Telcos, Internet companies team up

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As telecom companies cut deals with Internet companies to offer consumers cheap long-distance packages, the desirability of the online user as a telco customer is becoming more and more apparent.

What is not apparent is the question of whether online users will go to the Web to sign up for phone service in large enough numbers to make a difference. Analysts and telco executives say yes.

"There is a major transition occurring in the telecom industry in the way people buy services," said Jeffrey Kagan, president of telecom consultancy Kagan Telecom Associates.

"Long-distance companies are realizing they have to do business the way customers want to do business. If they don't change, they're going to lose customers. . . . Someday it's going to be archaic to have to talk to someone on the phone to get long-distance service."


AT&T WorldNet President Dan Schulman said as the Internet continues to boom, customers will become more comfortable with online transactions. Companies like AT&T Corp. will have to change to accommodate them, he said.

"As we look out into the future, we will start transitioning our customer care from `fix it when it's broken' to `help people with the new technology and enable them,' " Mr. Schulman said.

America Online and Tel-Save were among the first to pair up in a test last summer to offer 9 cents-a-minute long-distance service for AOL customers who signed up online and paid with a credit card.

AOL Long Distance claims 500,000 users in the three months since it officially launched, and projects it will hit 1 million in the next few months.

AT&T and MCI Communications Corp. came out with similar offers in conjunction with their own Internet services, AT&T WorldNet and MCI Internet, respectively. MCI offers 9 cents per minute with 5 cents per minute on Sunday; AT&T offers 9 cents per minute. Sprint Corp., which recently merged its Internet service customers with Earthlink, offers 10 cents per minute online and off, but isn't offering any online-only specials.

The online user is a great demographic and psychographic fit for long distance-service providers, said Wendy Brown, VP-electronic commerce at AOL. Many online consumers use chat and e-mail and fit the communicator demographic.

On the psychographic side, online users tend to have higher than average incomes and higher than average monthly phone bills, Ms. Brown said. She said while the average consumer spends about $22 each month, the average AOL user spends about $40 on long distance monthly (at the lower-cost 9 cents per minute.)


Tel-Save bought into the exclusive three-year agreement with AOL for $1 million. AOL also shares in the profits, although Ms. Brown would not provide details on the revenue-sharing plan.

Another benefit of recruiting and maintaining online telecom customers is the low overhead cost. Customers who sign up online don't need to speak to an operator; questions can be answered online; bills are accessed online and don't have to be printed; and the usual $40-$50 customer acquisition cost is eliminated.

Advertising for the cheaper online long-distance rates has been limited so far. AOL ran a consumer print and online campaign in February and March, and is getting ready to release a new series of consumer print and online ads in a few weeks.

AT&T has made a few banner buys on the Web, and is getting ready in the next month to gear up placement and spending, including offline media.

Copyright April 1998, Crain Communications Inc.

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