AT&T angered industry and consumer groups in April when it extended a $3 minimum long distance charge to all its basic residential service customers. An AT&T spokesman says the company tried other methods to reduce billing and customer care costs before it instituted the fee, but analysts say the charge could be an attempt to motivate traditionally conservative users of long distance services into more lucrative calling plans and rate structures.
AT&T instituted the fee for new customers last summer; all customers who spend less than $3 on long distance will have to pay the charge beginning this month. Few users will have to pay the full amount. If a customer makes $2.30 in long distance calls, he would pay 70 cents to make up the difference. The fee will offset the $300 million the company loses each year in customer care, billing and account maintenance costs for low-usage customers, says AT&T spokesman Ritch Blasi.
The U.S. Telephone Association -- which is composed primarily of RBOCs -- reacted to the news with this salvo: “Irrespective of the justifications offered by AT&T by its actions, the real story here is that more competition here in the long distance market would serve to give customers more options when deciding whether AT&T’s announced action is a good or bad deal for them.”
In a prepared statement, Gene Kimmelman, co-director of the Consumer Union, called the minimum charge “the latest example of telecommunications deregulation run amok, driving up prices for millions of consumers.” Kimmelman also noted that IXCs charge $1 billion in fees each year, but don’t offset that with lower per-minute calling charges.
Blasi argues that AT&T had to do something about low-end users. Although the average AT&T customer makes $20 in long distance calls each month, at least 75 percent of the nation’s low-usage customers were with AT&T when long distance competition began, Blasi says.
“The competitors went in and cherry-picked the high-usage customers. We have a disproportionate amount of low-usage customers to service, so we are absorbing most of those costs.”
AT&T has tried to find ways to reduce its billing costs for low-usage customers, which amount to $1 million a day, Blasi says. The carrier outsources much of its bill presentment, so it reduced the tempo and the number of bills it sends, as well as the marketing material enclosed in those bills.
“We’ve gone to moving a lot of these people [low-usage subscribers] onto bi-monthly billing, and if for some reason they don’t meet the $30 a month minimum, we bill them quarterly,” Blasi says. “We also cut back on marketing to the low-usage customers. After a pattern of trying to approach these people to buy other products and services, they only want what they have. We pull back dramatically on the marketing to them.” This reduces printing costs, distribution, and other costs associated with outsourcing, he says. But the fee could move the lower-end customers to other rate plans. For instance, the carrier pushed its Monthly Minutes calling plan when it announced the minimum charge. Under that plan, customers can pay $3 for 30 minutes of direct-dialed long distance service. After 30 minutes, subscribers pay 20 cents per minute.
MCIWorldCom also instituted a $3 minimum last year, but didn’t get as much flak as AT&T because 80 percent of its customers are on a calling plan, says MCIWorldCom spokesman Charles Sutlive.
The carriers hope minimum charges will inspire customers to move to online billing services.
“One of the other things is to move people from receiving bills to going online for bills,” Blasi says. “In doing that you cut the costs of billing and move those cost savings on to customers.”
For instance, customers who take a 9-cents-a-minute calling plan pay a $4.95 monthly fee, but if the customer migrates to online billing, the monthly charge is reduced to $1, Blasi says.
But is it reasonable to expect that people who don't want to pay more than $3 in long distance will have Internet accounts? “Low usage doesn’t mean low income,” Blasi says. “Different people have different habits.”
He adds that residential customers who also have a dedicated Internet or fax line can avoid paying two minimum fees by combining both phone lines on one account.
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