For Long Distance: Dial `C' for Choices

Insight on the News, March 29, 1999 by Eli Lehrer

The burgeoning growth of the long-distance industry is confounding Americans searching for the biggest bang for their bucks. Here is what consumers now should know.

When Linda Ross began looking for less-expensive telephone service, she quickly learned to ask questions. "We had to get another line for my daughter and, for the first month, they were charging us these terrible, terrible rates," she says. "We had to call and ask them before they brought the phone rates down from something like $2 a minute." Ross, who since has written The Smart Consumer's Book of Questions, says that simply asking made all the difference.

If you want to save money on long-distance phone service, Ross' strategy makes good sense. Since the government's breakup of AT&T in the early 1980s, inflation-adjusted per minute rates for state-to-state long-distance calls have fallen by nearly 90 percent while call volume has increased 800 percent. Explosive growth in the number of phone-service providers, however, has not made things any easier for consumers.

"Some of the reduction in long-distance rates is certainly a result of falling prices, but some of it has to do with a change in national laws," says Robert Self, author of the book Long Distance for Less and publisher of several newsletters on long-distance telephone service. "They used to use long-distance charges to subsidize local service and now that's a much smaller factor."

Although technology has allowed phone companies to trim personnel even as call volume surged, reductions in access rates have made the most difference. Shortly after deregulation in the early 1980s, the access fees that long-distance carriers paid for the use of local telephone systems could run as high as 17 or 18 cents a minute. Today, they stand at about 4 cents per minute and may drop even lower. A new universal-service charge of $3.50 a month adds a fee to everyone's telephone bill to provide Internet access to schools and better phone systems in isolated areas.

As a result, local phone rates have increased significantly since the early 1980s. During the same period, lower long-distance rates have encouraged people to call long distance more often. Overall, phone bills in inflation-adjusted terms have remained about the same. The universe of competitive choices, however, allows those who shop well to save money.

Generally, the best way to get cheaper long-distance service is to haggle with your current provider. "There aren't massive savings from having people switch from long-distance provider to long-distance provider," says Vic Rounder, chief executive officer of Expense Reduction Consulting, based in Boca Raton, Fla. "There are some small savings, but in most cases people are best off remaining with their current provider. What I try to do for my clients is negotiate with that current provider."

Rounder says that he typically makes two or three calls to a phone-service provider before he even feels confident that he knows what the company offers. "Most of the larger companies have a massive number of different plans and their people don't always know which ones are best." He also emphasizes the importance of knowing exactly what a plan covers. "Be sure to find out what the per-minute rate is, and if you make a lot of international calls see if there's a special rate on those."

Self says that long-distance companies continually raise and lower the prices of various services to increase profits, hoping to make up for reduced profit margins on one service with increased margins on another. "It's what we call `waterbed pricing': If the price goes down in one place, it will be sure to go up in another."

Keep an eye on your bill. "I often find that people were very attentive about their phone bills at some point in the past but then stopped paying attention after a few weeks or months," says Suzi Levandusky, a phone-bill auditor with Milwaukee's Walker Management Consulting. "There are all sorts of ways that people waste money; often businesses have lines they don't use. Individuals sometimes find that they are attracted by great interstate-calling rates while they actually spend the most money on intrastate calling, and that's where the companies get them."

Without doing much shopping, it's easy to get rates of 9 or 10 cents a minute for most calls with a low monthly minimum and some sort of extra such as 5-cents-a-minute calls on Sundays or a bonus credit each month. Even if you're getting rates like this now, as most Americans do, you probably can do better.

"You're cheating yourself if you don't call your phone company and ask some questions every six months or so," says Rounder. "Most of the rates which phone companies charge are actually promotions of one sort or another, and you have to be sure that you're still getting a good deal. Somebody who hasn't checked things out since 1990 can almost certainly do better."

Going the whole way and actually switching providers periodically also offers opportunities. The best deals sometimes come after a switch. AT&T, for example, recently mailed out $50 checks to some of its recently departed customers. Those who switched back had an extra $50 in the bank and were free to switch once again.