Big Three carriers feel crunch of competition

Alternative long-distance services are gaining ground

Using a traditional long-distance phone service may soon become a distant memory for many consumers.

In the months ahead, the growing availability of alternative services, say experts, could prompt a significant number of customers to drop the "Big Three" carriers: AT&T, MCI, and Sprint.

Among the long-distance options: local telephone companies, cellular services, prepaid phone cards, Internet-based services, and 10-10 programs.

These alternatives generally offer better prices than most plans offered by the Big Three, are better tailored to meet specific consumer needs, and are easier to manage, say experts.

The Big Three have responded to the competition, cutting their average price for long-distance service by about 15 percent over the past five years. They've also lured previous customers to switch back with cash and credits. Savvy consumers often play one off the others in an effort to get the best deal.

Still, many telecommunications experts and consumer advocates are surprised by how few consumers are willing to abandon the traditional carriers for less expensive alternatives.

"It's somewhat of an upward battle to convince consumers to do this," says Linda Sherry, spokeswoman for Consumer Action, a San Francisco advocacy group. "I think people end up sticking with the Big Three because they are very busy and something like telephone service tends to fall by the wayside."

Why have so many alternatives emerged?

Experts point to technology. Twenty years ago, only a handful of companies owned phone networks large enough to handle nationwide long-distance calls.

But scores of companies have built high-speed fiber-optic networks over the past decade, making access to big national networks broader and cheaper.

Now, connecting a call across the country is nearly as easy and inexpensive as placing one down the street.

That is why so many local and regional carriers, such as Verizon and SBC Communications, now offer long- distance service. The prices conventional long-distance carriers charge tend to be lowest where local carriers have begun competing, according to Ms. Sherry.

The growth of nationwide phone networks also has enabled cellular companies to offer unlimited long-distance service. The result: About 25 percent of the minutes used on long-distance calls last year were made on cellular phones, compared with 5 to 10 percent five years ago, according to the Yankee Group, a market-research firm in Boston.

In addition, 3 to 5 percent of American households have swapped their land line in favor of a cellphone.

Prepaid calling cards also offer consumers a compelling reason to switch. Many card-based services charge only 4 cents for calls anywhere in the US. They also can be used outside the home.

In 1983, consumers spent $40 million on calling cards. This year, sales are expected to exceed $4 billion, according to the International Prepaid Communications Association.

Dial Around or 10-10 numbers, which also are offered by the Big Three, can also help shave a long-distance bill, say experts. They allow consumers to access, without an extra charge, the network of a long-distance company that might offer a better rate to Europe, for example, than their own carrier.

Callers who use MCI's 10-10-321 program would pay an estimated $4.22 per month on long-distance charges compared with $8.60 for the company's conventional Anytime Connection plan, according to the Telecommunications Research Action Center (TRAC).

This consumer-advocacy group also reports that AT&T's 10-10-345 costs an estimated $4.29 per month, compared with $5 for the company's 5 Cent Nights service.

Finally, several Internet-based telephone companies are offering local and long-distance services for about $40 a month.

While the Big Three have reduced per-minute rates over time, consumer groups have measured a sharp uptick in new costs added to customers' bills in the past two years.

Last year alone, the Big Three boosted the price of their basic rates - what consumers without a special plan pay - by 17.5 percent, according to Consumer Action. It adds that the cost of directory assistance surged 25 percent to $2.49 for MCI and Sprint. SBC increased its charge 47 percent to $1.40.

Overall, much of the difference in cost between conventional services and the alternatives is added fees and taxes that consumer advocates say are being used to hide the real cost of subscribing to these services.

Long-distance providers are required by law to charge consumers the Universal Service Fee, which helps the companies pay the costs of ensuring that all Americans have access to a telephone.

While the government says the companies can charge up to 7.2 percent of consumers' total bill, many charge considerably more, according to TRAC.

AT&T charges 11 percent, MCI 10.5 percent, and Sprint 9.6 percent, all without telling consumers that they are packing in added charges.

Given all the added fees, conventional long-distance services might best suit consumers who make a large volume of calls and want the added security of a major carrier, experts say.