Chairman Keeps ABI on Course in Stormy Industry

Frank J. Feitz began a recent interview in his Irvine office by taking two telephone calls. Somehow, the interruption seemed appropriate for a businessman who has spent more than 20 years in the telecommunications industry.

Feitz is chairman of ABI American Businessphones, a company that sells telephone systems to small and medium-size businesses. Feitz founded the company in 1982 and has led it on a fast-track expansion. The firm’s annual sales have soared from $726,000 in 1982 to $27.1 million in the fiscal year ended June 30.

On Friday, ABI announced that it is being acquired with TIE/Communications, a Shelton, Conn., phone equipment manufacturer that has been the Irvine firm’s principal supplier. Feitz will continue to head ABI, which will become a subsidiary of TIE.

The Irvine firm has been consistently profitable in a tough, rapidly changing industry littered with business failures. Its track record has landed it on several rankings published by national business magazines. In May, ABI placed 15th on Business Week’s list of the best small companies in the nation. The firm ranked 44th on Inc. magazine’s 1987 list of the 100 fastest-growing small public companies.

Feitz, 45, lives in Laguna Hills with his wife and five children. Before founding ABI, the native New Yorker was a consultant advising big companies about phone systems. In 1980, he wrote and published a book titled “Bum Connection,” a critical look at the telephone industry. In three months, he sold 990 of the 1,000 copies he had printed--at $79 each. Feitz said the book inspired him to start his current company.

In a recent interview before the acquisition announcement, Feitz spoke with Times staff writer David Olmos about the telecommunications industry in an era of deregulation and how his company won national recognition. And in a follow-up interview last Friday, Feitz explained his decision to sell ABI to TIE. Q: Why did you decide to merge with TIE/Communications?

A: It will give us the ability, in my opinion, to really enhance our growth and have a company with strong resources to help us grow. This transaction will take three to four months to complete. At that time, we will be in a position both financially and internally to start growing again. I really look forward to that.

Q: You have often said that service is the key to success. What exactly do you mean by that?

A: Service starts before you ever make a sale. You have a sales representative who’s knowledgeable and, hopefully, treats the client with respect, determines the client’s needs and then designs the phone systems to meet that need. And the next step of service is to make sure that you process that order properly, making sure that the installers are well trained, that they’re courteous and that the people who are going to train the user on the phone system are familiar with the equipment. You treat the client courteously.

In the old-fashioned business, the client was always right. And it’s true.

Q: To what lengths have you gone to provide service to a particular customer?

A: I’ve completely replaced systems that the customer was unhappy with. We’ve had several clients who have had floods. We replaced their entire systems in under two hours.

A large major account, which I won’t name because I don’t want to embarrass them, bought a system from another vendor. They bought 62 telephones. At 9 a.m. on the day the system was supposed to be installed, the vendor didn’t have the equipment to do the job. They called us up. By 5 p.m., they had a completely operating phone system. So whatever it takes to do the job, that’s what we are going to do.

Q: Has American business forgotten what service is all about?

A: I think that people tend to talk about service but don’t perform it. You go to an automobile dealership, and I’m not picking on that industry, but the person writing your order is normally not courteous. You bring your car in, it takes six days to repair it, and you go back to pick it up and find out that three of the repairs aren’t done. And usually they won’t tell you. You find out later it wasn’t done. That’s not good service.

I tell our clients we’re in a long-term business. If you buy from me today, hopefully you’ll be my customer for the next 20 or 30 years.

Q: As a consumer, how do you respond to bad service?

A: When I get bad service somewhere, I usually very nicely tell them that I’m unhappy. In some cases, I’ll sit down and I’ll write the president of the company to tell him that I had expectations about the product and about getting a certain level of quality service, but that I didn’t receive it.

Q: Can you give an example?

A: I purchased some furniture. When the people delivered the furniture, it was terribly scratched. I called them up. They sent somebody out to repair it. I said, “I don’t want it repaired, I want it replaced.” They brought back a new set, and it was all scratched. Finally, they brought furniture that wasn’t scratched, except the bedroom set had a defect, so the mattresses didn’t fit onto the bed. They kept on sending out a repair person, and I said, “What are you going to do? Are you going to inflate the mattress? Are you going to shrink the headboard?” Finally, I wrote a letter to the president of the company, and he got it squared away.

Q: Frequently, when I’m talking on the phone to someone and they need to transfer me to another extension, they say: “We’re having trouble with our phone system. In case I lose you, here’s the extension.” Why does this happen?

A: It happens for probably two main reasons. Before the latest technology, the instrument you would use to transfer a call was the same thing used to disconnect a call. And there’s a timing sequence there. So if you hold it down too long, you cut off the call, and if you don’t push it long enough, nothing happens. So people tend to cut off the calls. And the other reason it happens probably is because the user hasn’t been trained properly.

Q: Your company has been named to several “best” lists published by business magazines. How do you explain your success?

A: I think we do a whole group of things differently. First, most of our employees came here without any experience. We have our own training program for salespeople. And that really helps to get people to do things our way rather than somebody else’s. At least every quarter, we sit down with management and say, “How do we do it better?”

You have to be looking at your numbers not every month or every quarter, but every week. You know if you do a good job for a customer, he will usually tell three other people. If you do a poor job, he’ll tell 100. So you have to make sure you don’t do a poor job. And we’re not big advertisers; our advertising budget is very small. We just try to do what I call good, old-fashioned, word-of-mouth advertising.

Q: What are the biggest mistakes you’ve made along the way?

A: I would say the biggest mistake I made was going into the retail store business. It just didn’t work. That cost us some money. (In 1985, ABI opened three retail business phone stores in Southern California. ABI closed them about a year later.)

I guess the next biggest mistake I made was trying to deal with the Wall Street community. I thought that the No. 1 thing was growth, and that the investment people would look at a business over the long run; you know, a 5- or 10-year program.

In fiscal 1985, we grew the company substantially in people, but our earnings went down. Our stock price went right down the garbage can. I was shocked, because I thought that people were investing in us for the long term. So now we manage our business with two things in mind: growing and making profits, so that the investors are happy.

Q: What do you see as the biggest challenge facing your company?

A: The biggest challenge is patience--the patience to allow your people to build so that you can go through that next spurt of growth. We like to promote management from within the company rather than going outside. After you go through a fast growth period, you have to sit back and give a lot of people the time to mature. You need to rest a little bit and recharge the batteries. Then you go out again. I would say that we’re in a rest period right now. We may open two or three offices this year, but we’re not going to double our size. I like the growth, but I want the growth with profit. And I want the growth by keeping the people here that made it successful. I don’t want to outgrow the people or give anybody heart attacks or anything else, because we’re pushing too hard.

Q: What do you see as the main issue in your industry right now, three years after the breakup of American Telephone & Telegraph Co.?

A: I think the No. 1 issue in the industry is profitability. If you look at the airline industry after deregulation, you saw a whole group of new entrants come into the business. You saw prices go way down. You saw the traditional carriers lose a lot of money. You saw low-cost carriers come in and, for a short period, earn money. And then, the discount carriers started fading into the dust. Now, it seems again like it’s one big airline. You don’t have all those small carriers that you had four or five years ago. And now what you see is prices increasing and profits returning to some of the traditional big players.

We (in the telephone industry) were different in deregulation. As an industry that was supposed to be “deregulated,” we really weren’t. AT&T; was deregulated. But the seven other Bell companies had a monopoly and were allowed to go into the deregulated business and do anything they wanted to. So what we faced was seven very large companies experimenting in our business, giving equipment away for any price they felt like giving it away for. In the meantime, if they lost money, they raised your phone bill. And that’s been pretty unfair. They really hurt business very badly. Prices dropped dramatically. They made a muck of the marketplace.

I think that the state utility commissions are getting much smarter today than they were three years ago when this divestiture first took place. And the industry’s starting to settle down. It’s going through consolidation along with these small companies. They’re either folding or being acquired by large companies. So we’re going through what the airlines did, but probably on a very accelerated path.

Q: What can we expect to see in the telephones of the future?

A: They’re constantly changing. The phone you bought 10 years ago had very thick wiring, hardly any features and few buttons or lights. The phones of the late ‘70s and early ‘80s brought the labor content of the phone down by making them from thin wire. You went from 50 wires in a normal telephone down to four to six wires. And you went from basically an electro-mechanical phone to one controlled by microprocessors. A typical phone today sells for half of what it sold for six years ago. So you have all the technology at half the price.

Ten to twenty years from now, you’ll see more video phone systems. Video is available in the market today, but it’s still expensive. It’s mostly just the freeze-frame type of video rather than moving video like we see in our TV set.