February 7, 2002
Rapidly-shrinking giant AT&T is introducing a new pricing plan that lets AT&T residential customers call each other for a flat monthly fee of $19.95 while calls to everyone else cost 7 cents per minute. There are several major flaws that aren't immediately evident, however.

For one thing, calls to AT&T Wireless customers don't count. Nor do calls to those who get their phone service from AT&T Broadband. Oh, and calls to AT&T business subscribers don't count either.

OK, but AT&T is still the biggest provider of residential long-distance service, right? Yes, but it's losing ground fast -- its long-distance revenue is expected to fall 20 percent this year -- and each customer it loses is one fewer that's reachable under the flat-rate plan.

As that fact sinks in, the campaign may not do what AT&T; hoped it would.

"What AT&T; had hoped would be a 'viral' marketing plan that spreads the word about how great AT&T;'s rates are could turn into a less pleasant virus, one that reminds consumers that AT&T;'s customer base is eroding faster than a Delaware beach," said ConsumerAffairs.com President James Hood.

Other consumer advocates agreed.

"With AT&T; losing consumer accounts to cut-rate competitors, remaining customers may now become more aware of AT&T;'s eroding market share," said Rich Sayers of 10-10PhoneRates.com. "Now every time an AT&T; customer drops them, that reduces the list of people you can call with their 'unlimited' plan." Subscribers may ask friends why they switched, since they will now pay more to call those who drop AT&T; service. In doing that they could become educated about competitive offerings and switch themselves."

Other critics were quick to note that the monthly fixed price is far from cheap.

"For the typical long-distance customer, this is a very high price to pay for the current amount of calling they do," Gene Kimmelman of Consumers Union told the Washington Post.

"For that matter, there's nothing great about 7 cents a minute, especially if the billing increment is one minute," Hood says. "With a little dialing around, anyone can get a 6-cent-per-minute plan with a 6-second increment."

The difference adds up quickly. With a one-minute billing increment, a 61-second call counts as two minutes. On a 6-second increment plan, it counts as 67 seconds.

Additionally, customers could quickly run up large long-distance bills if they make lengthy calls to friends who may have recently switched their service to another long-distance carrier without bothering to mention it.

Later this year, AT&T; plans to introduce a feature that automatically informs callers when theyre phoning other AT&T; residential customers at no additional charge but until then, consumers will be on their own.

If AT&T;'s plan sounds vaguely familiar, it's because it's similar to MCI's highly original and successful "Friends and Family" campaign in 1991. It offered discounts for calls between MCI customers. But that was a long time ago -- when price competition in the residential long-distance market was just beginning to heat up.

MCI and Sprint said they have no immediate plans to match AT&T;'s offering. Sprint already offers a 500-minute anywhere/anytime long-distance package for $25 per month and a 1,000-minute monthly package for $40.

In fact, some analysts said the main effect of AT&T;'s plan may be cannibalization. "They'll end up converting their high-end customers to a fixed-rate plan," one said.