In 1984 the U.S. government divested the nation's telephone industry. Since that time, AT&T has lost 40 percent of the long-distance industry's $59 billion market to new kids on the block, most notably MCI and Sprint. All these companies now spend millions of dollars a year in advertising trying to tell you how their service is the cheapest.
The most surprising fact about the long-distance business, however, is that if you buy your service directly from any of the Big Three—AT&T, MCI, or Sprint—or any other long-distance carrier, you must be charged at the tariff rate they filed with the Federal Communications Commission (FCC). Differences among carriers are measured in pennies per call. Sure, they can and do file for new rates, but the result is that when it comes to price, the Big Three are clustered together as if they were one.
You, however, can save from 18 to 41 percent on your long-distance services if you negotiate for them through long-distance resellers.
Prior to divestiture, only America's largest companies could negotiate directly with AT&T to receive huge discounts. But now long-distance carriers must offer the same discounts to anyone buying volume. As a result a new business niche is flourishing: long-distance industry resellers that buy (at wholesale) the same large volumes as big companies at the same huge discounts. Then, distributors for the resellers repackage this volume and sell it to smaller users—like you—with nearly the same discount.
This is possible because the carriers negotiate different tariffs. The highest, as you might guess, relate to the smallest users—individuals and small businesses. Lower tariffs established for large users enable savings to be passed on.
Resellers can pass along whatever discounts they like to end users. The secret is to select a reseller that works with a variety of carriers (some work with only one carrier); resellers have their computers search the market and help you choose the best service for your particular long-distance needs at any given time.
It is important to realize not only that you can buy your service from a reseller, instead of directly from the carrier, but that your “long-distance” service actually comprises six types of calling, each of which can be purchased from a different carrier if that saves you money. Here's how to figure what you're paying for each, and to compare what different carriers and resellers might be offering.
Interstate. Find out the exact cost per minute for the times—day, evening, or night/weekend—you make most calls. Ignore talk about discounts or other gimmicks that seem to reduce the price. Compare apples to apples: the cost per minute is the only thing that counts.
Intrastate. If you make a large number of intrastate calls, you must be careful. If you use one of the Big Three, chances are you are paying more per minute for your intrastate calls than your interstate calls. Again, the cost per minute is the number to compare.
Facsimile. Most faxes are short calls, measured in seconds not minutes. Only work with companies that bill to the nearest six seconds. Otherwise, a 61-second fax might be billed as a two-minute call, instead of a 66-second call.
Inbound (800 service). There is no reason why the same company must handle both your inbound and outbound calling. If you are already enjoying the benefits of 800 service, you can switch carriers and keep your current 800 number. Compare the cost per minute of inbound calls handled by different carriers. Switching usually will save you about 30 percent.
International. Depending on the country you contact, most international calls can also be made for about 30 percent less. And if you have agents from other countries that call you, the savings can skyrocket. For example, a 1.5 minute call from Shanghai to the United States costs $9.99 using AT&T, but only $2.79 using Globalcom, a specialty long-distance carrier.
Calling cards. Once you leave your office, it often makes sense to use the calling card offered by your long-distance carrier, or some other carrier. In one example, a two-minute credit card call from a pay phone using Teletrek, a reseller, would cost you $.44, versus $1.09 using MCI and even more using Sprint or AT&T.
Designing the best plan
The plain fact is that there is no one company that can fulfill all six calling needs the best. That's why you must shop the market to find the right companies for you. Or have a reseller or distributor do it for you (some resellers work directly with customers, others use distributors). You won't have to look for a distributor or reseller; they telemarket themselves heavily, and you probably have already been called by one. Some of the people may represent the carriers directly. Resellers and distributors will identify themselves as such. The way to be sure is to ask them if they only sell the services of one carrier.
Also realize that the quality and clarity of calls will not vary: Since all of the new carriers use the networks of the major long-distance carriers, the transmission quality is the same as that received by direct customers of these carriers.
You might use the services of a consulting company which can evaluate your company's needs and recommend the long-distance carrier or reseller that is best for you. Consultants often have ties to resellers; my company works with one called MHA Communications.
In preparing to divest your own long-distance service, you should consider the following.
1. Analyze your needs. Different businesses emphasize different types of calling: interstate versus intrastate, domestic versus international, daytime versus evening, and so on. Only work with companies (large or small) that begin by analyzing your activities, needs, and preferences.
2. Beware of long-distance salespeople who don't educate you, and simply try to sell you the services (usually an off-the-shelf package) they have to offer. Also, if you work with the salesperson of a national carrier, that person must sell only that carrier's products and services. Finally, no matter how good a deal sounds, get a competitive bid.
3. Never sign a “term agreement,” often called a “penalty contract.” These are used by carriers and a few resellers; they guarantee a certain discount off the tariff rate for a set period, usually two or three years, if you agree not to switch carriers during that time. If you switch, you face a penalty. If these companies are giving you such a good deal, why do they impose such a severe penalty? Because they know you would switch as soon as you discovered there was a better game in town.
The real catch is that only your discounts are guaranteed. The rate can change. Clearly, if the discounts remain static, and rates show a steady increase, you're paying more. When we analyze penalty contracts, we consistently find they cost from 11 to 29 percent more than plans from other sources.
4. Every case is different. What works right for your friend probably will not work for you.
5. Buying off-the-shelf long distance is like buying any commodity. You can buy gasoline for your car from a different station whenever a better deal or special promotion comes along. Your obligation on basic long-distance service is usually for 30 days or less (unless you make the mistake of signing a term agreement). So switching carriers is no big deal. You or your employees won't even notice when the switch to a new carrier takes place. There are no dialing codes, access numbers, or equipment changes. Your phone number stays the same. A few companies charge startup or disconnect fees, but most have worked these into their rates instead.
6. Never view your current long-distance relationship as permanent. The marketplace is constantly changing. Worthwhile promotions abound. Regular monitoring—every three to six months—is a must. Switching carriers to take advantage of market opportunities is commonplace.
Irving L. Blackman is a founding partner of Blackman Kallick Bartelstein, a CPA firm in Chicago. He also runs ILB Enterprises, which helps companies reduce their long-distance phone bills. For a free 35-page report titled, “The Easy Way to Cut Your Long-Distance Bills by 18 to 36 Percent…Without Risk or Cost,” write to Blackman Kallick Bartelstein, 300 South Riverside Plaza, Chicago, IL 60606 (include $5 shipping).