Stocking up on phones

Andrew Leckey

March 18, 1992|By Andrew Leckey

There may have been marketing campaigns more annoying and relentless than the long-distance telephone wars, but you'd think a while to come up with them.

On a daily basis, we are treated in commercials to the passionate words of astonishingly loyal customers of various long-distance companies. Or, in some cases, actors portraying customers. In all cases, those voicing their earnest opinions would much rather fight than switch.

This is in addition to the endless mailings, advertisements and direct marketing telephone calls that also implore us to make a commitment on long-distance.

Choosing a carrier, it seems, stands up there right alongside religious and political preferences.

There is, however, a method to this madness. All that expensive marketing blabber seems to work in gaining and keeping business. For example, Sprint, smallest and least aggressive of the three largest carriers, has been taking its lumps, and even clever endorsements from actress Candice Bergen haven't stemmed the tide.

Mighty American Telephone & Telegraph currently holds 63 percent of the long-distance market share. Erosion of its share has stopped, and it's now growing along with the rest of the industry.

Meanwhile, MCI Communications, steadily gaining market share, has reached 16 percent. Third-place Sprint is hanging on to 9 percent. The rest of the market is divided among much smaller firms.

About half of the business market and 70 percent of the residential market is held by AT&T.

"Nobody can outspend AT&T on advertising budget and MCI has had a strong marketing effort with its popular 'Friends and Family' program for frequent calls," explained Ophelia Barsketis, analyst with Stein Roe & Farnham. "Sprint still isn't exactly sure what its market is and has lost market share, at the same time suffering from management turmoil."

The stock of AT&T was recommended by all four telecommunications analysts interviewed for this column. MCI was suggested by Barsketis, McCabe and Sawers. None recommended stock of Sprint (formerly United Telecom).

"AT&T is doing a better job of protecting its market share, its Universal Card is doing well, it is prospering in Italy and Spain, and NCR Corp. is now running its computer business," observed James McCabe, analyst with Nomura Securities.

While the long-distance business has proven cyclical in nature, stocks of these companies may offer more potential than regional telephone carriers. Double-digit earnings growth over the next several years is quite likely. So, despite a lack of significant dividends, long-distance stocks offer impressive growth prospects once the economy gets on track.

Picking the right long-distance stock is a lot like picking a favorite carrier for one's personal use. You must choose what you appreciate most.

"MCI has proven that it's faster, quicker to the punch and smarter than anyone else," said Gregory Sawers, analyst with Sanford Bernstein & Co. "It's growing at a rate 1.5 times the industry growth rate, and it would also make an ideal partner for any overseas carriers looking to put together joint operating deals."

Biggest trends in the 1990s among long-distance carriers will likely be the increase in FAX operations and the use of video through fiber optics. In a decade characterized by the growth of telecommunications, a number of international carriers should prosper as well, offering additional stock investment opportunities.

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