A word from our Sponsors: BroadPoint's unique revenue plan holds water

The idea comes to him in the shower. Perry Kamel is scrubbing away, listening to the radio, when a couple of ads catch his attention. Fascinating, he thinks, that a medium like radio airtime is paid for by making people listen to commercials. The phone rings. Towel-clad and dripping, Kamel goes to the phone and answers. It's his brother calling long-distance, which, he claims, is too expensive for him at the moment-i.e., could Kamel call him back and pay for the charges?

Expensive long-distance. Advertising for airtime. What if, Kamel thinks, you could get long-distance free if you just listen to a few ads? Like radio, like television.

That's how, in a bathroom in Maryland, BroadPoint Communications and FreeWay long-distance service were created.

Okay, so the idea wasn't completely shower-born. Kamel, now the CEO of BroadPoint, a new carrier based in Landover, Md., does have a master's degree in engineering with a focus on telecom. He's also got an MBA in strategic business development. He's been tracking the telecom industry for years, looking for innovative ways to create new revenue streams. It just happened to be catalyzed in the shower.

"When you look at the structure of the telecom industry, sponsored service is inevitable," he says. "Look at cable television. It was entirely paid for by consumers early on. As the technology progresses, there's more advertising. That's the migration of this business."

Soon consumers nationwide will begin to expect advertising as a trade for free long-distance service, he says. It's just a matter of time.

It's good to have high goals. Of course, BroadPoint started somewhat smaller than that. With funding from Duquesne Enterprises, an energy company with several communications ventures, trials of the FreeWay service began in early April. It was limited to 10,000 subscribers in Pittsburgh. Interested consumers logged on to the company's Web site, filled out an application asking for specifics such as profession and ethnic heritage, and got a personal identification number. Then they were ready to roll.

Subscribers dialed an 800 number, entered the PIN and listened to ads specifically targeted to them. Each five- to 15-second message earned them about two minutes of free calling time. A minute of ads gets you about eight minutes of long-distance. Not bad.

Consumers are more responsive to this "permission-based" marketing because, well, they asked for it, Kamel says.

Subscribers may be eating this stuff up, but they're not the only ones. Advertisers get the bonus of targeting their promotions. They can send the right messages to the right people. They can request that their ads be sent only to a group of people that fit a specific demographic. They can run it for as long as they want.

Contrary to some analyst predictions, FreeWay's subscribers aren't just poor people looking for discounted calling. "Well-off households continue to subscribe," says Kamel. "The idea that if you have money you won't look for a good deal is ludicrous."

Linda Doernberg is a Pittsburgh resident and FreeWay user who considers her family "upper middle class." She couldn't agree more. "If I was an advertiser, I would want to target me. I'm a real consumer. I do spend money, and I still like the savings."

Doernberg finds the targeted messages "pleasant to listen to." She looks forward to the ads she'll hear next. "I like that power of suggestion."

She eats at restaurants "recommended" by FreeWay. She tunes in to info about the latest plays and concerts in the area (her application highlights her interest in the performing arts). And she appreciates that her college-bound daughter can call Pittsburgh from another state and still get the FreeWay benefits.

BroadPoint is closing in on its ceiling of 10,000 subscribers and has signed up 50 advertisers, some of whom are testing the service through an early promotion. One of these early converts is Vermont Teddy Bear, a company that delivers toys across the country.

Irene Steiner, marketing manager for Vermont Teddy Bear, says the company has sold six of their products as a direct result of FreeWay. Okay, that may not sound like a whole lot of bears. But when you consider that the company is testing the service for free-and that the majority of its marketing budget is spent on radio ads during shows like Howard Stern's-it's a decent result, she says.

"It's a concept we really love," Steiner says. "We can't wait for them to go national."

Going national is, after all, BroadPoint's goal. Kamel hopes the service will be rolled out across the country as early as this fall-though they're debating whether it should be on a city-by-city basis or if it "should just be available to everyone," he says.

BroadPoint recently signed on Media AdVentures, a Chicago-based media marketing and sales company that works with advertisers such as Blockbuster Entertainment, The Wall Street Journal and Acura. The venture will allow BroadPoint to use advertisers that wouldn't normally want to just target 10,000 people, Kamel says. "We anticipate a much broader rollout."

That's all fine, but in the midst of juggling the various sponsors, how does BroadPoint advertise its own services? Answer: It doesn't. It's no longer necessary, Kamel says. The company ran a few print ads before the trials began, but because word of mouth spread so rapidly, it stopped advertising altogether at the end of April. Since then, the subscriber base has doubled.

"We call it virus marketing," he says. "People love it, and they tell other people about it. The service is marketing to consumers all by itself."

Doernberg can attest to this. Her daughter gave a report on the service to her high-school writing class. Later, the phone was ringing off the hook with kids calling and asking about it. The daughter, now in college, has a lot of friends who wish they lived in Pittsburgh. Meanwhile, FreeWay still gets written about and covered often on television news, Doernberg explains.

Despite all this hoopla-which happens with anything free-few analysts see the service as something that will someday be universal. John Omerod, a partner with Arthur Andersen's Global Communications and Entertainment Group, believes there is a good market for this kind of offering, though some groups of people will never want it.

"For some people, it's a matter of style, not a price issue," he says. "They just don't want to listen to advertisements to have a conversation."

He adds that services like this are impractical if you need to call someone right away, especially in the case of emergencies.

Omerod is based in England. He's been following the trend of trading ads for long-distance in Europe for the past two years. The most successful offering, he says, has been from Swedish carrier GratisTel. With its service, calls are actually interrupted with ads to continue free calling time. Users on both sides of the call hear the ads. Customers can also connect with advertisers to buy goods.

Services like this could be very successful, Omerod says, but it helps to see them as a totally new method of communications.

"It's not really just free telephony, it's more new media," he said. "When you talk about a newspaper, do you talk first about how advertising is paying for it? No, you talk about its content. It's the same with the Internet."

He explains that the service can be a good competitive tool for carriers and is extremely powerful for advertisers: "Say, for example, on a Thursday, an airline has one million discounted tickets that will only be available that week. It could insert an ad on a service like this, run it to the people it wants to target for a certain amount of time and sell all the tickets. There's an incredible immediacy."

BroadPoint's Kamel feels that FreeWay is a whole new way to offer phone service. "Soon people will recognize this as not just a novelty but a paradigm shift."

He hopes to eventually incorporate the service with other applications, including wireless and videoconferencing services, and says Broadpoint developed the FreeWay technology with that in mind.

"For a carrier, it's such a good way to infuse a totally new revenue stream," he says. "It's a healthy thing for the telecom industry, and the time has come to recognize that."