Americans know what it costs to buy a loaf of bread or a gallon of gas. But few have any idea what they pay for a long-distance call.
That's what Sprint Corp. concluded from a survey two years ago. So the company made consumers a simple offer: Pay a dime a minute for any long-distance call during evening and weekend hours. Since then the flat-rate plan, promoted by actress Candice Bergen in Sprint TV ads, has become so popular that AT&T, MCI, and other rivals have introduced their own flat-rate plans.
There's only one problem. Flat-rate pricing was supposed to simplify things. In reality, as new plans pile up alongside old ones, it's harder than ever to find the best deal.
"It is very complicated to figure out your phone bill," says Tim Bregenzer, advertising manager at Telegroup Inc. For example, the Fairfield, Iowa, company charges a flat rate of 20 cents a minute to Britain, which beats several daytime flat-rate plans within the US. "It's cheaper for me to call England than it is for me to call Des Moines!" exclaims Mr. Bregenzer.
The new price competition comes at a bad time for long-distance companies. They don't want more intense competition in their main business while they're trying to expand into new ones. But for consumers willing to wade through the offerings, flat-rate pricing offers one more opportunity to save money on long-distance calls.
"Flat-rate is here to stay," says Aaron Golub, staff associate at Telecommunications Research and Action Center (TRAC), a nonprofit consumer group in Washington. "Just about all the good plans that we study are flat-rate in some way."
In its latest survey, for example, TRAC found that flat-rate plans were the cheapest option in 14 of the 18 calling patterns it studied.
So how does flat-rate pricing work?
It's based on the simple notion that distance no longer matters. Traditionally, a call from New York to New Jersey cost less than one from New York to California. Under flat-rate pricing they cost the same. One exception: Calls within your home state may actually cost more (or less) than out-of-state calls.
The discount periods are also simpler. Long-distance companies traditionally charged three different rates, depending on the time of day of the call. AT&T, MCI, and Sprint now offer plans that charge customers a single rate no matter when they call. Some flat-rate plans, such as Sprint Sense, split the day into two periods.
Simplicity is a key selling point with consumers.
"We found that they need both savings and simplicity," says Wally Meyer, Sprint's vice president of marketing, who invented the flat-rate Sprint Sense program. "The sales results have been outstanding over the last two years."
Sprint claims its consumer business grew three times as fast as AT&T's during the first half of the year and that it continues to beat its own monthly sales records year-over-year.
Long-distance companies "want their customers as happy as possible so that they won't even consider switching," adds Keri Gascoyne, a consultant at TeleChoice Inc., a telecommunications consulting firm based in Verona, N.J.
How to pick a plan
Is a flat-rate plan the best option for you? That depends on your calling patterns, consumer advocates say. For example:
*When do you phone the most? If most of your calls occur in the evening, at night, or during weekends, the Sprint Sense plan is a good deal. Customers pay only 10 cents a minute during those discount hours. But if you call long-distance heavily during the day, Sprint Sense doesn't make much sense at all. It charges 25 cents a minute during peak periods. You'd be better off paying 15 cents, night or day, in other plans from Sprint, AT&T, and MCI.
*Who do you phone? If you call a few numbers frequently, a discount rather than a flat-rate plan, might be the cheapest option, consumer advocates say. In three of the 18 calling patterns studied by TRAC, a variation of MCI's popular Friends & Family plan, called Friends & Family Free, was the best deal. The two Friends & Family plans give customers big discounts if they call other MCI customers.
*How much do you phone? Some flat-rate plans offer bigger discounts to customers who make many calls. Telegroup, for example, charges a flat-rate fee of anywhere from 12.9 cents to 10.9 cents a minute depending on whether a customer spends $50 a month or $200.
Don't overlook smaller carriers, consumer advocates say. In its latest survey, TRAC found that the best flat-rate plans came from relatively unknown carriers, Frontier Communications in Southfield, Mich., and Matrix Telecom in Dallas.
Like Sprint, Frontier charges 10 cents a minute during off-peak hours, but because it bills those calls in six-second increments, a Frontier call is usually cheaper than Sprint, which rounds up to the full minute. Thus, a 1-1/2 minute off-peak call would cost 15 cents with Frontier, 20 cents with Sprint.
"The first thing to do to cut your phone bill is call your phone company and say, 'I want to get on a discount plan,' " says Ellen Braitman, an assistant editor at Consumer Reports magazine in Yonkers, N.Y.
According to TRAC, even people who spend as little as $10 a month on long-distance calls can save at least 45 percent by switching from a company's most expensive to its least expensive plan. Amazingly, two-thirds of all telephone users in the US pay the highest rates, Mr. Golub says.
Compare to save
To really save money, consumers should compare several plans. For $5, TRAC sells a comparison chart of 27 plans from many companies, based on various calling patterns. Because plans change so frequently, TRAC recommends that consumers use the chart to pick the cheapest companies, then call the companies directly to find the best plan.
Some consumer groups want to do away with the per-minute charges entirely, at least during nonpeak times.
"It's a terrible way to price telecommunications," says Todd Paglia, staff attorney at the Consumer Project on Technology, a nonprofit public-interest group based in Washington and founded by Ralph Nader. "What we'd like to see is the industry move to the Internet model."
Just as many consumers today pay a single monthly fee for unlimited use of the Internet, Mr. Paglia is pushing for similar pricing in long-distance calling. For, say, $20 a month, consumers might get unlimited calling during evening and nighttime hours. Not all consumer advocates like the idea, arguing that a basic fee could lock out society's most underprivileged. But industry officials don't rule it out as a future option.
"I'm not sure the Internet is the trigger to look at bulk pricing," says Mr. Meyer of Sprint. But "clearly that's a pricing scheme that may hold some promise in the future."