The Truth About Callback
An interview with David R. Schilling of Pacific Link
interviewed by Terrie LloydSince their introduction about 5 years ago, callback services have earned a muddied reputation. Problems with fly-by-night operators, over-billing, and poor line/service quality have kept the amazing cost savings offered by these providers in the fringe domain.
Now an experienced player in the callback industry comes clean about both his problems and the industry's in general. And, with the help of his partner, Dr. Shu Min Wong -- he hopes to clean up the industry's reputation.
David Schilling is a 34-year old New Yorker who escaped his financial markets job five years ago to learn Zen in Japan. What he found at the temple was a paradox -- peace of mind and a hunger to go into business for himself in the callback industry.
CJ: How did you get started in the callback services business?
Schilling: In January 1994, I was riding on the train in Tokyo reading a newspaper one day when I saw an ad for USF Pacific callback services. I ordered the starter kit, and the materials were so poorly done I knew I could do a better job. I went to the President of that company and asked to become a sales agent. After working there for a few months I couldn't help thinking that they were still charging customers too much. I started hearing about other cheaper services and scouted around until I found someone I could trust and had the pricing I wanted -- then I went out on my own.
Things went OK and I got about 300 customers over the first few months. I was a typical entrepreneur, staying up late every night and on the phone so much that I could barely talk at the end of the day. My wife kept saying to me, "Why don't you get a (real) job at a big company?" -- so the pressure was on.
CJ: When did the first break come?
Schilling: One day I got a call from a Taiwanese doctor living down in Yokohama. He had just signed up and was amazed at our low prices. At the end of the conversation he said "I've got a big opportunity for you, come and visit me." That intrigued me, so I went.
There and then we decided to go into business together. And after an article in the Japan Times, we began to be flooded by applications.
CJ: So it kept on like that?
Schilling: Yes, for months. But what started happening is that we were getting drowned in paper. We had 8 people shuffling paper, which on the small accounts was manageable because individuals will wait for information. But as the major foreign corporations -- especially big German companies -- started joining up, we just couldn't give them the information they were asking for fast enough. Things were getting very difficult, so rather than destroy our creditability, we decided last November to change the US-based service provider we were using.
CJ: What were your criteria for a new service provider?
Schilling: On deciding that we'd change services, we hunted around a bit and found a company called AVIRNEX. They have a fully automated software package that gives the overseas agents lots more control and information about customers. Soon, their service will enable us to provide billing details to our customers by e-mail every two weeks.
CJ: How is AVIRNEX doing now?
Schilling: We were their first big site and we have been working closely with them to get things going. We have affiliate companies -- Atlantic Link in Germany and Pacific Link in Melbourne, Australia -- and they are using the software.
The thing we like about AVIRNEX is that our 20 agents used to have to send faxes to us, which were input and faxed to our old carrier, but now the agents can send this information directly to AVIRNEX via private e-mail networks. Turn-around time on orders and charges have fallen to two hours. This efficiency leaves us free to concentrate on marketing and technical support.
Still, as good as AVIRNEX is, we learned our lesson about reliance on just one provider. So we have now started our own callback operation to supplement AVIRNEX. We have our own engineers and switch in Los Angeles. What is different between our technology and most everyone else is that our switch is built on a cutting-edge PC-based network, and therefore is scalable simply by adding new PCs. I'd say that the costs of the PC-based solution is about one tenth that based on traditional switches, yet offer greater flexibility.
CJ: How does your new service compare with AVIRNEX?
Schilling: The new AVIRNEX switch, on the other hand, has about 720 ports (360 simultaneous conversations), which makes our PC system seem small. But what you have to remember is that it is completely scalable and virtually unlimited in capacity. We can just add PCs to the network as we need them.
I should add, though, that our PC switches will not replace AVIRNEX. In fact, our plan is to get a big switch in partnership with AVIRNEX and put it into Tokyo, then to populate the rest of Japan with these low-cost PC switches feeding into the main one here in Tokyo.
CJ: Can you tell us more about the callback market itself? How big are you compared to others in the business?
Schilling: OK. Well, there are about 15 callback providers in Japan. About five of these have been around for 5 years or more. Generally speaking the old-timers' prices tend to be much higher and service offerings not as good because they sit on their profits instead of re-investing them. The newcomers have learned from their mistakes and are very aggressive about technology.
According to a friend of mine, working for a major Japanese research organization, the overall value of the international call market for the 3 major Japanese carriers [KDD, ITJ, and IDC] is about US$3 billion. The callback companies probably account for 1% of that -- which translates to about US$30 to $50 million a year -- or around 40,000 to 50,000 customers.
I think that the callback market will double its share in the next year and that eventually the share will swell to around 20%. What is holding back the market is the fact that callback companies have a bad reputation. There needs to be someone who can deliver both the technology and a service suited to the Japanese culture and international business.
CJ: What specific cultural issues are you talking about?
Schilling: A lot of the US providers are start-up companies -- so they make lots of promises they can't deliver on. Customers don't forgive a company that can't deliver what it says it can.
Another area is credit cards-- by-and-large Japanese don't like using them. How we deal with this is to direct bill customers by automatic bank transfer; few callback companies can afford to do this.
Another thing that has brought callback a bad name is the calculation of connect time. In order to make the connections to the US switch there are costs involved. Now, some companies try to cover this cost by billing from the point at which you trigger the switch, even before it calls you back and you pick up the phone. This "pre-emptive" billing practice can add up to around 10 cents per minute more than normal -- the rates look lower, but they are not. In our case we don't charge until you hear the dial tone after the callback, in the case of a connected call. We give you 60 seconds to let the other party's phone ring before you must hang up to avoid charges.
CJ: What other issues are holding back the expansion of the callback market in Japan?
Schilling: Technical issues such as ease of use and line noise. There are three versions of a callback service: the first is the simplest and cheapest -- where you simply call a switch number (DID), hang up, and the system calls you back a few seconds later. The second version is a little black box, known as an "auto dialer" that acts as an electronic secretary. It actually does the "call-hangup-callback" procedure in the background. This accessory allows faxing and data communications. The third version is a "Direct Dial" facility where the whole procedure is conducted at the switch in the US, and therefore looks transparent to the user. This method is most expensive and most commonly used by providers with a large base of Japanese customers.
About 80% of customer requests for overseas calls is to allow them to do faxes. These black boxes are the cheapest way to make a call transparent to a fax machine. Now, we have tested boxes from Taiwan, Australia, Israel, and Japan, and only the Japanese ones work properly so far. By "properly," I mean that the connection must be made at least 95% of the time. Unfortunately the Japanese boxes are expensive and are continually in short supply -- so we're working on alternatives.
CJ: What about line quality?
Schilling: The way that the callback providers save money is by sub-leasing line capacity from brokers, who in turn lease from the major carriers [who own the undersea cables] such as Sprint, MCI, AT&T, and others. Now these brokers usually have the lowest quality lines, such as satellite lines, copper lines, etc., which are very noisy. The lines can be used for voice, but will not work properly for faxes and modem data. So, it is very important that people wanting to do faxes check out the provider to see if they are contracted directly with the majors -- AT&T or MCI -- as we are.
CJ: Why isn't the Japanese government taking action to shut down the callback companies?
Schilling: Well, Japan is ideally positioned to be a regional hub for Asia. But with the high costs of being here, many intensive users of international calling, such as securities companies, are moving away from Japan to Hong Kong or Singapore. The government is worried that if the trend continues then Japan will become isolated from the rest of the world economy. So, they tolerate this impingement on their structured communications market.
In fact, our Japanese-made auto dialer boxes, which can really only be used for callback, have the JATE seal of approval from the Ministry of Posts and Telecommunications...
CJ: What lies ahead for Pacific Link? Do you intend to go public?
Schilling: Well, I have to discuss that with my partner, but that's something that is probably years down the line.
The global market is where we eventually want to be. For example, we have the Atlantic Link operation in Bonn, Germany, of which we are partners. They have a contract with Deutsche Telekom to develop a corporate network in Germany, and they are using our callback servers as part of that network. As the Japanese domestic market deregulates, we will be looking to build on our own corporate network and to offer both domestic and international voice and data services. So this venture, along with Australia, Netherlands, and other European offices, brings us closer to our dream of putting together an international network.ç
