Dial-around do-si-do

We often hear that voice service is becoming a commodity. But the recent rise of the dial-around long-distance market reminds us that how a person buys a product can be just as important as the product itself-and with the right offer, a carrier can create a new niche.

Dial-around carriers offer discounted rates without requiring customers to hand over all their business. Users bypass their primary interexchange carrier by dialing "1-0," followed by a three-digit code and the phone number.

A number of entrepreneurial companies-including Telco Communications Group and VarTec Telecom Inc.-have found dial-around to be an excellent way of entering the residential market.

"Often, people don't like the idea of switching to one of these off-brand retailers, but they're willing to dial around to them," says Steve Koppman, senior analyst for Dataquest.

Founded in 1993, Telco Communications had revenues of $500 million in 1997 when it was acquired by Excel Communications Inc. Jack McLaine, Excel's president and chief operating officer, says about 97% of that revenue was from dial-around services. The Telco acquisition also provided Excel, which traditionally has focused on the residential market, with a business sales force to support its Prime Business service announced last week.

Dial-around represents more than 90% of VarTec's retail business, a company spokesman says, and annual revenues have grown from $125 million in 1995 to more than $850 million for 1997.

Telco/Excel and VarTec have relied primarily on direct mail to promote their dial-around services. Recently, however, a new name, supported with heavy TV advertising, has appeared in the dial-around market: Some may remember that Telecom USA was the fourth-largest IXC when MCI bought it in 1990. It now operates as an MCI subsidiary, serving as a vehicle for the carrier to test new offerings, including dial-around.

MCI doesn't use its own name for the service because consumers might think they have to be an MCI customer to use it, a spokesman says. After a test in 19 cities, the program went national in late 1997.

VarTec and Excel are delighted by MCI's entry into the market. "MCI has pulled our business along," says the VarTec spokesman. "Once people see the ads on TV, they realize that this is how a lot of people make their calls. Then they do their due diligence and figure out which [offering] they like the best."

Dial-around's rise is a reminder that, as the U.S. public becomes increasingly fed up with telecom telemarketers, those efforts seem to be facing diminishing returns. AT&T, in particular, has a large base of customers who simply won't switch and who don't qualify for or can't be bothered with a calling plan. But many of these stalwarts will dial around AT&T.

MCI/Telecom USA offers some discount off AT&T rates at all times-and 50% off calls lasting 20 minutes or longer. The spokesman says the vast majority of calls last at least 20 minutes.

Excel, which uses the trade names Wholesale Discount Club and Dial and Save, targets light long-distance users who don't qualify for a calling plan with discounts of 10% to 20% off AT&T rates on all calls. The offer is popular with retirees, says McLaine, joking, "These are the people the telemarketers can't get off the phone." He adds that more than 2 million people have used the service and that the company has been able to convert 80,000 of them to pre-subscribed service.

VarTec traditionally has targeted heavy users with its Dime Line program. Users pay a $5 monthly membership charge in order to obtain rates as low as 5 cents a minute, with a three-minute minimum. Initially, the company targeted certain income levels, the spokesman says, but it now gets the same response rate by mailing to everyone in an area.

VarTec's dial-around customers average $25 to $30 a month in long-distance charges, while Excel's average around $15. Recently, though, VarTec has begun to target lower volume users in select markets with its Ten Talk program. Rates are slightly higher, but there is no membership charge; users dial a different three-digit code than for the original offering.

Like sport utility vehicles, Polar fleece and echinacea, dial-around has hit the mainstream.