Telemarketing curbs not a boon to all: the recent federal "do not call" regulations have been cheered by millions of consumers, but they have hurt the telemarketing industry and challenged many traditional businesses that rely on the phone to bring in revenue.

Federal "do not call" legislation, targeted to curb the relentlessly annoying solicitations of the telemarketing industry, has been a mixed blessing--a happy event for most consumers but bad news for many legitimate businesses that rely on telephone sales to garner new customers.

True, the legislation has made the dinner hour more peaceful in millions of homes; since the law took effect last October 1, more than 50 million Americans have asked that their names be scrubbed from the list of households eligible to receive such calls. Yet "do not call"--or DNC, as it is known in the industry--is also raising costs for numerous concerns that have relied on the telephone as the time-honored connection with their customers. While consumers often associate telemarketers with aluminum-siding salespeople or telephone service switching, telemarketing is routinely employed by many businesses that consumers hardly view as intrusive.

Indeed, the law applies to more than "telemarketers bugging you to switch your phone service," notes Lynn Wunderman, CEO at I-Behavior, a Harrison, N.Y.-based database marketing firm. Daily newspapers, local merchants and even professionals such as doctors, lawyers and accountants frequently use the phone to recruit and retain customers, patients or clients. Under the new law, however, all are proscribed from calling on people unless they had an existing relationship in the past 18 months.

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The potential impact is large because telemarketing is big business: Americans spent $654 billion purchasing goods and services over the telephone last year, reports Tim Searcy, executive director of the American Teleservices Association. Among other things, consumers responded to solicitations to buy real estate, refinance mortgages, snap up credit card offers, lower insurance premiums and make investments and invest in time-share vacation property.

The industry, moreover, employs 6.5 million people who make calls from 165,000 call centers in the U.S.; many of them already are experiencing disruption of their livelihoods in the wake of DNC rules. On average, several call centers have been closing weekly, reports Joe Sanscrainte, general counsel at Call Compliance Inc., a Glen Cove, N.Y., company that offers TeleBlock, a call-screening and blocking service. Sanscrainte informally keeps track of newspaper stories that report call center closings and reports them on his company's Web site.

"What is really putting telemarketers out of business is the reduction in the number of people available to be called," he says. "The FCC said in 2000 that there are 120 million residential phone numbers; with 50 million out of reach, it's inevitable that that is going to have an impact on the number of persons available."

The telemarketing association's Searcy reports that as many as 50,000 outbound call representatives have lost their jobs. "But nobody has given an accurate figure," he says, "and that number is probably low." Adds Wunderman: "The segment of the population that DNC is hitting the most are employees in rural areas or welfare-to-work people" in inner cities who don't have many employment options.

Eileen Renowden, vice president for financial services at Dial America, a Mahwah, N.J., telemarketing firm that employs 8,000 telephone sales reps at 60 call centers in locations such as Tempe, Ariz., Bloomington, Ind., and Scranton, Pa., says: "These are good people with a great work ethic." Dial America, which makes calls on behalf of a raft of clients--including financial services firms, high-speed internet access providers and magazine publishers--has not had layoffs. The 47-year-old firm is betting that beleaguered companies will turn to established and reputable providers at a time of greater difficulty.

But it, too, faces rougher sledding. While many customers whom Dial America calls on behalf of its clients are available because of the 18-month exemption, Renowden sounds almost like a character ("I never get the good leads") out of David Mamet's "Glengarry Glen Ross" when she says that DNC has resulted in B-list candidates for sales pitches. "The pinch that we have felt is in cold calling," she says. "Many of the people on the lists that we have now are not our customers' first choice. That makes it more expensive to meet new-business objectives."

Facing higher regulatory hurdles just to stay in business, telemarketing firms have little choice but to grin and bear it. Each must spend $7,375 to purchase the full list of valid phone numbers from the Federal Trade Commission (FTC). The lists will need to be updated every 30 days. Telemarketers must also purchase lists from the 19 states that have DNC laws. Calling a person on the DNC list without an exemption could mean getting slapped with stiff fines--$11,000 per violation--by the FTC's enforcement division.

After a few too many erroneous calls, the penalties could run into real money. "Companies making millions of calls with a 4-6 percent error rate could face hundreds of millions of dollars in violations," says Sanscrainte.

Some industries that employ telemarketing are faring better than others. The time-share vacation industry--"where telemarketing has historically been an important component of the marketing plan," says Howard Glassroth, vice president for communications at the American Resort Development Association, the industry's trade group--has been able to exploit the "previous business relationship" exemption with some success.

Glassroth admits that use of sometimes-zealous come-ons by telemarketers hasn't always cast the time-share industry in the best light. But he asserts that surveys show 85 percent of the three million customers who own a time-share say they are "very satisfied." "It's like buying a used car," he says. "People don't like the process, but they love the product."

Ed Kinney, senior director of brands and public relations at Marriott's time-share division in Orlando, says that under the exemption--which the time-share industry lobbied for--his company can count any person who stayed at a Marriott hotel in the previous 18 months as a telemarketing candidate. In addition, the company has agreements with Delta Airlines, AT & T Corp., American Express and Visa that "gives us a tremendous data base" of marketing candidates.

RCI, a time-share subsidiary of Cendant Corp., has expanded its sales efforts by using kiosks at Harrah's in Las Vegas and Atlantic City to market to prospective customers in person. In return for attending a 90-minute sales presentation on time-share properties, it offers the prospects gambling chips and a mini-vacation of four days and three nights for $149--a package worth as much as $1,000. At the same time, RCI has been reducing its reliance on telemarketing, even causing one of its subcontractors to close a call center.

'We Knew It Was Coming'

"DNC has clearly impacted us, but not in an unanticipated way," says John Barrows, vice president of communications at Cendant Timeshare Resort Group. "We knew DNC was coming for a long time, and we began emphasizing strategic marketing."

By all accounts, however, the transition has not been quite as smooth for the newspaper industry, where, according to Editor & Publisher magazine, telemarketing generates 39 percent of all new subscriptions. Maintaining a high subscriber base remains a critical economic fact of life in the newspaper business, notes Evelyn Henry Miller, executive vice president at The Dallas Morning News. "Readership drives circulation, and that drives advertising revenue," she says.

New subscriptions attributed to telemarketing efforts were even higher than the national average--more than 50 percent--at the Morning News four years ago, says Curtis Jones, the paper's Internet circulation sales manager. But a DNC law in Texas forced the newspaper to reduce its reliance on telemarketing, shrinking it to 32 percent last year.

Still, replacement strategies are proving more expensive. To attract new subscribers, the paper employs door-to-door solicitation, kiosks or "storefronts" at local malls, supermarkets and department stores. "Our costs per start is higher than telemarketing, although the churn rate is less," says Jones.

John Walsh, senior vice president of circulation at the Dallas paper, says the company is spending more money both to comply with the law and to purchase more refined data on prospective subscribers. "DNC is forcing us to employ more sophisticated marketing methods," he says. But rather than forcing cutbacks, the tougher law and tighter regulation means "we actually have more vendors working for us than last year."

At the same time, the newspaper has been turning to the Internet. No longer feared as an arch-rival, the Internet has emerged as a great vehicle to build a newspaper's visibility; yet it is not emerging as a "replacement channel" for what has been lost with telemarketing because of DNC, says Patrick Glennon, managing partner at Marketing G2, a Philadelphiabased consulting firm and adviser to the Morning News. "The benefit of the Internet is more on the retention side of the equation," Glennon says.

While marketers hunt for ways to offset the effects of "do not call," few expect telemarketers to disappear. "Telemarketing remains the most cost-effective way to reach consumers and to sell to them," says Sanscrainte. "If you look for other ways, you're going to have to raise your prices."

Paul Sweeney is a freelance business writer in Brooklyn, N. Y., and a frequent contributor to Financial Executive. He can be reached at 718.636.2036.