Southwestern Bell ready to go the distance

By TOM FOWLER

July 7, 2000 Web posted at: 10:24 AM EDT (1424 GMT)

In this story: The numbers game Keeping it simple RELATED STORIES

HOUSTON, Texas (The Houston Chronicle) -- Texas' newest long-distance phone company won't offer the cheapest per-minute rates, but analysts said it may soon help drive down the cost of in-state calls.

On Monday, Southwestern Bell will begin marketing its long-distance plans to consumers, just eight days after the Federal Communications Commission gave parent company SBC Communications clearance to sell the plans.

Even before consumers notice the effect increased competition will have on their monthly bills, they will notice a growing tidal wave of advertising coming their way.

Bell officials said they have been primed and ready for more that a month to launch the single-largest advertising campaign in U.S. corporate history beginning Monday. Television, radio, Internet and print ads will begin in earnest that day, in English, Spanish, and most likely, Vietnamese and Mandarin Chinese.

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Competitors have also been stepping up their advertising campaigns to tout improvements in their plans designed to counter Bell's efforts.

"On Monday, the floodgates will open and consumers will be bombarded through their mailboxes, their televisions and newspapers," Jeff Kagan, an independent industry analyst, said. "It will be confusing at first until they realize they can get all of their services from one company. Then it should be easier for customers."

Bell said Thursday it will offer customers a flat rate of from six to nine cents per minute, depending on the additional services customers buy, and no monthly charges.

Competitors, by contrast, offer rates as low as five cents per minute, but those plans usually include monthly service fees.

Analysts said Southwestern Bell's entrance into Texas' $6.2 billion state-to-state long-distance market will actually have a bigger impact on the cost of long-distance calls made within Texas, which are among some of the highest in the country.

With the profit margins in long-distance continuing to drop from increased competition, phone companies will use every incentive they can to get customers to sign on the dotted line, said Rena Bhattacharyya, a research analyst with Framingham, Mass.-based research firm IDC. If that means shaving pennies off the cost of placing a call from The Woodlands to Waco, they'll do it.

"The key is everyone wants to position themselves as a one-stop telecom provider," Bhattacharyya said. "Any way they can offer other services, like Internet call waiting and caller ID, they can squeeze margins more for other services."

One of Bell's new plans, for example, appears to take a step in the direction of lower in-state calls. For $40 per month, callers can make unlimited calls within Texas any time, seven days a week.

The irony is that the high price of long-distance calls within Texas is the result of Bell's own policies, said Jesse Ayala, a spokesman for Texas Watch, an Austin-based consumer advocacy group.

Ayala said that, for many years, SBC Communications successfully convinced the Texas Legislature to let it keep higher-than-average fees on in-state long distance calls. He noted that per-minute fees in Texas were once as high as 11.3 cents per minute, while in California, where SBC also owns the largest local phone company, rates were closer to 1.3 cents per minute.

"They claimed they needed the higher fees statewide to cover the cost of the more difficult-to-serve areas," Ayala said.

Those rates have since come down significantly, he said.

"Now, it's a little unfair for them to use a competitive advantage over a problem that they actually created," Ayala said. "If the rates come down, it wouldn't be because of true competition."

Simplicity was the mantra of Bell executives discussing the plan on Thursday.

The basic plan offers nine-cent-per-minute calls any time, including weekdays and weekends, to any place in Texas or the United States.

Customers who sign up with another Bell service, such as local calling or Internet service, can call for six cents per minute. A number of plans for business callers were also announced with similar structures.

While Southwestern Bell's nine-cent and six-cent rates are not the absolute lowest available on a minute-to-minute basis, Kagan noted that they do not include monthly fees.

"What's radically impressive about Southwestern Bell's offering is that their highest rate is just nine cents, while most others get as high as 20 or 30 cents," Kagan said. "They didn't have to go that low. They could have put it at 15 to 20 cents."

Consumers will always look for the lowest per-minute rates, but according to an IDC survey, 53 percent of residential phone customers do not subscribe to discounted plans. In other words, they pay more than they need to for long-distance service.

"A lot of people are overpaying simply because of inertia," said Susan Grant, vice president of public policy for the National Consumers League, a Washington, D.C.-based consumer rights organization.

Confusion over the many options available to consumers tends to be overwhelming, she said, with every company offering dozens of variations on each plan.

IDC's Bhattacharyya said that in many cases consumers are willing to pay a little bit more for the convenience of having all of their phone service through one company with one simple bill.

"While the lowest price is important, with the difference between the rates very low as it is -- just 5 cents to 2 cents -- it's not all-important like it used to be," Bhattacharyya said.

Grant said she likes the precedent that Bell's new plans set with flat rates, simple pricing and easy-to-understand billing.

"But no matter what, consumers should check out their options and not only with (Bell) but with all the companies," Grant said.

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