DIALING FOR DOLLARS

THE BALTIMORE SUN

Henny Youngman, call your office. They've taken your April Fool's stunt and turned it into a national obsession. Or did you know, when you started Dial-a-Joke in New York City on April 1, 1974, that you were giving birth to a billion-dollar industry?

It's called audiotex or pay-per-call or dial-it, and if you watch enough late-night TV, you already know something about it. ("Hi, I'm Rhonda. Let me be your friend on the other end. Just dial 1 (900)-NAUGHTY.")

Admittedly, dial-a-porn just puts a new twist on a very old theme. Ever since sex was invented, entrepreneurs have turned a profit from it. And if some guy wants to pay $30 to hear a bored bimbo talk dirty, when he could get the same service for free on many a street corner in Baltimore, that's his business.

But phone sex lines are only a part of audiotex. Three years ago, there were perhaps 300 audiotex services; today, most analysts estimate that more than 10,000 such programs operate nationally, complemented by an untold number of local services.

In fact, at a cost ranging anywhere from 50 cents a minute to $50 and up, you can dial a 900 line for sports scores, crossword

puzzle hints, rapper fan club news, soap opera plots, ski conditions, loan applications, legal advice, horoscopes, or earthquake predictions. There are even audiotex lines that offer advice on how to set up your own pay-per-call business.

Charities like the March of Dimes and the American Red Cross have used 900 numbers to raise donations. Public television and radio stations, including WJHU-FM locally, have installed 900 lines. You dial the number and a $25 tax-deductible contribution is charged to your phone bill.

How effective is 900 number fund-raising? It depends whom you ask. WGBH-TV, Boston's public television station, raised $50,000 using a 900 number for its annual auction. But according to the magazine Nonprofit Times, the American Red Cross grossed only $66,000 in donations for disaster relief following Hurricane Hugo and the San Francisco earthquake. And from that sum, the Red Cross still had to deduct $27,000 for its 900 number. Yet during the same period, the organization collected more than $9 million in donations on its toll-free 800 line, at a cost of $600,000.

Washington's National Abortion Rights Action League installed a line during the Supreme Court debate over Webster vs. Missouri. It served its purpose -- to frustrate abortion opponents who would otherwise have jammed the league's free 800 number to prevent it from disseminating information. And organizations as diverse as the National Rifle Association and Handgun Control Inc. are using 900 numbers to generate letters to Congress. Callers leave their names and addresses with the 900 line, and up to four letters are sent in their name to congressional representatives.

During the Gulf War, Cable News Network installed a 900 hot line for instant updates. Even the staid news magazine New Republic has opened a 900 line for its subscribers to sound off on political and social issues.

Computer software companies in particular have opted for audiotex in providing customer support. Dee Dee Walsh, marketing communications manager for ButtonWare, a software developer in Bellevue, Wash., explains. "We're a tiny company. We produce mostly shareware, and our products are priced very low. We just couldn't afford to install a technical support department, without substantially increasing the price of the software. We went with a 900 number so we could provide the service to those who needed it without increasing the price of the software for everyone else."

Still, corporate providers account for only about 4 percent of all audiotex services. "The medium is still devoted mostly to entertainment," says Kevin Rafferty, product marketing manager for American Telephone & Telegraph Co. "But the real growth is in business applications, and these should eventually catch up with or even surpass entertainment applications in terms of revenue."

And it's to the corporate market that the major long-distance carriers, AT&T;, Sprint Gateway, MCI and Telesphere, are pitching their services. All 900 numbers are disseminated through long-distance carriers, with local phone companies like Chesapeake & Potomac providing billing for the services. Audiotex programs with 976 prefixes are local numbers only, as are 915 numbers, which are reserved for live conversation.

Basically, there are three kinds of 900 numbers: interactive, live and recorded, also known as passive. The cheapest to operate, passive services merely offer recorded information, which callers are unable to interrupt or redirect. A good example is (900) 999-GENE, which offers a recording, updated hourly, of financial analyst Gene Inger's stock and bond market quotes and projections.

Or (900) 909-5KID, which offers recorded conversation among members of New Kids on the Block about -- what else -- the New Kids on the Block. Not surprisingly, after you pay $2 for the first minute and 45 cents each minute thereafter for the privilege of eavesdropping on the New Kids as they chew the fat, you get additional numbers to call for fan club information and merchandising offers.

Interactive recordings, on the other hand, offer customers a menu. For example, callers to Telemedical [(900) 860-9082] can choose recordings on topics ranging from arthritis to dermatology. Submenus are also available; choosing "dermatology" will invoke a second menu allowing callers to choose between, say, acne and skin cancer.

Live recordings, of course, offer real people to answer callers' questions, process orders, or simply breathe heavily and moan.

You can even get legal advice on simple questions involving landlord-tenant disputes, family law and wills. Tele-Lawyer, the largest legal audiotex service, employs six lawyers working in shifts. At $3 a minute, callers pay $180 an hour -- substantially more than they would pay most attorneys for an office visit. But most calls to Tele-Lawyer last only about 10 minutes.

The American Bar Association and its local affiliates are debating the ethics of pay-per-call legal advice. Most of their concerns involve conflicts of interest, in which an attorney could wind up advising both parties to a dispute, and situations in which callers with complex problems are advised to seek regular counsel. If the caller is referred to the dial-it lawyer's own firm, has a breach of ethics occurred? The jury is still out.

It's getting so that any entrepreneur with a bright idea and a stack of information can sell it over a 900 line. Despite the youth of the audiotex industry, however, and the seemingly unlimited growth potential, it isn't necessarily all that easy to make a killing.

First of all, the information provider (IP) has to rent or buy a computer to answer the phone lines, and that can cost anywhere from $25,000 to $100,000 right off the bat. Then there are hookup charges and software programming charges, and space brokerage charges, and salaries if you're using live conversation.

In fact, most IPs wind up using an audiotex service bureau, which acts as middleman between the information provider and the long-distance carrier. "The big advantage," explains Brooks McCarty, a former Baltimorean who now owns INFO-900, a California service bureau, "is that you don't have a huge capital expense. Service bureaus already have lines installed in their facility and hooked up to the computers. So you don't have the delays and installation and start-up costs of going on your own. And service bureaus can offer dynamic allocation, which saves IPs the cost of ordering dozens or hundreds of phone lines. Instead, the IP can share the bureau's lines with other providers."

Mr. McCarty claims that for an initial investment of $1,000 to $3,500, an entrepreneur can set up an audiotex program through a service bureau. Thereafter, service bureau costs range from a low of $1,000 per month plus 5 cents per minute, or several thousand dollars a month plus 20 cents or more a minute. In all, the service bureau generally gets about 13 percent of the IP's gross revenues.

An additional 30 percent of the money goes to the long-distance carrier -- AT&T;, Sprint, MCI or Telesphere Communications -- with which the service bureau has contracted. And the carrier, in turn, must pay about 40 percent of its take to the local phone company for processing the charges as part of the customer's monthly phone bill.

Even that doesn't take into account the single biggest expense for any audiotex operator: the cost of getting people to dial the 900 number in the first place. Advertising, even in newspapers and on late-night television, costs money. On a national level, even $100,000 a week is a bare-bones advertising budget. With the average audiotex service generating fewer than 375 calls a week and less than $5 in charges, it's hard to stay afloat, much less make a fortune, in pay-per-call.

"A lot of people come into the business with the impression that it's the newest license to print money," says Peter Brennan, a New York-based consultant to the audiotex industry. "Well, it's not. It's like investing in the theater. If you have a hit, you make a lot of money. But most people don't have hits."

Then there's the image problem. Many people still associate 900 dialing with soft-core pornography. And just about everyone seems to know someone who knows someone who heard about a 9-year-old kid who ran up thousands of dollars of charges on his parents' phone bill, forcing his family to sell the house and declare bankruptcy to pay the phone company.

Even so, phone companies insist that most of those horror stories are just that -- stories. According to Jeanine Smetana, spokeswoman for C&P;, "We'll work with the customer if he or she complains that the 900 or 976 charges were unauthorized. Generally, if a large bill results from a child calling one of these numbers, we will make a one-time adjustment in the customer's bill."

"Besides," she adds, "we do have a blocking service available for people who don't necessarily have complete control over who uses their phone. There's a $16 service charge, just as there is any time a customer wants to make a change in service, and then there's a one-time charge of $11 to block access to 900 numbers and a $4.50 charge to block access to 976 and 915 exchanges. The blocking service is free if it's requested as part of an order for new telephone service."

More often than not, however, parents are surprised by large bills that they did authorize, albeit inadvertently. Parents often give blanket permission for teen-agers to call chat lines or rock star fan lines without looking closely at the cost. Or parents show young children how to dial Santa Claus or the Easter Bunny or Teenage Mutant Ninja Turtles. Usually the cost is low -- on the order of 25 cents to 50 cents a call. But a very young child may be so enchanted that he or she will call several times a day for weeks on end, without the parents' knowledge.

What disturbs consumer advocates more than the prospect of children running up large bills is the industry's appeal to scam artists of every ilk. As The Evening Sun reported last month, widespread fraud and abuse -- from phony job come-ons to fake sweepstakes and contests, to schemes that target people desperate for credit or loans -- characterize a significant minority of audiotex providers.

According to the Alliance Against Fraud in Telemarketing -- a coalition of 81 consumer groups coordinated by the National Consumers League -- pay-per-call frauds are directly tied to the national economic slump. "We'd like consumers to know that you can't get your credit repaired over the phone," says Linda Golodner, chairman of the alliance. "Con artists for whom the telephone is the weapon of choice have cooked up ingenious and effective appeals that play on widespread fears about unemployment, bad credit and a tight loan market."

Nor is all the fraud tied to temporary economic conditions. "We see abuses in 900 numbers as a new trend in fraudulent telemarketers," says Eileen Harrington of the Federal Communications Commission's Bureau of Consumer Protection. In fact, the FCC has received more than 2,000 complaints -- 800 of them in the past year alone -- about alleged fraud in the pay-per-call industry.

U.S. Sen. John McCain, R-Ariz., who introduced legislation last spring to regulate audiotex suppliers, adds, "It's a billion-dollar industry with virtually no consumer protection and, to a great extent, has become the home to many scam artists who are recycling all the old types of scams with this new technology. I'm particularly concerned that it's playing on the most vulnerable in our society -- those in need of credit or jobs, the lonely and children."

Service-bureau owner Brooks McCarty believes the industry has gone far in the last few years to improve its image. "First of all," he says, "you have to remember that the dating services and adult entertainment lines are not [long-distance] numbers. Local telephone companies are monopolies, and they can't discriminate among their customers. If someone wants to start a phone dating service or gambling line or sex-talk line, the phone company can't refuse to do business with them."

"With the national carriers like AT&T;, Sprint, etc., it's a different story. They're free to turn down certain kinds of businesses, and they do." In fact, not one of the four major long-distance carriers will do business right now with the "adult" phone services.

"Overall," he says, "the trend in the business is toward greater responsibility and respectability. The demographics of our callers are changing, and the industry has gone far toward cleaning itself up."

Industry studies support the notion of changing demographics. Strategic Telemedia, a New York-based telemarketing consulting firm, found that the heaviest users tend to be phone freaks and computer hackers -- people for whom telecommunications innovations are mother's milk. In 1990, Telemedia found that among the 7 percent of all Americans who had dialed a 900 number at least once, a hefty majority were professional males with incomes averaging $25,000 to $50,000.

"It may seem paradoxical," says Mark Plakias, a senior vice president at Strategic Telemedia, "but people who call 900 numbers tend to be better educated. They're information junkies. The just don't look at 900 numbers as a paid call. They see it as an information service."

Jeanine Smetana of C&P; agrees. "It's a shame," she says, "that the occasional weirdo or sleaze merchant gets all the publicity. In fact, the vast majority of our 976 numbers are operated by honest business people providing a great public service. Customers should realize what a tremendous opportunity 900 calling offers for instant information retrieval and education."

Like any billion-dollar industry, especially one striving uphill for respectability, audiotex providers have formed their own trade association, the National Association for Information Services, with headquarters in Washington, D.C.

According to managing director Helen Pohlig, NAIS was originally formed by audiotex vendors who wanted to upgrade the industry's image and rescue it from the rip-off artists and sleaze merchants. "We believed that we could police ourselves," she says, "and this organization was formed to do just that. But we've become aware that it may take more than our collective efforts. That's why the NAIS supports federal regulation of our industry. If it's administered fairly, it will simply write into law what our responsible members are doing already."

If the major players in the audiotex industry are eager for government regulation, the government is eager to oblige. The Federal Communications Commission has proposed regulations that would force pay-per-call operators to provide a free upfront message, known in the industry as a "kill message," describing the service, explaining the cost and giving the caller a chance to hang up before any cost is incurred.

Many industry representatives oppose mandatory kill messages precisely because of their effectiveness. Studies have shown that after a kill message, up to 30 percent of all callers will hang up and not redial.

In addition, the FCC rules would require print and television advertising for 900 numbers to state the charges and dissuade children from dialing without their parents' permission. Phone companies would be required to offer free blocking and would be prohibited from cutting off a customer's phone service for non-payment of 900 charges. When charities use 900 numbers to solicit funds, they would have to disclose to callers the percentage of their money that actually goes to the charity.

To a great extent, the FCC's proposed regulations mirror rules already in place among the major long-distance carriers. Sharon Lundeen, promotion and PR administrator at U.S. Sprint Gateways in Overland Park, Kan., says that Sprint reviews the content of all its 900 services and strictly prohibits any that are "obscene, indecent, pornographic, illegal or misleading."

Sprint also requires a kill message, she adds, if the call will cost more than a $10 flat rate or $5 per minute or if the program is aimed at children. Similar rules prevail among the other three major long-distance carriers as well.

It's still too soon to say where the pay-per-dial industry is headed. Haunted by an unsavory image and saturated with vendors of overpriced, sometimes worthless "information" and puerile "entertainment," the industry may become tomorrow's Hula-Hoop or Cabbage Patch Kids. If the efforts and predictions of industry boosters like Brooks McCarty and Helen Pohlig bear fruit, however, we may be about to open a new chapter in the ongoing Information Revolution.

But no matter how many pay-per-call lines open and close, one source of advice by phone will always be available free of charge. Hello -- Mom?

ARLENE EHRLICH is a Baltimore-based free-lance writer.

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