AT&T, MCI RINGING UP BIGGER CASH LURES;RELIANCE ON CHECKS ERODING CONSUMERS' BRAND LOYALTY

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The long-distance telephone war is now a contest to see who can throw the most cash at consumers.

AT&T is stuffing former customers' mailboxes with checks for as much as $200 in exchange for returning to the fold. Although it once resisted competing with deeper-pocketed AT&T in such cash marketing efforts, MCI has reconsidered, recognizing money talks-even louder than the estimated $600 million spent on U.S. long-distance marketing last year.

MCI is aggressively following up AT&T's cash offers with counteroffers through direct mail and telemarketing, although it doesn't have as much to spend. Instead, MCI has expanded its rewards to include more travel credits, merchandise incentives, and opportunities to contribute cash rewards to charities, with various agencies handling direct marketing.

Switching has never been so good-for consumers, that is. Millions are snapping up the checks and returning for more. And a growing number are becoming "spinners," or "rate-surfers"-industry jargon for customers who constantly switch carriers.

"People are realizing you can make out like a bandit if you take advantage of some of these offers, and they're running with the checks," said Jeffrey Kagan, president of the Atlanta-based telecommunications consultancy Telecom Associates.

AT&T won't say how much it's spent on cash giveaways this year, with direct marketing from Brauner Slosberg Humphrey, Boston. But some industry observers estimate AT&T's consumer rewards for the first half will total $100 million.

MCI admits it writes checks to win back customers, but denies the amount of the checks or the level of activity has risen this year. "We've expanded our sign-up bonuses, but that's simply been a response to the industry evolving to offering incentives to people switching carriers," said John Donoghue, VP-marketing for MCI Consumer Markets.

Among incentives MCI has added this year: travel credits on Southwest Airlines, joining previous incentives offered from Northwest Airlines, American Airlines and Continental Airlines; waiving of the $55 annual fee for an American Express card; and the option of a $25 donation to the American Red Cross.

But observers say brand loyalty is being undermined and consumers are developing expectations that will turn sour when the money stops.

Sprint, with only 10% of the $70 billion long-distance industry compared with AT&T's 60% share and MCI's 20%, is starting to look wiser by having decided long ago to stay out of the cash game.

"Checks have hurt the marketplace, teaching people to shop around for the best buy, while breeding increasingly disloyal feelings," said Wally Meyer, VP-marketing and sales for Sprint. Sprint offers customers a flat discount through its Sprint Sense program, introduced in January.

"We think writing checks is a deadly spiral, and we're doing quite well by going after consumers who don't want all the confusion, the calling circles and the games," Mr. Meyer said.

Indeed, analysts predict the cash storm will begin to die down later this year.

"You'll see a shift this year away from bringing in new business and winning back customers, as AT&T and MCI go more toward retaining existing business," Mr. Kagan said. "The back door is wide open, and both companies seem to be losing as much ground as they're gaining."

AT&T supports its long-distance True Savings and True Rewards programs with heavy network TV advertising estimated to reach $200 million by midyear.

Earlier this year AT&T launched a series of humorous network TV spots for True Savings featuring unusual celebrities. Examples have included quirky film actress Carol Kane and NBC-TV's "Friends" star David Schwimmer in ads from FCB/Leber Katz Partners, New York.

MCI clings to its New Friends & Family pitch in network TV advertising, from Messner Vetere Berger McNamee Schmetterer/Euro RSCG. The marketer also takes potshots at AT&T at every opportunity, trying to tell consumers that AT&T's rates are actually higher than MCI's. Since January MCI has instituted a letterbox technique in all its consumer long-distance TV advertising, as another subtle way of differentiating itself from the competition. All sides agree AT&T started the practice of check-writing, using it as a periodic promotional tool in the late 1980s. MCI has participated sporadically and Sprint experimented with it in the early 1990s.

"The amount we've spent on winning customers back has been wildly exaggerated," said Dick Martin, AT&T VP-corporate advertising. "We write checks to consumers because our competitors do-we'd much rather not write checks but it's a fact of life. It's a part of our total marketing kitbag, including TV, radio, print, direct mail and telemarketing."

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