CONSUMERS CAN SAVE BIG MONEY WITH SAVVY PHONE CHOICES


Published: Sunday, March 29, 1998
Section: Computing + Personal Tech

BY JON HEALEY, Mercury News Staff Writer

WITH long-distance companies pitching an ever-changing array of discount plans, it's not surprising that two out of every three consumers stick with the basic service from AT&T, MCI or Sprint.

Still, they could do better -- a whole lot better.

The intensifying competition among long-distance companies has pushed promotional rates to a new low, well under the basic rates charged by the Big Three. If you're paying more than 15 cents per minute for interstate calls, you're throwing your money away.

Prices are especially good for Internet users and for people who'll trade sound quality for cheaper rates. That's because companies have begun using the Internet and similar networks to cut their costs, allowing them to pass some of the savings on to customers.

The discount plans may seem convoluted, but they're simpler to understand than they were a few years ago and generally less reliant on gimmicks. As a result, it's less of a challenge to compare plans and choose the one most likely to save you money.

One factor muddying the waters is the ''dial-around'' plans, such as the ''10-321'' service from MCI subsidiary Telecom USA. By dialing a few extra digits, consumers can use these services on a call-by-call basis without dropping their regular long-distance company -- in most cases, without signing up in advance.

These companies can be a boon to consumers who are long-distance chatterboxes or who make lots of international calls, but the typical user will fare better by sticking with one of the conventional discount plans. That's because the dial-around services often tack on monthly fees and charge high rates for short calls, which make up the bulk of the average person's dialing.


THE MORE THINGS CHANGE:

Competition in long-distance service has increased steadily since AT&T's breakup, which opened the door to all comers in 1984. According to Telechoice, a long-distance marketer based in Vista, more than 150 companies operate at least some portion of a long-distance network, and more than 500 other companies buy service in bulk and resell it to consumers. New networks seem to pop up every year, and technological advances are multiplying the capacity of older ones.

The Big Three's basic rates are about 40 percent lower today than they were in 1984, and discount calling plans drop the price as much as two-thirds more. The recent introduction of phone service based on Internet technology promises even steeper price cuts, potentially making it cheaper to exchange pleasantries with a friend across the country than to make a local call from a pay phone.

Nevertheless, consumers aren't benefiting as much as they should. Most customers -- 85 percent, by the government's most recent count -- have stayed with the Big Three, whose prices move up or down in lock-step like air fares.

''We're not really seeing true competition,'' said Geoff Mordock of the Telecommunications Research and Action Center, a Washington, D.C. group that monitors long-distance rates.

Another issue is the high price that conventional long-distance companies must pay the local phone companies for access to their lines. Such ''access charges'' start at about 3 cents per minute and can go much higher, depending on the state involved.

The Federal Communications Commission ordered a decrease in access charges last year, but at the same time it required long-distance companies to help pay the cost of upgrading phone service to schools, libraries and rural health centers. Many of the companies responded by charging a new monthly fee on the lines they serve -- 80 cents for Sprint lines, for example, or 95 cents for AT&T lines.

Other new or increased charges are popping up, such as higher rates for long-distance directory information. ''The whole way down the board you'reseeing these new nickel-and-dime things,'' Mordock said.

Consumers thus have all the more reason to sign up for the best discount plan they can find. It helps to be online, but the key is knowing how many long-distance calls you make, when you usually make them, and your typical ratio of in-state to out-of-state long-distance calls.

One more thing: You should always try to bargain with salespeople, playing one company's offer against another's, even though the best deals often are reserved for the people who make the most calls.

Lee Ann Kuster, a spokeswoman for AT&T, said that her company's sales representatives have the leeway to match a competitor's offer in some cases, depending on the amount of calls the customer is likely to make. ''You offer your high-volume customers a little bit more to stay,'' she explained.


SIGN UP ONLINE:

The best deal for average users today may be one that only America Online members can get: eight cents per minute anytime, or nine cents per minute during business hours and five cents on nights and weekends. The source is Tel-Save Holdings of New Hope, Pa., a little-known rookie in the consumer market that paid AOL handsomely for exclusive access to its customers.

Ed Mayercord, executive vice president of Tel-Save, said that his company can offer such low rates because it has virtually eliminated the expense of signing up and billing customers. It recruits through AOL, has customers subscribe online, then bills their credit cards automatically. Customers receive no bills; instead, they review their invoices via AOL.

''We were the first in the game,'' Mayercord said. ''It took the other guys about a year to catch up.''

The Big Three also offer ''paperless'' online deals, although not quite as good as Tel-Save's AOL offering. David C. Trachtenberg, executive director of brand marketing for MCI, said the decline in rates is forcing companies to attack costs, and the Internet is a key way to do that.

Credit-card billing has one significant advantage over long-distance plans that are billed through the local phone company: If you dispute a bill and refuse to pay, you don't run the risk of having your local phone service cut off. Also, the interest rate on late payments may be lower with credit-card billing -- Pacific Bell charges about 19.5 percent annually -- but the resulting finance charges may be higher. That's because credit-card companies will charge interest on all new purchases, not just your phone calls, when you don't pay your entire bill the previous month.

There's one other trade-off in some online plans: You can't get customer service over the phone. Instead, these plans force their customers to use electronic mail to ask questions, dispute charges or register complaints.


TELLING THE PLANS APART:

Most households aren't online, so they don't have access to such deals. Still, there are a plethora of discounts for the non-wired. The main challenge is finding the plans offered by smaller companies and resellers -- the ones that don't have pockets deep enough to have a celebrity pitching their services on TV. You can find extensive information about such companies on the Internet; if that's not an option for you, look in the Yellow Pages under ''Telecommunications Carriers.''

The resellers' rates tend to be a hair under the best rates offered by the Big Three. For example, ValuLine of Atlanta clocks in at 9.9 cents per minute on calls to any other state save Hawaii and Alaska, and 6.25 cents per minute on calls within California.

Resellers generally use one of the established long-distance networks, so there isn't likely to be an audible difference between a call carried by a reseller and one carried by the Big Three. Instead, any differences are likely to be in customer service and support -- such things as billing questions and directory assistance.

There certainly will be differences in price, and not just on the rates charged per minute. Other factors include:


  • Peak hours. The Big Three recently expanded the peak billing period in their basic plans by one hour in the morning and two in the evening, applying their highest rates from 7 a.m. to 7 p.m. Californians who like to call the East Coast during the week should look for a discount plan like Sprint Sense California, which rolls the peak period back to 5 p.m.

    If you can do the bulk of your long-distance calling at nights or on weekends, don't pick a plan like AT&T's heavily advertised ''One Rate,'' which charges 15 cents a minute regardless of when you call. Instead, go for a plan that offers lower rates during off-peak periods.

  • In-state calling rates. California has the lowest access charges in the nation, so long-distance calls within the state should cost less than those to other states. How important this is to you depends on how often you call Los Angeles, say, or Sacramento.


  • Monthly minimums and add-on charges. Some carriers offer plans that require users to make at least $15 or $30 a month in calls in exchange for providing lower rates. These can be very attractive to those who make a lot of calls, but they're not practical for people whose phone habits vary widely from month to month.

    The same goes for the plans that sell users blocks of minutes, such as 360 minutes for $30. As with cellular phone contracts, the supplier's goal in these instances is to have you buy more than you'll actually use.

    An increasing number of discount plans carry monthly service fees, ranging from $1 to $5, in addition to the charge related to schools, libraries and rural health centers. These fees fall especially hard on those who spend little time on long-distance calls, wiping out any advantage that they might gain from the lower per-minute charges.

    On the other hand, people who make many long-distance calls will benefit more from the lower rates than they lose on the monthly charges. For example, Excel's ''Dime Deal'' carries a $1 monthly charge, but its flat rate of 10 cents per minute is one-third lower than AT&T's or LCI's flat rate. You could make the difference up in one 20-minute call.


  • Billing increments. Many carriers round up the length of a call to the nearest minute, while others round up to the nearest tenth of a minute. Among the major carriers, only LCI (the sixth-largest carrier) bills in one-second increments. The difference amounts to a few cents per call, which is significant only for people who make lots of calls.


  • Special calling periods. MCI's discount plans let customers make calls on Sunday for a nickel a minute. That's a great buy if your long-distance calls can be made at your convenience, rather than conforming to someone else's schedule. LCI offers penny-a-minute calling on major holidays. Of course, those are the days when you're most likely to hit a busy signal or jammed circuits.


  • Package deals. Increasingly, companies are bundling long-distance with other communications services, such as Internet access, toll-free numbers or paging. The bundle can translate into savings, although not necessarily in the long-distance piece of the package. For example, MCI offers a $5 per month discount on its Internet access service to othose who sign up for its online long-distance deal.

    A good way to test some of the major plans against your calling patterns is by visiting the Telecommunications Research and Action Center's site on the World Wide Web (http://www.trac.org). Aided by Salestar, a San Francisco company that collects information on long-distance rates, the group has launched a service called ''WebPricer'' to let people compare various discount plans. The service does not include in-state rates, however, so it's most useful to people who make the bulk of their long-distance calls outside California.


    DIALING (MORE) FOR DOLLARS:

    Flashing back to the early days of long-distance competition, a growing number of companies are urging consumers to save money by dialing a few extra digits.

    These companies aren't asking you to switch away from your current carrier. Instead, they want you to bypass your long-distance company by dialing into their networks.

    For consumers, the most promising of these approaches is long-distance service based on Internet technology. Such services are available today in the Bay Area from Qwest Communications of Denver; IDT Corp. of Hackensack, N.J.; and at least two more are on their way -- AT&T and upstart ICG Communications Inc. of Englewood, Colo.

    Here's how the process works. Say you're calling your sister in Chicago. You dial a local number, punch in an access code and connect to acomputer-like device that transforms your words into data packets. The device ships the packets off on a private data network or the Internet to a similar device in or near Chicago, where the packets are transformed back into words and zipped to your sister's phone.

    Except for the extra digits, the call seems just like any other phone call. The sound quality may not be good enough to hear a pin drop, depending on which service you use. But the technology is advancing rapidly, so you can expect that aspect to improve.

    Rates for these services range from five to eight cents per minute. The main reason for the deep discount is that the calls are made through data networks, which do not have to pay access charges to the local phone companies. IDT further cuts its costs by having customers use prepaid calling cards; Qwest, by contrast, does its billing through the local phone companies.

    Dan Schulman, president of AT&T's Internet arm, said using Internet techniques reflects the fundamental shift occurring in the communications industry -- ''a move from single-party voice communications to multi-party multimedia communications.'' In other words, networks built to let Grandma talk to Junior are giving way to networks that let Junior's parents transmit a video of the tyke's squealing first bike ride to all their relatives at the same time.

    Schulman said Internet-based calling is just a first step toward more powerful services that marry the power of computers with the public phone network. For example, he said AT&T is developing a service that allows people to talk and surf the Internet together, directing each other's computers to specific sites on the World Wide Web.

    ''Communications is the next great wave to hit the Internet,'' Schulman said. ''Wave number one was the search for content, and wave number two was the community that evolved around content that they found meaningful. And the next wave is communications, which is kind of the Velcro that holds together that community.''

    As promising as it may be, Internet technology won't transform the phone business anytime soon. In the meantime, the ''dial around'' companies are trying to snatch customers away from the Big Three -- one call at a time.

    These services can provide attractive discounts, but only under certain conditions. For example, take the ''10-321'' service. It's not a bad deal for calls lasting 20 minutes or longer, when the rates range from 6.5 cents on weekends to 14 cents during business hours. The rates double, however, for calls lasting 19 minutes or less.

    The most Byzantine dial-around service may be VarTec Telecom's ''DimeLine.'' Most interstate calls via the DimeLine cost 30 cents for the first three minutes and 10 cents a minute thereafter. However, for calls within California and every other interstate call lasting nine minutes or less, the cost is 15 cents for the first three minutes and five cents per minute thereafter. On top of that, VarTec slaps on a $5 monthly fee.

    Confused? You should be. Still, the DimeLine can be a money-saving alternative for people with night-and-weekend discount plans who need to make a long call during peak hours. For example, the first 50-minute interstate call you make on the DimeLine costs $10 -- $5 for the call, and $5 for the monthly fee. If your discount plan was Sprint Sense, the same call during peak hours would cost you $12.50.

    Still, if you're only going to use the DimeLine once, hang up before you get an answering machine.