A minimum price to pay

On Aug. 15, AT&T began charging a monthly minimum of $3 to its new residential customers for long-distance service in an effort to make up for the $300 million the carrier says it loses annually on customers who spend $3 a month or less.

Low-income customers who qualify for a state telephone assistance program are exempt and can be enrolled in AT&T's new Lifeline Program. Customers are charged only if they do not spend $3 in a given month.

The announcement was not unexpected. At AT&T's annual stockholders' meeting in May, Chairman C. Michael Armstrong vowed to do something to recover costs incurred by the 10 million customers-about 15% of the carrier's total base-who spend less than $3 a month on long-distance. By focusing only on new customers, however, the policy change will affect only a fraction of those 10 million.

Still, several consumer groups and regional Bell operating companies criticized the move. SBC Communications said the move shows there is not enough competition in the long-distance market and that AT&T is only interested in serving high-end customers. BellSouth said that the people affected most would be customers just above the poverty line, as well as Internet users who buy a second line for data service and do not use long-distance.

Consumer groups responded even more strongly.

"It will eventually cost consumers billions of dollars just for the 'privilege' of having a long-distance carrier," Samuel Simon, chairman of the Telecommunications Research and Action Center, said in a statement. He said that by the group's estimates, residential customers could pay $1.4 billion a year for "not making long-distance phone calls," and he further accused the carrier of minimizing public awareness of the charge by announcing it on a Friday afternoon in August.

So the question is, with a large embedded base of customers that no other carrier has, with charges from access fees and universal service building up, and with a pledge by its chairman to make the carrier a leaner competitor, did AT&T have a choice?

"If they didn't do anything, they would continue to lose money," said Jeffrey Kagan, president of Kagan & Associates. "But it could've been more incremental."

The public relations hit AT&T has received will cost the carrier more than what the new charges will generate, said Ron Cowles, a principal analyst with Dataquest. "The timing really isn't good," he said. "Consumer groups have already been arguing that AT&T hasn't reduced charges to reflect access charge reductions, and this just gives them more fuel for the fire."

If the carrier wanted to recover the money it was losing, it had to do something, said Tom Nolle, president of Cimi Corp.

"One of the things you have to recognize is that there are certain customer relationships that are not profitable," he said. "They've got to try to make up those costs."

AT&T's embedded customer base is its biggest asset and its biggest liability, Kagan said. It makes the carrier the "biggest bull's eye in the business," and every action it takes to compete better will get a strong response.

While Cowles believes the other large interexchange carriers will follow AT&T's lead in charging minimum fees, Nolle said that if they're smart, the other carriers will wait and see the effects of the public relations hit to AT&T.

A Sprint spokeswoman and an MCI spokesman said those carriers charge minimums on some calling plans, but not on basic rates. They said neither company has plans to do so.

Officials at AT&T believe that the charges are necessary and won't deter new customers, a spokeswoman said. "In a competitive market, we just can't continue to retain these costs. We need to recover them," she said.

LESS IS MORE Genesis Communications, a San Diego-based competitive local exchange carrier, last week announced its new Talk More-Spend Less calling program that offers rates as low as 14 cents a minute to Mexico. After the first 10 minutes of a call, a customer automatically receives a 50% discount on the remainder of the call. The monthly service charge of $3.75.

A GOOD SPIN ON STRIKES U S West reports that during the strike by the Communications Workers of America, hundreds of thousands of customers used U S West Web sites to obtain directory listings, order services and report problems. According to the carrier, this was a good way to introduce customers who would have called customer service to the features of the main U S West site and to the U S West Dex Internet Yellow Pages Web site.