officer of Atlantic-ACM. "We are more likely to know someone living or working in another country and are more likely to feel comfortable calling and chatting with them."

* Staff writer Wendy Tanaka contributed to this article.

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