Talk more, pay less

JOHN SCHOFIELD October 5 1998

Talk more, pay less

JOHN SCHOFIELD October 5 1998

Talk more, pay less


Canadians delight in low long-distance rates


Merle Smith wondered what the heck was happening. When the spry 75-year-old reached for his phone to make a local call one evening last month, the dial tone had mysteriously disappeared. In the days that followed, the telephone went on the fritz for as long as four hours at a time. Some folks might have blamed aliens. This, after all, was Vulcan, Alta., home of the annual Spock Days rodeo and Star Trek convention. The problem, though, turned out to be a lot closer to earth. Smith,

a retired farmer, and his wife, Bettey, 68, had been bushwhacked by a legion of loquacious Albertans taking advantage of the provincial phone company’s $20-amonth, unlimited long-distance offer. The plan, introduced in July by most of Canada’s long-distance carriers, has proven so popular that lines have been overloaded and calls have been stalled. “Everybody can gab as long as they want,” complains Smith. “For a while, there was no way you could get through. If there had been an emergency, you’re dead.”

Caught off guard by the cross-Canada chat fest, phone companies are scrambling to expand their networks and remove the bottlenecks. And experts say Canada’s ever-escalating phone wars could force prices even lower. Consumers could not be happier: according to some informal estimates, the length of an average call for flat-rate subscribers zoomed from five minutes to almost half an hour shortly after Sprint Canada introduced the first flat service in July. And even though revenue from long-distance calls is being carved up between more companies, it’s not all bad news for the major telephone companies. Overall industry operating revenues, including those generated from local services, have jumped to $23.6 billion in 1997 from $15.9 billion in 1991. Still, company executives complain that nobody is making money on long distance any more. In fact, many ana-

lysts claim the whole concept of long distance is dead and will soon amount to a mere blip on monthly phone bills. “If this pricing holds, it marks something really quite revolutionary,” says Ian Angus, a Toronto-based telecommunications consultant. “It means the disappearance of the difference between local and long-distance calls.

Gone are the days when callers watched their kitchen clocks as some long-winded relative from halfway across the country rambled on. Since signing up with Bell Canada’s flat-rate offer, Toronto lawyer Janet Mills has been phoning her mother in Winnipeg almost every evening, compared with twice a month before the offer was introduced. The conversations are typically longer, too, says the 34-yearold Mills. “I don’t even think about the cost any more,” she adds. “I don’t give it a second thought.”

The all-you-can-talk plans, which are now available in most parts of Canada, apply only to calls within the country on weekends and evenings after 6 p.m., when an estimated 75 per cent of all residential

Across the country, the length of an average call for flat-rate subscribers has zoomed—from five minutes to almost half an hour

long-distance calls are made. Angus says consumers, who in some cases are automatically enrolled in the plans by their phone company, are flocking to the deals in droves because at the end of the month they know exactly how much they will pay. That is a boon for people on a tight budget. Andrea Ahiers, a student at Ontario’s University of Waterloo, says she and her housemates dropped their old carrier, London Telecom Inc., and signed up with Bell Canada’s flat-rate plan when they returned to school last month. “Last year, we were getting phone bills and we had no idea how much it was going to cost,” says Ahiers, a 20-year-old Torontonian who estimates she has tripled the number of calls she makes each week. “Now, I just pick up the phone and call whenever I feel like it.”

So many customers have signed up for the deals that in Newfoundland alone, the peak load on the province’s telephone system has shifted to 10:30 p.m. from about 10:30 a.m., says Harry Connors, a spokesman for the province’s main phone company, NewTel. Although analysts and executives with rival firms dispute the claim, Bell Canada, which serves Ontario and Quebec, says it has been able to handle the extra load. Companies in other provinces were not as lucky, with customers in British Columbia, Alberta, Manitoba,

Prince Edward Island and Newfoundland all suffering long delays.

Callers trying to phone out or in were met with silence, fast busy signals or recordings telling them to try again later. “We’ve had a severe problem with loads as heavy as Christmas and Mother’s Day,” says Kevin Noel, a spokesman for BC Tel.

“We’re working to get additional capacity on the network.”

In Alberta, an army of 200 technicians was still fanned out across the province last week, installing new wires and switches. Workers in Newfoundland have been forced to install thousands of new circuits in the past six weeks, expanding the island’s phone network by 20 per cent, says NewTel’s Connors. The telephone companies spend about $1 billion annually to maintain their networks, and analysts say those costs will increase as more people sign on to the programs. At Alberta’s Telus, for example, only 150,000 customers have signed up for the Your Way Unlimited flatrate plan, but at the current rate about 25,000 more are being added every week.

While consumers are stampeding to the discount programs, the savings do come with a catch. Until 1993, federal regulations required phone companies to use part of their long-distance revenues to subsidize local services, which they complained was often being provided below cost. But to help offset plunging long-distance rates and encourage competition in the $8-billion-a-year local phone sector, the Canadian Radio-television and Telecommunications Commission has allowed monthly rates for basic local service to rise over the past three years by $7 a month. And Local rates will continue to rise by at least the annual rate of inflation until 2001.

Even so, long-distance prices have fallen faster than anyone imagined. A study last year commissioned by Toronto-based Call-Net Enterprises Inc., the parent company of Sprint Canada, found that the price of an average long-distance call dropped from 21.5 cents a minute in 1995 to an estimated 17 cents in 1998—and that was before the new flat-rate pro-


grams kicked in. Without competition, the study says, the cost would have been 48 cents. And after climbing steadily for decades, long-distance earnings for Bell Canada and the regional phone companies, but not including new competitors like Sprint Canada or AT&T, dropped to $5.1 billion in 1996 from $7.2 billion in 1990.

Now, flat-rate calling promises to squeeze long-distance profits even further. That is because for every minute of longdistance time logged by Canadians, companies such as Bell Canada and Telus must contribute up to two cents towards the upkeep of local phone networks. With flat-rate subscribers chatting to their heart’s content, that amount, which totalled $820 million last year, will certainly rise.

Late last month, a coalition of four phone companies— Toronto-based AT&T Long Distance Services, London Telecom, ACC TelEnterprises Ltd. of Toronto and Call-Net Enterprises Inc.—appealed to the CRTC to change the contribution from a per-minute charge to a percentage of total annual revenues. If their plea falls on deaf ears, the economics of long distance can only get worse. “Nobody is making any money on long distance right now,” says Roy Osing, senior vice-president of marketing for BC Tel. “I think prices will stay at this level for a while.”

That may be wishful thinking. Rates will likely continue their slide as new competitors enter the market. In August, for instance, Toronto-based Netcom Canada started buying long-distance time from a major long-distance carrier, which it refuses to I name. Netcom then sells it at a g cut rate, including 12.5 cents a « minute to the United States at any 1 time. And it does not stop there, o In the brave new world of § telecommunications convergence, mainline long-distance companies will soon face new competition from cable TV companies and hydroelectric utilities that plan to use their networks to deliver both long-distance and local signals.

The battle for long-distance revenues, says Angus, is also expected to bring down the cost of international phone calls— both on wireless and traditional phone networks. Last week, Rogers Cantel, a unit of Rogers Communications Inc., which owns Maclean’s, announced rates as low as 20 cents a minute for cellular telephone calls made anywhere in Canada and the United States. As well, Teleglobe Canada, the sole carrier of Canadian overseas calls, officially lost its monopoly on Oct. 1 to deliver international calls. As new competitors enter Teleglobe’s market, prices on overseas calls will come down.

Telephone companies are moving aggressively into other areas. Some are offering one-price communications packages that include such services as local, long-distance and mobile phone use, along with cable TV and Internet access. As the battle progresses, some companies could fall by the wayside or merge with rivals. And in July, Call-Net may have triggered a wave of consolidation in the industry, with its $1.8billion takeover of Montreal-based Fonorola Inc. “We’re in a whole new world,” says NewTel’s Connors. And it’s giving phone companies and their customers a lot to talk about.