The Miami Herald / May 25, 1996
By Larry Luxner
WASHINGTON -- Callback services -- the nemesis of government-owned phone monopolies from Uruguay to Uganda -- now constitute one of telecom's fastest-growing industries, as new technology make it possible for customers to thumb their noses at outrageous long-distance rates by circumventing their own countries' phone systems.
In 1994, callback was estimated to be a $200 million business. Last year, revenues had doubled to $450 million. In 1996, say industry experts, total sales will range between $900 million and $1 billion. One of the hottest markets is Latin America: with only 8.4% of the world's population, the region generates nearly 20% of world callback revenues.
Eric Doeschler, marketing director for Kallback Inc. of Seattle, says his company alone will have $100 million in sales this year, up from $60 million in 1995.
"When we first started, consultants were saying the window of opportunity for the industry was three to five years, and then we'd start facing competition from national phone companies," Doeschler said in an interview. "Three years later, we're still growing at 15% a month. We're hiring 20 people every month, and will soon move into a new building that's twice the size of the current one."
The essential feature of all callback systems is the ability to offer overseas custo-mers -- regardless where they're located -- long-distance rates at U.S. prices, which are the cheapest in the world. Customers call a special "trigger" phone number in the United States, then hang up after the first ring, paying nothing for the call. The trigger, which is linked to a computer, automatically calls back, asking for the customer by name and extension if necessary. Armed with a U.S. dial tone, calls can then be placed around the world at discounts of between 20% and 70%.
The undisputed king of callback is USA Global Link Inc. of Fairfield, Iowa, with 1995 revenues of $176.7 million -- of which 90% can be considered callback services. Chief executive officer Holland Taylor says a combination of new, inexpensive switching equipment and rivalry among U.S. carriers for international traffic has given the U.S. the world's most competitive calling rates.
"Most government laws were written prior to the computer revolution, which has greatly reduced the cost of switching equipment," Taylor explained. "With Nortel or AT&T equipment that has the intelligence of a high-speed computer, you can process milions of calls very cheaply."
The basic technology associated with callback services is simple -- so simple, in fact, that Doeschler says "you can set up your own callback operation with two phone lines, a PC and about $300 worth of software. A number of companies have started out that way."
According to M.J. Scheele & Associates of San Francisco, at least 125 callback companies now operate from the United States, a number projected to hit 200 by year's end In Kallback's case, customers pay a one-time $100 activation fee and a monthly $10 fee for itemized bills. That gets them an individual trigger number they can then use to dial into Kallback's central computer.
"Say you're in Quito, Ecuador, and you're shipping sweaters to the U.S. market," Doeschler explains. "You're making $2,500 in phone calls a month. If you can cut that by two-thirds, that's $1,500 in your back pocket. For a small businessman or an expatriate, it's a significant savings."
In fact, Ecuador's state phone monopoly Emetel charges $2.20 for a one-minute call to the United States, plus 25% tax, for a total of $2.75. Using Kallback, that same call costs only 85¢.
"We're getting the extremely price-sensitive customer," he added, explaining that Kallback bills in six-second increments. "They're sitting next to the phone with a stopwatch in their hands. If we're 12 seconds off, we get complaints."
He concedes, however, that callback services aren't practical for multinationals, which are big enough to negotiate their own rates with AT&T, MCI and other major long-distance services. Also, the delays associated with callback are a disadvantage. "It takes anywhere from 10 to 45 seconds to receive the callback call. It's not an instantaneous process. If you're working on a billion-dollar deal, you can't afford to wait."
In Africa, a few countries including Zambia and Kenya have tried to declare callback services illegal, as has Thailand, China, Saudi Arabia, South Korea and Malaysia. Uganda's phone monopoly, meanwhile, countered the service by blocking all calls to Seattle's 206 area code, where Kallback is based, while Uruguay's Antel cut off all transmissions to Nebraska, where rival company Viatel's switch was located. In both cases, the companies frustrated the national telcos by rerouting calls through other cities.
Likewise, callback firms aren't very popular with Latin American phone companies. Taylor claimed that in Peru, Telefonica de Espana "bought a large chunk of the Peruvian phone company and paid top dollar. In order to recapture their investment, they have to keep international rates very high, but that's not in the interests of the Peruvian people. They don't like callback because we offer competition and undercut their prices."
Brazil's state-owned Embratel, which was losing millions of dollars to callback companies, decided in mid-1995 to slash its international rates by 50% in order to hold on to market share. In Venezuela, political pressure has made it extremely difficult for the national telephone monopoly, CANTV, to raise rates on local service, now the equivalent of $2 a month. A similar situation exists in Ecuador, where the market for callback services is estimated at $8 million.
"Although the number of customers is unknown, sources indicate that the majority are exporters, importers, the media sector, large corporations and multinationals," says the U.S. Embassy in Quito. "The overwhelming demand for call-back services among these users is due to the fact that international tariffs are as much as three times lower as those charged by Emetel."
Once tariffs are adjusted, however, demand for callback services should drop off -- not only in Ecuador but in all countries where expensive long-distance calls subsidize cheap local service.
Does that mean the callback companies will soon find themselves out of business?
Taylor thinks not. "We've always seen callback as a unique, one-time opportunity to gain entry into these markets and build sales channels and a customer base," he said, "which we can subsequently transfer to other forms of call set-up and transmission, as the legal and regulatory conditions in each market liberalize in the coming years."