WATS, or officially known as Wide Area Telephone Service, was an outbound only service that would offer customers discounted long distance.
Contrary to today’s popular opinion, WATS was not a flat rate service. The notion of paying a flat rate for unlimited use didn’t really evolve until the early 1970s.
A customer wanting to save on long distance costs could subscribe to a WATS line. They would then be billed by the minute, in convenient 1/10 minute (6 second) increments. This was a big deal back when the initial charge for phone calls was always a three minute minimum.
The per minute rate for WATS was not always a good deal for the customer. But if the customer was shrewd they could use their line optimally and save money. Typically, they would save money on calls under 5 minutes. This is because the per minute rate for WATS was higher than the per minute rate for additional minutes past the first three. The combination of being able to make calls under three minutes and only being billed for the time actually used, and being billed in 1/10 minute increments instead of whole minute made WATS an attractive offering. Smart switchboard operators in companies would often ask users wanting to place long distance calls how long they thought the call would be. If the answer was under five minutes the call was routed on WATS and if longer then would e placed using DDD (Direct Distance Dialing.)
In the late 1970s there was a move by the Bell System to change the minimum call duration from 3 minutes to just one minute. This dramatically changed the economics of WATS lines. So as part of this transition the Bell System started offering WATS in a flat rate option. Pay a single price and use it as much as you want.
Flat rate WATS made sense for the phone company to offer. It only did they save the cost of billing calls (WATS customers did not receive a call itemization) but because WATS lines were expensive (on the order of $1700 a month) customers would pack the WATS lines. That is, customers had a strong incentive to use the WATS lines as heavily as possible.
Of course, the cost of the long distance network was largely a function of peak load. So as larger customers would pack their WATS lines, they would be time shifting calls from the natural peak hours to mornings and afternoons—non peak hours. A company with three WATS lines would typically have needed five or six lines when dialing direct. So it was a significant savings for the Bell System when customers shifted peak calling to less peak times. And while customers could use far more minutes by calling in the evenings, this was no problem since the long distance network largely sat idle after business hours…there was no real cost to this extra traffic.