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MCI's New Rates

Members of the ISP-CLEC list cannot agree whether MCI's latest telephony plus Internet bundle for residential subscribers will harm or help the company.

[May 8, 2002]

On the ISP-CLEC list in April, CW inquired,

"MCI recently announced that they will offer a combination of unlimited local and unlimited long distance residential service for $49.95 to $59.95 per month. Is this a good idea? I imagine a blanket flat rate would lead to a rather dramatic increase in the number of minutes used, no?"

RL suggested that the plan should help MCI attract high-volume users:

"From an industry standpoint, the number of minutes will not change dramatically because of this. However, what will happen is the high-volume users (such as home-based businesses) will switch, and so the average revenue per access line for local, and per minute for long distance, will decrease. The high-value customers can then be upsold MCI's DSL service, calling features, calling cards, etc., so the ILEC will be forced to follow suit or be left with only low value, low volume customers."

Others contended that this plan is actually more likely to hurt MCI:

[RB noted] "If the high volume users move to a flat rate plan, then the plan will fail, not succeed. The whole point of flat rate pricing is that the buyer ends up paying a higher average revenue per minute than they anticipated. It's the like the '1000 minutes for $100' deals on cell phones. The carriers make their money on the large number of users who buy that plan and then end up using fewer than 700 minutes per month."

[CW added] "This is like offering unlimited dialup Internet access: you always had to accept a certain number of modem hogs and hope you had enough 'email-only' type users to offset that. If heavy users adopt this type of plan, won't this lose money?"

Still others felt that it was an optimistic gamble on MCI's part:

[RL observed] "What will happen is the households who regularly spend more than $55 will jump quickly, while those who spend less than $55 will not be as excited to switch. That said, MCI is hoping that those who spend less than $55 will still jump, for the guarantee that their bill will never be greater than $55."

[FG agreed] "The trick is to sell it to users who don't really make that many calls. Americans hate paying for individual calls; they would rather prepay for more than they'll ever use. So you have somebody who makes, say, $30 a month in long distance calls. If you sell them this plan, they might make a few more calls, but you could still play the averages to make it a winning hand."

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