When Insight began researching this report, we expected to see a new industry, enhanced directory services (EDS), offered by both wireline and wireless providers. What we found was a new industry, but one which has had a much greater impact on the wireless segment. EDS has in fact, become an established wireless accessory, one which we believe will give wireless a strong competitive edge in an increasingly competitive marketplace.

With the Telecommunications Act of 1996 opening up the way for local competition and with the advent of new personal communications services (PCS) in wireless, EDS will help companies differentiate themselves. Competition is already increasing between not only cellular and PCS, but also between incumbent local exchange carriers (ILEC), competitive local exchange carriers (CLEC), and the wireless carriers. Competition forces differentiation or commodity pricing. Differentiation may be achieved through providing good, reliable service. And good service is also personalized service. EDS is one of the keys to competing effectively in a market where good service could make a difference.

Throughout this report we have used the acronym EDS to refer to the enhanced directory services industry. This acronym is not to be confused with the company of the same initials, Electronic Data Services.

Background

In the beginning, there was the operator who connected one party to the next. Operators provided information such as the time of day, directions to specific locations, local happenings, and of course local gossip. With the growth of the telephone network, telephone numbers were used to identify parties. This led to a new specialty operator who replaced the local operator with their personal knowledge of the locale and the population.

While the industry reduced operator costs by outsourcing, they were also searching for new ways to grow revenues. One of the first revenue producing products offered was call completion, which along with directory assistance (DA) was one of the building blocks of EDS.

Enhanced Directory Services Defined

Enhanced directory services for the purpose of this report, are new telecommunications services loosely based on traditional directory assistance. Since it was originally introduced in the early 1990s, EDS has grown to offer many different types of information. While there are many types of EDS products currently available, not every product is offered by every provider.

Enhanced and Custom Searches

A number of enhanced services involve the operator’s use of more sophisticated search capabilities and databases. Generally, for these services the operator queries a database and works with the caller to identify certain information.

The types of enhanced or custom searches include:

• reverse search by address;
• reverse search by telephone number;
• extended search;
• keyword search;
• halo search; and
• geographical search.
  

Data and EDS

The most critical element in providing an accurate and dependable DA and EDS is access to accurate data, whether it is simple directory listings or more sophisticated and extensive data such as traffic conditions or movie listings. Without good, accurate data, the most sophisticated platforms and the best trained operators will not be able to deliver a quality service to the end user--the customer.

Today there are five primary sources of raw data for directory services: Metromail, VoltDelta, American Business Information, Dun & Bradstreet, and the traditional directory companies. As more companies offer DA and EDS, the greater the need for a single data source under the purview of the FCC.

Once a company has developed a database, the next challenge is to continually update that data. Costs for purchasing updates are usually higher than the initial purchase of raw data; however, the costs are still negotiable. Data updates are done by electronic updates, bulk purchase, and return to provider. Most companies use a combination of methods to ensure accuracy and cost effectiveness.

To appreciate how crucial accurate data is to the industry’s future, consider what USA Today said (February 12, 1997 issue):

Long-distance information, never perfect, has deteriorated so much the past year that entire towns have disappeared from the listings, say those who use the service regularly. It’s another byproduct of the high-stakes feud between local phone companies and long-distance carriers as they gun for each other’s business in the wake of the Telecommunications Act of 1996.

The Wholesale Players

There are eight players dominating the wholesale EDS arena. They are:

• Excell Agent Services,
• Teltrust, Inc.,
• Metro One,
• HebCom,
• GTE,
• Bell Atlantic Mobile,
• McLeodUSA, Inc., and
• InfoNXX.
  

Past, Present, and Future Market Projections

To our knowledge, there is no detailed analysis of the EDS market. In developing our own analysis, we started from scratch, utilizing the following assumptions:

• The retail and wholesale markets define EDS as DA with call completion;
  
• The wireless market today typically offers call completion as an integral
  part of its base charge to subscribers;
  
• The wireless market has driven, and in Insight’s opinion, will continue
  to drive, the growth and evolution of EDS;
  
• Accurate historical data tracking the growth and usage of EDS has not been available industry-wide; and
  
• The projections in this report are derived from base numbers from
  wholesale EDS providers and on assumptions from industry experts.

Costs and Charges in the Wholesale and Retail Markets

Based on telephone interviews with wholesale EDS providers, the wholesale cost for the services range from 35¢ to 50¢ per call.

The trend has been for newer technologies to carry a higher price tag resulting in a higher price per call. Wholesale providers looking to enhance profits should develop newer types of enhanced services and market them aggressively to retail wireless carriers. New products should focus on what subscribers need and want such as services which promote a sense of safety on the road.

Current retail charges for EDS range from 90¢ to $1.25 per call plus airtime. This is generally bundled with call completion. Carriers are looking to hold these charges stable for existing services and may charge more for newer and more complex services.

Future Enhanced Services – Preferred Vendor Services

While most EDS revenues are based on subscriber usage, preferred vendor services are paid for by the businesses using the service. Preferred vendor services has the potential to become a good profit center for both wholesale providers and retail carriers for the following reasons:

• Many businesses already pay large fees for yellow page ads;
  
• Smaller and newer businesses unable to afford yellow page ads may be
  very anxious to pay usage-based fees as preferred vendors; and,
  
• Unlike yellow page ads, the carrier can provide actual usage figures to
  the business to demonstrate the effectiveness of the preferred vendor service.

Market Projections

Insight projects that over the next five years, EDS will become a greater profit center for both the wholesale and retail markets of the wireless industry. As we discuss in this report, the pressure from the competitive market will cause DA revenues to decline over the next five years. To enhance revenues, providers need to concentrate on enhanced directory services. The growth of total EDS revenue will grow from less than a quarter of total DA revenues in 1998 to one half in 2002.

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