Originally created 08/31/99

AT&T offers new cheap rate



NEW YORK -- AT&T Corp. battled back against phone rivals on Monday by slashing long-distance rates to just 7 cents a minute for calls made any time. While the rates are bargains for frequent long-distance callers, average users might wind up paying more, not less, consumer groups warned.

People who sign up for AT&T's cheap rate must pay an additional $5.95 a month. Sprint, which helped trigger the price war early this month, charges the same monthly fee for a rate of 5 cents a minute at night, and 10 cents at other times.

MCI WorldCom offers weekend and weekday nighttime rates of 5 cents a minute, but daytime fees jump to 25 cents a minute. Its monthly fee is $1.95.

The deals are great for callers who make 200 minutes or more of long-distance calls a month, industry experts say. AT&T says these users can save up to 20 percent off what they'd pay using traditional plans.

But the average residential customer makes about 80 minutes of calls a month, according to the Federal Trade Commission, too little to compensate for the monthly fees charged by AT&T and, in many cases, Sprint as well. AT&T's customers on the average make even fewer calls, according to industry analysts. The company would not break out how many of its customers are infrequent callers.

AT&T's plan is "a pretty darn good price for those who are on the right side of the road," said Samuel Simon, chairman of the Telecommunications Research and Action Center, a Washington-based consumer group. But "these plans are only aimed at the top end of the market, heavy users."

Still, AT&T insisted that its plan had wide benefits. Under the company's old plan, AT&T had charged 15 cents a minute around the clock with no monthly fee or 10 cents a minute with a $4.95 fee.

"We've developed a plan that is pegged to a significant percentage of our customer base," said Gene Lockhart, president of AT&T consumer services.

While MCI's monthly fee is lower, people who don't regularly check their watch may end up paying the far higher rate of 25 cents a minute.

The new prices are seen as a precursor to an industry push to change how it charges customers for phone calls, phasing out per-minute rates and instead pressing for monthly fees, just like Internet access. Consumer groups oppose the proposal on grounds that reductions in long-distance charges will not offset monthly increases for most customers.

Despite the criticism, the lower prices for the industry's best customers are stealing revenues and producing jitters on Wall Street. Following AT&T's announcement on Monday, the company's stock price dropped 3 percent, falling $1.50 a share at $46 on the New York Stock Exchange. MCI WorldCom also was down 3 percent, falling $2.43 3/4 a share at $76.06 1/4 on the Nasdaq Stock Market. Sprint dropped 5 percent on the NYSE, falling $2.37 1/2 a share to $44.75.

AT&T said its long-distance business, which has steadily lost revenues to rivals in recent years, should drop more than expected in the third quarter because of the price wars, but recover somewhat by the end of the year.

AT&T said its financial results for the full year should meet the expectations of Wall Street analysts due to surprising growth in its wireless and other promising businesses. Hoping to further boost its mobile-phone business, AT&T unveiled a promotion that lets up to five family members make unlimited wireless calls to each other and to their home phone inside their calling region.

Overall, AT&T's revenue is expected to grow between 5 percent and 7 percent, with per-share profits between $2.13 and $2.20.

While AT&T's new 7-cent-a-minute rates appear steeper than offers introduced early this month from MCI and Sprint, the company is hoping that customers will find its plan easier to use because it offers the same price no matter what time it is.

That simplicity will be AT&T's selling point in a television and print advertising campaign that breaks this week.

"It's amazing how complicated this industry can make saying, 'Hello,"' AT&T chairman Mike Armstrong said during a teleconference Monday.