LEADING NATIONAL ADVERTISERS: NEW SERVICE, OLD FRIENDS FOUGHT OVER BY TELCOS: TOP COMPANIES PLAY UP CORE BRAND STRENGTHS

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The parameters of telco marketing are about to shift.

Major long-distance companies are entering local markets. Their marketing war chests are backing heavy direct mail, promotions and sponsorships in addition to stronger-than-usual media advertising designed to preserve strong national images.

Regional Bell operating companies are boosting local ad spending to fend off backyard preditors ranging from AT&T Corp., MCI Communications Corp. and Sprint Corp., to newcomers like WorldCom and a myriad of start-ups.

$2 BIL IN AD SPENDING

The telcos alone amassed media expenditures in first-quarter '97 of $576 million, up 27%; the industry's full-year '96 media spending hit $2 billion, up 13.6%, according to Competitive Media Reporting.

"Competition is about to shift dramatically, moving to the local level and to different issues. Advertising will turn from price-based claims to emphasize brands, corporate personality, value and incentives," says Brian Adamik of Yankee Consulting Group.

FLURRY OF LAWSUITS

So far, the Telecommunications Act of 1996 has resulted primarily in a flurry of lawsuits as neither the long-distance carriers nor the local providers wants to be first to let the other side into its market, as the act allows.

Wide-open competition will begin sometime next year, predicts Richard C. Toole, telecommunications analyst with Merrill Lynch, New York. "Each company hopes to provide a neat package of communications services such as local, long-distance, wireless, Internet and videoconferencing, all through one bill, which consumers say they prefer," he says.

Instead of focusing on individual products or lines, companies like AT&T, MCI, Sprint and the Baby Bells will become master brand marketers, while a host of small players attack on price and product at the ground level, predicts Jeffrey Kagan, president of Kagan Telecom Associates.

BEEFING UP NET TV

AT&T is beefing up its brand in network TV, print and outdoor advertising-reinforcing simplicity, accessibility and reliability. MCI is at the forefront of the brand-building movement with its "MCI One" campaign touting total communications solutions.

WorldCom overnight has become a peer of MCI and GTE Corp. through its acquisition this month of CompuServe's network services unit and America Online's ANS division, a high-speed Internet access unit. The enlarged company now has a formidable one-two punch in local phone service and cyberspace.

Long-distance resellers, meanwhile, are stuffing consumers' mailboxes with direct-mail offers for cheaper long-distance service.

SMALL COMPANIES GAIN

"Small companies, by exploiting niches and targeting special audiences within a local market area, are going to take a big bite out of Baby Bells' local business long before the big long-distance players do, " Mr. Kagan says.

The competition is sure to result in significant fragmentation of the estimated $200 billion telecommunications market over the next few years.

"By 2000, at least 20 telco companies will each have 2% or more share of the overall telecom industry, creating a hodgepodge of options for customers," says Mr. Adamik.

PUSHING BASICS

Major long-distance carriers hope to hold their existing marketing share by going back to basics, emphasizing core brand strengths, superior customer service and added-value services.

Agency consolidation by both long-distance players and local telephone companies has also become a big trend this year, as brand marketers become more strategic in their advertising and marketing.

Late last year, AT&T consolidated its corporate brand advertising with Young & Rubicam, New York, while continuing to work with a variety of roster agencies. In May, Sprint consolidated its $40 million corporate brand marketing account at Grey Advertising, New York.

MORE DIRECTIONS

Overall, advertising spending is expected to increase by all long-distance and local carriers, but it will be put in more diverse channels.

Sprint's goal is to combine core brand advertising with promotions to give consumers a reason to switch-and stay.

This August, Sprint launched a major promotion with the Rolling Stones, offering new customers discounts on concert tickets; this month it began a major promotion tied to its National Football League sponsorship offering free wireless and PCS service on Monday nights throughout football season.

"We're combining brand advertising with incentives and rewards to give people reasons to stick with us," says a Sprint spokesman.

Wireless telephone service is another hot button for both local and long-distance carriers, as the quality of digital and personal communications services improves and rates drop.

Late this year and through 1998, Baby Bells will begin heavily promoting clarity and free call waiting, voice mail and Caller ID features to new customers to get an edge in the battle for wireless customers.

FIERCE COMPETITION

Global competition remains fierce as well. Analysts expect AT&T to make important strategic maneuvers in the next 12 months to match the MCI/British Telecom alliance, called Concert.

Sprint's Global One partnership with France Telecom and Deutsch Telekom is also

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