Path: utzoo!telecom-request Date: Thu, 25 Apr 91 13:19 PDT From: John Higdon Newsgroups: comp.dcom.telecom Subject: Re: Decreasing Costs of Transmission Reply-To: John Higdon Message-ID: Organization: Green Hills and Cows Sender: Telecom@eecs.nwu.edu Approved: Telecom@eecs.nwu.edu X-Submissions-To: telecom@eecs.nwu.edu X-Administrivia-To: telecom-request@eecs.nwu.edu X-Telecom-Digest: Volume 11, Issue 306, Message 2 of 6 Lines: 60 "James Borynec" writes: > Because these costs are going down so very much they will quickly be > dwarfed (or indeed may already be dwarfed) by other costs such as > local access, accounting of calls, etc. > Clearly the pricing structures do not reflect these costs (Yet!). My > question is - What is AT&T, MCI, Sprint, etc going to do when they can > no longer reasonably charge more than a local call? Won't this change > the industry substantially? Will North America move to a wide area > extended flat rate billing zone? Do not count on it. As a pivot for discussion, I offer the following: AT&T NEWS BRIEFS SPEC -- ... [Analyst] Denise Jevne thinks that [AT&T] is poised to pocket big bucks when - thanks to regulatory changes - competition heats up in the business of connecting long-distance calls. ... Access charges - currently the exclusive domain of the RBOCs - are the most expensive part of [such] calls. They also happen to be AT&T's biggest cost. As other companies enter the field and these charges fall, AT&T's profits should rise - if the company can avoid passing all the savings to consumers. Access costs now equal about 40 percent of AT&T's revenues. If they fall to 37 percent ... AT&T's profits would leap by as much as 40 cents per share. ... [Column, Herb Greenberg], San Francisco Chronicle, C1. [End Quoted Text] While it is just personal speculation, the probability of a precipitous drop in long distance rates is very small. Long distance rates are purely marketplace-controlled and have very little to do with the cost of providing the service. Can you imagine that (given that the rates for equivalent calls among the various carriers are very close -- within 20 percent) that it costs each carrier practically the same amount to handle the traffic? In case you have not already figured it out, the general method of pricing long distance is to take AT&T's rate and then discount it by some amount. The amount is a compromise between what might attact customers and optimum revenue. Too high and it will not attract customers away from AT&T; too low and not enough money comes in the door. And remember, AT&T's rate is still subject to regulation by the FCC. Lowered costs of operation is what the IECs have long counted on to eventually make the really big bucks. This is what they are working for; it is the pot of gold at the end of the rainbow. No one, from the investors to the executive board is going to endure the slings and arrows of startup and construction expenses only to "give it all back" when the promised-land technology comes to pass. It is interesting to learn of the new technologies and their promise, but the benefits cost-wise are for the service providers, not for the customers. John Higdon | P. O. Box 7648 | +1 408 723 1395 john@zygot.ati.com | San Jose, CA 95150 | M o o !