FCC Rule on Long-Distance Access : Pick Phone Service--or the Computer Will
Telephone customers will feel strong pressure this summer to choose among competing long-distance carriers as a result of a federal ruling under which a computer will make the choice, at random, for those who won’t do it themselves.
That decision May 31 by the Federal Communications Commission changed the rules of the equal-access game, created as part of the court order breaking up the Bell System.
Among other things, the federal court requires local telephone companies to offer all long-distance carriers service equal to that provided to AT&T; Communications, which inherited the nation’s original long-distance network. That service enables AT&T; customers to obtain long-distance simply by dialing 1 and automatically identifies the customer for billing, avoiding the need to dial additional account numbers.
Implementation in California
Implementation of equal access is spreading at a quickening rate as local telephone companies are able to convert their computer-controlled switching equipment to accommodate new programs. More than two-thirds of the conversions are scheduled to be completed by September, 1986.
Implementation of equal access in California began last August in Alameda. Alhambra was the first Southern California community to convert to the service, last Dec. 18. By Sept. 1, about 34% of Pacific Bell’s customer lines will be converted--about 3 million customers. That will more than double in the next year. General Telephone has also begun converting selected prefixes in Southern California and expects to complete 12.8% of its work this year and 63.7% by the end of 1986.
Until the FCC decision, however, local customers who failed to designate a preferred long-distance service were left to AT&T; by default. The intent was to minimize confusion among customers and disruption of service.
But the result, AT&T;’s competitors contended, has been to help perpetuate AT&T;’s overwhelming share of the long-distance market. And that, they successfully argued, runs counter to the logic of divestiture and deregulation, both of which seek to increase competition in the formerly monopolistic business.
‘Step in the Right Direction’
The FCC’s decision was “a step in the right direction,” said Stephen J. Ingish, spokesman for Chicago-based Allnet Communication Services. Western Union called it “farsighted and comprehensive,” a move that will “enhance the possibility for fair and meaningful competition.”
John R. Birk, president of Dallas-based U.S. Telephone, agreed but complained that the decision was also “a year late in coming. You don’t break up that monopoly overnight and declare the marketplace competitive with a stroke of a pen,” Birk said.
The FCC has yet to release details of how its order should be implemented. Basically, however, the commission’s ruling states that all customers in equal-access markets who have failed to designate a carrier and were left to AT&T; will be asked once again to choose among competing services. Failure to respond on this ballot will be taken as a vote for AT&T.;
For customers in areas where equal access is not yet available--and that includes a large majority--new rules will apply.
Under them, local phone companies will mail ballots to customers 90 days before service is to begin, listing the competing carriers in their area and asking customers to make a choice. Customers failing to respond will receive a second ballot, which will include the name of the computer-selected long-distance service that will be theirs if they fail to make a choice by a specified date.
Under the new system, it is expected that customers will be allocated randomly to carriers based on the market share that the companies gained in the first balloting. Such an “allocation” system has been used by Northwestern Bell in parts of Minneapolis and Omaha. In these areas, AT&T;’s competitors claim to have done far better than in “default” areas, where consumers were under less pressure to make a choice.
In the Northwestern Bell areas, the increased pressure to choose or be assigned resulted in 70% of the customers subscribing to a carrier. In other regions, however, only 30% of the customers signed up with a carrier; the rest remained with AT&T; by default.
‘Excited’ About Ruling
GTE Sprint, the third-largest carrier, claims to have won about 10% of the Minneapolis equal-access market, compared to its 2% or 3% share of the national market, said Bill de Kay, senior marketing manager for equal access. “So we’re obviously excited about the ruling.”
MCI, the second-largest, was more measured in its response but said the FCC decision merely bore out “what we had been complaining about for five months,” spokesman Gary Tobin said. Eugene Eidenberg, MCI’s Western division president, said the allocation ruling along with two other changes holds great potential for reducing confusion and increasing competition.
Local carriers, Eidenberg explained, have recently recast the information that they mail to customers before equal access begins. Both Pacific Bell and General Telephone of California now send a ballot that compares the competing services in a table compiled by a coalition of consumer groups.
In addition, Eidenberg said, Pacific Bell has agreed to begin “clustering,” or consolidating, its conversions to equal-access service to help make marketing more economical for the competing companies.
“So I view the events of the last couple of weeks--balloting, allocation and clustering--as all good news for California consumers,” he concluded, “because it will remove a lot of the confusion. And it will be a good thing for competition, too.”
Clustering the conversions will enable the competitors to do more effective direct-mail promotions as well as mass-media campaigns. But De Kay of Sprint expressed concern that too much solicitation could result in a consumer backlash that would benefit AT&T.;
The FCC allocation ruling prohibits companies from imposing a minimum fee or usage charge. These include GTE Sprint (which has a minimum-usage charge of $5 a month), Western Union ($10) and SBS ($15). Spokesmen for these companies said they are awaiting details of the FCC’s order, expected to be available this week.
In Northwestern Bell territory, where allocation has been in effect, Sprint has waived its minimum charge for customers assigned to it and left their billing, under contract, with the local telephone company. If they want to qualify for volume discounts and travel-calling privileges, however, customers would have to open a Sprint account, which is subject to a $5 minimum-usage charge.
Beefed-Up Promotion
SBS waived its $15 minimum charge in order to participate in the equal-access competition in Minneapolis and Omaha, assistant general counsel Kevin Cassidy said. “But we haven’t waived it on a broader scale,” he added. “We’re awaiting clarification on that point,” SBS spokesman Fritz Witti said.
Western Union, which so far has concentrated on business customers, expects to “beef up” its residential promotion now, said Philip C. Richards, assistant vice president for corporate network systems. “We are in it with both feet at this point.” As for its $10 minimum charge, Richards said, the company may take the same tack as Sprint.
Consumers who call long-distance so infrequently as to find the minimum charges a deterrent are probably better off maintaining their present service, several of the carriers said. “It’s just not a major decision for them,” De Kay suggested.
The FCC allocation ruling was hotly contested, but AT&T; accepted it quietly. “It’s fair,” acknowledged David Carey, director of consumer markets. “We have some concerns regarding the understanding of the consumer or the business customers as to what it means,” he added. “That is going to really create a need to renew our vow to educate the consumer.”
Added Rich Burk, who directs AT&T;’s equal-access effort in the Western states: “The main change will be a sense of urgency, expressing the idea that the customers must now make a choice or be randomly assigned to the long-distance companies. In a sense, it gives us a stronger position.”
AT&T; thus will emphasize in its direct mailings, Carey said, the importance of making a choice in order to avoid “getting into this game of long-distance roulette.”
However, AT&T;’s competitors will not stand by idly. “We’re sure going to try to take advantage of the opportunity,” added Stephen Ingish of Allnet.
