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Phone industry confuses 'revolutionary' with static

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By ROBERT TRIGAUX, Times Business Columnist

© St. Petersburg Times
published April 21, 2002


If they make a movie of today's phone industry, here's an apt title: A Beautiful Mess.

Could it be we're all jaundiced from listening to years of empty hype and promise from the nation's telephone marketers?

Case in point: MCI, the nation's No. 2 long-distance phone company, last week unveiled a novel package of residential telephone services that offers unlimited local and long distance calls for a flat monthly fee (and one single bill) of about $55 (pretax). It starts in 32 states but won't reach Florida until later this year or 2003. Let's listen in on some of the enthusiastic phrases MCI Group chief operating officer Wayne Huyard used Monday to describe the new service, dubbed the Neighborhood, during a nationwide conference call.

This is an important date in communications competition...

Launching a new business to revolutionize the telephone industry...

We've been anticipating and preparing for this day since the 1996 Telecommunications Act...

Wow, I thought, this is the wave of the future. Surely Huyard will be bombarded with questions about MCI's "revolutionary" phone service. After all, isn't this the first major telecommunications company to offer an "all-you-can-eat" flat monthly fee that lets residential customers call anybody, any time, anywhere in the nation and talk for as long as they want?

I was wrong. One Reuters reporter blandly asked Huyard how much MCI, part of WorldCom Inc., plans to spend on advertising to introduce its new service. And ... (yawn) ... that ... was ... it.

And there's the rub.

Six years after federal laws changed to try and inject competition into the monopoly culture of the residential phone market, service providers are still scrambling to capture customers' imaginations and wallets with the next great phone service.

There are 10,000 reasons for the screwy state of the residential phone business. Let's start with today's top 10:

1. Cleaning up Ma Bell's mess. After a judge ordered the breakup of the AT&T phone monopoly 18 years ago, the country's still waiting for the dust to settle.

2. So long, long distance! The traditional long-distance phone market, once dominated by AT&T, MCI/WorldCom and Sprint, is fast disappearing. Consumers increasingly use their cell phones instead, or substitute e-mail. Some of the surviving regional Bells, notably Verizon, are aggressively pushing state by state into the long-distance business. And even cheaply priced phone cards are cutting into mainstream long-distance business.

3. AT&T's sorry plight. AT&T is still a whopper-size company, but it's shrinking and obviously lacking a long-term strategy. The latest humiliation? AT&T is preparing for a reverse stock split (when companies cut their number of shares outstanding), a move often viewed as a last-ditch attempt by beaten-down stocks to regain an attractive price. After an upcoming spinoff of cable assets, AT&T's $14.50 stock could sink below $5 a share without the split. Some institutional investors won't buy stocks priced under $5 or even $10. How bad is it? This is the first-ever reverse split for a stock in the blue-chip Dow average, according to Dow records dating back to 1928.

4. MCI/WorldCom's credibility woes. Whatisn't nibbling away at this company? The Securities and Exchange Commission has WorldCom's billing, sales and accounting under intense scrutiny. Lawsuits allege WorldCom used shady tactics to boost revenue and hide bad news to keep its soaring stock high, then used its pricey shares for an acquisition spree that included Tampa's Intermedia Communications. WorldCom CEO Bernie Ebbers is taking heat after using WorldCom shares to secure a stunning $341-million in personal loans from the company. Now he faces margin calls from banks as the value of his company stock falls below $6 a share.

5. Stubborn regional Bells. With their legacy of monopoly control over residential local phone service, regional phone giants deserve Olympic gold medals for stalling any and all attempts by competitors. In the Tampa Bay area market, for example, Verizon remains by almost any measure the sole Kahuna in providing local residential service.

6. Death of per-minute pricing. Phone companies are desperately holding on to a shrinking number of customers that still pay traditional per-minute prices for long-distance calls. But that market is evaporating. Why? Folks embraced the Internet once they could use it all they wanted for one fixed, monthly price. Then, led by AT&T Wireless's One Rate plan, wireless phone providers dropped per-minute pricing and substituted buckets of minutes with nationwide calling. Now MCI's latest service, unlimited residential phone calls anywhere in the country for one flat price, is taking the idea one step further.

7. Overcapacity. Telecommunications companies assumed the industry boom of the 1990s would go on forever, so they built massive cable and fiber-optic networks to handle the assumed high demand for broadband and DSL Internet services. Wrong move. Now every telephone company is licking its wounds from overspending, and dropping prices to boost less-than expected demand.

8. Consumer backlash. Sleazy sales tactics, inaccurate billing and wretched customer service over the years have combined to give the entire telecom industry a black eye with consumers. Add to that the overdose of marketing gimmicks. Two years ago, regional Bells swore consumers wanted packages of local and long-distance calling bloated with add-ons, from call waiting to caller ID -- all on one bill. The plans, poorly explained and at times poorly executed, flopped. Once burned, consumers now are less willing to jump at every new deal.

9. Piecemeal legislation. The 1996 telecom law that started the whole deregulation effort was so flawed that we're still trying to fix it. Meanwhile, new telecom Band-Aid legislation emerges regularly to complicate the scene. Is it any reason that the telecommunications industry has more lobbyists and PAC money per square inch in the nation's capital than anybody else?

10. Technology obsession. If the current array of telecom services does not work too well, the industry says, don't worry! New technology is exploding, so it's always time to start pitching consumers on the next best thing. Even if consumers can't understand it, don't really want it, and probably don't need it.

If everything's revolutionary, nothing is.

-- Robert Trigaux can be reached at trigaux@sptimes.com or (727) 893-8405.

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