AT&T; Offers Simplified Pricing Plan

Bowing to competitive pressures, long-distance giant AT&T; on Tuesday offered a radically simplified pricing plan under which any direct-dialed long-distance call within the United States will cost 15 cents a minute.

The new plan, which will be in addition to half a dozen existing AT&T; pricing options, represents a dramatic attempt by the long-distance carrier to fend off small long-distance carriers that have grabbed more than $14 billion of the $80-billion long-distance market.

Illustrating just how harsh the competition has become, AT&T; also said in a letter to shareholders Tuesday that profit for the third and fourth quarters will be as much as 10% below analysts’ expectations. The news sent AT&T; shares plummeting $5.625 to $51.50 in heavy trading on the New York Stock Exchange.

AT&T; is being squeezed between intensifying competition in the long-distance business--which promises to ratchet up even further next year when the big regional Bell telephone companies begin entering the market--and the need to invest heavily to take advantage of new opportunities in wireless and local telephone services.

Executives said the new “AT&T; One Rate” plan is an effort to address consumer complaints about complex calling plans. But the plan won’t be automatically available to all: AT&T; customers will have to call and ask for it.

The new plan will not reduce rates for those who are seeking the lowest-priced long-distance service and are willing to call at night and on weekends.

But heavy daytime callers could do well. Under current AT&T; rates, for example, the full retail price of a call placed from Washington to Los Angeles at 3 p.m. is 30 cents a minute. The One Rate plan would cut that in half. Deeper discounts amounting to as much as 25% off the 15-cent-a-minute rate are available for heavy callers under various AT&T; volume-discount calling plans, executives said.

“There are more than 900 long-distance carriers out there now and this was really about us positioning our long-distance business in a different light,” Joseph P. Nacchio, executive vice president of AT&T;’s consumer and small-business division, said in an interview.

“With the reforms in the telecommunications act, we believe consumers will be looking for more services from more complex technologies, but in a simpler way,” Nacchio later told reporters in a news briefing.

The repositioning appears to be an effort to match the success of the flat-rate calling plans initiated by Sprint and a few other long-distance carriers. LCI International Inc. of McLean, Va., for one, has been growing at a 200% yearly rate and now has annual revenue exceeding $1 billion--largely on the strength of its 12-cent-a-minute pricing at night and on weekends, a company executive said.

“We were the first carrier to offer flat-rate pricing in January 1992, and then Sprint came along in 1995. It’s been very successful for us,” said Roy Gamse, senior vice president of LCI International. “We get most of our customers from AT&T.;”

Nacchio said about 60% of AT&T;’s long-distance customers are enrolled in some kind of discount plan. He said he expects the remaining 40% to migrate from AT&T;’s new plan.

Although AT&T; executives said the company attracted more long-distance customers than it lost in the last quarter, customer churn continues to be a problem. And AT&T; is having to spend heavily to mount new initiatives in other fields.

“AT&T; is taking somewhat of a risk here” in cutting rates “and maintaining high spending in other lines of business,” said William N. Deatherage, an analyst at Bear Stearns & Co. in New York. “AT&T; is spending significantly for the introduction of [wireless phone services] and various Internet initiatives like AT&T; Worldnet and preparing to offer local phone service.”

Much of the tumultuous change now sweeping the telephone business is a result of a sweeping federal law aimed at deregulating the telecommunications business. The law prompted AT&T; to split itself into three separate businesses--a process that is still underway--and also spurred AT&T;’s competitors to reposition themselves to offer a broad range of communications services, including video programming, Internet access and wireless, local and long-distance phone service.

In August, for example, long- distance carrier WorldCom Inc. announced it would pursue such a goal by acquiring local phone operator MFS Communications Co. in a stock swap worth about $12.5 billion. The two companies plan to bundle Internet access, local and long-distance service for business customers.

What’s more, some small long-distance carriers such as Excel Telecommunications Inc. of Dallas have capitalized on the deregulation of the phone industry to make significant market gains. Excel’s revenue exploded to $507 million in 1995 from $30.8 million in 1993.

All of this is starting to create a certain amount of confusion among customers--and that’s a big part of the reason that flat-rate plans have appeal.

“I think AT&T; is trying to attack customer confusion as bundled products start to come to the marketplace,” said Richard Nespola, who heads his own Leawood, Kan., telephone consulting firm.

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Long-Distance Dollars

(Please see newspaper for full chart information)

Annual long-distance revenue of the top three carriers, in billions of dollars:

1995

AT&T;: $38.1

MCI: $12.9

Sprint: $7.3

Others: $14.2

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Source: Federal Communications Commission