I understand the generational issue raised in the article.  I live with a
57 year old man who cannot imagine a household without a wire-based
telephone, although cell phone service is cheaper and infinitely more
convenient.  I do use a three cent a minute pre-paid phone card and allow
him to use the more expensive one plus dialing for long distance,
although it is with a cut rate company and not one of the major carriers.

Kelly

Los Angeles Times

Long Distance May Face a Very Short Future

Telecom: Big firms see their profits fade as more customers go wireless.
By KAREN KAPLAN and CHRISTINE FREY

TIMES STAFF WRITERS

April 26 2002

As long-distance companies watch their calls and profits slip away to
rivals such as cellular phone networks, the day may soon come when their
business--once considered a pillar of American enterprise--ceases to
exist.

Krystin Alexander is part of the reason. The 33-year-old New Orleans
resident no longer makes the distinction between a local and a
long-distance phone call. When she dials a number on her wireless phone,
she pays the same amount regardless of how many miles separate her from
the person on the other end of the line.

"People with land lines have to pay long distance," said the executive
assistant at an engineering firm, who has gone completely wireless. "We
don't even think about that stuff anymore." Just as technology dissolved
the notion of distance, it now is dismantling one of the key industries
built up around it. That, coupled with changes in the laws governing
local phone monopolies, has resulted in a steady stream of bad news from
blue-chip companies such as AT&T Corp. and WorldCom Inc.

Long-distance giant WorldCom, the parent company of MCI, said Thursday
that first-quarter profit plunged 78%. A day earlier, AT&T said it lost
nearly $1 billion for the first three months of the year as it incurred
the defection of customers to wireless services, prepaid calling cards
and other less expensive alternatives.

For both companies, call volume fell significantly as customers continue
to find other ways to reach out and touch friends and family in far-off
places. But revenue dropped even faster as competition and new technology
forced prices down.

It's a trend hammering all long-distance companies--and one without an
apparent solution.

"I'm not sure it will ever get better for them," said Pat Comack, a
telecom analyst with Guzman & Co. in Miami. "At the end of the day,
they're pretty much doomed. Long distance will be a memory."

With it will be billions of dollars of shareholders' money. Once
considered among the safest bets for investors, shares of long-distance
companies have fallen sharply since the late 1990s. AT&T, for instance,
closed Thursday at $13.49--down from $49.18 just three years ago--on the
New York Stock Exchange. And WorldCom's Thursday close of $3.53 on Nasdaq
is well off its 1999 price of $61.99.

An Increasingly Crowded Market

The problem for traditional long-distance companies is that the market
they once had all to themselves is being bombarded by new competitors
such as wireless firms, Internet upstarts and cable providers. Even local
phone companies such as SBC Pacific Bell, which for years were excluded
from the market by law, are winning regulatory approval to offer
long-distance services.

At the same time, the prices that long-distance companies can charge to
the customers they have managed to hang on to have been falling steadily
and now amount to just pennies a minute. That, in turn, helped kill the
mind-set that spending time on the phone was a luxury that must be
regulated by an egg timer.

"There's an aura among my parents' generation that if someone's calling
cross-country, you should get to that call immediately because it costs a
lot of money," said Jeff Pulver, who publishes a newsletter based in
Melville, N.Y., about communications technology. "Other generations
assume that costs are associated with distance, but now it costs 2 cents
a minute. Cost has nothing to do with distance."

For years, long-distance calls were more expensive than local calls
because providers such as AT&T, MCI and Sprint Corp. had to pay fees to
local phone companies to have their long-distance calls begin and end on
local networks. Over time, the Federal Communications Commission has
reduced those fees from several cents each to only half a penny apiece,
Pulver said.

"A lot of cost is from originating and terminating a call, not how far it
goes," he said. The marginal cost of carrying a call farther on a
company's phone network amounts to "some fraction of a penny per call."

Meanwhile, a new generation of upstarts such as Qwest Communications
International Inc. and Level 3 Communications Inc. built fiber-optic
networks that relied on more efficient Internet-style systems to move
voice and data traffic. The new networks allow vastly more calls to share
a single line by breaking them into packets and sealing them in their own
electronic envelopes.

"Internet telephony has reduced costs by 80% to 90%," said Roger Wery, a
partner at PRTM, a telecommunications consulting firm in San Francisco.
"It's a dramatically different cost structure." Wery said his own monthly
long-distance bill has plunged from $300 eight years ago to less than $40
today.

The long-distance business was essentially created in 1984, when the
federal government carved seven local phone monopolies out of AT&T. The
company formerly known as Ma Bell could offer only long-distance service,
and the Baby Bells were allowed to handle only local traffic.

Twelve years later, Congress passed the Telecommunications Act of 1996,
allowing local and long-distance companies to enter one another's
markets. But of the two, the local market has proved far more resilient
to competition.

"When they broke up AT&T in 1984, they didn't allow the [Baby Bells] to
offer long distance, so they created a long-distance industry," analyst
Comack said. "When they passed the Telecom Act of 1996, they destroyed
the long-distance industry."

Carriers Try to Diversify

Realizing that they were in danger of getting stuck in a low-margin
commodity business, long-distance companies responded by trying to
diversify.

AT&T bought computer giant NCR Corp. and wireless provider McCaw Cellular
to gain entry into new markets. It also bought cable giants
Tele-Communications Inc. and MediaOne in an attempt to gain direct access
into consumers' homes and return to the local phone business. AT&T has
since shed NCR and is in the process of selling the cable properties,
transactions that resulted in billions of dollars of losses.

WorldCom went on its own buying spree to become a company focused on
business services such as data networks, Internet access and Web hosting.

Sprint has concentrated on building a wireless powerhouse, Sprint PCS,
that treats local and long-distance calls equally. Long-distance
companies still collect some money when wireless customers make
long-distance calls, but they can charge only wholesale rates with
razor-thin margins.

And that ultimately benefits callers such as Alexander, who used to spend
about $70 a month making long-distance calls to friends and family in Los
Angeles, Salt Lake City and Florida.

"My phone bills used to go through the roof," she said. "I used to take
them out of the mail and hide them from [my husband]."

In July, when the couple upgraded from dial-up Internet access to a
high-speed cable modem, they decided to save some money by getting rid of
their land line altogether. Now they use e-mail and their wireless phone
to communicate instead. Alexander pays just $40 a month for 3,500 minutes
of air time.

"It's a lot more convenient," she said.


VICUG-L is the Visually Impaired Computer User Group List.
To join or leave the list, send a message to
[log in to unmask]  In the body of the message, simply type
"subscribe vicug-l" or "unsubscribe vicug-l" without the quotations.
 VICUG-L is archived on the World Wide Web at
http://maelstrom.stjohns.edu/archives/vicug-l.html