Targeting One Market
Ruben Garcia’s strategy for competing with SBC Communications Inc. and Verizon Communications Inc. might be summed up as loco like a fox.
Instead of trying to pick off lucrative business customers as most Baby Bell rivals do, Garcia’s Telscape Communications Inc. aims for a limited residential market: the millions of Spanish speakers in the state, especially Southern California. And rather than lease all the equipment it needs from the Bells, Telscape uses mostly its own gear to provide bilingual service to customers.
That’s the kind of so-called facilities-based competition envisioned by the Telecommunications Act of 1996.
But for Garcia, chief executive of the small, privately held Monrovia company, he and his 310 employees must battle the Bells’ old monopoly habits nearly every day to win and keep customers.
Even though it has its own switches, which ultimately connect home and business phones to its network, Telscape has to rely on SBC, the state’s dominant local company, and Verizon, the state’s second-largest local carrier: They own the copper lines Telscape needs to reach its customers.
Too often, Garcia said, he and his employees have to fight to get those lines moved to Telscape electronic gear in a timely manner. He said they have to fight SBC over billing errors that hold up thousands of Telscape dollars and contend with what he said are questionable marketing tactics used by the Bells to win back customers. Nor can he get SBC to provide high-speed DSL Internet access to Telscape customers.
Garcia figures that isn’t the way the 1996 telecom law is supposed to work.
“If you had a choice, you’d take your business someplace else,” said Garcia, a 27-year industry veteran and former Bell executive, “but you don’t have a choice because they’re the incumbent. They own the network elements.”
A complaint that Telscape filed against SBC more than a year ago with the state Public Utilities Commission is still awaiting a ruling. San Antonio-based SBC contends that most issues already are resolved and says Telscape hasn’t offered proof that SBC’s practices are hurting the tiny company or impeding competition. Nor, it says, has Telscape shown any reason SBC must supply DSL.
The Telscape-SBC scrape is one of dozens of unresolved disputes over technical and other issues that test the 1996 telecom act’s mandate to break up the local-service monopolies.
“I’m afraid that we may be losing some of those battles,” Federal Communications Commission member Kevin J. Martin warned last month.
In Huntington Park, Luz Salas was unaware of the raging phone wars when she walked into a Telscape Telemercado, amid a proliferation of storefronts on bustling Pacific Avenue. Like nearly a third of Telscape’s 70,000 local phone customers, she pays her bills in person at one of the company’s four Southern California telemercados.
“I come in and pay in cash because I know it’s not going to get lost in the mail, it’s credited right away and this is convenient because I can shop in the area,” the 30-year-old Los Angeles resident said. She pays about $20 a month for local and toll calls, significantly less than the $60 to $65 she was paying either of her previous two carriers.
Byrom Medina, 42, of Los Angeles, switched from SBC about four years ago to save money on local, long-distance and international calls. “My wife is always on the phone to Guatemala,” he said. His bills now are about $25 less a month.
Maria Soledad Morales of Los Angeles is saving a similar amount since leaving SBC three months ago. Her motivation, though, included billing errors.
“I was getting billed for calls I didn’t recognize,” she said. “That’s what made me change my mind and come here.”
Store manager Misael Carrero said the ability to customize services was a big draw. “Many customers were oversold by the Bells,” he said.
Typical Bell phone bills that customers bring in show they are paying for seven or eight features, half of which, Carrero said, they don’t use or don’t understand, such as selective call rejection. Telscape has found that its customers don’t want more than three or four features -- usually just call waiting, caller ID and call waiting ID.
And there are people like Mercedes Corleto of Los Angeles: She got rid of all the extras, returning to a basic local line that costs her $10.30 a month.
Though prices have fallen across the nation, especially for long-distance and international calling, Telscape can offer some of the cheapest rates because it uses its own switches. It tailors coverage for a growing niche market historically underserved by the Bells.
“In Southern California, you’re talking 8 million Hispanics,” Garcia said. “On a household basis, it would be 2 million households, and about 70% of those are Spanish-language dominant. That is basically our target market.”
Calling patterns show that the No. 1 U.S. destination for long-distance calling by Telscape customers is Las Vegas, making the city Telscape’s next expansion site soon. But most long-distance calling is international -- 90% of it to Mexico. From the Los Angeles area, most calls go to central Mexico. From San Diego, half the international calls go to Tijuana.
“So, guess what? You come up with a Tijuana plan,” Garcia said.
With switches in San Diego and dedicated lines into Tijuana, Telscape offers San Diego customers an international rate to Tijuana of 1 cent a minute.
“The call to Tijuana is not a typical international call where you talk for 45 minutes -- ‘How have you been’ and so forth,” said Jeff Compton, a Telscape vice president. “It’s a 3 1/2-minute phone call -- ‘I’m leaving work. Do you want me to pick up something at the store before I come home?’ ”
Telscape’s advantage, beyond any services it offers, is that it is part of the Latino community. Telscape’s employees, except for a few including Compton, come from Latino neighborhoods and are trained on the job. Some speak only Spanish.
“They are really a Hispanic company,” said Jeff Grow, who helped Telscape with strategic planning a year ago as an independent consultant. “They are the kind of people their customers are. They are not an English-speaking, standard American company.”
Last year, Telscape began expanding into the Inland Empire and through the Central Valley, paying rates set by state regulators to lease not only copper lines from the Bells but also switches and other gear. The Bells have railed against those wholesale rates, saying they are below cost.
Telscape was about to launch service in Phoenix when a federal appeals court in Washington on March 2 threw out the FCC rules on telephone competition. The Bells quickly sent letters to competitors offering to negotiate new deals, saying that, under the decision, they could raise lease rates.
Telscape put its Phoenix plans on hold. Without those low rates for at least three years, Garcia and Compton said, Telscape won’t be able to grow much or compete effectively. For a small company, a switch to connect calls and provide calling features costs about $5 million.
“This is not like the hamburger business, where you can put up facilities and they can be productive the next day,” Compton said.
Telscape serves 55% of its 70,000 residential customers and 2,000 small-business customers with its own equipment, relying on the Bells only for copper lines.
Other Bell rivals, including giants like AT&T; Corp. and WorldCom Inc.’s MCI unit, can’t follow suit so easily. That’s because Telscape didn’t start from scratch, but with a base of 23,000 customers and three switches.
It was created out of the bankruptcy of Telscape International Inc., where Garcia had been a manager. He and a group of colleagues joined with private investment company TSG Capital Group in 2001 to buy the company’s only two profitable divisions, those in Los Angeles and San Diego. As small competitors around the nation went out of business by the hundreds, the new Telscape remained focused.
“We saw companies reinventing themselves every four to six months. First they were this, and that didn’t work. Then they reinvented themselves into something else,” Garcia said. “Our model from Day 1 was the Hispanic residential market ... and that’s what we continue to be today.”
