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Long Distance Rates Set to Soar

Light Reading
News Analysis
Light Reading
12/31/2002

A word of advice in these closing hours of 2002: Get your long-distance calls out of the way today, 'cause tomorrow they’re likely to cost you a lot more. (Unless you're a big corporation, that is.)

The two largest long-distance service providers in the U.S., MCI (Nasdaq: MCIT) and AT&T Corp. (NYSE: T), are getting ready to raise prices on most of their long-distance services – and industry observers expect the country's third largest carrier, Sprint Corp. (NYSE: FON), to follow suit.

“We’re evaluating a variety of options on pricing,” acknowledges Sprint spokesperson Jennifer Love. “Some could be increases, and some could be decreases.”

The most drastic rate hikes tomorrow will come from MCI, which already raised prices a number of times in the past year. Among other price increases, rates for 20 different MCI international calling plans will rise about 10 percent, according to a new Website, Phone-Bill-Alert.com, which was launched yesterday and is dedicated to alerting long-distance consumers to price increases and new fees (see Website Eyes Rising Phone Bills).

“MCI went from leading the industry into the abyss of low rates to leading it up the ladder of rate hikes,” says Rich Sayers, editor of Phone-Bill-Alert.com.

MCI spokesperson Audrey Waters wouldn’t comment on whether the company is expecting to raise prices even higher in the new year.

AT&T has criticized MCI's recent price increases as a sign of desperation following the woes of its parent company, WorldCom Inc. (OTC: WCOEQ). Now AT&T has performed an about-face, declaring it will raise rates on several of its long-distance services in 2003.

AT&T will increase the monthly fee new subscribers have to pay for $0.07/minute long-distance calls, which will jump from $3.95 to $4.95. AT&T spokesman Gary Morgenstern says existing customers also could experience a similar rate hike as early as March 2003, and that the carrier may raise other prices later on. “We do anticipate adjusting some of our rates throughout the year,” he says, “but in a more rational way than some of our competitors.”

Sayers agrees that AT&T and Sprint are unlikely to raise prices as dramatically as MCI has been forced to do. “For AT&T and Sprint, there has to be a great temptation to try to steal some of WorldCom’s market share,” he says.

Gallingly, while long-distance rate changes at the largest service providers are likely to hurt consumers, they could actually reduce prices for some large corporate customers. “The idea in general is to benefit the high-volume customer,” Sprint's Love says, insisting that any changes to the company's long-distance pricing structure would aim to retain the provider's biggest customers.

Whether they pinch or please, rate hikes for long-distance services should come as no surprise. Long-distance providers have not only been hit hard by the economic downturn, but they've had to fight growing wireless substitution and increased Internet use, as well.

In addition, the competitive carriers have been facing growing competition from RBOCs, which have scored key regulatory approvals to offer long-distance service in their respective regions. Overall, the FCC has approved RBOC long-distance services in 35 states to date (see RBOCs Get Long Distance Go-Ahead and Qwest Gets LD Approval in 9 States).

“I think everyone’s keeping their eye on [the RBOCs],” says Love.

For their part, the RBOCs insist that more long-distance competition will benefit consumers by bringing down prices and encouraging new and more innovative service offerings (see Fed Reg Debate Heats Up).

Incumbent long-distance carriers, on the other hand, say that even as the RBOCs push for long-distance approval, they are still lobbying to remove the regulations that allow their competitors to access their networks – thereby giving them an opportunity to monopolize the market and raise prices to their hearts' content (see UNE-P Debate Rages On and ILECs, CLECs Face Off Over UNE-P).

“Long distance will continue to be very interesting in 2003,” Sayers says. “It will make a lot of waves. I just don’t know which direction the waves will go in.”

— Eugénie Larson, Reporter, Light Reading

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willywilson
willywilson
12/5/2012 | 12:57:29 AM
re: Long Distance Rates Set to Soar
What you really mean to say is preserve the legacy business and operating models to preserve the legacy businesses. Allow them to withhold or block technology from the marketplace because it obsoletes them or makes them irrelevant in their present form. Block all the new businesses that DO bring new technology to the market, and allow THEM to fail instead. Easy to do when you own the bottleneck and have central control. You sure have a funny idea of what constitutes a healthy future.

--------

You misunderstood the message to which you replied. The author wants higher rates for the purpose of creating a pricing umbrella for competitors.
PresterJohn
PresterJohn
12/5/2012 | 12:57:14 AM
re: Long Distance Rates Set to Soar
"I say raise all the rates on traffic to reflect what businesses need to stay healthy."

Seems like you've got the cart before the horse here. Where does the invisible hand of the market figure in in this scenario? How does this not encourage the continuation of inefficient operation and bloated payrolls? Do we just let "them" raise rates on everything until they say "OK, That's fine now, we're happy, Thank-you!"???
rjmcmahon
rjmcmahon
12/5/2012 | 12:57:12 AM
re: Long Distance Rates Set to Soar
"I say raise all the rates on traffic to reflect what businesses need to stay healthy."

Seems like you've got the cart before the horse here. Where does the invisible hand of the market figure in in this scenario? How does this not encourage the continuation of inefficient operation and bloated payrolls? Do we just let "them" raise rates on everything until they say "OK, That's fine now, we're happy, Thank-you!"???
__________________

Those suggesting we should be raising the rates are hoping that selfishness and greed can reconstruct the market. It won't. It will only make the market deteriorate much faster.

We have a market creation and market access problem. Raising the rates will do nothing to fix the problem.

The solution to the problem requires somebody to to pay to create the markets and enable access. Unfortunately, the act of buying something is selfish by its nature while property ownership is defined by limiting access.
willywilson
willywilson
12/5/2012 | 12:57:03 AM
re: Long Distance Rates Set to Soar
1. AT&T and MCI should raise rates for voice traffic.

2. If your saying why, then you have forgotten how the current rates have came to be. ... The simple notion of a competitor and a "hot new technology" literally struck concern in the RBOC community to the point that they felt (along with the rest of the traditional voice providers) compelled to lower voice rates to two - three cents a minute.

3. AT&T and MCI realized they messed up. They had lowered the cost to carry voice to the point where it couldn't pay for the TDM infrastructure providing the service.

4. It is pointless to debate technology for this article and it is equally useless to debate the business practices and ethics of MCI and AT&T. Both have made huge miscues.

5. The rate hike by these companies and others to follow only allows those companies to pay for their infrastructure. I see nothing but opportunity now for the voice packet vendors. And guess what? They won't have to lower the packet cost below two - three cents a minute. Five - ten cents a minute will provide a delta big enough to both compete and make money.

--------

1. Yes, and you should pay my phone bills.

2. There's something you have forgotten. AT&T and MCI are not RBOCs. What an idiot.

3. Sorry, but you're simply wrong. The price of LD is still above the incremental cost of carrying the traffic.

4. Pointless to debate technology and business practices? What would you like to talk about, baseball scores?

5. You're hoping the IXCs will raise rates to provide a pricing umbrella for "VoIP." Well, if they raise rates and those rates stick, it will tell us one thing and one thing only: One more sector of the U.S. economy has become cartelized.
Ringed?
Ringed?
12/5/2012 | 12:57:03 AM
re: Long Distance Rates Set to Soar
It looks as though this thread has gotten a little off track from the original story and has began to debate technology, philosophy, ethics etc.

AT&T and MCI should raise rates for voice traffic.

If your saying why, then you have forgotten how the current rates have came to be. Remember the CLEC? Remember the Soft Switch? The simple notion of a competitor and a "hot new technology" literally struck concern in the RBOC community to the point that they felt (along with the rest of the traditional voice providers) compelled to lower voice rates to two - three cents a minute.

What happened next? We'll, after a few years with the CLEC near extinction and the carrier class Soft Switches still being developed AT&T and MCI realized they messed up. They had lowered the cost to carry voice to the point where it couldn't pay for the TDM infrastructure providing the service.

It is pointless to debate technology for this article and it is equally useless to debate the business practices and ethics of MCI and AT&T. Both have made huge miscues.

The rate hike by these companies and others to follow only allows those companies to pay for their infrastructure. I see nothing but opportunity now for the voice packet vendors. And guess what? They won't have to lower the packet cost below two - three cents a minute. Five - ten cents a minute will provide a delta big enough to both compete and make money.

Ringed?
Ibeenframed
Ibeenframed
12/5/2012 | 12:57:03 AM
re: Long Distance Rates Set to Soar
"The solution to the problem requires somebody to to pay to create the markets and enable access. Unfortunately, the act of buying something is selfish by its nature while property ownership is defined by limiting access."

So - you propose that "somebody" build the network that will support free services putting existing carriers - both RBOCs and LD carriers- out of business but that new network should be open for everybody to use any way they want? Cost - by this definition - is irrellivent - and should be born by whom?

It would seem your proposing a Marxist approach to telecommunications - "Unfortunately, the act of buying something is selfish by its nature while property ownership is defined by limiting access."

rjmcmahon
rjmcmahon
12/5/2012 | 12:57:01 AM
re: Long Distance Rates Set to Soar
So - you propose that "somebody" build the network that will support free services putting existing carriers - both RBOCs and LD carriers- out of business but that new network should be open for everybody to use any way they want?
________________

Let's reword a bit.

I propose that we build an open market which supports competitively priced goods and services for our information society. That market should establish and apply rules which favor none. It should be open to new and existing companies, to new and existing goods and services, and to new and existing customers.

Preserving the RBOCs or the Carriers and their ways of business should not be a goal. Excluding them from true competition is also not a goal.

With that said, the question commonly asked is who pays for the market creation and who defines the rules? Obviously, Wall Street and Enron cannot do the job as their greed only rigged the system and stole from everyone. Obviously, the Feds cannot do the job as they believe the only way they can maintain their "representative" power is to hold information and its distribution as a scarce resource.

Therefore, in my opinion, our states must take the lead. The entities of the states which can, and should, get the job started are our local governments.
willywilson
willywilson
12/5/2012 | 12:57:00 AM
re: Long Distance Rates Set to Soar
I propose that we build an open market which supports competitively priced goods and services for our information society. That market should establish and apply rules which favor none. It should be open to new and existing companies, to new and existing goods and services, and to new and existing customers.

Therefore, in my opinion, our states must take the lead. The entities of the states which can, and should, get the job started are our local governments.

------

In a naive and ideal world, two things would suffice. First would to enforce the fraud laws with respect to Wall Street, Silicon Valley and sundry other corporate scam artists. Second would be to enforce the Telecom Act as written.

R.J., your problem is that you want the government to throw a bunch of money at publicly owned telecom infrastructure. Even in good times this wasn't a good idea, but these days it's totally out of the question. Ain't a-gonna happen.
Ringed?
Ringed?
12/5/2012 | 12:57:00 AM
re: Long Distance Rates Set to Soar
Hey Willy!

1. Yes, and you should pay my phone bills.
- I could pay it for you if you are unemployeed or you could use your cell phone or your quirky internet voice call to bypass LD charges from home.

2. There's something you have forgotten. AT&T and MCI are not RBOCs. What an idiot.
- I didn't think I need to spell that one out to this group but thanks for the clairfication.

3. Sorry, but you're simply wrong. The price of LD is still above the incremental cost of carrying the traffic.
- And, you are simply spouting off nonsense with no data to support your view. The cost to carry voice and the tariffs which allow a provider to make money on the service provided are well known and studied by the private sector and the government. Hence the rate hike genuis.

4. Pointless to debate technology and business practices? What would you like to talk about, baseball scores?
- Now you are onto something. I tell you what. Start a thread debating the cost basis of providing LD verse the cost basis of future VoIP but be sure to clarify residential and enterprise implementations so as not to confuse readers who are obviously not as smart as yourself.

5. You're hoping the IXCs will raise rates to provide a pricing umbrella for "VoIP." Well, if they raise rates and those rates stick, it will tell us one thing and one thing only: One more sector of the U.S. economy has become cartelized.
- Again you missed the boat. It doesn't matter if the company is a IXC, RBOC or IOC. The price charged for LD at 2 - 3 cents a minute is too low to pay for the current infrastructure. My point WRT VoIP is only that it is a technology that in time will mature. At that point in time the maturity of VoIP should cause IXC, RBOC, IOC's to purchase new equipment replacing legacy equipment. I see it happening now and I don't give two s^!*$ about VoIP companies.

Ringed?
whyiswhy
whyiswhy
12/5/2012 | 12:56:59 AM
re: Long Distance Rates Set to Soar
Willy:

Slow down dude! Your tone appears overly sensitive...New Years hangover? Reminding me about the ups and downs of capitalist competition is a bit over the top.

Anyway, higher LD rates are good news to the industry, it is "the" signal that at least in LD, supply/demand will allow it. I agree with you, the incremental cost of LD transport is something like a fraction of a cent per voice line minute.

But, IP rates will go up, not so much because of cartel action, but because the sytem is still largely LD-backbone based. This is a result of overlaying the old P-P switched line system: its not a fully meshed network. On top of this, there is the practice of offering a discount for (traffic) exclusivity. Partnering is a long ways from an organized cartel (like oil or diamonds), where there is a meeting to decide prices.

RC:

You said:

"We have a market creation and market access problem. Raising the rates will do nothing to fix the problem.

The solution to the problem requires somebody to to pay to create the markets and enable access."

I agree, but not in the way you think. The thing you keep forgetting is that if no profits are made, (like in the government owned last mile you propose) there is no incentive to change or improve. For some reason, you think that the government owning things will change the equations of nature.

Corruption in corporations comes from corrupt people. Same thing in governments. It is always supply and demand.

And you appeared to be doing so well for awhile...

-Why

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