The Pitch: New Tricks of the 10-10-XXX Trade

By Khali Henderson

Posted: 09/2000

New Tricks of the
10-10-XXX Trade
By Khali Henderson

With day parts, fees and free tie-ins, marketing consumer long-distance services could be considered somewhat of a black art–exemplified in no small measure by dial-around services. Almost magically, purveyors of casual calling services have overcome limited marketing budgets, large carrier backlash, a bill-padding scandal and spiraling InterLATA long-distance rates. And, according to one Forrester Research Inc.
(www.forrester.com) study, they continue to attract 15 percent of all consumer callers. How do they do that? Or maybe the better question is, why?

Pricing

Dial-around services, which give consumers the ability to use another long-distance carrier by first dialing 10-10-XXX, are advertised as discounted over basic rates offered by other carriers serving consumers, i.e., The Big Three.

While the advertised per-minute rate they originally offered for InterLATA calls was indeed lower than going rates, these upstart companies were discovered to have been tacking on billing fees or monthly minimums. Simple math told callers that the net per-minute rate did not reflect the expected savings. Revealed and reviled by consumer advocates, most 10-10-XXX companies have since traded gratuitous line items on their bills for subtler full-minute billing (compared to six seconds for most subscription plans) and per-call minimum usage (see “Comparison Shopping: Selected Interstate Dial-Around Pricing Plans” chart, page 160).

One example is 10-10-220, a service of WorldCom Inc.
(www.wcom.com) subsidiary Telecom*USA (www.1010220.com). Who hasn’t turned on the tube to see Dennis Miller lamenting inflation as a preamble to pitching 10-10-220–all calls under 20 minutes cost less than a buck? Translation: 99 cents whether you talk for one minute or 20.

10-10-220 is not the only one using this tactic. VarTec Telecom Inc.
(www.vartec.com) requires a 10-minute, or 50-cent, minimum for calls using its 10-10-811 service, better known as
FiveLine. Call For Less by WorldxChange Communications (www.worldxchange.com) requires a 10-minute, or 40-cent, minimum.

A variation on the theme, Telecom*USA’s other dial-around service–10-10-321–requires callers to talk for 10 minutes in order to get the discounted rate of 8 cents per minute. Calls less than 10 minutes are 16 cents per minute. A nine-minute call, then, would cost $1.44 while a 10-minute call would cost 80 cents.

At the same time dial-around companies have changed their pricing packages, they also have adjusted their rates. Over the past two years, for example, VarTec’s DimeLine became 9Time and then today’s featured product, FiveLine. A company spokesperson explained that 9Time, although still available, was marketed aggressively for only about six months before the company lowered its rate a second time to 5 cents per minute in response to changing market conditions.

In another example, WorldxChange’s Lucky Penny Plan went from 10 cents per minute to 7.9 cents. Dial & Save by Telco Communications Group (an Excel Communications Inc.
(www.excel.com) company) also dropped from 10 cents per minute to 4 cents per minute, but only during off-peak calling times (7 p.m. to 6:59 a.m.). All other times, it remains a dime per minute.

At 10, 7 and even 5 cents apiece, these dial-around rates aren’t the head-turners they once were, especially considering the competition includes Sela Ward’s seductive pitch for Sprint’s 1,000 minutes with free Internet call waiting. Apples and oranges? Maybe, but according to Forrester’s survey, dial-around callers are not significantly different demographically from subscribers.

Marketing

According to Forrester, subscribers and dial-around callers have nearly identical incomes and similar ages. The only differences were slight and predictable. Dial-around callers spend $30 per month on long distance versus $26 for subscribers. Dial-around callers also switch providers more often. Almost twice as many dial-around callers–22 percent versus 12 percent of subscribers–have changed long-distance companies in the past three months.

Targeting these customers is a difficult business, resulting in dial-around carriers stealing the same customers from each other, say Forrester analysts in their report. “Since 85 percent of the population has yet to use a 10-10 dial-around service, there is potential here–but it will come at a hefty price,” Forrester analysts state in their report, referring to the high cost of mass marketing to untargetable prospects.

Perhaps this is why just a few of the hundreds of telecommunications providers have adopted dial-around as a product and not merely an equal access code. The ones that have are doing so for varied but strategic reasons.

Because of their arm’s-length, nonbranded offers, it is widely acknowledged that WorldCom (as Telecom*USA) and AT&T Corp.
(www.att.com) (as Lucky Dog) offer dial-around services in an effort to stem the tide of lost customers. Forrester’s May survey showed that dial-around callers are subscribers to AT&T, WorldCom or Sprint Corp.
(www.sprint.com) in nearly equal proportion.

Interestingly, the larger carriers are using dial-around in response to the initial successes of their smaller competitors, whose efforts were inspired by their inability to compete with the larger carriers’ massive advertising budgets.

“For lack of a better way to say it, we are a no-name carrier,” says Rick Eberhardt, vice president of sales and marketing for WorldxChange. “We don’t have a big advertising budget; we don’t advertise much at all. We rely on word-of-mouth via our agents. The only way we have found to convince callers to try us is to hit their greed button. We have to be better because the competitor advertises.”

Being better has become harder over the years because of lower rates and the fact that the larger dial-around companies still have the benefit of large advertising budgets.

“We [the competitors] all have the same look, the same service and the same customer. AT&T and MCI [WorldCom] have multimillion dollar advertising budgets. All we can do is hit their greed button,” says Eberhardt.

WorldxChange has three dial-around calling plans tailored to customers with varying calling patterns. Its most compelling offer, Call For Less, for example, offers rates of 4 cents per minute with a 10-minute minimum.

While AT&T and WorldCom rely heavily on broadcast advertising, smaller dial-around companies use primarily direct mail and print advertising. All the companies have embraced the web to capture the attention of cost-

conscious online shoppers. Only Worldx-Change is marketing 10-10-XXX services using its agent channel.

New Targets

While still reporting revenue growth from interstate dial-around service, Eberhardt says marketing the interstate calling services has become more difficult in the past year because of lower rates. The global communications company has found a growing base in international callers. The company’s overall traffic breakdown is 60 percent domestic and 40 percent international; dial-around services reflect similar proportions, Eberhardt says.

WorldxChange is actively marketing to international through direct mail with country-specific rates listed and targeted advertisements in ethnic newspapers. To reach Polish callers, for example, it buys ads in a Polish newspaper delivered to a community just outside of Chicago.

Chart:Comparison Shopping: Selected Interstate Dial-Around Pricing
Plans

Startec Global Communications Corp. (www.startec.com) has found similar success. The company began as a dial-around carrier, offering low rates just to India. The company has targeted different ethnic communities in succession over the years using in-language advertising in newspapers, radio and TV programming targeted toward these consumers.

“Ethnic people are intelligent people. They like to phone home, and they are going to find the least expensive carrier out there,” says Eberhardt.

One way they may be looking for cheap calling is on the Internet–a tool that has helped dial-around companies in reaching international calling markets. WorldxChange and its agents place banner ads enticing callers with low rates. Once at the website, they can locate their desired rate with an easy-to-use country rate finder.

The Internet also enables a company to tailor its message to the prospect in his own language.
Startec, for example, lists 13 language choices for information on its 10-10-719 service
(www.1010719.com). Qwest Communications International Inc.
(www.qwest.com) provides four for its 10-10-432 (www.1010432.com) service, as does Excel for its Telco Choice services.

Although the Forrester study did not account for immigrant status among dial-around users, analyst Patrick Callinan says it makes sense to target ethnic communities living in the United States since they tend to make a lot of calls to their home country and are looking for the best rates. A transplant from Ireland himself, Callinan says he suspects a significant number of such callers trying 10-10-XXX are unlikely to go back to using their presubscribed carrier. “Once I found that using 10-10 I could get 2 cents [per minute] to Ireland, AT&T and MCI lost me forever,” he says.

Conversion

While the companies PHONE+ talked to said the dial-around products were profitable in their own right, most also offered subscription plans featuring similar or the same rates.

Eberhardt says WorldxChange “loves conversions,” citing Wall Street’s recognition of subscribers, not casual callers, as assets.

WorldxChange has several programs for converting dial-around callers to subscribers. Its website, for example, explains the choice to prospects. And, about once a month, callers to its 10-10-XXX numbers hear a recorded invitation about the benefits of presubscription, including a one-time $10 credit on their next bill.

WorldxChange is not alone in this endeavor. Startec noted in its first quarter report that it has consciously slowed its advertising expenditures to concentrate on utilizing its customer care facilities for an outbound telemarketing program to convert its dial-around customer base to subscriptions and bundled services.

“We are moving away from dial-around,” says Huma Pabani, manager of commercial and carrier services for Startec. “We are trying to show our customers that they can use us for more than just low-cost calling to that one country.”

To do this, Startec for the last six months has been using direct mail and its outbound telemarketing center to offer 10-10-XXX customers a subscription plan. Incentives include free minutes and first-month discounts.

“Our hope is that since many customers came to us for the comfort of in-language service, they will become a dial-1 customer for the same reason,” Pabani says.

So far, Startec’s hopes are being realized. “We have seen significant results from our efforts to convert dial-around callers to subscribers, and we will continue our efforts,” Pabani says.

Khali Henderson is editor in chief of PHONE+ magazine.

Bridging the Digital Divide
By Khali Henderson

The latest in the dial-around fare is 10-10-2000, which opened for business at the beginning of the new millennium. Unlike its predecessors, 10-10-2000 isn’t about cheap long-distance rates. It offers an alternative Internet access option for users at risk of falling into the digital divide.

The service, provided by startup BAMnet Corp.
(www.bamnet.com), is designed for web users who can’t get a local Internet access number and must pay toll charges to their telephone company in addition to monthly access fees to their ISP to get connected. BAMnet’s patent-pending service does not require monthly access fees, user names or passwords, nor dial-up software. Users connect and pay 6.5 cents per minute billed to their local telephone bill. The BAMnet network is provided under a resale agreement with Capsule Communications Inc.
(www.capsulecom.com). LEC billing services are provided under an agreement with HBS Billing Services
(www.hbsltd.com).

BAMnet founder, chairman and CEO Michael Meighan says the idea came several years ago when he learned people were paying monthly Internet fees and toll charges.

Because the service addresses a niche market, Meighan says that attracting financial support has been a slow process. But in July, the company signed a key partnership with The New Internet Computer Co.
(www.thinknic.com), backed by Oracle Corp.
(www.oracle.com) chairman and CEO Larry Ellison. The company’s mission is to bring Internet access and e-mail to anyone who wants it. To do this, it has created an appliance called The
NIC, which eliminatesthe cost and maintenance requirements. Starting at $199, The NIC costs less than the cheapest PC. It supports popular plug-ins like Real Player, Java and Flash. To use The
NIC, buyers plug The NIC into a phone line and pop in The NIC startup CD to get online.

The NIC Co. has a partnership with free ISP NetZero Inc.
(www.netzero.com) for Internet access where available, and with BAMnet for unconnected locales. Under the partnership with
BAMnet, literature and on-screen icons are incorporated into The NIC’s CD and packaging.

In addition to rural and unconnected users, BAMnet will also target the service to people who do not want to be tied to monthly contracts or need backup access when their primary account is busy. Other potential customers are people who surf for less than five hours per month and corporate employees that only occasionally need to connect at home.