It’s Brains, Not Bucks, That Win in Business
The great long-distance election is in the home stretch--most telephone users will have made a decision by September--and the winner, no surprise, is American Telephone & Telegraph Co. At this point, AT&T; is holding on to 77% to 78% of the nation’s 86 million long-distance customers, in the estimate of the research firm Yankee Group. Second-place MCI Communications Corp. has roughly 8%. And in third place, with around 4%, is U.S. Sprint, the newly formed combination of United Telecommunications Inc.’s U.S. Telecom and the Sprint service of GTE Corp. The remaining 10% or so is splintered among some 400 tiny independent carriers.
So, is that all there is? We break up the phone company, get everybody to send in ballots, and in the end AT&T; demolishes the small fry and long-distance telephone service remains pretty much the monopoly business it was for 70 years? Seems like an expensive way to find out that three out of four people didn’t want to change their phone company.
But that is not all there is. The long-distance competition, far from being over, is becoming permanent. And it enters a new phase today when U.S. Sprint makes its debut with a massive marketing campaign aimed first at residential, then at business customers. Its goal is to get 8% of the $50-billion long-distance market.
Long-Distance Free-for-All
MCI, too, is shifting its marketing to try to win business customers away from AT&T.; Its goal is 10% to 15% of the market--worth $5 billion to $7.5 billion in revenue--which would double or triple the size of MCI.
Do such goals stand a chance against $35-billion (revenue) AT&T;, 10 times the size of either of its rivals? Maybe they do. The truth about long-distance, obscured by AT&T;’s landslide in the public poll, is that the business is becoming a free-for-all. The regional Bell companies Nynex and Ameritech are now petitioning to get into it. It is a business in which rates undoubtedly will come down more in the future than they have to date, where data transmission is expanding an already huge market and where competition is pushing the contenders to produce a better telephone system technologically.
Most hopeful of all for AT&T;’s chief rivals, however, is the fact that they are in the race--while larger companies are not--because of the drive and ingenuity of two individuals.
Chiefs Who Make a Difference
The first and better known is MCI Chairman William G. McGowan, the 59-year-old financial man (he has a Harvard MBA) who harried AT&T; in the courts and in the field over almost two decades and created a company with $2.5 billion in revenue. Last year, McGowan gained financial security for MCI by selling 16.6% of its stock to IBM. But MCI’s real security is in the competitiveness of Bill McGowan.
The other driving force is Paul Henson, the 60-year-old chairman of Kansas City, Mo.-based United Telecommunications. Henson is a Nebraska-born, University of Nebraska-educated engineer who saw the future of telecommunications in the new technology of fiber optics and committed his $3-billion (revenue) independent telephone company to developing it--at a potential cost of $2 billion.
Fiber optics? It’s a replacement for, and improvement upon, copper wire. In fiber optics, pulses of light travel through hair-thin glass at the speed of light, transmitting a digital code that is reassembled into voice or left in digital form at the end of the line. Fiber is ideal for computer-to-computer transmission of data and so cost-effective that it has the potential of reducing long-distance charges by 50%.
Because Henson pushed the technology, little United now has a larger fiber optics network than AT&T.; That was the attraction for GTE when it looked for a partner for Sprint, and it is the technological edge that U.S. Sprint hopes will gain it market share. Watch for it to come out of the starting gate by announcing a big customer for Sprint today.
The moral: that as vast and technological as a business gets, it is not the dollars but the minds behind the dollars that make the difference.
But then who should know that better than AT&T;, which is built on the foundation laid 70 years ago by Theodore Vail, who recognized that the telephone company would succeed if it stressed service. Cliff Robertson’s commercials stand on Vail’s foundation, and so does AT&T;’s victory in the long-distance election.
