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RBOCs 'Losing on Long Distance'

America's regional Bell operating companies fought long and hard to get the right to offer long-distance services. But now that they've achieved their goal in some states, a question mark over whether it was worth the hassle has been raised in a report published earlier this week by analyst firm Network Conceptions LLC.

“RBOC success in selling Long Distance to in-region customers in FCC-approved states is illusory,” says the report, which was written by Phil Jacobsen and Farooq Hussain, general partners at Network Conceptions.

Although the RBOCs are winning plenty of customers for long-distance services, they're customers that nobody else wants, according to Network Conceptions, because they spend so little. To make matters worse, the report adds, the RBOCs are losing money on the deal they had to strike in order to get into long-distance markets -- giving interexchange carriers (IXCs) access to their infrastructure.

This paints a very different picture from what appears at first glance to be a huge success in winning long-distance subscribers in approved states by RBOCs such as Verizon Communications Inc. (NYSE: VZ), SBC Communications Inc., BellSouth Corp. (NYSE: BLS), and Qwest Communications International Inc. (NYSE: Q).

SBC, for instance, already has 35 percent line penetration in Texas after just two years of offering long distance in the state, and Jacobsen and Hussain expect that RBOC long-distance penetration should meet industry expectations of 20 percent share of all access lines by the end of 2003.

“We have found that while the RBOCs have been very successful in terms of the numbers of access lines they converted to their LD services,” the report states, “the actual dollar value of these sales has been approximately 50% less than is expected by anyone outside the RBOCs themselves.”

Many analysts have made the “misguided” assumption that each access line will generate average monthly usage of between $25 and $30, according to Jacobsen. That’s a far cry from what the report calculates is the actual average monthly usage among RBOC customers of between $10.95 and $12.26, with the first quarter of 2002 representing the lowest quarter since the first FCC approvals in 1999.

“The problem is that they’re getting the customers that no one really wants,” says Jacobsen. "Over time, we don’t see any increase in average revenue. They continue penetrating the low end, but don’t seem to get beyond it.”

“It is completely untrue that [the RBOCs] are making gains in long distance,” Hussain agrees. “That’s why the IXCs haven’t complained more: They haven’t been losing any money.”

Unlike most of the RBOCs, the IXCs have been investing in next-generation technology, and are positioning themselves to continue serving high-end customers, according to the report.

The RBOCs are, however, expected to continue benefiting from all the scandals surrounding IXCs like WorldCom Inc. (Nasdaq: WCOME). And Hussain says the RBOCs will certainly join in the race to snatch up some of the assets of IXCs as more and more of them enter restructuring and bankruptcy.

The analysts add that it’s a mistake to tar all RBOCs with the same brush. BellSouth, especially, doesn’t seem to follow the same patterns as SBC and Verizon. BellSouth is the only one of the regional Bells that has actually seen an increase in its long-distance revenues, and is, according to the Network Conceptions analysts, the only company that has followed through and offered next-generation services on the data side (see BellSouth to the Rescue?).

“There is a lot of emphasis from Verizon’s side that there’s no revenue in data, and that it was a mistake to go there. It’s all voice,” Hussain says. “You should look for Verizon to start downplaying its data [involvement],” Jacobsen agrees.

— Eugénie Larson, Reporter, Light Reading
http://www.lightreading.com
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MajorPackets 12/4/2012 | 10:09:07 PM
re: RBOCs 'Losing on Long Distance' and half of that is usually actual call minutes, with the rest a fee to add up to MCI's $3.95 minimum monthly fee.

I use email a lot to communicate with family on the east coast. Broadband is not only hurting fixed line counts, but as more people get online with any speed (including dial-up) LD revenues will suffer more.
Metadata123 12/4/2012 | 10:09:00 PM
re: RBOCs 'Losing on Long Distance' In a climate when the major service providers were charging an arm and a leg for long distance, it was probably PI to suggest that this was highway robbery. When MCI announced a few months ago that they will offer local service, unlimited domestic long distance, and a ton of features for $49.99, most of the competition ignored them. But this is the only bright spot for an embattled Worldcom and is a welcome sign to those of us who have suffered long under the RBOCs. And very few people who have heard about this have refused to sign up.

That long distance is itemized and billed per minute is most scandalous. This is what built monstrosities like AT&T while for years it has held the entire economy hostage. So what if the CLECs have gone under. The wireless companies with their unlimited minutes are out to rescue us.

My ideal fee for local and unlimited long distance is about $20/month. I hope we get there within the next year. In the mean time as the major equipment vendors are getting demolished, I feel that the public at large has not benefited yet from the implosion in telecom. MCIGÇÖs neighborhood (http://www.theneighborhood.com... ) is a good first step.

This should be very useful to those in the industry who have been laid off and need to call all over the country to find a job. Good luck to all!
Metadata123 12/4/2012 | 10:09:00 PM
re: RBOCs 'Losing on Long Distance' In a climate when the major service providers were charging an arm and a leg for long distance, it was probably PI to suggest that this was highway robbery. When MCI announced a few months ago that they will offer local service, unlimited domestic long distance, and a ton of features for $49.99, most of the competition ignored them. But this is the only bright spot for an embattled Worldcom and is a welcome sign to those of us who have suffered long under the RBOCs. And very few people who have heard about this have refused to sign up.

That long distance is itemized and billed per minute is most scandalous. This is what built monstrosities like AT&T while for years it has held the entire economy hostage. So what if the CLECs have gone under. The wireless companies with their unlimited minutes are out to rescue us.

My ideal fee for local and unlimited long distance is about $20/month. I hope we get there within the next year. In the mean time as the major equipment vendors are getting demolished, I feel that the public at large has not benefited yet from the implosion in telecom. MCIGÇÖs neighborhood (http://www.theneighborhood.com... is a good first step.

This should be very useful to those in the industry who have been laid off and need to call all over the country to find a job. Good luck to all!
sgan201 12/4/2012 | 10:08:58 PM
re: RBOCs 'Losing on Long Distance' Hi,
This article is focusing on the wrong stuff and getting wrong conclusion.
The correct question is that is RBOC profitable eventhough they are only getting revenue of $10 to $15 per month.
The answer is yes...
In fact, it is extremely profitable..
On the other hand, IXC has very low or no profit with those kind of revenue.
To know this, you need to know what is the major cost component of providing long distance service nowaday...

netchinta 12/4/2012 | 10:08:48 PM
re: RBOCs 'Losing on Long Distance' Dreamer 101 said:
This article is focusing on the wrong stuff and getting wrong conclusion.
The correct question is that is RBOC profitable eventhough they are only getting revenue of $10 to $15 per month.
The answer is yes...
In fact, it is extremely profitable..
On the other hand, IXC has very low or no profit with those kind of revenue.
To know this, you need to know what is the major cost component of providing long distance service nowaday...
---------------------------------------

Which is ..... what? Local access charges, marketing, customer service, or billing/administration or...

The only component that changes significantly enough between RBOCs and IXCs that would make a "lossy" customer "profitable" is the first factor, i.e. local access charges. This the very same that Worldcom got into trouble with...

Is that what you had in mind?

Netchinta
johnjohn 12/4/2012 | 10:08:47 PM
re: RBOCs 'Losing on Long Distance' LD will be obselete soon...thanks to the proliferation of wireless.
ricky34ricky 12/4/2012 | 10:08:28 PM
re: RBOCs 'Losing on Long Distance' LD is hurting severely because of wireless, but several points to note:
o wireless LD is pseudo free - this is changing. rate plans are becoming less generous. ATT moved off peak start time from 8pm to 9pm to join all the other cell providers
o as people use there cell phones more and more, it leaves less "anytime minutes" to burn on wireless LD
o LD service is dramatically better in terms of clarity and continuity
o ask around - you'll see that early adopters of free wireless LD are now migrating much of their calls back to wireline LD
shrewddude 12/4/2012 | 10:07:57 PM
re: RBOCs 'Losing on Long Distance' Dreamer - I think you missed the point. What I read was really about whether the RBOCs can compete. They are getting a chance to compete for the high-end customers, but all they appear to be winning are low-end customers where the IXCs donGÇÖt bother. ThereGÇÖs a lot of PR about RBOC gains in LD in approved states, yet where there's genuine competition in the markets where the IXCs do play, there's no penetration in the segments which count - i.e. high-end customers. I'm afraid that the RBOCs are spinning another line here and that article did a great job in peeling away another layer of BS.

Dude
nthornberry 12/4/2012 | 10:07:51 PM
re: RBOCs 'Losing on Long Distance' Interesting that WSJ reports MCI's local + LD has gained 700k + customers and is causing the RBOCs to respond. Also the FCC has requested the Appeals Court of the District of Columbia to review its earlier decision on telco line sharing. If the FCC gets a reversal of this decision the competitive pressure on the RBOCs is on. The FCC move is reported on yahoo biz ink below
http://biz.yahoo.com/rc/020709...
netchinta 12/4/2012 | 10:07:40 PM
re: RBOCs 'Losing on Long Distance' rthornberry said:

Interesting that WSJ reports MCI's local + LD has gained 700k + customers and is causing the RBOCs to respond. Also the FCC has requested the Appeals Court of the District of Columbia to review its earlier decision on telco line sharing. If the FCC gets a reversal of this decision the competitive pressure on the RBOCs is on. The FCC move is reported on yahoo biz ink below
http://biz.yahoo.com/rc/020709...
--------------------

MCI is offering services based on access charges paid to the RBOCs, which they have tried to hide till now, and which they were counting on doing when this LD + Local campaign was hatched. Now that they have to use real accounting, can they remain profitable? For every local or LD call, they have to access the RBOC network twice...

Can they maintain profitability? Anybody know how much the access charges are?

Netchinta
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