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History of Toll-Free Numbers

If you’re looking to subscribe to a toll-free number service, chances are you own a business. Although it may seem like an extraneous expense, toll-free numbers can be quite useful in promoting a national brand, suggesting credibility and legitimacy, and offering the opportunity for better marketing. In fact, toll-free numbers have a surprisingly interesting history that has led to these advantages.

What is a toll-free number?

A toll-free number was originally set up by businesses to allow people to call them for free. These days, most callers are not worried about cost per minute or long distance calls, but toll-free numbers still have appeal, especially for image and marketing purposes.

Generally, the party being called is known as the “subscriber,” since they are subscribing to a service that allows them access to the toll-free number.

For a long time, the toll-free industry was actually quite exciting, with market panics, illegal monopolies, government interventions, and the rise of a whole new way to market businesses.

Collect call

Collect calling was the first real way to “reverse charge” a phone call. The caller would ask the operator for a reverse charge, and the operator would call the other party, give the caller’s name, and ask if they accepted the call and thus the call’s fee. If the recipient accepted, the call was connected, and the fee was billed to the recipient’s monthly bill. For many years, this time-consuming process was the only way for a business to take on the cost of customer calls.

Within a few decades, these calls became automated, meaning no more having to use a human phone operator. This helped, but it didn’t take off for businesses. Most collect   calls were and remain for personal purposes.

Yes, even to this day you can still call collect through a secondary number, like 1-800-Collect, which allows connections to VoIP. AT&T offers a similar service using 1-800-CALL-ATT, but it does not connect with Vonage and other VoIP serviced devices. But nowadays, collect calls are generally only used for calls from a payphone or a prison, because we just don’t really see pay-per-call or long distance pricing anymore.

In fact, the use of payphones has gone down so much that the phone companies installing and maintaining them have had to raise rates just to break even. Once in a while, you’ll see a story of the emergency 10-second pay phone call that costs nearly $40, so be careful if you ever do accept a collect call.

There are really only two other modern day uses for the collect call. One is international calling, which can still be very expensive. The second is for some cell phones with prepaid plans. If you run out of credit, it is possible to request a full or partial collect call. But collect calls are incredibly uncommon and, of course, don’t really offer a good business solution.

Fun Fact: Mother’s Day is known for having the most phone calls placed of any day in the year. Father’s Day has the distinction of having the most collect calls placed. Sorry Dad!

Zenith/Enterprise number

Before the toll-free number as we know it, things were a little more complicated. Callers’ only other option was essentially pre-approved collect calls. In order to make a free phone call—one that the receiving party had to pay for—you still had to dial the operator first.

In the 1950s, this type of free calling was introduced as a Zenith number. (Some parts of the U.S. called it the Enterprise or WX number.) Any business that wanted the ability to accept these toll-free calls had to register for a Zenith number, which was usually in the format of N-NNNN preceded by a one or two letter code for the corresponding city.

Soon Zenith numbers were listed in place of long distance numbers. Phone books and advertisements would be posted in communities in which the company wanted to do business.  Consumers would call the operator and ask to be connected to the Zenith number. The Zenith numbers were listed in a paperback book available only to the switchboard operators.  The operator would then look up the Zenith number and find the corresponding “regular” 10-digit number to complete the connection as a collect call without first having to reach the receiving party for permission.

Confusing and time-wasting, huh? Still not the best business solution, but we’re getting there!

Fun Fact: If you know the big band hit “Pennsylvania 6-5000,” you know one of the oldest surviving Zenith numbers. Calling 212-736-5000 still connects you with the Hotel Pennsylvania in New York City. The 73 stood for the first two letters, ‘PE.’ The caller would ask for “Long distance, NYC, Pennsylvania 6-5000.”

InWATS

Zenith numbers were the only business solution for toll-free calling until 1967, when AT&T introduced a direct-dial option known as the “Inward Wide Area Telephone Service” or InWATS. This is where we first saw the standard 1-800 prefix followed by the regular 7-digit phone number. It was also the first automated toll-free number, meaning it did not require a human switchboard operator.

While most calls using InWATS were technically toll-free, some companies chose “lo-cost” options where the calling fee was split between the caller and the receiver. This cost was advertised next to the 800 number, but its popularity went out of style within a few years as businesses were forced to stay competitive.

The InWATS system was really only worthwhile for long-distance call receivers who fielded thousands of calls per month, like hotels, airline carriers, and mail order companies. The service package AT&T offered included a high flat rate on each receiving telephone line as well as a limited number of hours for inbound calls.  Having a 1-800 was incredibly pricey for the next 15 years.

So what changed? Competition.

Bell Divesture

In 1974, the U.S. Department of Justice filed a lawsuit against AT&T, claiming it was violating the antitrust laws that aimed to provide fair competition in the marketplace. At the time, AT&T owned Bell Operating Companies, which serviced the public telephone lines throughout the majority of the U.S. It also owned the company that sold most of the telephones in use, Western Electric. AT&T also serviced all 3 million 1-800 numbers. According to the DOJ, AT&T was using this “vertical integration” to obtain an unfair and illegal monopoly in the telephone industry.

By 1982, the lawsuit was resolved when AT&T offered its own deal and the DOJ accepted. The result was the breakup of AT&T into 7 independent companies known as “The 7 Baby Bells.” (No, sorry, not the delicious, snack-sized cheeses.) You may recognize some of these Baby Bell names from before they were bought out in the late 1990s and early 2000s: Ameritech, BellSouth, NYNEX, and US West. When all was said and done, AT&T lost 70% of its company value.

The DOJ’s goal was reached as the introduction of competition began lowering the price of telephone services, especially long distance and toll-free.  Years later, AT&T bought out some of these smaller competing companies. Since AT&T did this without employing vertical integration, its current structure does not violate anti-trust law.

Competitive 1-800 Numbers

By the mid-80s, several telephone service providers were offering toll-free number subscriptions. To share the market evenly, each provider was assigned a range of 7-digit numbers. If you wanted to use Company X as a service provider, you were given a 1-800 number from their range. If you found another service to be cheaper, you had to get a completely different 1-800 number.

Of course, most businesses were wary of doing this. Customers already had the association, memorized or otherwise, with the current 1-800 number. Redoing all of the marketing materials was another costly risk, so most businesses became locked into their current providers. When the telecom companies realized they had these businesses held hostage, the rates would skyrocket.

Once again, the U.S. government stepped in to protect the consumers. “There must be competition,” said Uncle Sam. So in 1991, the FCC mandated that the 1-800 numbers be portable from provider to provider. Although AT&T still managed 40% of in-use toll-free numbers, now you could threaten to take your business elsewhere for a better rate, and 1-800 service became cheaper than ever.

In fact, the 1-800 numbers may have become too cheap.

The 800 Number Panic

Based on conventional telephone numbering protocol, there are about 7 million combinations possible for the 7 digits following the 800 code. Within 18 months of the FCC’s portability mandate, very few of these combinations were left.

See, each number became like a modern-day web domain name. Smart investors would buy up as many 800 number combinations as they could while hoping for a nationwide 800 number shortage. They believed that once there were no 800 numbers left, businesses would pay thousands—if not millions—for the right to a number they owned in their “portfolio.” Some companies even got involved in this game, like MCI, an American telecom company that bought up hundreds of thousands of combinations. Now MCI could list its toll-free services for prices far above market value.

The telecom industry panicked. Businesses with and without 800 numbers panicked, too. They couldn’t afford to compete.

Shock and surprise, the government stepped in again. “Bad businesses, bad!” Uncle Sam admonished. And with that, the FCC instituted the first batch of 1-888 numbers in 1996. Demand for toll-free 800 numbers went up again, and a year later the FCC introduced 877 numbers, followed quickly in 2000 with the 866, in 2010 with the 855, and in 2013 with the 844.

To prevent this type of panic from happening again the FCC introduced toll-free rules that still exist today.

RespOrgs to the Rescue

The awesome sounding RespOrgs (pronounced “ressborgs”) were robots— ahem, sorry, companies— that were established by the FCC in 1993 to help maintain the so-called SMS/800 database of available 800 numbers. Even today, if you need an 800 number, you’ll be servicing it through a RespOrg.

The original intention of RespOrgs was simply to share the blocks of 800 numbers among the telecom companies as well as to ensure the companies abided by the new portability requirement. These “Responsible Organizations” (their less cool sounding name) were expanded in the mid-90s to help prevent future toll-free panics by using their RespOrg robot lasers to destroy noncompliant CEOs (we assume).

They did this mostly through 2 simple rules: No warehousing, and no hoarding. This meant phone companies could not reserve prime toll-free number combinations, like the easy-to-remember 800-888-888. Previously, the warehousing tactic allowed telecoms to reserve good numbers and sell to the highest bidder. Now, the only numbers off-limits to any inquiring customer were ones already in use.

The no hoarding rule did the same thing on the consumer end. Investors and individuals could neither buy up toll-free numbers they had no intention of using, nor could they sell the rights to a toll-free number to which they subscribed, previously known as “number brokering.”

The RespOrgs also instated a “use or lose it” policy. If you did not use your 800 number for 4 months, it was taken away and/or you were attacked by RespOrg robot lasers.

Toll-Free in the Late 90s & Early 2000s

By the time Y2K became a disappointment, more changes had hit the toll-free business.

For one, it was not entirely uncommon for individuals to get their own toll-free numbers to avoid expensive long-distance costs for their loved ones. Even up until 2002, it was popular for parents to pay for toll-free service so their kids could call home from college.

Businesses large and small also began taking advantage of the Internet. Servicing customers through the web was much cheaper and less staff-intensive than answering phone calls. So even though their numbers were toll-free, companies began charging $10 to $20 for “customer service fees,” while encouraging consumers to visit their websites. Suddenly, toll-free wasn’t so free.

Further complicating matters was the introduction of cell phones with minute-based plans. Long distance fees that used to make toll-free necessary were no longer a concern for most people with cell phones. When unlimited minute plans became popular for both home and mobile phones, toll-free numbers had lost nearly all of their appeal.

In fact, today, many businesses wonder why they would need a toll-free number at all. Believe or not, the toll-free industry is still a billion dollar market. Here’s why.

Vanity Numbers

Don’t forget about the cool numbers, the “phonewords,” like 1-800-Flowers. These vanity numbers are one of the main reasons businesses still choose to subscribe to toll-free services.

Using a RespOrg website, business owners can search for letter combinations that spell out something meaningful or catchy. It’s even possible to trademark these numbers, although you’d have to consult an experienced lawyer for info how to properly do that.

A recent study commissioned by one of the more popular RespOrgs found that vanity toll-free numbers had a 75.4% higher recall rate, meaning the average person remembered them more accurately than a random 7-digit string of numbers. Furthermore, they found that nearly 60 percent of consumers preferred vanity 800 numbers to a local area code or numeric toll-free number. This percentage goes down when you begin looking at the less prevalent 888, 877, 866, etc., which have less association as being a true toll-free number.

Some non-letter phone numbers are also considered vanity numbers. Here the meaning of vanity would be an especially easy to remember number, like 1-800-800-8000.

Toll-Free Numbers in 2015

If you’re considering paying for a toll-free number, you’re probably weighing the pros and cons against the cost. So let’s look at that a little more closely.

Cost

Prices for toll-free service are at near-historic lows. Gone are the days of the monopoly and panic. A small- to medium-sized business can expect to pay a flat rate of $10-$15 per month plus anywhere from 6 to 30 cents per phone call.

Some of these packages may cost more if they include complex call routing, information reporting (like the locations of your received calls), and cloud-based call management systems.

Pros

  • Vanity number makes marketing and customer acquisition easier
  • 800 numbers tend to make companies look larger and/or more professional
  • 800 numbers look national rather than being associated with a specific area code

Cons

  • Many consumers screen out 800 numbers that call them
  • The associated business cost of subscribing for toll-fee service

Of course, companies may not always be able to get the number prefix they want. 1-800 is a much rarer prefix than an 877. Although they’ll generally be the same price, you have to decide whether it’s worth having a vanity number with an 877 or a random string of numbers with an 800.

By the late 90s, most businesses had a secret formula for this that still holds true today. If customers were more likely to get the number from a business card or website, i.e., the phone number was right in front of them, memorableness is not as important. If the average customer is finding you through a billboard, TV or radio ad, it’s important for the number to stick in their memory easily, so vanity numbers work better.

Of course, this issue of memorableness can also be resolved with a catchy jingle. Since the early 20th century, businesses that had enough in the ad budget for TV or radio have always sought the prize of a locally renowned phone number jingle.

All in all, the cost of a toll-free number can have some real benefits. It’s not quite as “outdated” as it may seem at first glance, and the price is very fair. Considering how hard toll-free numbers have had to fight, figuratively speaking, we don’t expect them to be going anywhere any time soon.

About Johnson Hur

After having graduated with a degree in Finance and working for a Fortune 500 company for several years, Johnson decided to follow his passion by embarking on a path to the digital world. He has over 8 years of experience with large companies setting marketing strategy.

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