By Tara Seals

Posted: 1/2004

Telecom Taste Test?
Expert: Bell Win-Back, Cola Wars
Campaigns Have Little in Common

By Tara Seals

In
April 1985, one of the greatest missteps of modern marketing occurred: the
Coca-Cola Co. unveiled New Coke, a product that lives in infamy. Not
surprisingly, by July 1985, Classic Coke was back. But Coca-Colas once-mighty
consumer base had shriveled, and the soft drink giant embarked on an aggressive
win-back campaign.

Is this analogous to the incumbents position in the telecom market,
struggling to hold market share by offering aggressive price and service
promotions to consumers that have defected to other providers? Not quite.

Robert McCausland, vice president of regulatory affairs at Sage Telecom Inc.,
uses the New Coke story to illustrate the difference a truly competitive
environment can make. The appropriateness of a win-back project is tied to
context. The Coca-Cola win-back campaign was far from a dominant ILEC win-back
campaign, says McCausland. In local telecom, there is limited competition,
fledgling competitors and the wholesale market is controlled by the incumbent.
The ILECs have competitors lists, and the ILECs know of competitive sales
when CLECs issue an order to convert. [Unlike the cola wars], the local
telephone market is not typical.

CLECs argue the lack of real competition means win-back campaigns on the part
of the RBOCs can be unfair. While consumers may benefit from lower promotional
price offers to woo them back from competitors, detractors say struggling CLECs
eventually will be pushed out of the market thus necessitating specific
rules governing win-back behavior to ensure a level playing field.

Competitive harm to CLECs translates into harm to the consumers, says
McCausland. Legislators and regulators should understand the fundamental
market and supplier differences and ensure protections the wholesale telecom
market cannot.

The FCC has left it to the states to ensure retail activities in the local
telecom marketplace are conducted in a fair manner, and debate on win-back
practices has been steadily gaining steam before state commissions nationwide,
fueled by CLEC success in the business market, the FCCs Triennial Review
Order and RBOC long-distance entry.

As CLECs make inroads, obviously the incumbents have started to push back
and have started their various programs to win customers back, explains Amy
Gross, a consultant with Technologies Management Inc. It sort of started in
the BellSouth [Corp.] region and it spread into the Qwest [Communications
International Inc.] and SBC [Communications Inc.] regions. Its been the
subject of complaints filed by competitive carriers, sometimes which have led to
general rule-making proceedings, protested tariffs, all kinds of things, so its
been an active area of litigation before the state commissions since 2001.

Competitive carrier LDMI, in a filing with the Michigan Public Utility
Commission about a year ago, argued that anti-competitive winback practices,
such as offering rock-bottom pricing or free service for the first three months,
are based on the unfair use of subscriber information. Increasingly
aggressive incumbent efforts to attract former subscribers have raised alarm,
reads the brief. Incumbent carrier winback efforts, which unfairly rely on
proprietary customer information, are undertaken before a subscribers service
is transferred to a competitor, entail unjustified disparaging comments or are
initiated without formal regulatory approval, [and] necessitate regulatory
oversight. Such oversight is necessary to ensure that the incumbent does not
rely on its market dominance and unique role as a wholesale provider to
competitors to unfairly seek to retain former subscribers who desire a
competitors service.

Z-Tel Communications Inc. won a case in Illinois against SBC Ameritech on
these grounds, alleging that when Ameritech lost a customer to Z-Tel, Ameritech
became immediately aware of the loss. However, Z-Tel claimed it was not notified
of a customer loss until much later, after the customer had been transferred
back to Ameritech. Meanwhile Ameritech was able to use proprietary information
to contact departing customers, information not available to Z-Tel in attempting
to combat Ameritechs win-back efforts. The Illinois Commerce Commission
agreed Ameritech had acted anticompetitively, and ordered the incumbent to:
inform competitors immediately when efforts to win back CLEC customers are
successful and customers return to the incumbents service; allow competitor
salespeople the same access to the customer information database that incumbent
sales representatives have; and pay $160,000 to compensate Z-Tel for the costs
related to defending itself.

Competitors lose some fights too. Texas has been the scene of more recent,
heated win-back developments. For instance, SBC has used its considerable heft
and finances to hire people for specific win-back employment positions and
has gained a 40 percent market share in the first three years in Texas selling
long distance with cut-rate promotions, says McCausland. Texas lawmakers
recently approved a measure to allow SBC to approach defecting customers as soon
as the change-service order goes through from the CLEC, trumping a Public
Utility Commission policy requiring a 30-day wait before pitching former
customers.