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Cost of Convenience Can Be Real Hang-Up

June 23, 1997|KAREN KAPLAN

To hear the phone companies tell it, "one-stop shopping" will revolutionize the telecommunications industry, allowing consumers to take advantage of a plethora of phone services both familiar and far-out.

Customers will be able to--and in some cases already can--buy everything from dial tones to electronic mail to video services from a single company. Gone will be the days of hapless customers shuffling bills from as many as half a dozen firms.

A recent survey by the Yankee Group, a Boston-based market research firm, indicates that about two-thirds of Americans are interested in buying their communications and entertainment services from a single company. Of those, one-third are so eager for this convenience that they are willing to pay a premium for it.

But consumer advocates worry that telecom customers won't realize how much extra they might have to pay for the privilege of one-stop shopping.

"What we're seeing is you're paying far more for the convenience than you know," said Michael Shames, executive director of the Utility Consumer Action Network in San Diego. "It's masking what the true costs of the services are and thus makes it more difficult for consumers to comparison-shop."

To be sure, one-stop shopping does offer the advantages of fewer bills--and fewer customer service representatives to deal with when problems or questions arise. With so many new and seemingly complicated products coming to market, some overwhelmed consumers may find it easier to pick a well-known company like AT&T Corp. and trust it to separate the technological wheat from the chaff.

But comparison shopping is especially critical now with so many new markets opening up thanks to deregulation and new technology. Customers are used to shopping around for the best deal for long-distance service, but most people don't realize they can shop around--albeit on a limited basis--for local phone service as well, said Gene Kimmelman, co-director of the Washington, D.C., office of Consumers Union.

"One-stop shopping can be wonderful for a mature, competitive market if people know what's a fair price and they can assess the trade-offs between convenience and bargain-basement prices," Kimmelman said. "In a market where consumers never fully experienced competition and haven't learned to shop competitively, one-stop shopping is often a synonym for monopolization."

Other products, including Internet access and personal communications services, or PCS, have not been available long enough for customers to learn to shop for those items either, he said.

Companies have already brought a range of one-stop shopping bundles to market, although federal rules prohibit historic local phone monopolies from including dial tones in their bundles.

Perhaps the most extreme example of bundling is MCI Communications' MCI One, which allows customers to combine local and long-distance phone service with a calling card, cellular service, paging and Internet access. A customer also gets a toll-free number that can automatically route callers to the customer's home, business or mobile phone. Except for the 800 number, the price for MCI One is the same as if the services are bought separately, company spokeswoman Kelly Seacrist said.

GTE--one of the few local phone companies that was awarded immediate entry into the long distance market by last year's telecommunications reform--can tout one-stop shopping with its local, long distance, wireless, paging, Internet and cable products. The company is offering only a limited number of special bundles, however.

Customers who buy long distance and Internet access from GTE get a $2 discount on Internet services and a flat rate for long distance--10 cents per minute for calls within the state and 14 cents a minute for calls around the country. Customers who use GTE for local toll calls and cellular service also get a discount, said Topper Pardoe, GTE's director of consumer market management in Dallas.

AT&T long-distance customers can opt to pay $4.95 a month for three hours of the company's WorldNet Internet service (with each additional hour costing $2.50) instead of paying the monthly rate of $19.95 for unlimited hours. People who buy satellite dishes for DirecTV--the satellite television service operated by Hughes Electronics in which AT&T owns a small stake--can get a rebate worth $200 to $300, said Mark Siegel, a division manager for AT&T's consumer markets group.

For phone companies, bundles can help retain customers and make it easier to sell additional services.

But customers are also more likely to end up paying for services they don't really need or want if they buy them in bundles, said Regina Costa, a telecommunications analyst with TURN, the Utility Reform Network in San Francisco.

By Shames' calculation, a bundle from AT&T, for example, would provide a slight discount on local phone service and save a few dollars a month on toll calls.

"I think if you were to ask customers, 'Is it worth $120 a year to you for the convenience factor?' most customers will say no," he said.


Karen Kaplan covers technology, telecommunications and aerospace. She can be reached at

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