Mom, Dad, it’s time you learned the truth about long distance

On a phone call home the other day I asked my mother how much she was currently paying for long distance. "Twenty dollars a month," she said, adding, "but I can make calls any time during the day." A simple enough answer to be sure, yet it reveals a few things about the current state of our long-distance industry. "They probably thought that was a huge savings compared to what they used to pay in the 1970s," says the Seaboard Group analyst Iain Grant when told of my parents' long-distance ignorance. "You have to help wean them from those habits, but until you do that is still a revenue earner for Bell." At this point in time, the telcos will take pretty much any long-distance revenue they can get. According to Grant, long distance accounted for $4.2 billion of Canada's overall $35 billion telecommunications market in 2003. While telcos managed to grow the overall market to $41 billion in 2006, long distance decreased to $3.1 billion. That's a loss of more than a billion dollars in revenue in just three years, but of course it doesn't exactly come as a surprise. In fact, almost two years ago a number of analysts, including Grant, told Network Letter that sooner or later, long distance as a profitable product was finished (NL, Aug. 4/05). "Will long distance contribute to telecommunications service provider revenues for some time to come?" asked Grant in August 2005. "Sure. Will there be any money, any profit in it? We doubt it. Why? In two letters, ‘IP.'" "That sounds very prescient," jokes Grant when told of his '05 prediction. Of course, at the dawn of carrying voice over Internet Protocol networks, everyone predicted the end of wireline long distance. But the truth is, the value of long distance had been decreasing long before VoIP appeared on the scene. "Once upon a time for me to make this call to you we would have probably had to fill out a long-distance slip," says Grant, "or put up our hand and say ‘I'd like to make a long-distance call.'" Now Grant calls anywhere in North America for one cost through Vonage, which raises the question: why are some consumers paying much higher long-distance rates than others? Part of the answer is awareness, which is something Grant also addressed two years ago. "Most people are creatures of habit," he said two years ago. " just pay their bills when they are due without much thought as long as the total looks right. Advertising will spread the word. That's when the industry will feel the impact." Advertising, however, seems to only have accomplished so much - no amount of ads featuring Phil Esposito were enough to educate my parents about VoIP. Evidently, what seems to be the more successful tactic for moving customers away from traditional phone service to VoIP - as opposed to selling it primarily based on any advantages is has over wireline service - is by bundling it with cable, Internet and wireless. Grant points to Vidéotron ltée's approximately 400,000 telephony subscribers, compared to none two years ago, as a great example of the uptake of VoIP. The same can be said for Rogers Communications, Cogeco Cable, Shaw Communications et cetera. On the other side, the telcos are fighting to retain their customers, and profits, by offering bundles of their own, including IPTV services. "Bell has already managed to wean itself off of the addiction of long-distance revenue," says Grant, who mentions the efforts of MTS Allstream and SaskTel as well. "Long distance is featuring less and less in the overall portfolio of offerings." But the telcos aren't stupid; they know that throwing their long-time customers a long-distance bone every now and then will keep that additional revenue coming in. A recent example is removing the after 6:00 p.m. and weekends restriction from flat-rate plans, which seems to have my parents so enamoured even though it's an option I had through an independent long-distance provider in 2001. Of course, while I can turn up my nose at the ignorance of my parents and others still locked in at $20 per month, at five cents per minute I could still pay less if I shopped around. But eventually, it becomes a moot point. Brian Sharwood, who was also an analyst at the Seaboard Group at the time, addressed this lack of concern two years ago. "The long distance market is getting to the point where customers are just arguing over pennies," he said at the time. "It's not worth the effort for a customer to take a call from a carrier to argue about having their long distance at $5 a month instead of $8. It's easier to just pay the $3 and not have the hassle." In short, the closer long distance prices get to zero the more effort it will take from customers to drive them down.So even though long distance as a revenue stream seems eventually doomed, lack of awareness and customer apathy will ensure that it carries on in some form for a few more years.

Mom, Dad, it’s time you learned the truth about long distance

News | June 11, 2007

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