Posted: 09/1998

Advertising the FreeWay
Will sponsored communications succeed in the telecom industry?

By Jennifer Knapp

As the telecom industry scratches its head in wonder, the creators of FreeWay, the
service that offers free long distance minutes to consumers for listening to commercials
on the line, continue to sign new advertisers, including marquee names such as Blockbuster
Entertainment, The Wall Street Journal and Acura, and plan for expansion into other
services and geographic markets worldwide. Meanwhile, a second startup, The Intelesis
Group, is scheduling the national launch of its FreeCaller service just in time for the
Thanksgiving-holiday calling frenzy. While it’s easy to poke holes in these firms’
innovative business model, industry and advertising executives alike say it just might
work.

Calling the Free Way

Introduced in April by Landover, Md.-based BroadPoint Communica-tions Inc. and Duquesne
Light Co., an electric utility company that serves southwestern Pennsylvania, FreeWay
enables subscribers to place long distance calls for free by entering a personal
identification (ID) number and listening to advertisements. The more ads a subscriber
listens to, the more free long distance that accrues; each 15-second ad earns a subscriber
two minutes of calling time. So, to make a 20-minute call, a subscriber must listen to 10
ads, which takes about three minutes.

FreeCaller from The Intelesis Group, formerly prepaid calling card provider GTN Corp.,
works a little differently. For listening to a 30-second spot, subscribers get five
minutes of calling time free for each long distance call they make. At the end of five
minutes, they are alerted that the free time is ending. Additional minutes revert to
market rates, which currently are around 9 or 10 cents per minute. Of course, says Les
Haber, vice president of marketing at Intelesis, they may hang up and call back for free.
Each subscriber is charged a $4.95 monthly fee for the service.

"For the lion’s share of the consuming public, I just can’t imagine that [the
ad-supported service] holds any attraction as we talk about Qwest [Communications
Interna-tional Inc.] publishing rates in certain markets at 7 and 5 [cents per minute]
retail for long distance," says Mark Haney, a lawyer with Fort Worth, Texas-based
Haney & Kobs.

When the going rate for long distance is 10 cents per minute and dropping, the question
is, will consumers be willing to give up three minutes of their time listening to
advertisements? So far, the answer is yes.

Through advertisements in the Pittsburgh Post Gazette, radio advertisements and "a
lot of press coverage," FreeWay’s subscriber base has reached 10,000 since its
official launch in April, says Martin Healy, a spokesman for BroadPoint.

But some question what kinds of people are going to subscribe to this service, saying
subscribers will be the "table scraps" of the industry, who hold no real profit
value for either long distance companies or, more importantly, for those companies
advertising on the system.

BroadPoint, however, refuses to listen to the pundits on this point. Based on
subscription statistics on its current subscriber base, BroadPoint has determined that
nearly 60 percent of the people who signed on for the service had at least four years of
college education, and almost 25 percent were earning $80,000 per year. (See charts.)

Tapping into an educated and affluent customer base is part of the pitch BroadPoint
offers potential advertisers. To that end, BroadPoint announced in July a partner-ship
with Chicago-based Media AdVentures, a multimedia marketing company that already has
brought to the table such household names as Blockbuster Entertain-ment, The Wall
Street Journal, Acura and the World Wrestling Federation.

Media AdVentures specializes in alternative media and bringing major advertising
campaigns to media (such as in-flight entertainment for American Airlines) that don’t
conform to "normal" advertising parameters, explains Brad Saul, president of
Media AdVentures. The company also has launched successful ad campaigns on airport
monitors, automated teller machines (ATMs), syndicated radio programs and even in-room,
fax-based newspapers for the hotel industry.

A Viable Business Model?

"It hasn’t yet proven itself, otherwise it would be happening all over," says
Dr. Judy Reed Smith, chief executive officer of ATLANTIC-ACM, a Boston-based strategy
consulting firm to the telecommunications industry. On the other hand, she says that the
service follows the television model of interrupting free programming with ads. "So
far the interruptions have not caused us to switch to pay TV. Someone is going to make
[sponsored communications] work because Americans have learned to be interrupted,"
she says.

Like other industry insiders, Reed Smith sees the opportunities for the
FreeWay/FreeCaller models in niche markets, such as the college crowd, wherein advertisers
are seeking to develop brand loyalty with a customer that is likely to end up in a
high-income tax bracket.

Another niche target is the credit-challenged, says Kip Ripper, president of Lake Mary,
Fla.-based Telephone Company of Central Florida.

"When you look at the prepaid calling card business, there is obviously a huge
vertical market where the credit-challenged will do almost anything to make calls home,
whether that is to Mexico, Cuba, Honduras or the United States," he says.

The technologies behind FreeWay and FreeCaller allows for such specific subscriber
targeting. Perry Kamel, president and CEO of BroadPoint, explains that a FreeWay
advertiser can request its announcement be played only on Saturday nights, for male
subscribers under the age of 24, for example. Uniquely, FreeCaller will allow every member
in a household to have a unique access code, so advertisers can be sure their message is
being played for the correct target. In addition, FreeCaller will enable consumers to
interact with advertisers by directly connecting with them at the end of the call or by
allowing them to request additional information by pressing a button. Because it’s a
subscriber-based service, the caller’s name and address will automatically be provided to
the advertiser by the FreeCaller system.

The real question, then, is whether advertisers will view it as a viable venue.

FreeCaller’s Haber says that his company has numerous inquiries from big name
advertisers, including pizza restaurant chains that would like to target people at home
and then offer them an option to connect directly with their local pizza house to order.

While FreeWay boasts a number of advertisers, many of those, including the well-known
names, currently are advertising on a free-trial basis.

That makes sense, says advertising executive Susan Caroppo, an account executive with
The Townsend Agency, San Diego, Calif. Absent a third-party audit of its subscriber base,
FreeWay would have to minimize the risk by offering the advertiser a way to test the
service and to justify future advertising dollars spent. In this case, the advertiser has
to implement a tracking mechanism by which it will measure not only the quantity, but also
the quality of the leads generated by the spots.

"It’s not unlike buying banner space on the Internet," says Caroppo.
"They say they get so many hits a day…I have to make sure their numbers hold up and
that the hits are people that not only come to the site, but that stay."

While the media-buying decision is a complex one that takes into account many factors,
Caroppo says it depends heavily on the advertiser’s product and whether the medium reaches
its target market. "On the surface, Blockbuster Entertainment makes perfect sense.
They are a $2 to $5 purchase," she says, adding that Acura, on the other hand, does
not make as much sense unless the company is simply seeking awareness. "If numbers is
the game I’m playing, this [FreeWay] may be cost-effective."

BroadPoint would not reveal the rates it is charging advertisers. Blockbuster, Acura
and The Wall Street Journal refused to comment on either their arrangements with
Broadpoint or reasons they would consider continuing their sponsorship of the service on a
fee basis.

Haber says FreeCaller’s ad spots are priced by the hit at 50 cents each. That means
that an advertiser can request 15,000 hits of a specific demographic. None of the
service’s charter supporters were disclosed.

Future

Although BroadPoint’s Healy notes that FreeWay has but recently enjoyed its coming out
party and is being offered only in the Pittsburgh area, steps to advance the scope of the
service and enter new regions already are underway. The company recently kicked off
BroadPoint Malaysia by striking a technology-sharing agreement with Business Technology
Resources, a technology investment firm headquartered in Multimedia Super Corridor,
Malaysia.

"They are looking to adapt the FreeWay technology and bring it to Malaysia and 10
other international markets," says Healy.

Further advancements will bring the sponsored communications concept to cellular, video
telephony and international long distance, Kamel says. Right now, if a cellular phone user
calls the toll-free FreeWay line to place a long distance call, the subscriber will still
pay the per-minute air-time charge from the cellular service provider as though the
subscriber had placed a call in a local calling area. Using FreeWay would only eliminate
the additional long distance charge on the cell phone, says Kamel, adding that eventually
the company will seek to eliminate the air-time charge.

ATLANTIC-ACM’s Reed Smith says that while long distance only amounts to about 3 percent
of the cellular bill, free airtime could be a reasonable incentive to listen to the ads.

The back-end of the FreeWay system, for which BroadPoint is waiting on patent approval,
is where all the subscriber and message data is stored and where the distribution of
messages occurs, says Kamel. "That [back-end] is media-independent, which means we
can plug just about any front-end we want into it; whether it is wireless, landline,
audio, text, graphic or full-motion video."

Jennifer Knapp is news editor for PHONE+ Magazine.