AT&T raises the stakes in US battle over long-distance calls

THE THREE main long-distance providers in the United States are engaging in a fierce new price war that threatens to undercut profits but offers millions of consumers new opportunities to make calls for a lot less money.

How much further long-distance rates might sink is unclear, as is what impact this will have on European calling charges.

"What's happening in the US long-distance market is what's going to happen in Europe in the next four to five years," said James Ross, an analyst with ABN-Amro.

"Most people think, in the end, we are heading to calls costing nothing."

The industry yesterday was still digesting news from the leader of the pack, AT&T, that it is to reduce long-distance rates by 30 per cent for all customers signing up to a new plan.

Under the package, customers will be able to call from one side of the country to the other for just 7 cents a minute at any time.

AT&T, which commands 50 per cent of the $41bn consumer market in the US, is responding to similar plans introduced by its main competitors, MCI Worldcom and Sprint.

They have cut long-distance rates to 5 cents a minute for evenings and weekends with higher rates during business hours.

The moves are only the latest in an accelerating downward slide in long- distance rates in the US that is changing all the industry's formulas for revenue generation. All the companies hope to offset dwindling incomes from voice carriage with growing revenue from data transmission and wireless services.

AT&T had been hoping to resist separating out long-distance calling in such a price war, planning instead to focus on building bundled packages of services for its customers, incorporating wireless, Internet and long- distance rates.

The company hopes that by offering the single, any-time-of-day, rate of 7 cents it will trump the more complicated offers of its competitors that still distinguish between peak and off-peak calling times.

"It's amazing how complicated the industry can make saying hello," commented Michael Armstrong, the chairman of AT&T.