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Long-Distance Carriers Seeking to Ring Up Profit From Local Toll Calls


The expected battle for the local home phone market has fizzled, but long-distance carriers have shifted their focus to another lucrative front: local toll calling.

These calls represent the confusing middle ground between free local dialing and long-distance. Generally, local calls that travel more than 12 miles are considered toll calls, but the actual charge is based on distance and the oddball geography of the state's calling zones.

The stakes are especially high in California. The state is the largest local toll market in the country, with customers spending more than $2 billion a year and making a quarter of all such calls in the U.S.

Last week, AT&T Corp., Sprint and MCI WorldCom asked California regulators to allow customers to "subscribe" to a local toll carrier--as they do with long-distance. More than 30 states have adopted, or soon will adopt, such a plan.

To tap a competing carrier for local toll calls, a customer must dial that company's seven digit code (10-1X-XXX), followed by the phone number. Customers who dial 1 and a phone number are automatically routed to their local phone carrier.

GTE customers already have the option of subscribing to an alternative local toll carrier without extra dialing. That's because GTE is not a Baby Bell company and is not as heavily regulated as the phone companies spun off from AT&T. But the same is not true for PacBell, the state's largest phone company.

For customers, the choice can add up to big savings.

"It is meaningful, and for some people, it's very meaningful in terms of the amount of money involved," said Brett Azuma, a vice president at Dataquest, a San Jose research firm. "You need only look at Pacific Bell's financial report to see that a good chunk of its revenue and profit comes from local toll."

Since the dial-around system was established almost four years ago, California businesses have saved vast sums on their local toll calls by comparing price plans and using automated systems that eliminate the need for extra dialing.

The stepped-up competition for business customers has pushed all carriers to lower their per-minute prices on local toll calls.

In most cases, the lower prices also are offered to residential customers. But many customers are unaware of their options, while others are discouraged by the extra dialing and daunting complexity of identifying which calls are considered local toll.

PacBell estimates that about 55% of its local traffic from business customers in California has shifted to competitors. The company says it has lost only about 10% of its residential toll calls to rivals, although observers believe the percentage is even lower.

PacBell quotes an average toll-call price of 6 cents to 7 cents a minute. But special plans with monthly fees can offer per-minute prices as low as 5 cents. AT&T says its toll prices range from 5 cents to 7 cents a minute.

Because prices vary widely, customers with a good long-distance plan can find they are paying higher per-minute rates on a call from Los Angeles to Irvine than from Los Angeles to New York.

"It's well worth consumers' time to take a look at what's on the table for them," said Fred Voit, an analyst at Yankee Group, a Boston research firm. "If it's a good rate, it's even worth dialing around."

Regulators don't dispute the potential advantages of allowing consumers to subscribe to carriers other than the incumbent phone company for local toll calls.

But the dispute has become a legal one.

"Pre-ordering [local toll] would make it easier for carriers to compete on a more level playing field, but I'm not sure that's the question before us," said Fassil Fenikile, telecommunications advisor to the California Public Utilities Commission's Josiah Neeper, who is reviewing the matter. "There is a competitive balance we have to keep in mind."

Last year, the state PUC ruled that PacBell would be unfairly disadvantaged if it were forced to give rivals equal access to its toll-call customers before it earns access to the long-distance market.

Under the Telecommunications Act, PacBell and the other Baby Bells must pass a competition check list before winning entry into long-distance--and so far, none of the companies has earned a passing grade from regulators.

But the Telecom Act, which itself is the subject of legal challenges, also requires the local phone companies to grant competitors "equal access" to their toll-call customers by Feb. 8, 1999--even if they haven't yet gained access to the long-distance market.

Now, state regulators must weigh the conflicting rulings. Neeper, who heard arguments from both sides last week, is expected to make a preliminary decision within a few weeks.

Accelerating competition in the local toll market would surely be a boon for consumers. But it also could disrupt the state's complex rate system, which has traditionally set toll prices higher to subsidize a lower monthly fee for basic phone service, regulators and others have said.

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