Busy Signals

Two marketing executives were swapping cell phone numbers before splitting up at a trade show in Chicago. Both phones had New York numbers, so someone asked, “Will you really call long distance to talk with each other in the same building?”

“Long distance?” one exec scoffed. “It’s all 10 cents a minute.”

Or seven cents, or five. The price of phone time is quickly becoming a loss leader as telecoms get ready to compete in newly opened markets. The rush began in December when Bell Atlantic and MCI WorldCom entered New York City, one of the first markets to open local competition under the Telecommunications Act of 1996. (Bell Atlantic, which absorbed NYNEX, expects to capture 26 percent of New York’s long-distance business.) As more cities open this year, telecoms will offer more bundled services and step up loyalty marketing programs.

Telecom revenues have jumped $57 billion since the Telecom Act, which actually spurred more competition than the original breakup of AT&T in 1984, says Federal Communications Commission chairman William Kennard. Long distance revenues hit $88 billion in 1998, the FCC reports.

Telecoms will spend an estimated $4 billion on marketing this year, with as much as $1 billion earmarked for consumer promotions. Long distance companies spent more than $2 billion on advertising alone last year, per Competitive Media Reporting, New York City.

By bundling local, long-distance, Internet, wireless, and paging services, long-distance companies can make up the margin they’ve lost in vicious price battles. In the meantime, Regional Bell Operating Companies (RBOCs) – the Baby Bells – will use loyalty programs to retain customers as they face local-service competition for the first time.

Observers expect enough markets to be open by year’s end to spur all-out campaigns including network TV for regional Bells and value-added promos. Bundled service will be a widespread strategy in two years; it’s starting now with local/long distance bundles. “RBOCs will follow Bell Atlantic’s New York template [bundling local/long distance], and we’ll see more bundling in the next two years,” says Jim Kaczkowski, vp-account director at Robinson & Maites, Chicago, which is Irving, TX-based GTE Corp.’s agency.

“The overall strategy is bundling,” concurs Rick Barlow, president of Frequency Marketing Inc., Cincinnati. “What they’ll do with loyalty marketing on top of that is anyone’s guess.”

One big question mark is when the FCC will approve the $129 billion merger between MCI and Sprint announced last October. Once the two merge – the deal is almost certain to go through – they’ll be neck-and-neck with Basking Ridge, NJ-based market leader AT&T. The merged company will push what Washington, DC-based MCI calls “all distance” service built on MCI’s switch service (the kind that plugs in) and Sprint’s wireless business.

MCI already has the most aggressive loyalty program in the industry and gives away the most frequent-flier miles. A merged WorldCom might “step in early with ads to keep their brand image in front of consumers, even if they don’t have local service in every state,” says analyst Cliff Thornton of Probe Research, Cedar Knolls, NJ.

“It’s an interesting dichotomy. As companies race to lock up consumers with bundled services, there’s a careful balance to avoid under-delivering on product and over-delivering on promotion,” says Joe Mandacina, Sprint director of new-business development. “If you over-promise on promotion, you may get the wrong customer – one who responds to the promotion and not the service.”

Loyalty marketing will grow from an estimated $100 million endeavor now to as much as $2 billion by 2003. Still, telecoms “will be reluctant to jump in with major loyalty programs before they know how profitable [new] business will be,” Barlow says.

Baby Bells have a database advantage on their home turf, so they’ll woo existing customers with direct-mail offers. Denver-based US West is revamping a Premier Circle program that broke in West and Midwest markets last fall, giving top customers coupons for travel and goodies from local retailers. Such “thank you gifts” help incumbents build brand awareness – and maybe loyalty – before competitors come knocking. Telecoms have a “tacit understanding that this kind of campaign will hold for now until they figure it out,” Barlow says.

DIAL A MILE

But that won’t be enough to retain customers if newcomers have a better offer – cheaper high-speed Internet access, for example, or frequent-flier miles. Barlow predicts that telecoms will reinvent loyalty marketing over the next 18 months, creating a new currency to top airline miles. He won’t say what that currency might be – he’s patenting five ideas of his own – but suggests new technology like high-speed Internet access would make good in-kind rewards.

Implementing loyalty marketing will be very tricky for former monopolies, Kaczkowski says. “Customer service reps were trained to work for a utility. Some red carpet club [will be] hard to run with 5,000 reps trained to get people off the phone in 26 seconds,” he explains. And catalogs are a poor substitute to serve communication-intensive consumers who expect flawless customer service.

Even catalog programs have caught static. AT&T struggled with its True Rewards program in the early ’90s because it diluted catalogs with too many partners and a confusing points structure. True Rewards folded after two years. AT&T was shopping for partners last spring, but hasn’t launched a new program.

Overland Park, KS-based Sprint relaunched its 10-year-old Sprint Rewards program last September with an “Anytime, Anywhere” travel component via Sprint Travel Centers. Members who collect enough points can get a travel pass good anytime, anywhere. Sprint recently narrowed its Rewards focus to travel, cash, PCS phones, long distance time, and Radio Shack discounts. “We didn’t want another merchandise catalog with everything from hair dryers to golf clubs,” Mandacina says. “Periodic partnerships” with the likes of E*Trade (sign up for the online brokerage service, get 1,000 free minutes) last a month or two to keep things interesting. DraftWorldwide, Chicago, handles.

Sprint rewards college students who use long distance or Sprint Prepaid Foncards with Cool Rewards, an online catalog of premiums such as Sony Music CDs and Sprint PCS phones. Campus bookstores give out scratch-off gamecards that send students to the site to sign up. Those who spend $25 a month for three months get catalogs via mail or e-mail.

Sprint is doing fewer promotion overlays (like its 1998 Titanic video giveaway) and instead is focusing on end-to-end consumers. Borrowed-interest promos suited a “boring category” like long distance, but broader equity in bundled services “doesn’t need a heavy dose of promotion,” Mandacina says.

MCI WorldCom continues its airline miles program, with nine domestic airline partners and one international associate. But its big push this year will be to convert customers to e-service online billing. A February-March sweeps called the Million Dollar Phone Number Game sent customers to MCI’s Online Account Manager site to sign up for online management. Visitors punched in their phone numbers as a sweeps entry for a chance to win $1 million, $10,000, a computer, or 100 free minutes.

Baby Bells have honed their skills promoting mundane services like call forwarding and paging. San Francisco-based Pacific Bell sparked California markets with a 1998 campaign called Found You. Reps armed with cell phones roamed the streets, handing a ringing phone to a passerby who won something just for answering. The caller gave a short pitch for call forwarding, then awarded tickets to a sporting event, movie, or concert. PacBell even set up mini-living rooms on street corners complete with easy chair and phone table. The first passerby to answer the ringing phone won a prize. Upshot, Chicago, handled.

Watch for similar attention-grabbers as telecom cold calls heat up.

Bell Atlantic serves a wide range of business customers, from mom-and-pops to major corporations. Its five-year-old loyalty program, Business Link, gives 15-percent discounts to small and mid-sized businesses. The program’s 500,000 members also earn “bonus credits” they can redeem for direct credit on their phone bills or business-related products from Bell Atlantic or its partners. Occasional solo mailings carry special offers and announce new partners.

Business Link identifies the one person in each company who chooses telecom service and monitors rewards. “In business-to-business, it is a huge challenge just identifying the right people,” says Richard Barlow, chairman-ceo of Frequency Marketing, Inc., the Cincinnati company that handles Business Link. The program has built brand awareness and cut defection, thereby solidifying Bell Atlantic’s position as new competitors enter its region.