AT&T puts plan to raise rates on hold.

Byline: Jon Van

CHICAGO _ Confronted by a deluge of complaints from consumer advocates about a new plan to raise its rates, AT&T Corp. has put the idea on hold. Still, industry experts insist that AT&T's controversial move made good business sense.

AT&T, consumer advocates charge, has been taking credit for cutting its flat-rate fees to customers at the same time it was quietly boosting their per-minute long-distance calling rates.

On Wednesday, AT&T executives said they would defer the rate hike and rethink it. Current charges will remain in effect until AT&T finishes its review of the matter, but the firm will go ahead with its plans to scrap its $3 monthly minimum charged to residential customers.

"Our goal is to give customers great service at a great price, whether they make one call a month or spend hours on the phone," said Robert Aquilina, senior vice-president of AT&T consumer services.

In a much-publicized move last week the Federal Communications Commission ordered a reduction in the amount of money long-distance carriers like AT&T must pay to local phone companies like Ameritech to complete their calls. AT&T said it would drop the monthly $3 fee charged to customers who make no phone calls to pass along the savings.

At the same time, however, AT&T had planned to raise its basic per-minute rate to 29 cents for all days and hours except Sundays when the rate would be 7 cents a minute. Current basic rates vary from 16 to 26 cents depending upon day and time.

"While AT&T was giving customers back money with one hand, it was taking it away with the other," said Mark Cooper, research director for the Consumer Federation of America. "That's no surprise. And the Federal Communications Commission was taken in by AT&T's move, but that's no surprise either."

The new rates combined with dropping the $3 fee meant that customers making more than 10 minutes worth of calls a month would have paid more than they pay now, said Marc-David Seidel, co-founder of ABellTolls.com, a Web clearing house for long-distance rate information.

When it proposed to raise basic rates, AT&T had promised to fully inform its basic-rate customer of their options and help them select a discount plan that could shield them from higher bills.

But most people on the basic rate plan are customers who pay the least attention to phone plans and discount deals, said Samuel Simon, chairman of the Telecommunications Research and Action Center, a Washington-based consumer group. "These tend to be elderly people," Simon said.

When AT&T launched its $3 monthly minimum, it was gouging these low-volume customers, and it caught heat from regulators and consumer advocates, said Simon. The deferred rate-hike plan would have "changed tactics so that if you make no calls at all, you're better off, but if you make just a few calls a month, you'll pay more," he said.

From a business perspective, AT&T's effort to raise basic rates or impose a monthly minimum is a sound decision, said Robert Rosenberg, president of Insight Research Corp., a telecommunications consultancy based in Parsippany, N.J.

AT&T's problem, he said, is that it has 60 percent of the consumer long-distance market, and most of those people are unattractive customers who spend less than $10 a month on long-distance calling.

"It costs money to serve that customer base, and it isn't unreasonable to create a floor of revenue to support those costs," said Rosenberg. "In fact, it makes sense in a competitive market."

Sprint Corp. and WorldCom Inc., the other large long-distance carriers, have specialized in serving business customers and residential consumers who make a lot of long-distance calls. By offering very low per-minute rates tied to monthly fees, Sprint and WorldCom have put AT&T in a difficult competitive position, said Rosenberg.

"Sprint is pushing toward a flat rate monthly fee for unlimited calling, which high-end users like a lot," he said. "But when AT&T tried to apply a flat rate to its low-end customer base, they got whacked with criticism."

AT&T's basic choice seems to be either make a rational business decision and take the heat or duck the heat and keep losing money on low volume customers, Rosenberg said.

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