Waging Long Distance Wars From The Back Office

In 1986, the year their company lost $448 million, the senior executives of MCI Communications Corp. decided to go on a spending binge. That was daring in troubled times. Even more daring, the money went for mundane back-office computer systems. But that investment is really paying off. By spending an estimated $300 million to replace its creaky computer systems with some of the most advanced in the industry, MCI is able to offer services that other carriers can't easily match. Computers made it possible, for example, for MCI to offer big-company billing services to smaller businesses, as well as a consumer discount plan called Friends & Family, launched on Mar. 18. So extensive is the modernization that James L. Zucco Jr., senior vice-president for systems engineering, describes MCI's phone network as one big "computer with long wires."

MCI is in the thick of a new long-distance battle that isn't being fought with fiber optics or high-tech phone switches. This is a marketing battle that centers on clever use of computer systems to drum up business. American Telephone & Telegraph Co. is gearing up for the fight by spending heavily to knit together a variety of billing and customer-service systems, many dating from before the 1984 breakup of the Bell System. And U. S. Sprint Communications Co. is rolling out a state-of-the-art billing system to replace the trouble-plagued one that emerged from the 1986 merger of the long-distance operations of GTE Corp. and United Telecommunications Inc.

Increasingly, the contest for phone business boils down to providing more than plain-vanilla phone service. Customers are demanding special features such as four-digit speed-dialing for intracompany long-distance calls, which used to be available only over private networks of leased circuits. They also want tailored bills that pull together charges from all company locations. Carriers that can't meet those demands will lose business, says Alan A. Burgess, an analyst with Andersen Consulting. Says Dennis Murphy, Time Warner Inc.'s director of telecommunications and a big MCI customer: "Billing is a key factor in selecting a carrier."

Computers are the cornerstone of new services such as MCI's Friends & Family, which gives residential customers 20% discounts on calls made to as many as a dozen preselected locations--as long as the folks being called are also MCI customers. The program's genius is that it gives MCI customers a strong incentive to recruit new subscribers.

SOUNDS SIMPLE. The technology behind Friends & Family isn't ground-breaking: It comes from MCI's having a single data base listing all its customers. After preparing a customer's bill, the computers check to see which calls are made to the preselected locations and thus qualify for discounts. Then, the bills are sent to the local phone companies, which print and mail them. Sounds simple. But it can't be done by AT&T, because its residential bills are not only printed by the local phone companies but calculated by them as well. AT&T's closest offering is SelectSaver, which discounts calls made to certain area codes.

U. S. Sprint probably could duplicate Friends & Family by tweaking its new Invoice Processing System, which serves small and midsize customers, says Danny Briere, president of Tele-Choice Inc., a consulting firm in Montclair, N. J. But Briere says that Sprint's first priority is to finish a long-delayed version of that billing system for its biggest customers. George Fuciu, Sprint's senior vice-president for program management, says Sprint sees no big demand for a program such as Friends & Family in any case.

Of course, creative billing isn't the only factor in carrier selection. Kroger Co., the Cincinnati-based supermarket chain, picked Sprint for its voice traffic because the carrier's all-digital network could easily handle data if the regular data lines failed, says Jeffrey Wilson, communications technology supervisor. MCI's network won't be fully digital until the end of this year.

And don't count out AT&T. Earl Vogt, vice-president and manager of telecommunications for U. S. Bancorp in Portland, Ore., says he picked AT&T as his main carrier because he trusts it to take care of his needs. Says Vogt: "Sprint and MCI may have cleaner software, but AT&T will throw people at a problem and get it solved."

So MCI hardly has it made. Still, its executives are glad they decided in the dark days of 1986 to invest in computerization. Says Chairman William G. McGowan: "To survive and especially to thrive in this industry, you've got to be completely automated." Mundane it may be, but back-office computing is shaping up as a key competitive issue for long-distance companies in the 1990s.


Spending heavily to pull together a hodgepodge of old computerized billing systems, many from before the Bell System breakup in 1984


Beefed-up computer systems permit innovative residential calling services, such as the new Friends & Family plan, which offers 20% discounts on calls to preselected parties


New billing system is a vast improvement, but the version for large customers has been repeatedly postponed


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