The Excel Phenomenon
The Excel Phenomenon
The Astonishing Success Story of the Fastest-Growing Communications Company--and What It Means to You
Prima Publishing A WINNING
COMBINATION
Friday, May 16, 7:00 P.M. It's hazy and warm in Los Angeles. In a cavernous auditorium of the L.A. Convention Center, 1,500 people have gathered, having fought through the rush-hour traffic and shaken off the end-of-the-week exhaustion. For those coming directly from their nine-to-five jobs, there has been no time for dinner. That will have to wait.
I try to form some generalizations about the people in the crowd, but I can't. The only thing they have in common with one another is that they're different from one another. Young people and old people, families and single people, men and women, suits and blue jeans, silks and polyester, fitness buffs and the wheelchair-bound--
Founded in 1988 by Kenny Troutt, chairman and chief executive officer, Excel has quickly become one of the fastest-growing providers of long-distance communications. The company currently serves four million long-distance telephone customers, who used 6.3 billion minutes of calling time in 1996; these numbers will expand significantly upon consummation of Excel's recently announced plan to acquire Telco Communications Group. With about 3 percent of the market, Excel is America's fifth-largest long-distance provider in terms of presubscribed lines.
It earned that status and customer base not by developing its own switching and transmission networks but by purchasing blocks of long-distance time and value-added services at deep discounts from the primary carriers and reselling it to end users.
Excel's growth has been astounding. In 1996, the company's revenues totaled $1.4 billion, a 167 percent increase over 1995. Only two other start-up companies on record have climbed their way past the $1 billion mark as fast as Excel. In May 1996, Excel became one of the youngest companies ever to be listed on the New York Stock Exchange.
Today, Excel is the company everyone is talking about both in communications and in network marketing. Indeed, it is the company's union of these two powerful industries that has resulted in its unique character and formula for success.
Setting the Stage: Growth andChange in Telecommunications
Excel would nor exist today were it not for society's insatiable appetite for the telephone and an ever-expanding array of communications products and services. The telephone and the industries it has spawned have been revolutionizing our society for more than 120 years, and they show no sign of letting up.
It all began when 29-year-old Alexander Graham Bell walked into the patent office on February 14, 1876, to file an application for his new invention: the telephone.
Bell had always been fascinated by the patterns of speech and sound, and he had good reason to be. His grandfather was a professor of elocution. His father was a linguist who taught speech to the deaf and invented a phonetic alphabet called Visible Speech. Bell's mother was deaf, but she was also a talented pianist who was able to "hear" music she played by placing the mouthpiece of her ear tube on the sounding board. It was the realization that sound could travel along wires that created the first sparks of the idea for the telephone in the inventor's mind.
One day, while attempting to read a treatise on sound by a German scientist, written in German, Bell misunderstood the text to say that vowels could be reproduced electromagnetically and could travel over a wire. (What the treatise really reported was that vowels could be reproduced by a combination of electrical tuning forks and resonators.)
With this skewed notion in mind, the inventor found financial support from interested investors and started working on a harmonic telegraph, a system that would allow more than one message at a time to travel over a telegraph line. At the time, telegraphs were unable to send more than a single message in a single direction at one time, causing messages to back up for hours.
Bell needed help with the mechanical aspects of his idea, so he hired Thomas A. Watson as his assistant. The pair worked diligently for months, conducting experiment after experiment to develop the harmonic telegraph. The only problem was that it didn't work!
Bell then shifted his focus to an intriguing tangent: Why couldn't any sound travel over the telegraph? Bell reasoned that if he could make a current of electricity vary in intensity, precisely as the air varies in density during the production of a sound, he should be able to transmit speech telegraphically.
His investors weren't interested, however. They demanded results on the harmonic telegraph, so further work on what was to be become the telephone became a clandestine operation.
A key challenge was quickly isolated. Bell had to find a substance that would deliver the current necessary to transmit actual words. One day, he accidentally spilled battery acid on his telephone and on himself. He shouted, "Mr. Watson, come here! I want you!" Bell's voice carried over the phone. It was the phone call heard round the world!
Never a Down Quarter
Thus was born the industry that Excel leader Meg Kelly-Smith points out "has never had a down quarter in over a century."
The invention initially had its doubters and cynics, though. The chief of the British Post Office was reported to have said: "The Americans may have need for the telephone, but we do not. We have plenty of messenger boys."
Mark Twain dismissed the new contraption with this legendary put-down: "If Bell had invented a muffler or gag, he would have done a real service."
Others reacted with fear and superstition. They were afraid to talk to a disembodied voice and worried they would be electrocuted. Still others felt the phone was simply another "gilded-age" toy for the upper crust--certainly not a development that would alter the lives of average people and society as a whole.
"Telephones are rented only to persons of good breeding and refinement," an early advertisement reminded potential customers. Indeed, it cost a fortune: $150 to lease a telephone in New York and $100 in Chicago and Philadelphia. That was a lot of money in the 1880s. True to that "good breeding and refinement" mentality, many early customers hid their phones in a cupboard or installed a special cabinet to house the instrument.
Even the now universal method of answering the telephone went through several manifestations in the very early days. Alexander Graham Bell always said "Ahoy!" When Thomas Edison worked on perfecting the device, it had to be cranked first and the user asked "Are you there?" Edison thought that took too long, so he just said "Hello?"
The early notion that the telephone would remain an extravagance for a small segment of society was quickly proved wrong. Communications technology spread like wildfire from day one, and it hasn't stopped since:
* In 1878, the first telephone was installed in the White House during the Rutherford B. Hayes administration. The president's first call was to Bell, who was 13 miles away. Hayes had to ask him to talk more slowly. * In 1880, the first public pay station in the world began service. For 10 cents paid to a uniformed attendant, one could call anyone who had a phone. * In 1892, telephone lines linked New York and Chicago. * By 1902, the U.S. had 2.1 million telephones. Just 12 years later, in 1914, that number had multiplied to 10 million. * In 1911, New York and Denver were linked. * On January 25, 1915, the first coast-to-coast telephone call took place, appropriately between Alexander Graham Bell in New York and Thomas A. Watson in San Francisco. * In 1921, the first rotary dial came into use. * In 1927, the first overseas call took place. * In 1929, Herbert Hoover became the first U.S. president to have a phone on his desk in the Oval Office.
Today, 150 million telephone lines are in service in America, and the usage works out to every man, woman, and child in America spending 40 minutes a day on the phone. Analysts keep looking for the saturation point, but thanks to dramatic technological developments, new products, and insatiable customer demand, no one sees it anywhere on the horizon. Consider the industry of which Excel is a part:
* Operating revenues for all telephone communication services exceeded $195 billion annually--a 22 percent increase in just four years. * Local, long-distance, network access, cellular service, and international calling have all been growing at double-digit or even triple-digit rates through the first half of the 1990s. * Since 1990, long-distance calling, which still accounts for nearly 40 percent of revenues, has grown 15 percent; local calling has grown by 17 percent. * International calling has skyrocketed, with the number of calls increasing more than 600 percent since 1980. In 1994, Americans spent at least $12.4 billion on 2.3 billion international calls. * In 1994, 27 million people carried pagers. In just three years that number has increased to 40 million. By the year 2000, it is expected to exceed 70 million. * Ten years ago, just over two million Americans had cellular phones. Today, nearly 34 million do. While average monthly phone bills have been dropping due to cheaper, more competitively priced service, total revenues in the cellular phone market have increased tenfold in just a decade. * The number of 800 numbers in use has more than doubled from 1993 to 1995 alone. Nearly seven million are in use today, and we're running out of numbers. In 1995, a new number (888) was created, along with 15 additional standard area codes in that year alone. * Even ancillary endeavors, such as the publishing of directories, have become hugely profitable businesses. According to Once Upon a Telephone, by Ellen Stern and Emily Gwathmey, the first telephone directory had six business headings. Today it has over 5,000. By 1994, there were 200 Yellow Pages publishers in the United States, organizing, collating, printing, and distributing over 350 million phone directories and generating over $9.3 billion in annual revenue.From Monopoly
to Market Mayhem
It may seem like an anomaly, but an industry based on continual advances in state-of-the-art technology has also been, for much of its existence, a government-regulated monopoly.
All that has changed. Today, it's one of the most competitive, innovative, and entrepreneurial businesses in the world, with thousands of upstart companies dropping in and dropping out. Consumers, for the most part, are in the catbird's seat: despite initial confusion and sometimes annoying sales pitches interrupting the family dinner, prices are generally going down, while the range, quality, and accessibility of services are going up. Here's how it happened.
In 1934, Congress established the Federal Communications Commission (FCC), an agency regulating AT&T's legal monopoly on the following:
* The manufacturing of all phones, cables, and communications products through its Western Electric Company * All scientific research and product development through its Bell Telephone Laboratories * All long-distance service
State Public Utilities Commissions (PUCs) were charged with regulating local telephone service.
Both AT&T's monopoly and the regulatory oversight was viewed as the most efficient way of achieving universal access and service. In addition, high capital costs related to the installation of the telephone network, as well as the labor intensity of the business, created a conventional wisdom that maintained the following three points:
1. AT&T deserved some market protection to ensure it could eventually turn a profit on its huge infrastructure investments. 2. No other serious player could afford to enter the market competitively anyway. 3. Segments of the country and the populous would be left without service without government regulation.
Between the 1930s and the early 1970s, several fissures in the monopoly's foundation began to appear. In 1956, the government issued a Consent Decree prohibiting AT&T from developing new businesses and thus raking advantage of the protection it enjoyed.
In 1969, a company called Microwave Communications Inc.--better known as MCI--was allowed to offer private-line service between Chicago and St. Louis. Two years later, the FCC opened up the key private-line market to other common carriers in addition to MCI.
The year 1974 saw the beginning of a long ending to AT&T's monopoly, with an antitrust lawsuit by rival MCI. Eight months later, the Justice Department launched a more comprehensive legal assault on AT&T's entire monopoly structure. It was this case that nearly a decade later would lead to the breakup of the company, the spawning of literally thousands of upstart competitors, and the birth of Excel.
Yet, during this drawn-out process, AT&T's monopoly enjoyed strong support from both parties in Congress, most of big business, the FCC, state PUCs, the Department of Defense, individual companies, and organized labor. So why did support crumble? As detailed in Jeremy Turnstall's Communications Deregulation, while MCI fired the first shots, AT&T was in fact beaten by three factors:
Technology: It proved increasingly difficult to control the technology, as scientific advances were made almost daily. Big businesses increasingly began to see the company as technologically backward rather than innovative, and they complained that AT&T failed to recognize their needs for sophistication in communications. Consumers, accustomed to a plethora of choices in other product and service industries, had grown tired of the availability of one or two models of telephones and so few options on the service menu.
Inflation: Persistent inflation through much of the 1970s meant that AT&T was continually having to ask for, and increasingly having to fight for, rate increases. Monopolistic protection accompanied by government-set and -sanctioned rates discourages efficiency and encourages bloat and bureaucracy.
Politics: During the 1970s and early 1980s, AT&T's leadership was defeated politically by failing to anticipate that repeated exposure to the glare of congressional committee hearings would steadily sap its strength in lobbying and public image. As it fought its court battles, the company pulled out all the stops in Congress to prevent legislation-mandated deregulation.
While such legislation was prevented, AT&T found itself swimming against a strong current. Sweeping deregulation plans affecting aviation, trucking, and other industries were picking up steam and would be enacted by the end of the 1970s.
In 1981, both AT&T and the Justice Department asked Judge Harold Greene for a postponement of the long-awaited U.S. v. AT&T antitrust trial. Judge Greene denied the request. The company saw the writing on the wall. Faced with the prospect of endless indecisive legislative battles, plus the prospect of a hostile verdict from Judge Greene and other lawsuits to follow, AT&T agreed to a Justice-approved divestiture plan on January 8, 1982. In 1984, the breakup of AT&T's regulated monopoly was completed. The company divested itself of the 22 local Bell system operating companies, which accounted for the bulk of its revenues, profits, and one million employees.
It was the end of an era--and the beginning of a wild ride into the future.
Enter the Upstarts
"Bungled forays into computers, online services, and multimedia ventures are an old story at AT&T, but its core long-distance business was supposed to be a market the company had down cold. Not anymore," Business Week recently concluded. In fact, the post-monopoly world has been a tough place for the telephone giant.
Since 1984, AT&T's traffic has grown at a rate slower than the industry average. The result has been a declining share of the interstate market, as measured in minutes--from over 80 percent then to about 56 percent by 1995. The company's share of long-distance revenues suffered an equally precipitous decline--from over 90 percent in 1984 to 55 percent a decade later.
Even so, the initial phase of the deregulated long-distance phone marker was marked by the emergence of several big players--what Business Week calls the "oligopoly" of AT&T, MCI, and Sprint. As recently as 1995, they controlled 90 percent of the market.
It was competitive, to be sure. Who could forget the multimillion-dollar television ad wars the giants of the industry launched against one another to sway the loyalties of customers? To most of us, the competitive noise was confusing and annoying. We simply tuned it out.
Today, thanks to companies like Excel, the oligopoly has fallen apart just as the monopoly did some 15 years ago. "Tiny rivals are grabbing customers and blindsiding the telecom giant [AT&T]," notes Business Week. "And poised on the horizon are the massive Baby Bells, waiting for regulators to allow them into long distance." In fact, by the spring of 1997, with both local and long-distance service opened to an entirely new set of players, another expensive television ad war has broken out all over the country. This time, the protagonists are local phone companies protecting their market shares by condemning long-distance providers, and long-distance giants like AT&T defending their turf.
States Los Angeles Times business columnist James Flanigan: "Since 1984, when AT&T's regulated monopoly was broken up, smaller companies have been responsible for virtually all advances in telecommunications."
This has shaken investor confidence in AT&T. The company's public image had already taken a beating when it announced a massive layoff in 1996. (Some of the downsized AT&T employees have since joined Excel as Independent Representatives.) Today, investors see AT&T's phone business coming under siege faster than anyone had expected. Prepaid calling cards and Internet calling, once it is perfected, pose additional risks for AT&T or for any company that lacks the reflexes to respond to a constantly changing business.
There's no question that AT&T is looking over its shoulder at companies like Excel. Imitation is indeed the sincerest form of flattery. That's the reaction at Excel to AT&T's recently announced partnership with Shaklee for the purpose of building a network marketing component into its business.
Excel's Business StrategyThe long-distance portion of telecommunications is already an $80-billion-a-year industry growing at a rate of $500 million a month. In a climate of rapid growth, deregulation, and intense competition, Excel has flourished, thanks to a unique business strategy.
First, the company has targeted two significant segments of the market:
1. Residential customers--those who individually spend less than $500 a month on long distance but who together make up more than 50 percent of the long-distance market 2. Commercial service for small and medium-sized businesses
Second, rather than incurring the tremendous capital expense of installing its own telephone network, Excel essentially kick-started its entry into the business by purchasing long-distance calling capacity from network-based companies at deep discounts and reselling it to customers.
Third, instead of hiring an expensive in-house, employee-based sales force and buttressing it with a costly national advertising campaign, Excel markets and distributes products exclusively through a network of tens of thousands of Independent Representatives (often called IRs).
Relationship selling is the basis of the business opportunity Excel offers to these Representatives. Excel Representatives are encouraged to build their own home-based business by seeking subscribers among their immediate circles of family, friends, business associates, and acquaintances. It is therefore ironic that some industry analysts have called companies like Excel "Brand X" companies because their name is not as familiar to the public at large as the big three (AT&T, MCI, and Sprint). In the Excel plan, you as a customer are liable to have as your long-disrance provider your own father, mother, son, or daughter. Who would call a family member or loved one "Brand X"? In this fashion, Excel has put loyalty back into the long-distance telephone business.
Fourth, Excel's products stress simplicity and continuity, which are important attractions for today's confused telephone consumers.
Unlike other calling plans, nothing changes when a phone customer switches to Excel, except the savings he or she realizes. The customer picks up the phone and dials one plus the area code and number, just as before. The call gets routed through the local exchange carrier and on to a national digital fiber network.
Most customers will notice no change in their billing either, since Excel has established billing contracts with most of the local providers who issue the bills. Adding to customer convenience is the fact that there is no minimum usage requirement. Savings begin with the very first phone call.
In addition to what Excel terms "Simply One" calling, the company offers a range of other communications services and products that are constantly being expanded and upgraded. They include the following:
* Discounted long-distance residential calling * Discounted long-distance commercial calling * 800 service * International calling * Calling cards * Paging products and services
In the works are plans to enter the local telephone market and key international markets and to offer banking services and residential electricity.
The Excel Opportunity
While the company offers discounted, quality telecommunications services to its customers, it offers Representatives a low-coy, home-based business opportunity based on the principles of network marketing.
By gathering a few customers and convincing a few others to do the same, the Excel Independent Representative begins earning immediate cash income by receiving a percentage of those customers' long-distance usage each and every month. There are also cash bonuses for bringing customers and other Representatives' customers into the business quickly, stipends for training others on the company's behalf, and an escalating schedule of financial incentives, which grows as the Representative increases the network of people he or she brings into the business.
Immediate cash income, serious income potential and long-term residual income, and the great satisfaction that comes from building one's own business -these are the rewards that are today attracting tens of thousands of people to Excel. You can enjoy these rewards and the following benefits as well:
* There are no deliveries and no inventory. * You collect no money from customers--local companies or Excel does that for you. * There is no customer risk. If for any reason a customer is dissatisfied with the service, Excel will reimburse any charge for switching back. * You have no employees, which means you don't have to worry about withholding, workers compensation, or workers calling in sick. * You are not an employee either. You don't work for anyone but yourself. * You can build your business by gathering customers and new Representatives anywhere, not just where you live. * No experience is necessary. Excel will provide you with all the training you need.
When some consider opening their own businesses, one of the first opportunities they look at is a franchise. According to Entrepreneur magazine, typical start-up fees for franchises can range anywhere from a low end of $3,000 for a shopping-bag advertising company to a midrange of $60,000 for an antique and custom furniture franchise to a high end of $200,000 and up for a fancy car-wash business.
How much does it cost to start an Excel business? There is a fully refundable $50 application deposit to become an Independent Representative, for which you receive the basic materials and information.
However, those serious about getting off on the right foot choose to become Managing Representatives. This status provides an IR with training, a home office support system, newsletters, and Excel's bookkeeping and accounting services. There is a one-time $195 charge to become a Managing Representative, in which case the $50 deposit is waived, with an annual renewal of $180.
So, for less than $200 at the outset and less than $200 per year, you can be in business for yourself. All you need to know is a few people with a phone who might want to do you a favor by switching to a lower-cost long-distance provider that saves them money! It's not rocket science--just the genius of common sense.
Matching Growth with Stature
By turning the "people power" of network marketing loose on the booming, deregulated telecommunications industry, and by reselling high-quality service at a lower price rather than launching its own capital-intensive telephone system, Excel has made a fast and significant mark in the business world.
Yet when you're living on the freewheeling frontier, as Excel has done for the past nine years, there comes a time when it's important to put down roots. In addition to its initial public offering on the New York Stock Exchange, in the last several years the company has taken other important steps to position itself for long-term growth.
Excel is a solid professional corporation with a top management team and 2,200 employees in its Dallas headquarters and its call centers in both Houston and Addison, Texas, as well as in Reno, Nevada.
It has added seasoned executive talent to its management team, such as Jack McLaine, now the company's president and chief operating officer. Jack was hired as the company's chief financial officer in August 1994, after a distinguished career that included running his own firm, which provided merger and acquisition services to Fortune 500 companies. He has served as chief financial officer and president of international operations for Pearle Vision Inc. and as a vice president for American National Can Co.
His ascension to the position of Excel president and COO comes on the heels of his successful management of two major company milestones: its initial public offering in 1996 and its merger agreement with Telco Communications Group in June 1997. The role Jack plays as a strategic counselor and trusted business confidant for chairman and CEO Kenny Troutt became clear from my very first visit to Excel. During my initial meeting with Kenny, Jack was by his side, offering his cogent analysis and thoughtful insights into the reasons for Excel's success and the challenges that lie ahead.
Says Kenny Troutt of Jack McLaine: "Jack has a unique ability to view the Excel business model from a global perspective, and to evaluate product markets and services while bringing all the business elements together. Under his leadership, we'll continue to set the standard in the communications industry."
The company's plan to build its own switching and transmission network through the purchase of state-of-the-art switches from Lucent Technologies, as well as its decision to acquire Telco, begins a new era for the young company--an evolutionary development from a reseller to a facilities-based carrier that will allow Excel to become a major competitor in a much larger universe of communications services and products.
Communications and network marketing. It's a winning combination. Yet it didn't happen by accident. Like Alexander Graham Bell and Thomas A. Watson more than 120 years ago, the match was made because of the vision and drive of a determined leader, Kenny Troutt, and a dedicated partner, Steve Smith.
Excel at its heart is a people business. Its most valuable product is not telephone service but service to others, giving each person in the business the chance to achieve his or her dreams by helping others achieve theirs. It is impossible to fully understand the business, why if works, and where it's going without probing the ideas, motivations, backgrounds, and dreams of the key people who saw the vision and acted upon it.
I'd like to introduce some of them to you in the chapters to come.
(C) 1997 James W. Robinson All rights reserved. ISBN: 0-7615-1171-7
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