Two years ago, the collect-call market was an unchallenged $3 billion-a-year mother lode for AT&T. Most collect calls are made from pay phones, and AT&T had long-term contracts with stores, airports, and hotels with pay phones. Snagging consumers seemed unlikely: People were accustomed to dialing 0 and the number they wanted, which kept them with AT&T.

But in early 1993, MCI Communications Corp. became intrigued by the untapped possibilities of this market. Now, after a year of watching MCI grab collect callers, even AT&T admits that their rival's 1-800-COLLECT campaign caught the giant napping. "They moved aggressively and quickly in a part of the market that had not been focused on," says Jack McMaster, AT&T's director of consumer-product marketing.

DOUBLE RATES. MCI's collect-calling coup illustrates the company's ability to move swiftly and craft shrewd sales campaigns--tactics that will come in handy as its ambitions expand. 1-800-COLLECT went from conception to launch in just 11 weeks, starting with market research that pointed up the opportunity: Collect calling prices remained relatively high because 57% of such calls come from pay phones that are under long-term contracts with AT&T or other carriers. A 10-minute collect call could cost from $4 to $6.25, depending on where and when you call--twice direct-dial rates.

The conventional wisdom, though, was that the caller didn't care about cost because the other person footed the bill. But MCI research found that of the 300 million collect calls placed annually, 24% are military personnel calling home, 33% are children calling home, and 70% of callers are under 30. That suggested that families might urge relatives to use a discount plan.

MCI Chairman Bert C. Roberts Jr. approved the idea the day it was presented. The first task for MCI marketing mavens was finding an easy alternative to dialing 0 and the number. "We knew the number was really important," says Angela O. Dunlap, president of consumer markets for MCI. The answer: 1-800-COLLECT. It's easy to recall, and it bypasses the carriers that have contracts with pay-phone owners. MCI also lopped rates, by as much as 44% off AT&T's operator-assisted rates. MCI decided not to mention its name, so no one would think only MCI subscribers could use the service. Finally, ads targeted young audiences. Biplanes with 1-800-COLLECT flew over beaches, and television ads feature David Letterman straight man Larry "Bud" Melman.

At first, AT&T dismissed the effort. But by September, the industry leader was pushing 1-800-OPERATOR. Four months later, AT&T had to start over. It turned out that MCI's decision not to mention its name had been a master stroke. AT&T research showed that 50% of those calling the MCI number had assumed it was run by AT&T. Its researchers also were dismayed to learn that lots of callers, instead of dialing OPERATOR, punched in 1-800-OPERATER. And that, unfortunately, is an MCI toll-free number. MCI says it swept up a few hundred thousand dollars in mistaken calls as a result. In March, AT&T started over with 1-800-CALL-ATT.

Meanwhile, MCI has made inroads. The company isn't being specific, and independent numbers are hard to come by, but MCI claims its market-share gains in collect-calling exceed the two points of market share that Friends & Family snared in long-distance. A year ago, AT&T held 75% of the collect market, MCI had 11%, and Sprint 5%. MCI says 18 million U.S. homes received at least one collect call via its 800-number in the program's first year, up from 4.5 million collect calls through MCI the year before. That's something to call home about.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE