Worldcom: Voice and IP service prices to go up

Prices of long-distance phone calls and Internet connections for businesses in the USA have hit rock bottom and may be about to...

Prices of long-distance phone calls and Internet connections for businesses in the USA have hit rock bottom and may be about to go up, Ron Beaumont, chief operating officer of WorldCom, has said.

WorldCom, the second-largest long distance carrier in the USA and one of the largest Internet access providers, will lead a drive among the major service providers to start selling services not only to generate revenue but to actually make a profit, Beaumont said.

"Customers became accustomed to voice prices going down and I believe we will see voice in the business world do what happened in the consumer market," Beaumont said. "We actually increased price over time for the consumer," he added. "Basic US long distance pricing will be stable and I think we are going to be able to put some price increases in."

WorldCom would also like to increase prices for business IP (Internet Protocol) connections, especially in data centres where companies can house their servers and connect them to the Internet. Prices should stabilise soon and rise after that, Beaumont said.

"IP (pricing) has plummeted over time to where it is getting very ridiculous. I think it is coming below cost," he said. "We will be encouraging our customers to go to shorter term contracts to give us some flexibility as things change over the next few years."

The only areas where Beaumont sees prices going down are international phone calls, because international carriers are reducing their termination fees and cost of private line connections between cities.

Eileen Eastman, a vice-president at research company the Yankee Group, said WorldCom and rival AT&T need to establish a pricing floor for voice calls and "they have the power to do that" as "dominant players in the enterprise market".

Second-tier carriers drove down voice telephony prices in their struggle to gain revenue to maintain themselves. Prices hit a point where it was questionable if the carrier was even making any money, said Eastman. "WorldCom and AT&T went down to a point where they felt they went as far as they could go," she said.

The timing is right to change the trend curve, according to Eastman. Companies looking for phone service will think twice before signing with financially beleaguered tier-two carriers. "AT&T and WorldCom can offer a good price, perhaps not the lowest price, but they are able to offer stability, " Eastman said.

The IP price increase is a similar story, with service providers desperate for revenue bidding down the prices in a market that has excess capacity. The question is whether WorldCom will be able to put a break on the price declines in that market and start to earn on its investments in data centres, Eastman said.

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