Small firms take big bites from AT&T's pie

AT&T loses ground to rivals like MCI WorldCom and Qwest, but even these companies' growth is being outstripped by much smaller firms, according to an FCC report.

John Borland Staff Writer, CNET News.com
John Borland
covers the intersection of digital entertainment and broadband.
John Borland
2 min read
AT&T is losing new ground to rivals like MCI WorldCom and Qwest, but even these companies' growth is being outstripped by much smaller long distance firms, according to statistics released by the Federal Communications Commission today.

The federal figures mark a continuing long-term decline in the biggest long distance company's market share. At the beginning of 1984, when the AT&T monopoly was broken up, the company controlled 90 percent of the long distance market. By the third quarter of this year, this figure had dropped to about 44 percent, according to the FCC.

Most of the competition is coming from the company's most prominent rivals, MCI WorldCom and Sprint. The two companies control about a third of the market between them, with MCI WorldCom controlling nearly 25 percent.

But the fastest growing segment in the industry is a group of much smaller firms that offer boutique-style services, instead of the one-company-fits-all model. Smaller carriers, as a group, now capture more than 22 percent of the country's long distance revenue, according to today's FCC report.

"The fastest growing sector of the market overall is what we affectionately call 'other,'" said Boyd Peterson, a senior telecommunications analyst with the Yankee Group in Boston.

Packed inside this "other" category is a variety of companies, ranging from those with innovative marketing schemes--like Excel's successful multi-level marketing plan--to small firms that target a particular demographic niche.

"Dial-around" companies, which give consumers the ability to bypass their own long distance company by dialing a prefix such as 10-10-234, have also grown quickly over recent months. While some of these companies are in fact affiliates of the majors, such as the AT&T-owned "Lucky Dog" now advertising heavily on network television, many are smaller companies that target specific groups of consumers.

Analysts say that customers are also beginning to turn to other long distance alternatives. Cellular plans are becoming more affordable for long distance service, although these services are not yet included in the FCC's long distance surveys, Peterson said. Internet telephony is also starting to make a dent in the market, though it still makes up just a tiny fraction of overall calls.

Additional challenges to long distance incumbents are coming from unexpected places. New-age carriers, such as Qwest and ="" href="http://www.level3.com" rel="nofollow" class="c-regularLink" target="_blank">Level 3, are building out expensive networks for data services, that will allow them as well to offer long distance services.

But analysts say that companies' efforts to focus their marketing strategies are driven by a market with only very limited growth prospects.

"It's more a game of efficient marketing than of capturing a bigger piece of an expanding pie," said Peterson.

This has led companies to cast the market increasingly in retail terms. Firms now offer different calling plans for subscribers of varying income levels, ethnic or geographical background, or calling habits. Dividing the market to such an extent has encouraged the growth of small companies with tightly-focused customer bases, Peterson said.

Analysts add that AT&T doesn't necessarily have to worry about its declining market share, despite its historical free-fall.

"Their market share has dropped, but in so doing, AT&T has become more intelligent about which customer segments they want to keep and which they don't," Peterson said. The company can afford to lose customers who switch every few months looking for the best deal, he noted. "AT&T's task is to hold on to their best customers."