MCI unveiled a plan Monday that for the first time gives residential customers unlimited local, local toll and long-distance calls for $50 a month. The goal is to gain local market share. MCI is heavily in debt and under SEC investigation. Analysts say the plan is proof of big changes in the way phone companies bill. "We are moving to a flat rate, or subscription-based, all-you-can-eat world."

How's this for a trick? Since billable minutes are falling off fast for all the carriers, MCI pondered, "Right now, the market wants to see growth in the number of minutes used. How can we get customers to make more LD calls?" and came up with the reply, "Let's go flat rate!" So they charge each customer a little more than the average one pays already, and figure they break even financially, but they get to say "minutes are up 15% this quarter!" in the next report.

One risk (which they must have foreseen) is that only the chattiest of their customers will take them up on the offer, and revenues will still go down even as minutes stabilize or climb up. So long term, it still doesn't pay the bills, but it could make for some nice weasel-words in the next quarterly report ...

According to a Knight-Ridder wire story, MCI's plan is a reply to a similar deal just announced by AT&T. MCI's marketing director: "It was important for us to come out as the first nationwide local phone company. We also wanted to step out of the price-driven commodity market of long-distance." Analysts say that if customers respond, then voice service will quickly evolve into an (unprofitable) all-flat-rate business.

MCI unveiled a plan Monday that for the first time gives residential customers unlimited local, local toll and long-distance calls for $50 a month. The goal is to gain local market share. MCI is heavily in debt and under SEC investigation. Analysts say the plan is proof of big changes in the way phone companies bill. "We are moving to a flat rate, or subscription-based, all-you-can-eat world."

How's this for a trick? Since billable minutes are falling off fast for all the carriers, MCI pondered, "Right now, the market wants to see growth in the number of minutes used. How can we get customers to make more LD calls?" and came up with the reply, "Let's go flat rate!" So they charge each customer a little more than the average one pays already, and figure they break even financially, but they get to say "minutes are up 15% this quarter!" in the next report.

One risk (which they must have foreseen) is that only the chattiest of their customers will take them up on the offer, and revenues will still go down even as minutes stabilize or climb up. So long term, it still doesn't pay the bills, but it could make for some nice weasel-words in the next quarterly report ...

According to a Knight-Ridder wire story, MCI's plan is a reply to a similar deal just announced by AT&T. MCI's marketing director: "It was important for us to come out as the first nationwide local phone company. We also wanted to step out of the price-driven commodity market of long-distance." Analysts say that if customers respond, then voice service will quickly evolve into an (unprofitable) all-flat-rate business.

The above is from JLM. I'll add that research has shown that consumers will pay more in aggregate for flat rate services then for metered services. I won't argue the likely reasons for such a decision, other than to say that this sort of pricing scheme makes the most sense in an environment where most long distance consumers are individuals and not businesses. I'm not sure what the current break down actually is. However, one wonders why they can't simply offer flat rate residential long distance and metered commercial long distance. The market is used to having different prices for local phone services already.