Since the 1984 breakup of American Telephone & Telegraph Co., the phone giant has been bloodied by rivals in virtually every segment of the long-distance marketplace, save one: the lucrative, toll-free "800" service. "This is one of the last big pieces of AT&T's monopoly," says Berge A. Ayvazian, a senior vice-president at Yankee Group Inc., a Boston market-research firm.
Starting on May 1, that vestige of the old Bell System monopoly may be blown away. That's when the Federal Communications Commission is set to open up the $7.5 billion market for toll-free service to full competition. For the first time, companies with 800 service will be able to switch carriers without having to change their numbers. In the past, changing meant giving up well-known numbers, often tied to costly ad campaigns--such as American Express Co.'s "Dial 1-800-THE-CARD." That's why, despite six years of competition from MCI Communications Corp., Sprint Corp., and smaller long-distance rivals, AT&T has kept some 75% of the market.
Months before they take effect, the new rules have spawned a noisy scramble. Competitors think they can shrink AT&T's market share to less than 60% in the next year or two. In January, they launched a multimillion-dollar barrage of print and televison ads, and AT&T responded. MCI started offering 100 free days of long- distance service over two years to lure new customers, a promotion that was quickly matched by Sprint and AT&T. MCI has held "battle briefings" in 40 cities, handing each salesperson an "800 Call to Arms" kit in an army knapsack.
'FRESH LOOK.' The battle might have begun years ago if the technology had been in place. In his 1984 order breaking up the phone giant, U.S. District Judge Harold H. Greene tried to open the market to competition. But the switches then used by local phone companies couldn't route incoming 800 calls to carriers other than AT&T, which created 800 in 1967 as an easy way to call collect.
In 1985, the court came up with an interim plan, assigning the first three digits after the "800" to different carriers. But a customer who wanted 1-800-THE-GAME was still limited to the carrier owning the "843" exchange. That, of course, was AT&T.
Under the new system, made possible by improved data bases, customers will be able to choose any available 800 number and use it with any carrier. They can even divide their toll-free volume among carriers. In addition, to give competitors a fair shot at the business, the FCC will allow AT&T's largest customers to reopen any contracts signed since last April that include 800 service. Since those contracts cover far more than toll-free service, reopening provides a juicy opportunity for AT&T's competitors. Between May and August, 1993, customers also will be able to switch 800 carriers with no termination penalties under this "fresh look" provision.
'SLEAZY' WARNINGS. AT&T is not just sitting idly by. In fact, MCI charges that AT&T is using pressure tactics to keep customers in line. AT&T has warned customers that if they don't complete the switch of all 800-service lines from AT&T within 90 days--a difficult move for many large customers--they could incur financial penalties. AT&T is also warning customers that, because of a November federal court ruling, rivals' rates may be illegal. And AT&T has filed a lawsuit against MCI, Sprint, and Williams Telecommunications that seeks to recover damages for what it alleges are their illegal rates.
"This is really a sleazy undertaking on AT&T's part," complains Timothy F. Price, president of MCI's business-services division. "AT&T is the warden of the 800-number prison, and they don't like that the prisoners are being let out." MCI has requested that the FCC clarify the "fresh look" rules. AT&T says that MCI is "attempting to manipulate the regulatory process to achieve its marketing ends." Shaun P. Gilmore, AT&T's vice-president of marketing for 800 numbers, says the company competes fairly.
Some customers are already plotting their moves. William J. Marshall, senior managing director for communications at Bear, Stearns & Co., spends $100,000 a month on 800 service. By shifting more 800 traffic to MCI, he says he'll be able to take advantage of volume discounts that will cut his bill as much as 25% in the coming year. "This change is long overdue," says Marshall. National Westminster Bancorp in Jersey City, N.J., is also making a switch. Two years ago, the bank moved much of its traffic to MCI--with the exception of its 800 number. In May, it plans to switch that to MCI to consolidate all business with a single carrier.
As it has in many other phone markets, AT&T is likely to hold on to most of the 800 business. But in the new world of competition, prices will drop and
margins will be squeezed. For AT&T, the tale is in the numbers: They spell