Walk this way: Study shows LECs could lose business customers

An increasing number of businesses would switch local telephone carriers if they could, and a vast majority of them would choose a long-distance company, according to Deloitte & Touche Consulting Group's latest survey of corporate users.

"These customers are absolutely prepared to walk," said Stephen M. Martin, a partner in Deloitte & Touche's management consulting division.

Incumbent local exchange carriers could lose as much as $10 billion in annual revenues if business customers defect to other providers, he said. Incumbent telcos face increasing competition from interexchange carriers, competitive LECs, wireless companies and others vying for a piece of the $100 billion local calling market.

Competition for high-margin business customers is especially fierce. Deloitte & Touche's fourth annual survey, based on data from nearly 400 executives, most of whom work for companies that spend at least $5 million a year on telecom services, found that 37% of respondents intend to switch from their current incumbent LEC to another provider, assuming equivalent service. That's a 7% increase from 1996.

Among those intending to switch, 80%-up from 77% last year-would choose an IXC. Another 9% would choose a CLEC; 5% prefer a cellular or PCS provider; 3% prefer a cable company; and 3% would choose an out-of-region LEC.

Most carriers do only a fair job of customer support, the study also showed. Carriers were rated best at resolving network problems promptly and effectively and worst at providing one-stop shopping. The results are consistent with previous surveys and indicate that all carriers, especially incumbent LECs, must focus more on customer support functions such as customized billing and service packaging, Martin said.

Incumbent LECs "have good technology and outstanding reliability, but they fall short on packaging and other customer-touching functions," he said.

According to the survey, 21% of LEC account teams scored a failing grade on quality; the same was true for only 9% of IXC account teams. In general, incumbent LECs trailed both IXCs and CLECs in overall performance. The survey did not report results for individual carriers.

Who's in the best position to capture incumbent LECs' share of the business market? Companies with a lot of capital and credibility in providing network services, Martin said. That category includes IXCs, major CLECs and possibly foreign carriers.

"The demand is not for more competition-the demand is for better service," he added. "If it can be done through competition, then fine."

Some LECs said they hadn't seen the Deloitte & Touche survey and couldn't comment specifically on it. But one executive said this survey is just one of many with differing results. Dave Giffin, GTE's group marketing manager in charge of competitive response, said that his company's research estimates the defection rate at about 10%-much lower than the rate in the Deloitte & Touche survey.

Incumbents also defended their customer service efforts, and some pointed out that IXCs have an advantage over most LECs in being able to sell both local and long-distance service to businesses.

"Business customers require carriers to offer a full panoply of services, and we are prohibited from doing that," said a BellSouth spokesman. The Bell regional holding companies must meet strict regulatory requirements before they can sell long-distance service in their regions. So far, none has done so.