Posted: 05/1999

IXCs: Don’t Let DA Slip Away
By Larry Butler

Since 1964, consumers have dialed 411 for local directory assistance (DA) and
NPA-555-1212 for numbers outside their local area. This approach has worked reasonably
well for years, but no longer. Multiple local exchange carriers (LECs) and number
portability are among the reasons that a consolidated, national DA service makes more
sense. Both the major LECs and interexchange carriers (IXCs) have seized this opportunity
and are spending millions of dollars marketing national DA services using access numbers
(e.g., 411, 10-10-XXX) that bypass a consumer’s presubscribed IXC. Smaller IXCs stand to
lose significant revenue and mind share from diverted DA calls unless they develop a
national DA strategy of their own.

What’s at Stake

Traditionally, long distance directory lookups, accessible by dialing 1+NPA-555-1212,
were offered by IXCs under contract with the regional Bell operating companies (RBOCs) and
other LECs, such as GTE Corp., Irving, Texas. Inflated DA costs and LEC aspirations to
compete in long distance markets prompted AT&T Corp. and other IXCs to begin
outsourcing lookups to third-party vendors in 1995. While the cost structure became more
tenable, the quality of the lookups were criticized as service bureaus did not have access
to LEC databases and relied on often-outdated telemarketing lists.

The Telecommunications Act of 1996, however, ordered that LEC databases be made
available to competitors. Fearing even more loss of revenue from competing services as a
result of the new law, the LECs responded by introducing national DA services based on the
411 format used to offer intraLATA (local access and transport area) DA. Ameritech Corp.,
Hoffman Estates, Ill., was the first to introduce a national 411 DA service in September
1996. While 411 national DA is not available to every phone in the United States,
state-by-state rollouts from the RBOCs currently are underway.

Early LEC attempts to offer national DA service have shown an increase in their DA call
volumes. This increase is at the expense of the IXCs, which traditionally received about
30 percent of all DA calls. If the LECs successfully converted the entire 30 percent, IXCs
as a group would lose some 900 million DA transactions and about $450 million in gross
profit.

If a caller dials NPA-555-1212, the presubscribed IXC hauls the call to the target NPA
and charges the caller between 95 cents and $1.25 per call. His of her cost is, on
average, 45 cents per transaction, for a margin of more than 50 cents a call.

Now if the caller calls the LEC’s 411 national DA service, the presubscribed IXC loses
50 cents gross profit. If an IXC has 100,000 subscribers who each average one national DA
call per month, the potential loss to competitors is as great as $50,000 per month, or
$600,000 per year.

Additionally, the IXC loses the potential 1+ toll revenue and connection fees that also
are derived from DA calls.

IXCs Fight Back

Major IXCs have rolled out national DA in an attempt to take back the revenues they are
losing to LECs’ 411 national DA offerings.

In October, MCI WorldCom Inc. introduced its national DA service, 10-10-9000. By using
the 10-10-XXX dial-around format, the service is accessible from any telephone in the
nation, as well as distinguishable from other national DA services that are available only
from the service provider’s presubscribed line. AT&T introduced in September 1997 its
"00" national DA service for presubscribed customers. The service also is
accessible by dialing 1-800-CALL-ATT, extension #174. Sprint Corp., the No. 3 long
distance carrier, does not offer a single-number national DA product.

Dial-around programs such as MCI WorldCom’s and others that are likely to crop up also
take NPA-555-1212 traffic from competitive IXCs.

And, aside from the revenue loss of diverted DA traffic, the IXC runs the risk of
losing its brand equity as customers sample another IXC’s services. The resulting increase
in attrition means the IXC will have to expend yet additional money to win back or replace
lost customers.

Rather than sit idly by and watch the LECs’ or major IXCs’ national DA services lure
away customers, IXCs can develop their own national DA strategy.

A DA Strategy

Caller confusion about how to get number lookup assistance makes this an ideal time
even for smaller carriers to come out with their own national DA product, which they can
market to their subscriber base.

By publicizing a set telephone number (1+NPA or 1+800, 1+888, 1+877, etc.) and routing
it to an operator services provider (OSP), the IXC can retain some DA business it is
losing to the LECs and major IXCs.

In its move to swiftly offer national DA with call completion, an IXC first must select
the right OSP with the right national DA database. At a minimum, IXCs should look for a
provider that has the ability to: