Communications Daily

August 17, 1989, Thursday

SECTION: Vol. 9, No. 159; Pg. 4

LENGTH: 1512 words

HEADLINE: $2.5 Million For Master Dealership;

DATA-TEL VIDEO TEXT PROMOTIONS RAISE QUESTIONS

BODY:

Throughout Cal., with occasional stops in Hawaii and in Nev., Marlan (Matt)

Matson is trying to drum up participation in electronic information service

business, "the marketplace of the 21st century," through his company, Data-Tel

Video Text. In seminars and in sales literature, Matson describes his company as

transmission vehicle for information services and as "a national gateway"

comparable in size to AT&T while structured like a telephone company and that

will provide information services through computers over telephone lines.

However, many experts in telecommunications and information services field have

raised questions about many of Matson's claims.

In this 3-part series, we examine sales claims made by Matson for Data-Tel and

experiences of information providers and others who have become part of his

organization.

In theory, what Matson wants to create is national information service network.

In his Data-Tel presentations, he outlines system in which each individual

information provider on network keeps a data base, and users are switched

through network of computers until proper personal computer with proper data

base is reached.

According to Matson, Data-Tel services are provided through layers of local

contacts ranging from (1) "master dealers" who control large geographical areas,

to (2) "licensees," who serve smaller areas, to (3) "providers," who actually

supply data. Matson's goal in sales presentations is to sign up master dealers,

licensees and providers who will pay from $2.5 million (for master dealers) to

$2,500 annual fee (for providers) to become part of Data-Tel's network. He

claims that, nationwide, he has 25 master dealers, 210 licensees, about 4,000

providers. If there are that many participants, and if all paid full price or

close to it for their places in Data-Tel, Matson would have grossed more than

$60 million. Master dealers and licensees are considered independent businesses,

not part of Data-Tel's corporate structure, according to company's literature.

However, despite fact that Matson has recruited batch of information providers,

licensees and master dealers, and that some apparently rudimentary services are

available over Data-Tel, many of his claims raise questions. Among them are: (1)

That Data-Tel has 1.5 million-2 million users and that, according to its

literature: "The Video Text gateway is expected to grow to over seven (7)

million users on line by the end of 1989, nationally, with continued growth to

over forty (40) million users on line by mid 1992." (2) That it's necessary to

sell Data-Tel in West because videotex already is available all over East.

(3) That Matson is negotiating with Northern Telecom for terminals to be used

with system. (4) That Data-Tel has national, sophisticated digital (also

referred to as "data") network. (5) That it has more than 4,000 services

available to customers, transmitted through computer links. (6) That Data-Tel

uses patented equipment. (7) That Matson has relationships with certain other

service providers. Also raising questions is fact that his presentations use

telephony terms in ways unlike common industry usage.

Comparison With AT&T and RHCs

One of frequent themes of Data-Tel presentations is comparison with AT&T and

RHCs, both in framing potential market and in network structure and

configuration. According to Data-Tel, becoming part of system would be good

investment because of legal and regulatory limits of potential competitors: "The

AT&T company, along with the Bell Network, has extreme restrictions regarding

Video Text due to the ruling 'IR 22' that caused the breakup of the Bell system.

Ruling 'IR 22' has restrictions on the Bell Network with regards to

participation as a national Video Text communications 'gateway.'"

Term "IR 22," referring to document more commonly known as Modified Final

Judgment (MFJ), wasn't familiar at all to regulatory experts we questioned.

Matson frequently refers to "IR 22" in sales presentations and in interviews. He

describes Data-Tel as "the new phone company," while his stationery calls it

"the intelligent telephone." In materials handed out at training courses for

licensees, Data-Tel describes itself as "the only 'new' communications company

in the United States that specializes only in data transmission. This

specialization in data transmission enables Data-Tel to be the only national

'gateway' for video text (the marketplace for the 21st century) in the United

States with 'kiosk billing' capabilities, the key to video text services."

In corporate organization and network structure described by Matson, by his

affiliates and in sales literature, Data-Tel repeatedly compares itself with

AT&T. For example, Matson said at sales seminar at Fairmont Hotel in San

Francisco June 20 that companies are "exactly the same thing." In promotional

material, Data-Tel describes itself as "very much like 'AT&T' in as much as

Data-Tel is the main 'long-haul' communications carrier. The main difference

between Data-Tel and AT&T is not the actual size (Data-Tel has as many 'D' mark

points as AT&T), but the fact that Data-Tel specializes only in data

transmission, the main source of communications for the 21st century and 'Video

Text.'"

Data-Tel's term "'D' mark point" is similar to telecommunications network term,

"demarcation point," generally meaning network interface where signal is handed

off from carrier to carrier or between customer and carrier.

In June 20 sales presentation, which occurred during Videotex Industry Assn.

(VIA) annual meeting and exhibition, Matson described his company as

specializing in "video text and digital transmission," and used rudimentary

terms "data" and "digital" as if they were synonyms, which they aren't: Data can

be transmitted over analog lines, and voice can be transmitted over digital

lines. Under Data-Tel organization chart, Matson's master dealers, responsible

for establishing company's services over wide geographical area such as northern

or southern Cal., are comparable to RHCs, which he erroneously described in

sales talk as being "under AT&T." Among "RBOCs" he named in seminar were Contel,

General Telephone, Nynex, Pacific Bell. Actually, Contel and General are

non-Bell independents.

Drawing analogy, Maston said: "Master dealers, like the RBOCs, have network

management switching gear," and "we are exactly the same thing." He compared

gear used by his master dealers with telephone company "class C5" offices, which

he described as "block buildings full of switching gear" that also are "where

you pay your telephone bill," pick up telephone books, order services. In Bell

System parlance, term "C5" office is similar to Class 5 switching office, but

generally contains only hardware, while other services he mentioned are found

more commonly in telco business offices.

Master dealers recruit next level down, licensees, who are responsible for

establishing Data-Tel in smaller geographical area, primarily by recruiting

information providers who will supply actual services to be offered over

Data-Tel. For example, within Bay Area Video Text, master dealership in San

Francisco area, licensee might serve Santa Clara County. Data-Tel's goal is to

have one licensee for each 150,000 persons so that customer need make only local

call to use services. According to ad in July 27 Wall St. Journal, Bay Area

Video Text is making licensee agreements available for $150,000, with $50,000

down. Original price of licensee agreement was $80,000, although some can cost

as much as $300,000, Matson said. Master dealers retain most of money paid by

licensees.

At bottom rung are information providers, who supply data for services on topics

such as astrology, hotel accommodations, gambling odds, etc. At minimum, it

costs providers at least $2,500 per year for each service they want to offer,

although some early Data-Tel entrants paid as little as $200 to become

providers. For services seen as particularly lucrative, such as chat lines,

provider must pay $27,500 and could pay as much as $35,000 for providing

advertising for system. There also is $700 charge for training.

For their money, providers are loaned personal computer and given ad space in

directory printed by Data-Tel that lists special 7-digit Data-Tel "phone

number," chart with information such as "conditions of access" and, for some

services, full-page ad, as well as promised widespread marketing support.

Finally, in Data-Tel scheme there are customers who will pay $100 sign-up fee,

$10 per hour connection charge, about 16.5 cents per min. and whatever fees

individual information providers set for their services. Data-Tel directory

lists prices as $1 or $2, without specifying whether fee is per call or for any

particular length of time. Data-Tel sales personnel and literature stress

importance of 16.5 cents-per-min. figure, telling potential customers and

entrants into business that rate will save users much in potential long distance

costs.

Tomorrow: Rewards Claimed for Investors