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`TELECOMMUNICATIONS SPECIAL
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`Can I Put You on Hold? Profits Are Calling
`'Feature' Services Are Big Business for the Phone Companies, So Don't Expect a Letup
`February 03, 1997 | KAREN KAPLAN | SPECIAL TO THE TIMES
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`Necessity may be the mother of invention, but only the profit motive seems capable of explaining the
`staggering proliferation of telephone services such as call waiting, call return and caller ID.
`
`At 50 cents a pop or a few dollars a monthseemingly spare change to a multibilliondollar phone
`companythese "calling features" have grown to account for roughly 20% of the Baby Bells' telephone
`operating profit.
`
`Together, the services generated $4 billion in revenue last year, in the residential market alone, for the
`seven regional Bell operating companies. Analysts estimate that figure could rise to $6 billion by 2000,
`with 75% of that pure profit.
`
`That has led phone companies to introduce no less than 50 calling features, ranging from the useful to the
`outright ridiculous. Consider:
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`MORE STORIES ABOUT
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`Consumers
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`Profits
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`Telephone Industry
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`Caller Id
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`* Select call forwarding, which allows customers to choose which calls will follow them to another phone.
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`* Priority ringing (also called VIP alert and identaring), which assigns a distinctive ring to calls from pre
`selected numbers.
`
`* Anonymous call rejection (also known as "block the blocker"), which allows caller ID customers to reject
`incoming calls from people who refuse to reveal their phone numbers.
`
`* Call mover, which allows a customer who disconnects his or her phone number upon moving to record a
`message announcing the new number.
`
`For customers who feel overwhelmed by choices, there is little relief in sight. BellSouth, for example,
`recently hired a vice president for marketing whose entire job is to think up new calling features and
`bundle them into attractive packages.
`
`"I think what you'll see is a proliferation of more and more of these," said William N. Deatherage, a
`telecommunications analyst with Bear, Stearns & Co. in New York. Deatherage expects the next onslaught
`to come in the form of voiceactivated dialing services, so that a spoken command such as "Call Mom" can
`render the tedious process of dialing the number obsolete.
`
`Fueling this boom is anticipation of the competitive local phone service promised by the
`Telecommunications Reform Act of 1996. As longdistance companies like AT&T, MCI and Sprint enter
`local markets and the Baby Bells invade one another's territories, phone companies will look to offset
`falling revenue in core businesses with the comparatively easy money that calling features bring.
`
`http://articles.latimes.com/19970203/business/fi25080_1_callwaiting
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`1/3
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`BHN, et al. v. FOCAL IP, LLC
`FOCAL IP, LLC EX2061 - 1
`Kaplan
`IPR2016-01262
`
`
`
`3/28/2017
`
`Can I Put You on Hold? Profits Are Calling latimes
`
`In California, Pacific Bell has responded to severe competitionand loss of customersin the toll call
`market by stepping up its marketing and promotion of enhanced services. A celebrity spokesman touts
`services such as call return and caller ID in broadcast and print advertisements. The campaign has met
`with some success: Subscriptions for calling features have been growing at an annual rate of 10%,
`according to the company.
`
`Revenue from calling features is especially important in the many parts of the country where phone
`companies charge below cost to provide a basic phone line and depend on selling a handful of highmargin
`features to push those accounts into the black.
`
`* T
`
`he software that makes these calling features work is installed at the switches that route calls over the
`network. The software costs less than $15,000 per switch, and each switch serves about 10,000
`customers. After the software is in place, the marginal cost of providing calling features to customers is
`close to zero, and the profit margins are correspondingly high.
`
`"There are some expenses associated with service orders, record keeping and billing, but if you're
`charging $2.50 or $3 per feature per month, they're pretty profitable," said John Goldman, media
`relations manager for BellSouth Telecommunications in Birmingham, Ala.
`
`But money is not the only reason why phone companies are offering dozens of the services, including seven
`different kinds of call forwarding. The companies feel they must offer an array of features in order to win
`new customers and keep the ones they already have.
`
`"It's clearly very valuable in a competitive environment," said Pat Evers, marketing and communications
`manager for US West's voice products and services in Phoenix. "If you have these features loaded on a
`basic line, it makes that line much more difficult for competitors to replicate."
`
`But analysts say they will certainly try.
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`Indeed, as newcomers prepare to enter the local phone business, they are likely to target customers who
`buy the most features, because they generate the most revenue.
`
`"If AT&T had a crystal ball and they could figure out everybody who bought caller ID and call waiting,
`they'd go after every one of those customers with their guns ablazing," said Brian Adamik, vice president of
`consumer communications at Yankee Group, a market research firm in Boston.
`
`*
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`http://articles.latimes.com/19970203/business/fi25080_1_callwaiting
`
`2/3
`
`BHN, et al. v. FOCAL IP, LLC
`FOCAL IP, LLC EX2061 - 2
`Kaplan
`IPR2016-01262
`
`
`
`3/28/2017
`
`Can I Put You on Hold? Profits Are Calling latimes
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`http://articles.latimes.com/19970203/business/fi25080_1_callwaiting
`
`3/3
`
`BHN, et al. v. FOCAL IP, LLC
`FOCAL IP, LLC EX2061 - 3
`Kaplan
`IPR2016-01262
`
`