CONSUMER UNDERSTANDING OF PRICING PRACTICES AND SAVINGS OPPORTUNITIES IN THE LONG DISTANCE TELEPHONE INDUSTRY:

Transcription

1

2 CONSUMER UNDERSTANDING OF PRICING PRACTICES AND SAVINGS OPPORTUNITIES IN THE LONG DISTANCE TELEPHONE INDUSTRY: FINDINGS FROM AN AARP SURVEY by Christopher A. Baker and Ann McLarty Jackson Public Policy Institute The Public Policy Institute, formed in 1985, is part of the Research Group at AARP. One of the missions of the Institute is to foster research and analysis on public policy issues of importance to older Americans. This publication is part of that effort. The views expressed herein are for information, debate and discussion, and do not necessarily represent the formal policies of AARP. copyright 2000, AARP. Reprinting with permission only. AARP, 601 E Street, N.W. Washington, DC

3 ACKNOWLEDGEMENTS Many staff within AARP contributed to this study and report. Susan Weinstock and Coralette Marshall of State Legislation, Jeff Kramer of Federal Affairs, Jane King of Applied Gerontology, and Jane Takeuchi of the Research Group assisted in many phases of the project, from helping with the survey questionnaire to providing thoughtful comments on the draft report. We also wish to thank Kate Bird of Creative Services for her very timely copyediting. Finally, the authors are grateful to Diane Weaver of DW Graphic Design for creating the cover to this report. ii

4 EXECUTIVE SUMMARY v I. THE LONG DISTANCE CALLER Figure I.1: Average Number of Calls Per Week Figure I.2: Respondents Who Make Fewer Than One Long Distance Call Per Week Figure I.3: Monthly Expenditure on Long Distance Calling Figure I.4: Respondents Who Receive Bills Covering 2- or 3-Month Periods Because They Spend Less Than a Minimum Amount on Long Distance Calling Figure I.5: Respondents' Use of Top Three Service Providers Figure I.6: Respondents Who Would Reduce Long Distance Calling if They Needed to Cut Expenses TABLE OF CONTENTS II. OPPORTUNITIES TO SAVE ON LONG DISTANCE CALLING Figure II.1: Respondents Who Shop Around to Get the Best Price for Long Distance Calls Figure II.2: Respondents Who Switch Long Distance Phone Companies to Get a Cheaper Rate Figure II.3: Cost-Saving Methods for Long Distance Calling as Used by Respondents Figure II.4: Respondents Who Subscribe to a Long Distance Calling Plan Figure II.5: Average Savings Per Month by Respondents Using Any of Three Cost-Saving Methods Figure II.6: Reasons for Respondents Not Using Cost-Saving Methods III. CONSUMER UNDERSTANDING OF PRICING PRACTICES AND SAVINGS OPPORTUNITIES IN THE LONG DISTANCE TELEPHONE INDUSTRY Figure III.1: Respondents Who Know That a Long Distance Company's Basic Rates Are Not Their Cheapest Rates Figure III.2: Respondents Who Are Aware of Ways to Save Money on Long Distance Calls Figure III.3: Percentage of "Aware Callers Who Have Used or Not Used Two Cost-Saving Methods Figure III.4: Understanding of Basic Rates Among Respondents Who Are Aware of Ways to Save on Long Distance Calling Figure III.5: Respondents Who Can Estimate How Much They Are Saving by Using a Cost-Saving Method Figure III.6: Respondents Who Do Not Know How Much Savings it Would Take for Them to Use a Cost-Saving Method Figure III.7: Respondents Who Pay Some Attention to Long Distance Advertisements APPENDIX: ANNOTATED QUESTIONNAIRE ENDNOTES: iii

5 LIST OF TABLE AND FIGURES Table 1: Demographic Characteristics of Survey Respondents ix Figure I.1: Average Number of Calls Per Week Figure I.2: Respondents Who Make Fewer Than One Long Distance Call Per Week Figure I.3: Monthly Expenditure on Long Distance Calling Figure I.4: Respondents Who Receive Bills Covering 2 Or 3 Month Periods Because They Spend Less Than A Minimum Amount On Long Distance Calling Figure I.5: Respondents' Use of Top Three Service Providers Figure I.6: Respondents Who Would Reduce Long Distance Calling if They Needed to Cut Expenses Figure II.1: Respondents Who Shop Around to Get The Best Price for Long Distance Calls Figure II.2: Respondents Who Switch Long Distance Phone Companies to Get a Cheaper Rate Figure II.3: Cost-Saving Methods for Long Distance Calling as Used by Respondents Figure II.4: Respondents Who Subscribe to a Long Distance Calling Plan Figure II.5: Average Savings Per Month by Respondents Using Any of Three Cost-Saving Methods Figure II.6: Reasons for Respondents Not Using Cost-Saving Methods Figure III.1: Respondents Who Know That a Long Distance Company's Basic Rates Are Not Their Cheapest Rates Figure III.2: Respondents Who Are Aware of Ways to Save Money on Long Distance Calls Figure III.3: Percentage of "Aware" Callers Who Have Used or Not Used Two Cost-Saving Methods Figure III.4: Understanding of Basic Rates Among Respondents Who Are Aware of Ways to Save on Long Distance Calling Figure III.5: Respondents Who Can Estimate How Much They Are Saving by Using a Cost-Saving Method Figure III.6: Respondents Who Do Not Know How Much Savings it Would Take for Them to Use a Cost-Saving Method Figure III.7: Respondents Who Pay Some Attention to Long Distance Advertisements iv

6 Background Until recently, most residential telephone customers did not have a choice regarding their service provider or type of service. The only telephone company was AT&T (or its subsidiary), and the only telephone service provided was basic service, that is, a telephone and a dial tone to make local and long distance telephone calls. EXECUTIVE SUMMARY Advances in technology and changes in public policy, however, have led to the advent of choice for many telephone users. Long distance callers, in particular, have a number of different options. They can now choose from among many long distance companies and from among a variety of calling plans offered by each company. Callers also have the option to bypass the long distance provider they selected for their home phone by using a dial-around service each time they make a call. Such a service requires the caller to dial a seven-digit access code that usually begins with the numbers before dialing the phone number they wish to call, for a total of 18 numbers. Prices for long distance service vary greatly among service providers, making it difficult for many consumers to compare their options accurately. In fact, a single provider may charge several different rates for the same service. Even within a single service plan, rates may change significantly depending on the time of day or day of the week that a call is made. (In most cases, rates no longer vary by distance, so the price of a call is the same if one calls to a neighboring state or across the country.) For example, to make a 20-minute call, a caller subscribing to one long distance company pays $7.48, $4.60, or $3.58, depending on whether the call is made during the day, at night, or on the weekend. Another caller uses the same long distance company but subscribes to a different calling plan and pays $1.60 for the same 20-minute call regardless of when it is made. A third caller, who subscribes to another long distance company, pays $2.00 if the call is made on a weekday or just $1.00 if it is made during the evening or on the weekend. Finally, a caller choosing to use a particular "10-10" dial-around service pays $.99 for calls lasting 20 minutes or fewer, that is, a oneminute call and 20-minute call would each cost $.99. However, the price per minute of a long distance call is not the only issue. Saving money on long distance service can be even more difficult because monthly bills now include a number of fees and v

7 surcharges. Because the Federal Communications Commission (FCC) does not directly regulate long distance company charges for service, the names and amounts of these fees can vary by long distance provider and/or calling plan. Moreover, these charges often are changed without adequate customer notification, are poorly labeled in the fine print of monthly bills, and are not disclosed in any advertising. Partly as a result of these new fees, many callers, and particularly low-volume callers, are now paying more for long distance telephone service. A report released by the FCC in the summer of 1999 identifies AT&T s "best available rates" for an individual consumer. 1 The findings show that this rate tripled for low-volume callers 2 between February and September of 1998, a period in which several new line item charges were added to monthly bills. In comparison, the FCC s report indicates that the "best available rate" remained basically constant for AT&T s high volume customers. 3 The following are among the primary recurring charges that many long distance companies add to monthly bills: Minimum Usage Charge - Some companies may require callers to pay a minimum usage charge if they make few or no long distance calls during any given month. The charge may be as much as $20, but is usually either $3 or $5. 4 Monthly Fee - Other callers may now pay a monthly fee that can range from $1 to more than $20, but is typically about $5. 5 This fee is added to the bill each month regardless of how much the customer spends on long distance calling. Presubscribed Interexchange Carrier Charge Long distance companies pay a charge, known as a presubscribed interexchange carrier charge (PICC) to local telephone companies for using their network to complete long distance calls. The maximum PICC that a long distance company pays a local phone company is $1.04 per month for a single-line. Long distance vi

8 companies have decided to add new fees, such as the "national access fee" or the "carrier line charge," to their customers bills to reflect the PICCs they pay. The amount of the fee can vary by company and/or calling plan. Some long distance companies simply pass on the $1.04 maximum PICC as a monthly line-item charge, while other companies choose to charge from $1.50 to $2.50 or more. 6 Some long distance companies have decided not to charge any separate fees related to the PICC. Note: On May 31, 2000, the FCC adopted an order that would remove the PICC from long distance bills by combining it with the subscriber line charge (SLC), which appears on all local telephone bills. In the first year following implementation of the order, most consumers will find that the new single charge is lower than the existing two charges combined. Universal Service Charge The federal universal service fund helps to ensure that low income customers and customers in high-cost areas have access to affordable telephone service, and that schools and libraries are connected to the Internet. All providers of long distance service contribute to the universal service fund. Some long distance companies absorb the cost of their contribution or build it into their per minute rates. Many others add a line-item fee to their customers bills. This fee, which has a variety of slightly different names including "universal connectivity charge," "universal service fee," or simply "USF," is between 3 and 9 percent of the customer s bill, depending on the long distance company. 7 With the inclusion of these new charges on monthly bills, the frequent changes that companies make to their rates and plans, and the lack of price information provided by the long distance companies, consumers face a tough challenge to avoid paying too much for long distance service. Consumer Understanding of Pricing Practices and Savings Opportunities in the Long Distance Telephone Industry reports on the responses of long distance callers age 18 and over to a recent AARP survey designed to determine consumer awareness and use of long distance cost-saving options and whether these differ by the age of the caller. This report updates a similar AARP study, Long Distance Callers Awareness and Use of Various Telephone-Related Options, which was published in The updated Purpose vii

9 report probes new issues such as consumer understanding of "basic rates." However, the primary reason for revisiting this topic just two years after the first report was released is that a number of changes have occurred during this period that likely have had a significant influence on consumer understanding of pricing practices and savings opportunities in the long distance telephone industry. The addition of several new line item charges on monthly long distance bills and the proliferation of advertising for long distance calling plans, dial-around numbers, and other new telecommunications services are just two examples of these changes. Methodology International Communications Research (ICR) of Media, PA, conducted the AARP survey between November 5, 1999 and December 14, 1999 as part of an EXCEL Omnibus telephone survey. A total of 2,353 respondents age 18+ were asked if they made long distance calls from their home. Of those respondents, 1,908 answered in the affirmative and were selected to complete the remainder of the survey. Table 1 characterizes survey respondents by gender, household income, and education. One goal of the survey was to be able to compare findings across different age groups of the U.S. adult population with a focus on persons age 50 and older. As such, it was necessary to sample larger numbers of older persons, particularly those age 75 and older, than would have been necessary to examine the findings only for the population as a whole. The resulting sample included sufficient numbers of persons age (473), persons age (535), persons age (495), and persons age 75 and over (381) to enable analysis by age. 8 When findings are presented for the entire sample, representing the U.S. population as a whole, the findings for older persons are weighted in proportion to their known percentages in the total population of the United States (which are smaller relative to the proportion of the population that is less than 50 years old). 9 Unless otherwise indicated, differences among age groups and between this latest survey and the 1998 AARP survey are highlighted in the text only if they meet the criterion of statistical significance at the.05 level. The margin of error for a question involving all 1,908 respondents is approximately plus or minus two percentage points, but may be greater when subgroups are compared with each other. An annotated copy of the survey questionnaire appears in the Appendix. viii

10 Table 1: Demographic Characteristics of Survey Respondents Demographic Characteristics (Unweighted (n)) (Weighted (n)) n=473 n=965 % n=535 n=308 % n=495 n=142 % 75+ n=381 n=106 % Total n=1908 n=1576 % Gender Male Female Household Income Less than $15K $15K-$24.9K Under $25K (Unspecified) $25,000 and over (Unspecified) $25K-$39.9K $40K-$49.9K $50K Don't Know/Refused Education Some High School or Less High School Graduate Technical School/Other Some College College Graduate Post Graduate ix

11 KEY FINDINGS The Long Distance Caller Long distance callers age report that they make twice as many long distance calls per week as do callers age 65 and older (6 calls vs. 3 calls). Respondents age report spending 48 percent more per month on long distance calling than respondents age 65 and older ($43 vs. $31). Opportunities to Save on Long Distance Telephone Service More long distance callers age (66%), as compared to those age 65 and older (42%), say they have switched their provider of long distance services to get a cheaper rate. While half of long distance callers age report that they search among long distance telephone service providers for the least expensive rate, only a third of those age 65 and older do. Relatively few long distance callers age (36%) and even fewer age 65 and older (23%) report that they subscribe to a calling plan, which usually allows the caller to make long distance calls for less money. While insufficient savings is the most commonly cited reason for not using one or more of the three cost-saving methods 10 mentioned in this report, more than seven in 10 respondents do not identify this as a primary reason, a finding which is consistent across age groups. Consumer Understanding of Industry Pricing Practices and Savings Opportunities Just six in 10 of all respondents and about four in 10 of respondents age 75+ are aware of any ways they can save money on long distance calling. x

12 Less than half (41%) of long distance callers age 65 and older know that a long distance company s "basic" rates are not their cheapest rates. More than eight in 10 respondents age 18-49, but fewer than six in 10 respondents age 65 and older, who use one or more of the three cost-saving methods, 11 know how much they are saving. Among respondents who say they do not use one or more of the three cost-saving methods, 12 fewer of those age (36%), as compared to those age 65 and older (68%), say they do not know how much money they would have to save on their monthly long distance bill to make it worthwhile to use one or more of the three cost-saving methods. Long distance callers who subscribe to a calling plan (70%) are more likely than callers who do not (52%) to report that they are aware of ways to reduce their long distance bill. The pricing of long distance telephone service has changed dramatically in the past several years. Increased competition among long distance companies has resulted in price wars and sharply discounted rates for some consumers. However, while some advertised rates may be falling, Federal Communication Commission (FCC) data shows that only those consumers who use long distance service the most have benefited from overall rate reductions on their long distance calling. In contrast, lowvolume callers have seen significant increases in their monthly bills after most of the long distance industry imposed new surcharges and minimum fees. Further, FCC data show that customers who use the least amount of long distance service have experienced the highest increases in rates. 13 For example, a complaint received by the Maine Public Advocate shows that one customer was charged $13.16 for three months of service even though he made just a single one-minute call billed at 16 cents. 14 CONCLUSION The FCC s data are of particular concern to older callers because they tend to use less long distance service. Responses to the AARP survey indicate that older callers average half as many long distance xi

13 calls as their younger counterparts over the same period of time. Further, one in four long distance callers age 65 and over, as compared to only one in 10 younger callers, reports making less than one long distance call per week. In response to the FCC data, some industry representatives might point to the flood of choices in today s long distance market. Indeed, all consumers have a number of options to save money on long distance calling, and the survey results indicate that a majority (71%) uses at least one of three costsaving methods described in this report. However, many callers and particularly older callers may not be taking advantage of the most effective cost-saving methods. Subscribing to a calling plan, for example, can be one of the best options available for callers to save money on their long distance telephone bills. Even low-volume callers can save money by switching to a calling plan as long as they choose carefully to avoid plans with high monthly fees and minimum usage charges. In fact, by moving to a calling plan, consumers currently paying a company s basic rates can cut their per-minute charges by up to 50 percent or more and do so without having to cut back on their usage or service quality. Nevertheless, only 34 percent of all long distance callers and 23 percent of callers over the age of 65 responding to the survey say they belong to a calling plan. Moreover, the survey indicates that half of all long distance callers and two-thirds of older long distance callers have never even shopped among providers for the least expensive calling plan. Both of these findings differed only slightly from the 1998 AARP survey of Long Distance Callers Awareness and Use of Various Telephone-Related Options. In that study, 38 percent of all long distance callers and 26 percent of callers age 65 and older said they belong to a calling plan. The 1998 research also found that 51 percent of all respondents and 65 percent of callers age 65 and older say that they have never shopped for the best price on their long distance service. Responses to both surveys suggest that a primary reason why consumers are not taking advantage of calling plans or shopping among different providers is that they are misinformed and/or lack essential information about the pricing structure and savings opportunities in the long distance industry. Many callers even acknowledge their lack of information on this subject. When asked whether they xii

14 were aware of any ways that they could save money on long distance calling, approximately four in 10 respondents to both surveys answered "no." Responses to another question in this latest survey show that a large percentage of long distance callers who pay basic rates have no idea how much they would have to save to make it worthwhile to use a calling plan or other cost-saving method. This makes sense considering that many callers are justifiably confused over the meaning of "basic" rates. Just four in 10 long distance callers over the age of 65 recognized that the statement, "a long distance telephone company s basic rates are its cheapest rates" was false. Perhaps one of the most important findings from this survey is that callers who switch telephone companies or subscribe to a calling plan are more likely than callers who do not take these actions to report that they are aware of ways to reduce their long distance bill. In this regard, efforts to increase awareness of savings opportunities may increase the percentage of callers who change long distance providers or join a calling plan and, as a result, help more consumers avoid paying unnecessarily high rates for their long distance service. However, efforts to increase awareness must focus on identifying real saving opportunities and the actual amount of savings. As the responses to this survey indicate, too many callers who say they are aware of ways to save money on long distance service are misinformed and/or lack essential information about pricing practices and savings opportunities in the long distance industry. Consumers, for example, who do not understand the meaning of "basic" rates may have difficulty recognizing that they are paying too much for service or identifying any savings opportunities that actually produce lower long distance rates. Many long distance callers and particularly older callers do not take advantage of opportunities to save money on their monthly long distance bills because they lack the information to make an informed choice. The following policy options could help all long distance callers become better informed about the cost of the various long distance calling options and avoid unnecessarily paying higher rates: POLICY OPTIONS Uniform Disclosures - The federal government could require uniform disclosures of long distance charges on monthly bills to make comparison shopping easier for consumers. In xiii

15 particular, the government could ensure that all monthly bills identify, in a uniform manner, the following information about the consumer s current calling plan: the name of the plan, the price per minute to make long distance calls (if the price varies by time of day, each different rate should be listed), and any monthly fees and/or minimums. Mandating uniform access to key information is not a new idea. Companies in other industries must comply with uniform disclosure requirements as a means to assist consumers in comparison shopping. For example, the Federal Reserve Board requires creditors to disclose total financing costs in a uniform manner as an annual percentage rate (the "APR"), and the Food and Drug Administration requires nutritional content labeling for most foods. Truth-In-Advertising - The federal government could require that advertising of long distance rates and fees include full and accurate disclosure of all costs consumers may incur. This could be accomplished if Congress enacted the joint truth-in-advertising policy statement issued by the Federal Communications Commission and the Federal Trade Commission on March 1, The statement sets forth the following guidelines for companies that market long distance service: 1) All claims made by the companies must be truthful, non-misleading, and substantiated; 2) Companies should disclose all costs consumers may incur, such as per-call minimum charges, monthly fees, and universal service charges; 3) Advertising should disclose any time and/or geographic restriction on the availability of advertised rates; 4) The basis for comparative price claims should be disclosed, and only current information used in making claims; and 5) Information should be disclosed in a clear and conspicuous manner, and without distracting elements, so that consumers can understand it and make fully informed choices. Currently, only about a third (35%) of survey respondents indicate they pay attention to advertising on long distance rates. More reliable and accurate advertising might increase this percentage and help callers become better informed. xiv

16 Availability of Fee Schedules and Notice of Changes in Fees - The federal government could require long distance companies to provide to prospective customers a schedule of all charges that will appear on monthly bills prior to subscribing to the service. Companies also should be required to notify customers of any price increases in advance of the effective date of such a change. State Consumer Education Programs - State policymakers could create and fund customer education programs for telecommunications competition, with specific resources allocated for educating consumers about discount calling plans and other options. Truth-In-Billing Guidelines - State policymakers could adopt "truth-in-billing" guidelines to ensure that consumers receive thorough, accurate, and understandable bills from their telecommunications companies. States could base these new guidelines on the "truth-in-billing" rules that Federal Communications Commission implemented on April 1, Public Disclosure - The federal government could require long distance telephone companies that maintain rate and service information on their Internet website to mail this information to any member of the public who requests it. The Federal Communications Commission (FCC) is in the process of implementing a rule that requires each long distance telephone company that maintains an Internet website to include on that website information concerning its current rates, terms and conditions for all of its domestic long distance services. By also requiring long distance companies to print and mail current rate and service information from their website to any requesting customer, the FCC would ensure that consumers who do not have Internet access could still benefit from written rate information. xv

17

18 I. THE LONG DISTANCE CALLER Figure I.1: Average Number of Calls Per Week Source: AARP Survey on Consumer Understanding of Pricing Practices and Savings Opportunities in the Long Distance Telephone Industry, Winter (n=1908) Average Calls per Week Age On average, respondents report that they make about five long distance calls in a typical week. Older respondents are more likely to say they make fewer long distance calls per week than younger respondents. 1

19 Figure I.2: Respondents Who Make Fewer Than One Long Distance Call Per Week Source: AARP Survey on Consumer Understanding of Pricing Practices and Savings Opportunities in the Long Distance Telephone Industry, Winter (n=349) Percent % 20 24% 15 Older callers are much more likely to report that they make very few long distance calls. One in four long distance callers age 65 and over, as compared to only one in 10 callers age 18-49, report making less than one long distance call per week % 10% Age 2

20 Figure I.3: Monthly Expenditure on Long Distance Calling Source: AARP Survey on Consumer Understanding of Pricing Practices and Savings Opportunities in the Long Distance Telephone Industry, Winter (n=1908) $45 $40 $43 $44 Monthly Telephone Expenditure $35 $30 $25 $20 $15 $10 $5 $0 $25 $25 Average Median $28 $20 $31 $15 On average, respondents say that they pay $41 a month for long distance calling. Since older respondents typically make fewer long distance calls per week than their younger counterparts, it is not surprising that the older respondents estimates of their monthly long distance charges are lower. According to these estimates, respondents age pay, on average, approximately $43 per month or 48 percent more than respondents age 65 and older. Age 3

21 Figure I.4: Respondents Who Receive Bills Covering 2- Or 3-Month Periods Because They Spend Less Than a Minimum Amount on Long Distance Calling Source: AARP Survey on Consumer Understanding of Pricing Practices and Savings Opportunities in the Long Distance Telephone Industry, Winter (n=1908) Percent 14 Some long distance companies will not bill customers if their long distance charges are less than $30 for any one month or less than $30 for two consecutive months. On the third month, regardless of the amount of the charges, the customer s telephone bill will show all long distance charges incurred over the three months. Close to 8 percent of all respondents have received a bill that covered a two- or threemonth period because they did not make a minimum amount of long distance calls. While just 6 percent of respondents age indicate that they have received a bill that covered a two- or three-month period, 12 percent of those age 65 and older report the same experience % 11% 8% 6% Age 4

22 Figure I.5: Respondents' Use of Top Three Service Providers Source: AARP Survey on Consumer Understanding of Pricing Practices and Savings Opportunities in the Long Distance Telephone Industry, Winter (n=1908) Percent % 19% AT&T Sprint 54% 17% 5% 4% 5% 5% 62% 59% 12% 9% 5% 6% 4% 2% Age MCI (MCI/WorldCom) Don't know Consumers can now choose from among a number of telephone providers for their long distance service. Nevertheless, more than one-half of all callers (53%) report that AT&T is their long distance telephone company. Moreover, respondents age 65 and over are even more likely than respondents age to use AT&T (60% vs. 50%). In comparison to the 1998 AARP survey of Long Distance Callers Awareness and Use of Various Telephone-Related Options, this latest survey shows that substantially fewer callers report subscribing to AT&T. In the 1998 study, 63 percent of all callers said AT&T provides their long distance telephone service. Further, more callers age 65 and over, as compared to callers age 18-49, said they subscribed to AT&T (72% vs. 61%). This latest survey, as compared to the 1998 study, finds that more callers age say they are MCI customers (19% vs. 13%). The survey also shows that the percentage of callers age 65 and older who claim MCI as their long distance company (10%) has basically remained constant since 1998 (9 percent identified MCI as their provider in the earlier study). 5

23 Figure I.6: Respondents Who Would Reduce Long Distance Calling if They Needed to Cut Expenses Source: AARP Survey on Consumer Understanding of Pricing Practices and Savings Opportunities in the Long Distance Telephone Industry, Winter (n=1908) Percent 50 48% 40 40% 39% 42% 30 The ability to make long distance telephone calls from home is important to most Americans and particularly important to people 50 years of age and older. Just 40 percent of respondents age 50 and older say they would reduce their use of long distance calling if they needed to cut back on expenses for any reason. Younger respondents, however, are more likely to say that they would reduce their use of long distance calling if they needed to cut back on expenses Age 6

24 II. OPPORTUNITIES TO SAVE ON LONG DISTANCE CALLING Figure II.1: Respondents Who Shop Around to Get The Best Price For Long Distance Calls Source: AARP Survey on Consumer Understanding of Pricing Practices and Savings Opportunities in the Long Distance Telephone Industry, Winter Industry, Winter (n=1908) Percent % 49% 37% 27% Age Fewer than half of all respondents (47%) say they shop for the best price on their long distance service. This finding is consistent with the 1998 AARP survey of Long Distance Callers Awareness and Use of Various Telephone-Related Options. In that study, 45 percent of all respondents said they shop around to get the best price. The likelihood that a respondent has shopped around before opening an account with a long distance company also decreased with age. While 50 percent of respondents age report that they shop for the best price, just 33 percent of respondents age 65 and older say they search among long distance telephone service providers for the least expensive rate. 7

25 Figure II.2: Respondents Who Switch Long Distance Phone Companies to Get a Cheaper Rate Source: AARP Survey on Consumer Understanding of Pricing Practices and Savings Opportunities in the Long Distance Telephone Industry, Winter (n=1908) Percent % 66% % 54% Sixty-two percent of total respondents say they have switched long distance telephone companies to get a cheaper rate. The responses, however, varied by the age of the respondent. While 66 percent of respondents age indicated that they have switched telephone companies to get a cheaper rate, only 42 percent of those age 65 and older have done the same. In the 1998 AARP survey, 54 percent of callers indicate that they have switched telephone companies to get a cheaper rate % 41% 36% 33% Age 8

26 Figure II.3: Cost-Saving Methods for Long Distance Calling as Used by Respondents Source: AARP Survey on Consumer Understanding of Pricing Practices and Savings Opportunities in the Long Distance Telephone Industry, Winter (n=1908) Dialing a special 7- digit code Belong to a calling plan Calling at times when rates are lower Any of these 13% 34% 39% 71% 0% 20% 40% 60% 80% Percent Seventy-one percent of respondents say they use at least one of the following methods to save money on their long distance bills: 1. Dialing a special seven-digit "dial-around" code or "10-10 number" before making a long distance call; 2. Subscribing to a discount calling plan; or 3. Calling during off-peak hours when long distance rates are lower than full price. Of the three, calling during off-peak hours is the most widely used, while the smallest number of respondents use a dial-around code. 1. Dialing a Seven-Digit "Dial-Around" Code or "10-10" Number Some telephone companies advertise big savings to consumers if they use a seven-digit code, typically a "10-10" number, at the start of each call. By dialing this code, the consumer is effectively switching his/her current long distance company for a single call. The original long distance company handles each long distance call after this one except for those that start with a seven-digit code. Dialing a sevendigit code does not guarantee that the consumer will pay less for the call. Some callers might pay more by using the code. Further, even if the advertised rate is less expensive than the telephone company s highest rates, it still may not be the least expensive rate available. 15 9

27 Figure II.4: Respondents Who Subscribe to a Long Distance Calling Plan Just 13 percent of respondents, a figure that is consistent across age groups, say that they presently use a seven-digit code to save money on long distance calling Subscribing to a Calling Plan Many long distance telephone companies offer consumers two different rates for the same service. A calling plan is available to consumers who call the company and ask for lower rates. Non-discounted basic rates are provided to consumers who do not request a calling plan. Overall, about a third (34%) of all respondents report that they belong to a long distance calling plan. Moreover, subscription to a calling plan varied by age. While 36 percent of respondents age say they subscribe to such a calling plan, only 23 percent of respondents age 65 and older indicate they do the same. This finding differed slightly from the 1998 AARP survey, which found that 38 percent of all long distance callers said they belong to a calling plan. Source: AARP Survey on Consumer Understanding of Pricing Practices and Savings Opportunities in the Long Distance Telephone Industry, Winter (n=582) Percent % 39% 28% 15% Age 10

28 Figure II.5: Average Savings Per Month by Respondents Using Any of Three Cost-Saving Methods 17 Source: AARP Survey on Consumer Understanding of Pricing Practices and Savings Opportunities in the Long Distance Telephone Industry, Winter (n=1307) Average Savings 3. Calling During Off-Peak Hours The charge for a long distance call may vary depending on the day or time of day it is made. For example, many companies have basic rates and calling plans in which calls made either before 7 a.m. or after 7 p.m. on weekdays or anytime on weekends are charged at a lower rate. While the off-peak rate on a nondiscounted basic calling plan is less expensive than the on-peak rate, it is not likely to be the least expensive rate available. $25 $20 $22 $23 About 39 percent of respondents report that they make calls in off-peak hours to save money on long distance calling. The differences across age groups in use of off-peak hours for long distance calling were not significant. $15 $10 $5 $14 $ Age In comparison to the 1998 AARP study, this latest survey indicates that substantially fewer respondents report making calls during off-peak hours to save money on long distance calling. In the 1998 study, 51 percent of all callers reported using this cost-saving method. Cost Savings On average, respondents who say they know how much they are saving on their long distance bill estimate that the savings totaled $21 per month. This estimate, however, varied by age. While respondents under the age of 65 claim savings of $22 per month, respondents age 65 and over estimate that they save $13 per month. 11

29 Figure II.6: Reasons for Respondents Not Using Cost-Saving Methods** Source: AARP Survey on Consumer Understanding of Pricing Practices and Savings Opportunities in the Long Distance Telephone Industry, Winter (n=601) Reasons Savings are not big enough 27% Don't need to /Can afford the charges Don't make many calls /Use business 13% 15% Too difficult /Complicated Too much trouble /Too much time 10% 10% Don't know 8% Respondents who do not use any of the costsaving methods were asked to give a reason why. The most commonly cited answer is that the methods would yield insufficient savings. Twenty-seven percent of respondents identify this as a primary concern. Responses to this question were consistent across age groups. Don't believe the savings are real Would have to switch long-distance Other 5% 5% 10% 0% 5% 10% 15% 20% 25% 30% Percent **Total exceeds 100% due to multiple responses 12

30 III. CONSUMER UNDERSTANDING OF PRICING PRACTICES AND SAVINGS OPPORTUNITIES IN THE LONG DISTANCE TELEPHONE INDUSTRY Figure III.1: Respondents Who Know That a Long Distance Company's Basic Rates Are Not Their Cheapest Rates Source: AARP Survey on Consumer Understanding of Pricing Practices and Savings Opportunities in the Long Distance Telephone Industry, Winter (n=1908) Percent % 50 57% % 35% Age "Basic" rates, which were the only rates available to residential customers prior to 1992, are almost always a long distance company s most expensive per-minute charge. Today, long distance companies also offer a number of discount and promotional calling plans. More respondents age (68%), as compared to those age 65 and older (41%), know that "basic" rates are not a long distance company s cheapest rates

31 Figure III.2: Respondents Who Are Aware of Ways to Save Money on Long Distance Calls 19 Source: AARP Survey on Consumer Understanding of Pricing Practices and Savings Opportunities in the Long Distance Telephone Industry, Winter (n=1908) Percent % 61% 45 54% Fifty-eight percent of respondents are aware of ways to save money on long distance calling. Among callers age 75 and over, only 43 percent report that they are aware of ways to save money on long distance calling % Age 14

32 Figure III.3: Percentage of "Aware" 20 Callers Who Have Used or Not Used Two Cost-Saving Methods Source: AARP Survey on Consumer Understanding of Pricing Practices and Savings Opportunities in the Long Distance Telephone Industry, Winter (n=1048) Percent % Use method Calling Plan vs. No Calling Plan Do Not Use Method 51% 52% Cost-Saving Methods 63% 51% Switch vs. Never Switch Respondents who say they subscribe to a calling plan or switch telephone companies to get a cheaper rate are more likely than respondents who do not take advantage of these cost-saving methods to report that they are aware of ways to save money on their long distance service. Seventy percent of callers who subscribe to a long distance calling plan report that they are aware of ways to save money on long distance calling. In contrast, just 52 percent of callers who do not report subscribing to a calling plan say they are aware of ways to save money on long distance calling. Similarly, 63 percent of respondents who say they have switched long distance companies, as compared to 51 percent of respondents who have never switched providers, report that they are aware of ways to save money on long distance calling. 15

33 Figure III.4: Understanding of Basic Rates Among Respondents Who Are Aware of Ways to Save on Long Distance Calling Source: AARP Survey on Consumer Understanding of Pricing Practices and Savings Opportunities in the Long Distance Telephone Industry, Winter (n=1048) Percent % As mentioned above, many respondents do not know that "basic" rates almost always refer to a long distance company s most expensive per-minute charge. But even some callers who report that they are aware of opportunities to save money on long distance telephone service misunderstand this term. In fact, only 65 percent of callers who say they are aware of ways to save on long distance calling know that the statement "a long distance company s basic rates are their cheapest rates" is false % 11% True False Don't know True or False: Basic Rates Are The Cheapest Rates 16

34 Figure III.5: Respondents Who Can Estimate How Much They Are Saving by Using a Cost-Saving Method Source: AARP Survey on Consumer Understanding of Pricing Practices and Savings Opportunities in the Long Distance Telephone Industry, Winter (n=1307) Percent % 70% 70% 63% 59% 47% 43% 40% Age More than seven in 10 respondents say they use one or more of the three cost-saving methods discussed previously. 21 However, the percentage of respondents who could estimate how much money they are saving on their long distance bills because of these methods varied by age. Of all respondents age who indicate that they use one or more cost-saving methods, 81 percent are able to estimate how much these methods are saving them each month. Among all respondents age 65 and older, the figure drops to 55 percent. In comparison to the 1998 AARP survey of Long Distance Callers Awareness and Use of Various Telephone-Related Options, this latest survey shows that substantially more callers report that they are able to estimate how much money they are saving on their long distance bills because of these cost-saving methods (75% vs. 64%). 17

35 Figure III.6: Respondents Who Do Not Know How Much Savings it Would Take For Them to Use a Cost-Saving Method Source: AARP Survey on Consumer Understanding of Pricing Practices and Savings Opportunities in the Long Distance Telephone Industry, Winter (n=601) Percent 80 73% 60 62% 40 44% Only about one-third (36%) of respondents age 18-49, as compared to two-thirds (68%) of those age 65 and older, do not know how much money they would have to save on their monthly long distance bill to make it worthwhile to sign up for or use one or more of the three cost-saving methods % Age 18

36 Figure III.7: Respondents Who Pay Some Attention to Long Distance Advertisements Source: AARP Survey on Consumer Understanding of Pricing Practices and Savings Opportunities in the Long Distance Telephone Industry, Winter (n=1731) Percent 40 36% 37% % 24% Age Long distance telephone companies expend significant resources to advertise their discount calling plans or special rates for long distance calls. Most consumers are aware of the telephone companies efforts. Ninety percent of all respondents say they have recently seen or heard an advertisement for discounts or special rates on long distance calling. Although awareness is high, only 35 percent of all respondents indicate that they pay attention to this advertising. Among respondents age 65 and older, in particular, one out of four (26%) report that they pay attention to advertising for long distance rates. 19

37 APPENDIX: AARP SURVEY OF OLDER PERSONS USE OF DISCOUNT RATES FOR LONG DISTANCE TELEPHONE CALLS LD-1. Now I d like to ask you some questions about your use of telephones. Do you ever make long distance telephone calls from your home? (n=2,553) (594) (645) (598) (485) 80% 1 Yes 80% 83% 83% 79% 20% 2 No 20% 17% 17% 21% D Don t know R Refused Long Distance Usage LD-2. About how many long distance calls do you make in a typical week? (n=1,908) (473) (535) (495) (381) MEAN = MEDIAN = LD-3. (IF LESS THAN 1 PER WEEK) How many long distance calls do you make in a typical month? (n=349) (48) (76) (117) (105) MEAN = MEDIAN =

38 LD-4. Which company provides you with your long distance telephone service? (DO NOT READ. RECORD ONE.) (n=1,908) (473) (535) (495) (381) 53% 1 AT&T 50% 54% 62% 58% 9% 2 MCI (aka MCI/WorldCom) 19% 17% 12% 9% 5% 3 Sprint 5% 5% 5% 4% 3% 4 Bell 4% 2% 2% 6% 3% 5 GTE 3% 2% 3% 4% 2% 6 Excel 1% 3% 1% 1% 12% 0 Other 14% 12% 12% 11% 4% D Don t know 4% 5% 2% 6% 1% R Refused 1% 1% 1% LD-5. Before you opened your account with (Q.4 COMPANY), did you shop around to get the best price? (n=1,908) (473) (535) (495) (381) 47% 1 Yes 50% 49% 37% 27% 50% 2 No 47% 50% 62% 70% 3% D Don t know 3% 2% 1% 3% R Refused LD-6. Who usually pays the long distance telephone bills in your household? (n=1,908) (473) (535) (495) (381) 71% 1 Respondent 70% 69% 74% 84% 20% 2 Spouse 19% 27% 22% 12% 4% 3 Another family member 6% 2% 1% 2% 4% 0 Other 5% 2% 3% 3% D Don t know R Refused 21

39 LD-7. Have you yourself paid a long distance telephone bill within the past two months? (n=1,908) (473) (535) (495) (381) 75% 1 Yes 75% 73% 75% 81% 25% 2 No 25% 27% 24% 19% 1% D Don t know 1% R Refused LD-8. Do you, or does someone else in your household, pay close attention to how much your long distance phone charges cost you each month, or is this something you don t pay much attention to? (n=1,908) (473) (535) (495) (381) 70% 1 Pay close attention 68% 75% 72% 61% 30% 2 Don t pay much attention 31% 25% 27% 39% 1% D Don t know 1% R Refused 22

40 LD-9/9a. About how much per month do you pay for your long distance calling? (That is, just the portion of your bill for long distance calls, not your total phone bill.) (n=1,908) (473) (535) (495) (381) 7% 1 Less than $5 7% 5% 13% 13% 21% 2 Between $5 and $15 19% 23% 27% 30% 19% 3 Between $15 and $25 20% 19% 19% 16% 13% 4 Between $25 and $35 13% 15% 16% 13% 8% 5 Between $35 and $45 8% 9% 6% 8% 8% 6 Between $45 and $55 9% 9% 8% 5% 4% 7 Between $55 and $65 5% 3% 3% 2% 2% 8 Between $65 and $75 3% 3% 1% 1% 13% 9 $75 or more 15% 13% 6% 6% 3% D Don t know 2% 2% 2% 4% 1% R Refused 1% 1% MEAN = MEDIAN = LD-9b. Some long distance plans charge a per minute rate and a monthly service fee. Does your long distance calling plan include a monthly service fee? (n=1,908) (473) (535) (495) (381) 45% 1 Yes, I have had to pay 47% 46% 43% 37% a monthly service fee 42% 2 No, I have not had to pay 42% 40% 44% 42% a monthly service fee 13% D Don t know 11% 14% 13% 21% R Refused 23