Cordless Phone Firms Ask for a Second Chance : New Generation of Equipment Should Help End Consumers' Complaints

Times Staff Writer

Sales of cordless phones had slipped from bad to worse early last year when Ron Gill, then the merchandising manager for GTE Phone Marts, started making the rounds of his stores, pleading with the sales force to stop bad-mouthing the devices.

"I had to say 'Hey, this isn't a piece of junk,' " recalled Gill, now the marketing manager of Trillium Telephone Systems Corp. in Costa Mesa. "But it was a hard sell for me. The sales people were steering customers away from the phones because they wanted to be fair."

"Negative selling" at GTE, as Gill termed his problem, is but one of the many woes the cordless telephone industry has faced since the portable, the walkie-talkie-like devices that debuted on a mass scale in early 1981 to hyped reviews and inflated expectations. More damaging than negative selling for the industry have been the steady stream of customer complaints about the operating quality of the products and the allegations that the devices can cause permanent ear damage.

Promoted as one of the slickest household conveniences since the automatic dishwasher, cordless phones were red hot for about 2 1/2 years, reaching a sales peak in mid-1983 of 500,000 units a month. But just like citizens' band radios and video games--two of the more notable shooting stars in the volatile consumer-electronics industry--cordless phones suddenly fell from the marketplace's grace about 18 months ago and never bounced back.

In the ensuing disarray, scores of manufacturers who once flocked to the field abandoned it, leaving fewer than two dozen survivors to fight over a market estimated at fewer than 5 million units this year. For those remaining manufacturers, 1985 is expected to be the year that determines whether the cordless phone finds a permanent spot in the consumer-electronics market or goes the way of video games.

"Potentially every home and small business is a candidate for a cordless, but the market still hasn't settled down," said Eric Schimmel of the Electronic Industries Assn. "There may be still more fallout."

The collapse of the cordless market has already been fairly severe. After seeing sales triple from about 2 million units in 1982 to at least 6 million in 1983, cash registers across the nation rang up sales of fewer than 5 million devices last year.

Several factors are cited for the market's sudden slump. But most often blamed is the simple fact that the cordless devices, despite their name and function, technically are not telephones. They're two-way radios and subject to all the static, interference, fade-outs and overlapping signals of any device operating on radio waves.

Unfortunately, consumers didn't know what they were buying when they shelled out between $79 and $300 for the devices. And that, say analysts, is the root of the industry's problems.

"People believed the devices were comparable to corded phones. And they're not," said Casey Dworkin of the Yankee Group, a Boston marketing and consulting group. "The cordless phone is an emerging technology and like all embryonic technologies, you're not going to get it right the first time."

In some cases, the mistakes have proved costly. In most first-generation models, the ringing mechanisms of the phones were located directly in the earpiece section of the handset. It didn't take long for allegations to surface that the devices could cause cause permanent ear damage, including hearing loss.

To date, the U.S. Food and Drug Administration has received 127 complaints of hearing problems allegedly caused by the devices. According to hearing specialists, hearing can be impaired if the device is put to the ear while it is still ringing. However, cordless industry officials note that the problem usually occurs when a person answering a cordless phone fails to hit the "talk" switch before lifting the receiver to the ear, a simple procedure that halts the ringing.

Although later models were redesigned to change the ringer's location, usually to the base unit or the back of the handset, the modifications came too late for Huntington Beach-based Uniden Corp. of America, the largest manufacturer of the devices.

Last October, a jury in St. Louis awarded $150,000 to a psychiatrist who argued that he suffered minor but permanent hearing loss from using a cordless phone manufactured by Uniden. And last month, the same St. Louis attorney who won that case filed a $50-million class-action suit against Uniden, claiming that the company knew its products were harmful but failed to take proper action.

Harold Ducote, Uniden's general counsel, said the company plans to appeal the $150,000 award and believes the class-action suit "is without legal or factual merit."

However imperfect, even the first models of cordless phones represented a significant technological advance.

Unlike their predecessors, the walkie-talkie, cordless units allow simultaneous talking and listening, not choppy conversation that depends on a button being depressed for talking and, then, released for listening.

The revolution stems from the use of two, not one, radio frequencies in each two-piece device. One frequency carries conversation from the base station, which is plugged into a regular, indoor telephone outlet, to the portable, hand-held unit, which in most cases can be taken at least 700 feet from the base station. The second frequency carries the conversation from the portable unit back to the base station where it is transmitted over regular telephone lines.

Largely because they could be used anywhere in the average home and yard, the devices sold as fast as they could be made for most of the two years after their debut. The boom initially caught manufacturers unaware and they rapidly boosted capacity, typically by jobbing out production to factories in the Far East that had been left idle by the bust in the video game fad.

The void also attracted scores of less-established manufacturers looking for another quick buck from consumer electronics. At the peak of production in 1983, nearly 200 different brands of cordless devices were on the market.

But by late 1983, the reputations of the devices had been seriously blemished.

Stories abounded of how fluorescent lights, washing machines and other household appliances could make the phones hum. Worse yet, because the each device was programmed to operate on one of just five sets of radio frequencies allocated to cordless phones, there was a 20% chance for any two buyers--next door or across the county--to share the same wavelength.

The problems, since resolved by new technology, occurred when the two buyers sharing the same wavelength lived within the operating ranges of each other's devices, a distinct possibility in urban areas.

Rumors, often borne out, circulated about how neighbors had their conversations and phone bills jumbled because their phones operated on the same frequencies. Even scarier were the stories of how unscrupulous sorts could "tone cruise" through a neighborhood, looking for a matching frequency and some "free" long-distance phone service.

The manufacturers acknowledge that the early products were far from ideal. "It's just like the beginning of color TV. At first, reception was so bad that you almost preferred to stick with black and white," said Roy Mullhall, Uniden's executive vice president for consumer products. "But color TV got better and so will this."

But so far, the improvements have been ill-timed for the industry.

Early last year, the Federal Communications Commission allowed the cordless devices to operate on another 10 sets of radio frequencies, channels that are considered better because they operate at higher and clearer wavelengths. In addition, the manufacturers developed methods to give each device an electronic security code, a breakthrough that all but assures that neighbors will not share the same channel.

However, the advances made the industry's existing inventory of cordless phones virtually obsolete, and came at a time when the industry was saddled with an unprecedented stockpile of the devices. By one count, the outdated inventory totaled 2 million units.

Uniden took to offering rebates on its old models and most other manufacturers dramatically slashed prices. In one of the more novel promotions, American Telephone & Telegraph Co. offered its devices as prizes to buyers of Captain Crunch cereal and Clearasil medicated soap.

However, most manufacturers simply dropped out of the market. "We finally realized that the market's size and growth potential was much smaller than originally estimated, and we decided to cut our losses," explained Richard Hillman, the former president of Phone-Mate in Torrance, perhaps the most notable drop-out. The company lost $11 million in what Hillman calls the "cordless fiasco."

"It was a classic case of overblown expectations," added Hillman, now a consultant and private investor. "The product was never as good as the consumer wanted it to be."

If the cordless phone is to secure a place on the shelf--not in history--manufacturers and analysts agree that the consumer must be convinced that the product has been improved substantially.

And it won't be an easy sell, conceded Frank Foresta, president of Record A Call in Compton. "The older products left a bad taste with buyers. We have to retrain the public that the product is good and the problems have been solved."

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