Small Long-Distance Carriers Are Chipping Away at the 'Big Three'

By JENNIFER OLDHAM

Feb. 3, 1997 12 AM PT

TIMES STAFF WRITER

With a “carpet bombing” approach to marketing, hundreds of small long-distance carriers are chipping away at the market share of AT&T; and the other big long-distance telephone companies--but they’re leaving consumers baffled as to who really offers the best deals.

The enormous growth of carriers such as Excel Communications Inc. and Telco Communications Group Inc. stems from their ability to target specific markets that bigger carriers have failed to identify, analysts say, as well as their aggressive use of direct-mail and multilevel marketing programs.

Companies other than the “big three”--AT&T;, MCI and Sprint--now represent about 16% of the $62.5-billion U.S. long-distance market, up from about 4% in 1984. Whereas some have limited facilities of their own, most rely on purchasing long-distance capacity at bulk discount rates and then reselling calls to individuals and small businesses.

There are now about 520 small long-distance carriers in the market, according to the Federal Communications Commission. And that figure does not include so-called dial-around carriers, which offer consumers discounts if they bypass their long-distance company by typing in an access code before making their call.

Though smaller long-distance companies’ rates are, on average, lower than those of bigger carriers, consumers who are taking advantage of discount plans will generally see little or no savings, according to Jeffrey Kagan, president of Kagan Telecom Associates in Atlanta.

Because long-distance service is basically a commodity and the smaller competitors have little latitude to compete on price, creative marketing is the key.

Excel Communications of Dallas has seen its revenue skyrocket from $30.8 million in 1993 to $1.35 billion in 1996, thanks to the sometimes-controversial kind of multilevel marketing popularized by companies such as Amway Corp.

Excel has about 1 million “independent representatives” around the country who tout its services to friends and relatives and anyone else who will listen. The reps get a commission for bringing in new customers--and, even more important, they get a cut for recruiting new sales reps.

“What really drives Excel representatives is a basic revenue-generating proposition rather than a long-distance buying proposition,” said Boyd Peterson, a telecommunications analyst with Yankee Group in Boston.

“This proposition goes something like, ‘I can sell you long-distance, but I really want you to become an Excel representative, because my benefit comes when you sell more long-distance.’ ”

Other small carriers are deploying direct-marketing tactics popularized by charities.

“In a search for big spenders on long-distance, these firms buy subscription lists for magazines like Architectural Digest and mail fliers to all their subscribers,” said David Goodtree, director of telecommunications strategies at Forrester Research in Cambridge, Mass.

“They also go after geographic communities where there are a lot of immigrants and market directly in those languages.”

Dial-around providers, such as Telco Communications of Chantilly, Va., often market their services under several brands.

The companies mail stickers with an access code printed on them to potential customers in hopes they will plaster them on their telephones and use the service. As one of the fastest-growing firms in this segment, Telco says about 2.7 million residential customers are currently dialing either 10297 or 10457 to access its services.

In an effort to reach customers on an “emotional level,” some smaller carriers team up with a charity, a local organization or a church, which in turn sell their services to group members, Kagan said. In return, these groups receive a percentage of the profit the carrier takes in from customers the groups recruited.

Whether these tactics will continue to work is an open question. Consumer confusion and the often questionable pricing claims of some upstarts could work in favor of established firms. Over the next few years, moreover, the regional Bell telephone companies will be entering the long-distance business, and all the big carriers will be offering an array of local, long-distance and wireless services--a menu smaller firms will find it hard to match.

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Long-Distance Competition

Shrewd marketing has helped hundreds of small long distance carriers to slowly erode AT&T;’s market share. Despite this increased competition, AT&T; retains a majority share of the nation’s $62.5 billion long distance telephone market. A look at this industry in 1993 and 1995:

1993

AT&T;: 60.0%

MCI: 18.0

Sprint: 9.7

WorldCom: 2.4

Other: 9.9

1995

AT&T;: 55.3

MCI: 19.1

Sprint: 9.5

WorldCom: 4.9

Other: 11.2