Channel Partners

March 1, 1998

10 Min Read
Diversify or Die

Posted: 03/1998

By Peter Meade

As more and more callers use calling cards or collect calls to
"dial around" operator-assisted calls, operator service providers (OSPs) are
faced with finding new strategies and directions for maintaining their business.

The result of dial around has caused the operator services market to decline or
flatten–depending on who’s talking–for more than three years now, according to
executives at several OSPs. Despite forecasts that these lackluster conditions will
continue, thanks to popular programs such as MCI Communications Corp.’s 1-800-COLLECT and
AT&T Corp.’s 1-800-CALL-ATT as well as debit and credit card calling, executives at
some OSPs say there is some good news. It’s just not as easy to find.

"Let’s face it, operator service business is not going to go away," says Kirk
Smith, president of Operator Service Co., a Lubbock, Texas-based OSP. "People will
always need it to some degree. It’s just that customers have gotten more sophisticated and
we must meet their heightened level of expectation."

This means OSPs must become smarter than they were five years ago, says Buddy

Loveless, vice president for San Antonio, Texas-based Priority International
Communications Inc. "Who knew about debit cards five years ago?" he asks.
"Who knows what will appear five years from now?"

According to Brad A. Benge, executive vice president at One Call Communications Inc.
(Carmel, Ind.), and its Opticom operator services division: "Make no mistake, dial
around is a real issue. The fact remains that the way to make money in this business is to
complete calls. We have proven that there are some simple things that can be done to
dramatically increase completed calls."

Perhaps the most effective method for improving the state of operator services is to
focus on raising the overall quality of service. "There are still problems out there
with companies doing a bad job of answering and completing calls," says OSC’s Smith.
"While operator services has gotten more price oriented, there is still an
opportunity to make money by doing a superior job of call handling."

Opticom is focusing on raising the quality of its operator services because "we
know that how the caller is treated impacts not only the likelihood that the call will be
completed and billed, but it can increase over time the profitability of a location,"
adds Benge.

According to Steve Levine, director of international sales for Justice Technology
Corp., a Culver City, Calif.-based OSP, better customer service is the only route for OSPs
to differentiate themselves. When it comes to technology, almost all the OSPs have similar
availability to virtually the same kinds of offerings, he says. "We must improve the
process, pay more attention to how we do things," Levine adds. "There are a lot
of details that require constant attention."

In contrast, OSC has tried to set itself apart by developing its own technology,
including robotic components, interactive voice response (IVR) systems and billing and
switch code, according to Smith. "We don’t rely on any one vendor for help from the
standpoint of managing product," he explains.

"This gives us a tremendous orientation to our clients," adds OSC executive
vice president Chris Bonner. "We have this can-do attitude because of our
technology."

The Pluses of 0+ and 1+

OS companies need to be sure to itemize different types of calls on their bills,
denoting the difference between 0+ and 1+ calls so users know they are paying extra only
for the value-added calls.

This is necessary because consumers have caught on to the large price differences they
pay between 0+ and 1+ services, explains Jim Hudson, president of Hudson Consulting Co.,
an Aurora, Ill.-based consultant to the OS industry. "They know there’s not a lot of
manual service involved (in today’s 0+ service), so how can (OSPs) justify charging
more?"

Not everyone feels this benevolent. Last year Phone Dynamics Inc., a Palm Harbor,
Fla.-based OSP, raised its OS rates, which used to be a worrisome move, according to Jerry
Schleicher, director of sales. "But now it’s practically of no consequence," he
explains. "Why? Because if it’s raining and you need a phone, you’ll use
one–regardless of cost."

Some cost-minded OSPs were glad when AT&T raised its 0+ rates to 40 cents a minute
at the end of last year, says OSC’s Smith. While this has helped close the price gap for
some OSPs, Smith says callers should be more concerned that there is a different rate for
non-AT&T customers using a calling card for operator-assisted calls. This
non-subscriber surcharge, as it is called, could add from $1.35 to $1.50 to a call if the
callers are not AT&T customers.

According to Schleicher, rising prices are a concern only when the corresponding
service is not acceptable. "If people feel they have been jerked around by a phone,
(they) will damage it," he says. "The majority of damage to phones comes not
from crooks but people who felt they were jerked around. If people can just get connected,
they don’t complain too much."

In fact, Schleicher says he welcomes calls from disgruntled callers because it gives
him a chance to explain the higher-than-expected rates. ("This is not the same kind
of call as from home," he tells them.) While he maintains a standing offer that Phone
Dynamics will refund the price of any call that was deemed unsatisfactory, he claims to
have paid the price only seven times over the past 10 years.

"The operator services business is like any other business where the quality of
service affects the bottom line," says Opticom’s Benge. Toward this end, he says
Opticom has strived to maintain its commitment to generous operator service staffing in
order to cut ring time and keep its commitment to foreign language operators, both of
which have had a significant positive impact on call completion.

"We had another record year in 1997," Benge adds. "Opticom more than
made up for the impact of dial around with increased market share. We are growing. We are
strong financially and operationally. We’re in business for the long run."

Opticom, which started its operator service division in 1989, projects 1998 to be
another record year, and the company is well on track, he says. According to Benge,
today’s successful OSPs have two choices:

  • find ways to cut costs to pay a higher rate of commission; or

  • focus on being a quality service and, as a result, pay bigger commissions.

Opticom has chosen to focus on quality and bigger commissions, he says. According to
Benge, many of the IPPs (independent pay phone providers) that his company works with
recognize this is a maturing industry and are focusing on being operationally sound.
Successful IPPs are using computer analysis to analyze their location performance and are
utilizing 2-1-1 calls, along with software programs, to quickly identify phones that are
down and get them back in operation.

"There is increased attention to the quality of services," he says.
"IPPs are also looking at what they can do on their end to increase call completion
and calls per phone with signage, lighting, maintenance, cleanliness and community
relations."

Call Center Commotion

According to OSC’s Bonner, the majority of the company’s 35 percent growth in 1997 came
from "other call center opportunities," such as teleservices, third party
verification and customized IVR applications.

According to Vicki S. Pearson, senior vice president of business operations at Salt
Lake City-based Teltrust Inc. (see related story, page 78), the company will double its
call center operations this year by adding two more Utah-based locations.

Live agent services represents one of the fastest growing business segments for the
company, she says. Teltrust has expanded its services to include regional Bell operating
companies, interexchange carriers, local exchange carriers, competitive local exchange
carriers, IPPs and wireless carriers. Opticom’s two Indiana-based operator centers handle
4.5 million calls per month with full redundancy, multilingual operators covering 15
languages and automated operator services. Each facility, which will hold some 400 agents
when built out, operates around the clock, he says.

Priority International’s call center in Mobile, Ala., which contains 180 operators,
works on a similar schedule, says Loveless. Justice Technology, in contrast, achieves 24/7
call center service through an outsourcing arrangement with Mission Communications Corp.,
according to Matt Jarvis, marketing director. Through the Los Angeles-based operation,
which provides operator-assisted calls for hotels, payphones and tourists, Justice
Technology has been able to offer an operator-assisted phone card that assures travelers
in foreign countries that not only will their calls go through but that the calls can be
billed to either their credit cards or phone bills.

While outsourcing presents the most cost-effective solution for most OSPs, according to
Justice Technology’s Levine, the decision needs to be reviewed occasionally taking into
consideration the market condition and changes in call volume.

Change, Blend, Conform

Many operator service providers are just riding their business as long as it makes
money, says consultant Hudson. "Operator services is still a viable product, despite
the price pressure," he says. But many OSPs are in a reactive mode, settling for
losing a little business each month until there is none, he adds.

Hudson’s advice to all OSPs is to diversify. "Do it to any degree you can, but
don’t get too thin to where you can’t concentrate on all things," he says. "I
never like to see a company do just one thing. We’re in the phase of the industry where
must do everything."

Phone Dynamics is diversifying into 1+, prepaid, fax blasting and international
callback. "There is no shortage of product," Schleicher says. Justice Technology
has focused on the international callback market, Levine says. The company’s primary use
of operator services is to help address blocking issues from foreign Post Telephone &
Telegraph administrations when domestic callers use international callback. Through OS,
Justice is alerted to get its Internet trigger or X.25 signal in place to maintain
callback capabilities, he adds.

Still, Hudson says, downward fortunes in the OS market will force some OSPs to sell
out. While the consolidation will help some surviving OSPs expand their businesses, it
does not improve the fortunes of the overall market, he says.

The bigger players are hoping to talk all the little OSPs out of business, adds
Priority International’s Loveless. These OSPs need to "change, blend, conform,"
he says. "The people who can do that survive. They find new niches, enhancements, or
markets. For example, Priority International is heading into Mexico.

"It’s still a young industry, only 10 years old," he says. "A regulated
industry means constraints, but our goal is slow, steady growth, done correctly."

Don’t look for OS growth in the hospitality market, once a hotbed, he says. The market
is saturated, OSP executives agree. While occasionally hospitality properties change OSPs,
all this represents is churn, not growth–a mixed blessing.

"Hotels used to make big bucks by charging AT&T rates plus ‘100 billion’
percent," says Hudson. Now when callers see these charges as separate line items on a
bill, the complaints mount and this puts OS in a bad light. OSPs should look to the
fast-growing prison market as perhaps the only remaining growth area, says Walt Pepple,
vice president of sales and marketing for OAN Services Inc., a Northridge, Calif.-based
provider of billing services.

"There’s only one way to make calls in jail and that is collect," he says.
"And new facilities are popping up everyday."

According to OSC’s Bonner, the Federal Communications Commission may consider caps on
OS rates again because of dial around.

"We don’t have much control anymore in the OSP industry," he says. "It’s
pretty much unknown what will happen, so the best bet is to stay nimble on your
feet."

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