Abundance of service choices seen keeping prices in check

By Robert Weisman, Globe Staff

AT&T Corp.’s decision yesterday to pull back from the residential phone market won’t mean fewer choices for consumers -- or higher bills.

In fact, consumers are swimming in choices, with more on the immediate horizon. There are prepaid calling cards and unlimited long-distance plans that can be bought from traditional phone companies, mobile phone companies, and cable TV companies. There are wireless services that price in-network calls from anywhere as local calls. There are services that bundle phone, cable, and Internet plans. There are customers who have abandoned their land lines altogether in favor of cellphones only. And there is Internet-based phone service, called voice over Internet protocol, that is poised to further scramble the marketplace.

The abundance of choices, competitors, and new technologies will keep a lid on prices even as the company that invented telephone service stops marketing itself to people’s homes, analysts said. Indeed, the increasingly fragmented business has made it difficult for AT&T to operate profitably.

«Consumer long distance and consumer voice are becoming a commodity business,» said Scott Lundstrom, chief technology officer for AMR Research in Boston. «Profit margins aren’t what they used to be. Voice is a very competitive business now and, over the long term, it’s going to get worse. It becomes untenable for a company with AT&T’s traditional margin expectations.»

AT&T’s decision to save money by dropping its efforts to sign up new residential customers and focus on selling telecom and data services to businesses marks a milestone in a residential market where consumers increasingly call the shots.

For decades, there was old reliable Ma Bell, carrying voices into the American home and charging by the minute. Today there is a plethora of options tailored to everyone from home-based telemarketers to folks who lift the phone once a week to call their parents in Florida.

Consumers today can buy about 1,200 minutes of long-distance phone service for as little as $29, or unlimited long distance for about $50 to $60 a month. With all the choices available to residential customers today -- from long-distance carriers like Sprint and MCI, regional Baby Bells like Verizon, SBC and BellSouth, and cable television companies like Comcast or RCN -- the business market, where AT&T can provide multiparty conferencing and other telecom services at more sustainable profit margins, looked far more attractive.

«The big guys tend to retreat up-market when they come under attack from disruptive technologies,» Lundstrom said.

Consumer groups were nonetheless disappointed by AT&T’s move. The Telecommunications Research and Action Center in Washington issued a statement saying it was «disappointed and saddened.» Samuel A. Simon, the group’s founder and chairman, suggested many of AT&T’s problems in the residential market were self-inflicted because it failed to compete effectively for the 20 percent of customers who make 80 percent of calls.

AT&T will continue to service existing residential customers, but its decision to stop marketing its local and long-distance services could foreshadow an eventual departure from the business, possibly through a sale of its customer base, some analysts said. For consumers, the new face of AT&T -- and, most likely, their only contact with the company -- will not be Ma Bell, but a new generation of marketers peddling AT&T CallVantage, the company’s own Internet phone offering. That will be the only service AT&T will continue to market to residential customers.

In the long-distance market, with AT&T now effectively sidelined, competitors have an opportunity to gain market share. AT&T has continued to be the largest player in the fractured market, but its long-distance market share has slipped to 29.7 percent last year, from 76.3 percent a decade earlier, and 100 percent before the 1984 breakup of the Bell System, according to the Yankee Group research firm. There was no market share breakdown for Massachusetts, and state regulators said they did not keep market share data.

But the surviving players will find it tough to boost rates, risking defection to phone service over the Internet, which is projected to grow rapidly and push down long-distance costs in coming years. «It’s going to have a dampening effect on rates,» said William Stofega, telecom analyst for International Data Corp. in Framingham.

Whether AT&T can capitalize on its brand to gain dominance in Internet telephony remains to be seen. «If there’s one name that’s been associated with voice service to the home, it’s AT&T, and that still resonates,» Stofega said. «What they keep talking about is insuring the quality of the call once it enters the network. Plus they have a lot of experience with customers. Those things can help.»