Study predicts long-distance rates will bottom out by 2005

A new study on Canadian long distance rates shows another decrease in the price of business long-distance rates and predicts business rates will drop to $0.0175 by the end of 2005.

According to Toronto-based Fox-Hoey Consulting Inc.’s annual survey of long-distance rates for business and residential customers, intra-provincial, Canada to Canada and Canada to the USA long-distance rates for small and medium size businesses have decreased in the last year by $0.015 per minute to a $0.07 per-minute average.

Larger businesses with one to two million minutes of long-distance time per month are currently paying on average $0.045 per minute. Businesses with four million minutes or more per month are paying an average of $0.03 per minute. By the end of 2005, the largest customers will be paying $0.0175 per minute and small and medium size businesses’ prices will be an average of $0.03 or $0.04 per minute.

“There’s a lot of technology kinds of issues [that are bringing down long-distance rates]. It’s getting cheaper to put a call across the country. So you’ve got a lot of technology pressure on the rates,” said Eamon Hoey, chairman of Fox-Hoey. Compared to 10 years ago, fibre bandwidth has increased by a factor of 10 to 12, so the cost of a call has dramatically decreased.

Nick Culo, a spokesperson for Telus Corp. in Edmonton, agrees that Fox-Hoey’s predictions of a cost of $0.0175 per minute for some of its largest customers might be accurate.

“From a Telus point of view, you might see some large customers get that kind of rate over the long term, but we certainly don’t see the average long distance rate coming down to that level. It certainly seems low from where we’re sitting,” Culo said.

Another major factor that has been driving the cost of long distance down is the fact that business consumers have become much smarter in how they buy transmission services, Hoey said.

“And they’ve realized there’s no value to it. It’s a real commodity, so they treat it like a commodity,” Hoey said. Business consumers 20 years ago perceived the value of long distance as much greater than consumers do now because it removed the effects of distance. In today’s global economy, long-distance communication is quite common – something the average person doesn’t even think twice about.

The last big factor is the persistent competition in the long-distance market. And in terms of marketing and branding, the competition has been very successful. But one factor sometimes associated with dropping long-distance prices is voice-over-IP (VoIP) technology, and according to Hoey, VoIP has had no affect on rates.

“It’s a technology that’s interesting, but it’s just a disruptive technology. It’s not a technology that I see going anywhere,” Hoey said. However, traditional carriers will implement IP technology in the future, he said.

With the trend of dropping long-distance rates continuing for some time to come, will long distance ever be free?

By the end of 2005, business long-distance rates are going to bottom out, Hoey said. Carriers might offer packages to business consumers that have very low long-distance rates – possibly even for free – combined with all telephone services.