Fiberline Positioned for Long-Distance Growth
When U.S. District Judge Harold H. Greene ordered the now-historic breakup of telecommunications super-giant AT&T; in 1983, he helped to create a narrow, but potentially profitable, market niche for companies offering long-distance operator services.
San Diego-based U.S. Fiberline Communications was one of more than 100 companies nationwide that hoped to turn a profit by providing operator assistance to long-distance callers.
Although most residential and business callers can dial long-distance calls directly, there is a growing market for operator-assisted calls placed through switchboards at hotels, hospitals, universities and pay telephones; in short, any place where callers place collect calls, or use credit and calling cards.
But, when Greene created that competition, he also turned AT&T;’s tightly controlled market into a chaotic industry as newly created companies began scrambling for pieces of the $12.2-billion market.
To win customers and to overcome high start-up and operating costs, the new breed of competitors began paying commissions on long-distance calls to hospitals, hotels and other businesses that contracted to let them carry the calls on their networks.
The strategy worked, and now three out of every 10 long-distance, operator-assisted calls are placed with alternative operator service companies, not with AT&T.;
But the commissions also generated higher phone bills for some long-distance callers, prompting consumer groups to complain about unscrupulous business practices. Since January, 1988, more than 4,000 informal complaints have been filed with the Federal Communications Commission against operator service providers. Congress now is considering three bills that call for price controls.
Against that backdrop of consumer complaints, some smaller companies have begun to consolidate, while others are readying for a shakeout by broadening their services.
And some telecommunications experts believe that U.S. Fiberline Communications will be among the survivors.
“The large operator service providers are not faring very well,” said Mark Bergman, an investment consultant with the Galesi Group in New York. “But these smaller ones are pretty healthy, they’re making money and it’s still a healthy business on the lower end.”
U.S. Fiberline Communications is “doing very well,” Bergman said. “They have good management, good controls and they are tied into their own operator center. That gives them a lot of resources that companies their size normally don’t have.”
U.S. Fiberline Communications is decidedly small when contrasted with industry leader International Telecharge in Dallas, which grossed more than $300 million in revenue last year. But, in relative terms, Bergman said, the 75-employee company just may be better positioned to make a profit.
A relative latecomer to the operator service industry, the privately held company now provides service in more than 30 states and has put 13,000 pay telephones nationwide onto its network since late 1987. Revenue during 1989 grew to $18 million, up from just $600,000 in 1987.
In 1988, U.S. Fiberline Communications entered a joint venture with Telephone Electronics Corp. a Bay Springs, Miss.-based company. The 67-year-old, family-owned holding company has a telephone operator center in Jackson, Miss.
The center, with 128 live operator stations, quickly turned a profit, and a second, multilingual center with 75 operators will soon open in Salt Lake City.
U.S. Fiberline Communications evolved from a Los Angeles-based finance company whose founders entered the business after making a loan to a pay phone installer in 1986. The company originally sold pay phones.
But its founders quickly realized that about half of all credit card calls were being made from pay phones, and that the long-distance industry that was carrying those calls was potentially lucrative.
U.S. Fiberline Communications was then born, originally as a marketing company that sought hotel contracts for other operator service networks.
“The market was changing so fast that (the operator services) couldn’t really provide the services and things we wanted to do, so we decided to start our own network,” said U.S. Fiberline Communications Chief Financial Officer Scott Noreuil, a former tax consultant who is one of the privately held company’s three owners.
U.S. Fiberline Communications leased fiber-optic telephone lines and entered into billing agreements with other companies that carried the calls before setting up its own live operator center where calls would be processed.
Lee First, president of Los Angeles-based First Communicorp, which places pay phones in office towers and commercial property, said he tried out several long distance carriers before settling on U.S. Fiberline Communications.
“Their operators are bilingual, which is important to us because we’re in Spanish-speaking areas,” First said. “The commission is about the same, but the quality of service is more important now that competition is getting stiff. The name of the game now is to have a good product, not just how much you’re making.”
Indeed, despite start-up costs that exceeded $10 million, U.S. Fiberline Communications made a commitment from its inception not to recoup those losses by charging callers extra-high rates, said Chairman William Grant, a real estate developer who bought into the company in 1987. An FCC official on Wednesday confirmed that no complaint has ever been filed against the company.
U.S. Fiberline instead opted to develop new profit centers such as voice mail, which allows subscribers to receive spoken messages from callers. The company began offering voice mail in October, and is already planning an expansion.
With the market for voice mail services expected to top $550 million by 1994, many industry leaders predict the service will soon surpass long-distance operator service, which eventually will be phased out by automation. By replacing live operators with machines, other automated services such as order processing, voice mail, fax services and 900-information lines are expected to become the industry’s bread and butter.
“When you look at the demands of business travelers today, they want to have their office on the road and operator service companies are providing those services to a large extent,” said Diane Harbaugh, chairwoman of Operator Service Providers of America, a Washington, D.C.-based industry lobbying group. “A few small companies don’t have the enhanced services, but they will end up merging with other companies. Enhanced services have become a state of the art, where they used to be a competitive edge.”
While enhanced services are the “wave of the future” for operator service companies, the successful ones will be those that are well-managed and properly funded, since operator service providers typically must wait 90 days before they are paid for long distance calls, Bergman said.
U.S. Fiberline Communications has just taken out a $2.2 million, seven-year lease on a 25,000-square-foot office in Mira Mesa, and it expects its employee count to hit 150 by December.
“Our problem is properly managing our growth,” Grant said. “We’re doing it, but it’s not an easy chore when you’re growing as quickly as we are.”
