FCC opens up 800 number market Phone companies battle for business

April 12, 1993|By Hiawatha Bray | Hiawatha Bray,Knight-Ridder News Service

If your business uses toll-free 800 lines, you have a ringside seat for the latest slugfest in the long-distance telephone business.

On May 3, new federal rules will make it as easy to select an 800-service provider as it has been to choose a long-distance carrier.

The new system, called "800 portability," is forcing American Telephone & Telegraph Co., MCI Communications Corp., Sprint Corp. and other phone companies to fight for the customers they have and to try and win more.

One likely outcome: falling prices for 800 service as competition heats up.

"It gives the customers a lot more flexibility than they currently have, and hopefully a bargaining chip when they deal with the 800 carriers," said Paul Rogers, a telecommunications consultant in Howell, Mich.

Already, major long-distance companies have spent millions of dollars on television and print ads touting their 800 services and offering sizable savings to businesses that sign up. MCI, Sprint and AT&T have offered new customers 100 free days of long-distance calls spread over two years.

It is an intense battle for an immense prize: Americans spent $7.2 billion on 800 calls last year.

AT&T began 800 service in 1967, and for nearly 20 years, it was the only provider. Then came the 1984 breakup of the Bell System. In 1987, the Federal Communications Commission allowed AT&T's competitors to enter the 800 business.

Today, MCI, with 15 percent of the market, and Sprint, with 7 percent, are significant players, according to the Yankee Group, a telephone research firm. AT&T has 75 percent of the market, the research firm says.

Gary Morgenstern, a spokesman for AT&T, disputes the Yankee Group's figures. He contends that AT&T's share of the 800 market is between 60 percent and 65 percent, but he declined to be more specific.

Still, AT&T has remained in the lead, partly because technology has made it difficult for companies to change 800-number carriers. Many companies choose 800 numbers that spell out words related to their products. They spend large sums on advertising to get people to remember those numbers. The floral service 1-800-FLOWERS is a good example. Right now, any company with such a number could not switch to a different 800 service. If it did, it would have to change the 800 number.

In the current system, all phone companies that provide 800 service are assigned a set of three-digit exchanges. If you want the number 800-GET-THIS, you would have to obtain your 800 service from whichever company was assigned the exchange GET, or 438.

But with 800 portability, local phone companies throughout the country have installed computers that will be able to route any 800 call through any long-distance company. Soon, 800 users will be able to select any carrier without changing their original 800 numbers.

A user will also be able to sign up with two, three or even more long-distance companies and use the same number for each. With this "number splitting" system, calls could be switched to the MCI network, for example, if AT&T's 800 service broke down.

In addition, the FCC has decreed that many large users of 800 services may break long-term contracts with their phone companies during a 90-day grace period, in order to shop for lower prices. Peter Bernstein, an industry analyst at Probe Research, says this is especially significant, because 40 percent of revenue from 800 services is generated by 300 large companies, many of them airlines, hotels and catalog retailers.

MCI recently accused AT&T of intimidating customers who might want to switch by jacking up their rates after the grace period. MCI asked the FCC to prevent AT&T from imposing any penalties on customers who choose another carrier. AT&T said that as those companies reduce their calling volume, it was justified in increasing rates charged.

So it's open season, with long-distance companies trying to swipe each other's customers. On paper, AT&T may have the most to lose, but Mr. Morgenstern doesn't think so.

"We're not concerned about losing customers at all," he said. "We're excited about the opportunities that are before us to gain additional customers."

Rival MCI thinks AT&T's biggest advantage is inertia. They figure many 800 users don't know the possible benefits of switching carriers. So they've been distributing brochures and holding seminars to explain 800 portability.

"We did some preliminary surveys on portability," said MCI spokeswoman Melissa Robinson, "and we found that the more customers knew, the more likely they were to consider either switching or splitting traffic."

Ms. Robinson declined to say how much additional market share MCI might win. "We are aggressively pursuing all that we can get," she said. "We thrive in a competitive environment."

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