Long Distance Rates Set to Soar

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