To Buy or Rent

Now AT&T users can choose

In recent weeks, telephone users in New York, California and Oregon have been getting some surprising flyers in the mail with their monthly bills. Soon customers in most other states will be going to the mailbox and finding the same. The inserts invite subscribers to buy their telephones from their local phone companies instead of renting them, as is now done. The invitations are part of an ongoing market shake-up in the increasingly deregulated U.S. telephone industry.

For many years American Telephone and Telegraph used its monopoly powers to stifle competition from other manufacturers of telephone equipment by simply not allowing customers to use phones except those manufactured by its subsidiary, Western Electric. But a federal court ruling in 1968 opened the market to all comers, and since then equipment makers such as GTE and ITT have been able to sell to the Bell System's users. Nonetheless, 80% of the phones in use today were made by Western Electric, most of them rented by customers of AT&T's 22 local operating companies. This is surprising because some of the local companies exact a monthly rental charge that seems inordinately high. New York Telephone Co., for example, charges a steep $3.03 per month for a standard rotary-dial telephone.

The flyers now arriving in the mail are the first mass-marketing effort under which Bell System telephones are being offered for sale. The financial consequences to the local operating companies of customers' decisions to buy or not to buy are by no means clear, but it appears that the locals stand to gain if customers decide to buy rather than go on renting.

The subject is clouded by some complex, tentative provisions of the settlement earlier this year of the Justice Department's antitrust suit against AT&T, which will lead to divestiture of its 22 operating subsidiaries early in 1984. Then ownership of the phones in customers' homes will revert to AT&T, and the local companies will be unable either to rent or sell them to customers. Thus the local companies are now under pressure to sell, so customers are being offered some attractive deals. That standard rotary-dial phone that New York Telephone now rents for $36.36 per year can be bought for $35.

Other locals also have tempting deals.

For example, customers of Pacific Telephone and Telegraph, the largest subsidiary in the system, currently pay $1.08 per month, or a total of $12.96 per year, to rent a standard rotary-dial phone. Under one of Pacific Tel's deals, subscribers can choose to pay an additional 660 a month for twelve months as a supplement to their rental fee, which works out to $20.88 for the year, after which they will own their phone sets outright and have to pay no further rental charges.

The only catch is that customers lose the lifetime free repair warranties that come with rented Bell System phones. Thus, when a customer-owned telephone breaks after the expiration of the warranty, which can last anywhere from 30 to 90 days on units already installed, the hapless subscriber has little choice but to unplug the device and take it to his local telephone company office for servicing. If the telephone is one of the Bell System's early models that does not disconnect from the wall with a modular plug, the customer may have to pay an additional steep charge to have a repairman come out to his house, a good reason to make sure that the phone one buys can actually be unplugged.

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