Reach Out And Do Everything
Need Internet access, a paging service, or home-security monitoring? Call your long-distance company.
With telecommunications reform giving local phone companies the go-ahead to offer long-distance, AT&T, MCI, and Sprint are scrambling to protect their 90% share of the $75 billion market. The strategy: lock in as many customers as possible, as tightly as possible, before war erupts.
MCI Communications Corp. is leading the charge with its Apr. 29 launch of MCI One, a product that allows customers to create their own bundles of telecom services. They'll get a single bill for any combination of long-distance calling, Internet access, cellular calls, and a host of other services. The key to MCI One isn't the price so much as the package: MCI figures the more services it sells to each customer, the less likely he or she will be to switch to a competitor. "The whole long-distance industry is going away from price competition to service competition," says UBS Securities Inc. analyst Linda B. Meltzer. "They all want to increase the number of direct links to the customer."
The strategy isn't unique to long-distance carriers. MFS Communications Co., which provides high-speed phone lines to businesses, said on Apr. 30 that it will buy Internet access company UUnet Technologies Inc. for $2 billion in stock so that it can package online services with voice, data, and video transmission for 50,000 business customers.
SATELLITE TV. The long-distance giants, though, are targeting the larger consumer market. AT&T is offering a free year of Internet access to its 86 million long-distance customers--and 500,000 signed up during the first six weeks. TV hookups are next. Starting on May 6, AT&T customers can get a discount on Hughes Electronics Corp.'s DirecTV satellite-broadcasting service.
Not to be left behind, Sprint Corp. is marketing long-distance to Tele-Communications Inc.'s cable-TV customers in 250 markets. Sprint will also throw in wireless calling as it rolls out its new digital service. And all three long-distance giants plan to offer local calling.
The carriers figure customers will flock to their one-stop shops primarily because it's easier--customers need only deal with one company and pay one monthly bill. Sprint has proven the appeal of simplicity with its year-old Sprint Sense program, which offers consumers a flat rate of 10 cents per long-distance minute. Thanks to the easy-to-understand plan, Sprint's long-distance revenues in the first quarter rose 14.2%, the best showing of the Big Three.
That doesn't mean the carriers won't still compete on price. AT&T saw long-distance volume grow only 7.7% in the first quarter. It went on the offensive in March, mailing out $50 and $75 checks to entice customers back, and company officials say AT&T ended the quarter with a net gain in subscribers.
The difference from past price wars, however, is that AT&T did not cut the basic rate. "You don't have a general overall price reduction going on," says Joseph P. Nacchio, head of AT&T's consumer and small-business division. "I think you'll see a lot of the long-distance carriers throwing more money at customer acquisition because they want to be positioned before the next phase."
The next phase is the entry of the Bells into long distance. The local monopolies also plan to bundle services--but not for a while. Federal law requires them to establish separate long-distance subsidiaries for three years, and they aren't allowed to buy cable systems in their region. The long-distance carriers hope that by the time those restrictions are lifted, customers will be too hooked to switch.