Consumer Boom or Bust?

In case you haven’t been paying attention to phone giants lately, they’re rethinking their consumer long-distance businesses — a move consumer advocates say could lead to higher rates.

The traditional bread-and-butter of companies such as AT&T Corp. have grown increasingly competitive and costly to telecom’s bottom lines.

That’s why a day after the nation’s leading long-distance provider AT&T on Oct. 25 said it would break into four separate companies — including the creation of a separately traded subsidiary containing the shrinking consumer long-distance business — No. 2 long-distance provider WorldCom Inc. confirmed it would embark on its own restructuring to address the deteriorating market for traditional long distance. Details of WorldCom’s plans were announced today.

It remains to be seen if such restructuring efforts, for example, will lift AT&T’s share price, which has plummeted about 47 percent this year. But some consumer rights advocates already are concerned the restructuring could lower levels of service for residential consumers of long distance — and possibly lead to higher rates.

Trying to Ensure Affordable Rates

“When companies decide to orphan off their consumer long-distance business, it raises concerns about how much we might be paying in a year or two,” said David Butler, a Washington, D.C.-based spokesman for Consumers Union, a nonprofit group that publishes Consumer Reports magazine.

And Consumers Union isn’t the only one raising a red flag.

Samuel A. Simon, chairman of the Washington, D.C.-based Telecommunications Research & Action Center authored a letter a week ago to the Federal Communications Commission chairman, urging the FCC to examine the recent industry-shaping events and their likely impact on consumers.

“Now, Worldcom and AT&T want to spin off these lines of business. We are concerned that this is simply a plan to siphon off the scale and scope [of] efficiencies that help assure affordable rates for residential customers and transfer them into higher shareholder profits and/or lower business rates,” Simon wrote.

AT&T Defends Split

But AT&T spokesman Mark Siegel disagreed with consumer groups’ concerns that structural changes will mean changes for consumer long-distance service.

“Consumers will see absolutely no difference in the way they get their service. … The fact that we’re creating a tracking stock will be completely transparent to them,” Siegel said.

Consumer Union’s Butler, however, also said consumers may suffer if AT&T’s consumer business fails to survive as its own. “Given AT&T’s debt and pressure on its stock price, AT&T’s consumer long-distance division may not be well positioned to compete in the future, especially now that Verizon and SBC are moving into the consumer long-distance market,” Butler said.

Siegel, however, defended the strong finances behind AT&T’s consumer long-distance business. Siegel said the business will begin with about $20 billion in revenue and about 60 million customers under its belt. “If that’s being on your own, that’s a pretty good place to be,” he added.

Third Major Restructuring

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