Telco shops face conflict minefield

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Convergence. Conflict. Congress.

Together, they're confounding the ad agencies that handle communications companies.

With help from Congress, these businesses--such as telecommunications, cable and broadcasting--are beginning to or planning to compete against one another. As they converge into one giant information and communications market, agencies will find themselves in a sticky web of client conflicts.

The issue is already causing problems for agencies that handle telecommunications companies, and it won't be long before clients ranging from computer makers to to movie studios may be trying to shove one another off agency rosters.

Take Bronner Slosberg Humphrey. The Boston direct marketing agency handles both AT&T and Delphi, an online service owned by News Corp. That wouldn't seem to be much of a conflict--except MCI Communications Corp. recently made an investment in News Corp. and is working with it to develop a new online service.

This week, a source at AT&T said Bronner will have to resign Delphi, and soon. Agency President Stephen Humphrey said he has no plans to lose either client, but that could change tomorrow.

"It's a moving target," he said. "It changes daily and requires that everybody involved keep an open mind."

BBDO Worldwide's relationship with AT&T is another example. The New York agency recently won an assignment for AT&T's 1996 Olympics work, which led it to drop out of BellSouth Corp.'s review. Fellow Omnicom Group shop Merkley Newman Harty later won that $45 million account, and it will use BBDO South, Atlanta, for BellSouth's media buying.

For now, that's OK with AT&T, but only for now. "If BBDO wants to grow with AT&T and one day become a strategic partner of ours, they know they will eventually have to give up their BellSouth work," said an AT&T spokesman.

True North Communications certainly knows that. The San Francisco office of Foote, Cone & Belding had to give up its work for Pacific Bell last year, after FCB/Leber Katz Partners, New York, won a place on AT&T's roster.

The problem for AT&T and regional Bell operating companies is that Congress is expected to allow national long-distance providers to compete with local service providers and vice versa.

"All our agencies understand that if they were to work for a Bell, it would be self-limiting," said Dick Martin, VP-corporate advertising for AT&T.

AT&T has made it difficult for other telecommunications companies, said Victoria Hayden, VP-marketing communications for PacBell. The No. 1 carrier has hired a number of the nation's top agencies, making competitors scramble for shops of their own.

While Ms. Hayden had argued when she worked at J. Walter Thompson USA, a Sprint agency, that perhaps some of clients' desire for separation was "ego driven," now as a client she firmly wants clean, clear lines among agencies. "As an advertiser, I have every interest in having quite broad exclusivity demands on them," she said.

Agency executives and other observers foresee a day when an agency's conflict clients could go four or five deep. For instance, an online service such as America Online could soon be competing with a phone company such as Nynex Corp., which is a partner in the Tele-TV alliance with other Bells Pacific Telesis and Bell Atlantic. Chiat/Day, New York, now works for both AOL and Nynex.

Conflicts could also arise with companies as diverse as Time Warner, IBM Corp. and Microsoft Corp. In fact, the problem goes beyond communications. Other industries, such as financial services, are seeing convergence, too. Sources close to the Bank of New York said Young & Rubicam was considered the front-runner in the bank's account review earlier this year--until the bank became very concerned about Y&R's relationship with American Express Co.

Y&R doesn't handle AmEx, but its direct marketing unit, Wunderman Cato Johnson, does a lot of work for the financial services giant. Bank of New York ultimately picked DDB Needham Worldwide.

It's not just an ad agency problem, Mr. Humphrey said. All professional services companies, including accounting and law firms, investment banking companies and consultants, will be affected.

As convergence continues, there won't be enough major, conflict-free ad agencies to go around, agency executives say.

"Our latest review was challenging because many of the top 20 agencies already had conflicts with our business," said Cindy Frisina, BellSouth director-advertising and marketing communications. "It's going to be an evolutionary process, and the definition of conflict will probably have to be adjusted."

Mr. Humphrey believes conflicts will ultimately have to be decided on a case-by-case basis.

Copyright August 1995, Crain Communications Inc.

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