Not All Phone Users Buy Freedom : 'Junk' Models, Supply Glut Turn Many Back to Ma Bell

Times Staff Writer

When consumers flocked to buy the cheap, disposable telephones that flooded the newly deregulated U.S. telephone market in 1983-84, retailers like Doug Jarvis of House of Phones in Costa Mesa were compelled to sell the high-demand "junk." It was a mistake.

"It seemed like you sold two and got back six," he said, describing widespread consumer disillusionment with the inexpensive-but-unreliable equipment. "We lost customers," Jarvis, the general manager, said.

In Washington, complaints about poor-quality phones became common at the Federal Communications Commission offices, where a spokesman said he is advising customers to "throw them away and buy a good phone."

Engineers at one American telephone manufacturing company, disassembling a $6 imported phone, found it filled with lead fishing weights to make it feel more substantial.

Today a consumer backlash against inferior residential phones is giving manufacturers cause for some optimism after two years of price wars and disappointing profits. Consumer telephone prices are expected to continue a gradual decline, however, forced down by consumer demand for moderately priced phones and an inventory glut.

"Everybody's caught with inventory; you can buy phones for door stops," said Fred Page, director of strategic planning market research for Northern Telecom Inc.

While consumers figure to benefit from the lower prices of phone equipment, at least through most of 1985, some manufacturers are warning that phone quality is likely to suffer as a result.

"Low prices and (high) quality are mutually exclusive," said Richard A. Lindenmuth, president of the business and consumer communications division of ITT Telecommunications Products Corp. He predicted that "there will be a degradation in quality of basic telephones."

"Phones aren't going to last 20 years anymore," Lindenmuth said. "It's not a trade-off we're making unilaterally. It's the decision of the marketplace. You get what you're willing to pay for."

In the future, according to telephone makers, phones will be like toasters--manufactured in a range of qualities, with a range of features and sold at a range of prices.

"The telephone is becoming a commodity," said Bernard Appel, president of Radio Shack USA Inc., a relative newcomer to the phone manufacturing field. "People are going to shop for it like they shop for small appliances. It used to be that toasters were built to last 10 years, then it was seven years, now it's three years. I think you're going to see telephones lasting five to seven years instead of 20."

Years ago it was said that Ma Bell would provide any telephone a customer wanted, so long as it was black and had a dial. In the 1980s, however, telephone industry deregulation brought an explosion of price competition--and variety.

The suddenly open U.S. phone market inspired hundreds of new telephone manufacturing ventures around the globe. "For a while, the biggest business in Hong Kong was building buildings to build telephones," said Northern Telecom's Page.

Now consumers can choose telephones in wood, chrome or plastic; disguised as bananas, elephants or chocolate milk cartons, and equipped with dials, buttons or computers that dial Mom electronically at the command of a voice.

However, to the surprise of telephone manufacturers--new and old--the American consumer has not been universally eager to take advantage of this new freedom of choice. According to industry statistics, about 40% of U.S. households still rent all their telephones from their local phone company. More than 50% of households still have at least one rented telephone.

Back to Ma Bell

Bad experiences with cheap, unreliable phones may have slowed the shift to consumer-owned phones, some manufacturers acknowledge. Others say it has driven some consumers "into the arms of Ma Bell."

"People went back to what they knew, to the old familiar phone company model," said Kurt Behm, a Pennsylvania distributor of Conair telephones, a leading low-priced challenger to American Telephone & Telegraph Co.'s continuing dominance of the phone equipment market. AT&T;'s share of phones leased and sold to customers has fallen to 67% from a high of 85% in 1982, according to the Electronic Industries Assn. in Washington.

Samuel A. Simon, executive director of the Washington-based consumer lobby group Telecommunications Research and Action Center, criticized the government for not helping consumers to better prepare for the pitfalls of purchasing phones.

"The public never had to buy phones before," Simon said. "It was vulnerable. It had no life experiences to draw upon. It ended up learning from mistakes. The government should have had a major consumer education program to minimize those mistakes."

In the days before telephone deregulation and the court-ordered divestiture of AT&T; more than a year ago, consumers who rented telephones from the phone company paid a high price for their high-quality phones. Over the lifetime of a plain, residential Bell telephone, for example, monthly rental fees amounted to several hundred dollars--but the phone routinely outlasted the family car and every household appliance.

"It was always in the interest of the phone company to make a quality phone, because it was our phone and we didn't want to have to go out and take it back," said Victor Pelson, president of AT&T; consumer products. "Quality is still a priority now, because we want to keep consumer confidence."

However, other familiar and popular brand names are beginning to show up on telephones--names like General Electric, Panasonic and Sony. They compete for a market, however, that is saturated with low-priced equipment.

Glut Lingers

Imports that accounted for 500,000 telephones in 1982 boomed to 34 million in 1984, a large percentage of them one-piece models that sold for less than $10. Average phone prices fell from about $70 in 1982 to $41 in 1984, according to the Electronic Industries Assn. Executives at Radio Shack and Conair say the price range most popular with consumers is $20 to $25. Many of the cheapest models are now showing up in gas stations and grocery stores as free prizes or $1.99 sales inducements.

In addition, large numbers of telephone company-quality phones have been dumped on the market by GTE and Pacific Telesis, for example, which sold surplus inventories at discounted prices. And this month AT&T; announced price cuts ranging from 4% to 25% on many of its most sophisticated consumer telephones, some of them carrying price tags of up to $200.

Industry executives expect the supply glut to linger through 1985 and retard prices at least until the end of the year.

"It's a good time to be a consumer," said ITT's Lindenmuth. "The basic telephone will be one of the best values on the market in 1985--the quality's still high but the price is distressed."

And, despite the falling demand for cheap, disposable phones, retailers say there is still a market for the equipment. What has changed, however, said Sindy Schwartz, telecommunications buyer for the Federated Group in Los Angeles, is that consumers "know what they're getting now."

"We aren't going to save everybody--there's no stopping a determined sucker," said Mike Henderson of the Phone Depot in San Francisco.

The brightest spots on the horizon of U.S. telephone makers and retailers is the anticipated exhaustion of the telephone glut by early next year and the continuing growth of the consumer market.

Not only are the numbers of new phone buyers expected to increase as the ranks of telephone renters gradually decrease, but the average number of phones per household also is expected to rise. Today the average is 1.7 phones per household, but industry executives expect that to reach about 2.2 by the end of the year, growth that would mean increased demand of about 40 million telephones.

One company that recognized the potential was Conair in Edison, N.J., which is known for hair dryers and beauty supplies and started making phones in 1983, with sales of the phones exceeding $25 million last year. Long-term prospects for marketing phones are believed to be the primary impetus for a bid by the chairman, Leandro Rizzuto, to buy back the publicly held shares of the one-time family-owned company. He has offered about $150 million.

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