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Long-Distance No Longer Means Big Phone Profits

Posted on: Monday, 21 February 2005, 18:00 CST

NEW YORK -- The acquisitions of AT&T and MCI by larger rivals are the most dramatic evidence of long-distance calling's steady decline as a business distinct from "local" phone service.

But other signs are aplenty.

This past week, in addition to the $6.7 billion takeover of MCI Inc. by Verizon Communications Inc., came news of a large budget hotel chain, Microtel Inn & Suites, whose list of amenities has been expanded to include free unlimited long-distance and wireless Internet access.

There's little to lose with the new marketing pitch: The calls don't cost the company very much. And with so many travelers toting around cell phones with national calling plans, long-distance calls don't generate that much extra revenue any more, even at the inflated rates hotels often charge.

The past week also brought an announcement from a small company named Northland Cable Television, which introduced unlimited local and long-distance for a flat $38 a month in rural areas of the Carolinas served mostly by BellSouth Corp. as well as Verizon.

Trend toward 'all-distance'

Because such plans have become so prevalent on both wired and wireless phones, the concept of local and long-distance as different types of calls may be fading fast among consumers and businesses.

"All-distance" calling plans were first popularized by AT&T Wireless, whose "Digital One Rate" helped blaze the trail for similar offerings from wireless rivals and local Bells like Verizon and SBC Communications Inc., which two weeks ago agreed to buy AT&T Corp. for $16 billion.

But increasingly, new rivals are also trotting out their own unlimited, all-distance calling plans at a discount to traditional phone service, especially in the cable TV industry.

The Northland Cable service is being delivered by Internet bubble survivor Net2Phone Inc. using VoIP, for Voice over Internet Protocol, an increasingly common technology which eliminates a great deal of the cost involved in connecting a call.

By contrast, unlimited local and long-distance packages from the Bells using non-VoIP technology typically cost from $50 to $60 a month. That doesn't include $20 or so in additional fees and taxes on those bundles, compared with no extras on the Northland plan and perhaps $5 a month extra on many other VoIP services.

That's one reason why Verizon is competing with itself by offering its own VoIP service for $30 to $35 a month, hopeful it can keep at least some of the revenue that it might lose to rivals with a customer who switches to VoIP. SBC plans to do offer its own VoIP service soon.

By late 2004, more than 400 different companies were offering VoIP service in the United States, according to VoIPAction, an online marketplace featuring assorted VoIP resources. The lion's share of those companies offer unlimited domestic calling as an option.

During the Internet bubble of the late 1990s, predictions of explosive growth in Web traffic fueled a construction boom for fiber- optic networks. The long-distance industry has since been plagued by price wars and a huge glut of unused capacity.

According to TeleGeography Research, only about 3 percent of the fiber capacity built during the boom is in use today, while Internet bandwidth for a typical route such as New York to Washington, D.C., now costs less than a tenth of what it cost just five years ago.

That helps explain why it's so cheap for companies to offer VoIP service.

Source: Columbian

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