Mci's Winning Pitch

Linda Watkins-Ovbokhan knows people all over the U.S. So when MCI Communications Corp. unveiled its "Friends & Family" program a year ago, she became an unofficial saleswoman for the No. 2 long-distance company. The lure? MCI's 20% discount on any call to another participant in a circle of up to 12 customers. The 36-year-old Chelsea (Mass.) resident converted four people from American Telephone & Telegraph Co. for her circle -- including her reluctant mother. "I had to talk to her about it for a month," says Watkins-Ovbokhan." Believe me, it took convincing."

MCI has long intimated that there are thousands of such unpaid supersellers around the country. Now, it's offering proof. Of the estimated 7.5 million customers who will have signed up with Friends & Family by the end of March, a stunning 5 million are new to MCI, claims Senior Vice-President Timothy F. Price.

After accounting for losses elsewhere, MCI says it has gained a net 2.5 million subscribers and boosted its share of the $27.5 billion residential market by nearly two percentage points, to 16%. That's half a billion bucks in fresh revenue. Price says that Friends & Family customers call 25% more than they used to, at least initially, and are 20% less likely to drop MCI. He won't comment on Friends & Family's profitability, which has been weighed down by $100 million in advertising and by the 20% rate cuts. But Joel Gross, an analyst at Donaldson, Lufkin & Jenrette Securities Corp., predicts it will boost profits in 1992's second half, thanks to increased volume.

NO MATCH. MCI's rivals are fumbling for a response. No. 3 Sprint Corp. is aiming a major campaign at the residential markets this spring. As for AT&T, it began TV ads last month that snipe: "AT&T offers you savings and you don't have to work on them." What AT&T can't do, though, is match MCI's offering. That's because it relies on local phone companies to calculate its residential bills, so it doesn't have centralized records of when one AT&T customer has called another.

AT&T might shy away from a Friends & Family lookalike anyway. Why? Because it holds 62% of the residential market, and those customers are calling other AT&T customers about 62% of the time. Discounting those calls would mean a huge revenue hit. MCI, with its smaller residential share, can discount calls to other MCI customers without suffering such a big penalty. "This is what we call corporate jujitsu," says MCI's Price. "You look for your opponent's weakness and home in on it." Friends & Family may be earning MCI a black belt in marketing.

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