(FORTUNE Magazine) – THE FINISH is in sight and the major candidates are pulling out all the stops: the hoopla of America's great long-distance telephone election is reaching its climax. Advertising, an estimated $500 million of it last year, seems to saturate the media. That's in a league with what the cola makers, brewers, and burger servers spent in their wars last year, and more is coming. Tons of campaign literature ride the daily mails to the battle zones. Telemarketing squads dial millions of prospects with expertly crafted pitches. Competitors sponsor local sporting events and charities, and if executives thought kissing babies would increase market share, they would probably do it. The candidate everyone knew would dominate the election, AT&T, is doing better than expected. Its success will leave room for no more than two other nationwide carriers, and perhaps only one. For all competitors the stakes are high. By September 1 most of the 86 million individual U.S. telephone customers will have received ballots allowing them to choose a primary long- distance phone company -- the one they use by dialing 1 plus an area code. Before the Bell System breakup in 1984, the 1 button was the exclusive domain of AT&T and accounted for 75% of its long-distance revenues. (The rest came from so-called bulk long-distance services, such as WATS numbers and private trunk lines.) But with the field open, dozens of contenders are fighting for that market, worth an estimated $25 billion in revenues a year. The election, mandated by the Federal Communications Commission after the Bell System breakup, will play a giant role in determining which carriers survive and how profitable the survivors will be. The combatants with the most urgent interest in the outcome are the three biggest, AT&T, MCI, and Sprint. Unlike most smaller rivals, known as resellers, who lease lines mainly from AT&T and sell the capacity to retail customers, each of the Big Three must meet the enormous cost of financing and maintaining its own nationwide transmission network. AT&T already owns such a network, and the other two are building them. Industry experts think that for long-term health, national network operators need at least 7% of the total long-distance market. Mary Johnston, a telecommunication analyst with the Boston consulting company Yankee Group, figures AT&T captures 78.9% of long-distance revenues, while MCI gets 6.4% and Sprint 2.8%. Sprint, a subsidiary of GTE, will add about 0.8% when it completes its merger with the fifth-largest carrier, U.S. Telecom, probably this summer. Those estimates cover the whole U.S., including areas that get only AT&T through the 1 button because they haven't yet received ballots. By September 1, AT&T's market share will surely fall, and the others' will rise. After that date adding share in the dial-1 market will get tougher. To change long-distance carriers, customers will have to go through an unfamiliar procedure and pay a fee. So shares achieved by September 1 in the dial-1 market will change only slowly and grudgingly. The major competitors' services are nearly identical, though some consumers think AT&T provides better connections. And while MCI and Sprint charge less than AT&T, their cost advantage is largely the result of government-mandated discounts, which will fade away. The biggest surprise of the battle is AT&T's marketing skill. In 1983 industry experts predicted that the mammoth company would lose 40% of the long-distance market to go-getter newcomers who charge less. Now the experts forecast a loss of 30% at most. If AT&T had any doubts about the importance of marketing, it soon lost them when it overlooked an exchange in the north-central U.S. where customers were voting. ''We had zero marketing to those people,'' says AT&T Communications Executive Vice President Sam Willcoxon, head of marketing operations. The precise results are secret, but Willcoxon suggests they were terrible when he says, ''We discovered rather quickly we could be half as big as we are.'' MISSING A TOWN is easy because the hodgepodge balloting process is a mass- marketing nightmare. Instead of voting town by town or state by state, customers make their long-distance choices according to which local telephone office they hook up with. Each office handles the traffic for 5,000 to 30,000 customer lines. The local telephone company mails ballots to customers only after an office upgrades its switching equipment to give all carriers access to dial-1 service, and the offices are upgrading in a crazy-quilt pattern nationwide. That means customers living next door to each other may receive ballots months apart, so hitting them with a sales pitch at the right moment is bound to be expensive. Television commercials will be wasted on some customers who have not received ballots and on others who cast their votes long ago. Mail solicitations can be aimed more precisely but cost more per prospect. AT&T's rivals complain that the behemoth's experience in the business gives it a giant advantage: from past records it can identify the best long-distance customers -- those who spend a lot on long distance and pay their bills on time -- and can put extra sales pressure on them. The three major contenders are campaigning on levels from the sophisticated to the simple. AT&T uses about 35 different direct-mail packages, many coordinated to a prospect's age, sex, profession, and residence, while at the Florida State Fair the company used leggy female ice skaters to attract attention. MCI uses a telephone sales program with scripts that vary according to the customer's answers; salespeople who find a prospect makes a lot of calls away from home steer him toward the company's Travel Card program, which lets customers charge calls while on the road. MCI also floats logo-bearing hot air balloons around the U.S. Nationwide, AT&T is spending far more than competitors on long-distance marketing, about $400 million last year vs. around $50 million each for MCI and Sprint. For the two smaller companies $50 million is a painfully large outlay, but spending less could be fatal. The resellers, most of whom are tiny, have an even tougher time competing because they do not own networks and must buy capacity from their larger competitors. Some resellers, undaunted, have cooked up marketing strategies that are working surprisingly well (see box).

AT&T's marketing edge is most apparent on television. Spokesman Cliff Robertson, 60, appears on the tube as the incumbent incarnate. Kim Armstrong, director of advertising for AT&T Communications, explains, ''We wanted somebody who was fresh'' -- Robertson had not appeared in a TV ad for several years -- ''and who would convey the appearance and attitude of integrity.'' Robertson had received a lot of publicity from his honest role in the David Begelman-Columbia Pictures embezzlement scandal in 1977. (Robertson reported a check on which Begelman had forged his signature.) Armstrong hired the Academy Award winner, reportedly for $2 million a year, after screening a list of nominees prepared by N.W. Ayer, AT&T's longstanding TV ad agency. It was a master stroke. Robertson's boffo performance is winning accolades on Madison Avenue. Advertising Age named him Star Presenter of 1985. Robertson says people approach him in airports asking to shake the hand of Pa Bell. And Armstrong's commercials win the grudging respect of AT&T's competitors. It's a case of Pa Bell coming to the rescue of Ma Bell, according to Daniel Fox, who manages long-distance advertising for U.S. Telecom at the Foote Cone & Belding agency in Chicago. He says, ''It was brilliant on AT&T's part to have Robertson say, We were always there for you. We've been with you for a hundred years. Call anyplace, anytime. . . All that while other people are saying bad things about your mother.'' . OFF the tube, AT&T caught rivals napping last year by unleashing two highly successful promotions: Reach Out America, a flat-rate discount on evening calls, and Opportunity Calling, a program that awards shopping credits at such places as J.C. Penney stores and Red Lobster restaurants as rewards for using AT&T. Despite competitors' suggestions that Reach Out borders on predatory pricing, AT&T is pushing ahead. Says security analyst Kenneth M. Leon of the New York investment firm L.F. Rothschild Unterberg Towbin: ''AT&T has spun products out of its long-distance service in ways that would make Procter & Gamble green with envy.'' MCI Chairman William McGowan acknowledges that the remaining five months of balloting will be critical for his company and Sprint. McGowan developed a two-pronged marketing approach. At the national level he arranged for American Express and Sears Roebuck to handle billing of MCI customers, and for Amway Corp., which sells household products, to sell MCI's service. But he leaves the daily management of the campaign to MCI's seven regional presidents, whose territories correspond to those of the seven Bell operating companies created by the breakup of AT&T. The regional presidents act with great autonomy. They can run any or none of more than 20 radio and television commercials provided by corporate headquarters. They are free to invent their own ads and local promotions. Last year, for example, Midwest President Ronald E. Spears sponsored a drive to restore Chicago's Lincoln Park Zoo. MCI contributed $1 to the zoo for every new subscriber who signed up between Memorial Day and Labor Day. The drive netted about 75,000 customers and a trove of good will, which Spears says has helped MCI grab 18% to 22% of Chicago's long-distance business. Spears has offered similar matching-grant programs to rebuild zoos in Grand Rapids, Michigan, and Columbus, Ohio, and to illuminate a forerunner of the Brooklyn Bridge in Cincinnati. He says his regional charter forced him to understand what makes Midwesterners tick. ''People in this part of the country want to feel part of a community,'' he says. ''As long as MCI was seen as an interloper, we had trouble getting our message across. Our promotions are designed to show we are a Midwest company. We make our money here and invest it here.'' MCI's Western president, Jerry Taylor, perceived a different problem: ''Our customers saw their local Bell operating company as an authority figure, so we % decided we had to appear as a legitimate contender in the marketplace.'' Taylor's solution: contracting with Bell operating companies to include MCI advertising fliers with monthly phone bills. ''It's an implied endorsement for us,'' he maintains. Taylor claims he made good use of MCI television commercials featuring abrasive comedienne Joan Rivers pitching MCI's price advantage. ''She has the ability to cut through the noise and confusion surrounding the balloting process,'' he says. ''Of course she plays better in Denver and Phoenix than in (more conservative) Salt Lake City.'' MCI commercials presenting Rivers and Burt Lancaster talking turkey with the viewer will go off the air in the middle of this year. MCI executives won't admit to getting whipped by Cliff Robertson, but the company recently announced it would drop Ally & Gargano, the ad agency that created the Rivers and Lancaster spots. A new series of MCI commercials, produced by D'Arcy Masius Benton & Bowles and geared toward large business customers, is set to air by early June. The remaining months of long-distance balloting pose big problems for Sprint. It has done a weaker selling job than its larger competitors, and it must gain more ground to reach the break-even point for network operators. Sprint lost marketing momentum early last year when it had to turn away new customers because its network was not big enough to handle them. Now the company is spending heavily to air its latest television commercials, which debuted on telecasts of the National Football League playoffs in January. They portray American society in a vortex of sweeping changes, and suggest that Sprint users stand at the cutting edge. The ads' slogan: ''When you've got Sprint, you've got the future on the line.'' Jeff Smith, an executive at Sprint's ad agency, J. Walter Thompson, explains that the pitch ''is to younger, more independently minded customers, ready to look at things freshly and judge them at face value. Sprint customers are avant-garde. They're futuristic and confident.'' Some viewers think the ads, with their rapid-fire images from the past, are just confusing. COMPANY executives admit that residential customers will not bring Sprint anything close to the market share it needs. Instead the company is counting on selling the so-called bulk long-distance services to business customers, which it hopes to lure with the high-quality fiber-optic network it will get from U.S. Telecom. While business customers who use the bulk long-distance services face no deadline, Sprint executives regard the months leading to September 1 as crucial, because the clamor of the residential customers' election is raising everyone's awareness of the players. Sprint President Donald Prigmore explains, ''Although large businesses are not sitting there waiting to vote, our research shows that the next five months is the best time to reach them.'' When the noise of the great telephone election fades away, the contestants will face a new world that will demand new marketing. While MCI will probably have won sufficient market share to make its network economic, Sprint may not have. The survivors will contemplate a future in which their services will be similar and their costs will converge. When that happens, the long-distance companies will be in a classic, unending marketing war. Like Coke and Pepsi, they will work hard trying to differentiate offerings that are not really very different. BOX: INVESTOR'S SNAPSHOTS AT&T SALES (LATEST FOUR QUARTERS) $34.9 BILLION CHANGE FROM YEAR EARLIER UP 5% NET PROFIT $1.6 BILLION CHANGE N.A.* RETURN ON COMMON STOCKHOLDERS' EQUITY 10% FIVE YEAR AVERAGE N.A. RECENT SHARE PRICE $23.25 PRICE/EARNINGS MULTIPLE 17 TOTAL RETURN TO INVESTORS (12 MONTHS TO 3/14) 16% PRINCIPAL MARKET NYSE *AT&T formed with Bell System breakup on 1/1/84. GTE SALES (LATEST FOUR QUARTERS) $15.7 BILLION CHANGE FROM YEAR EARLIER UP 8% NET LOSS $161.1 MILLION CHANGE PROFIT YEAR EARLIER RETURN ON COMMON STOCKHOLDERS' EQUITY -3% FIVE YEAR AVERAGE 14% RECENT SHARE PRICE $52.25 PRICE/EARNINGS MULTIPLE N.A. TOTAL RETURN TO INVESTORS (12 MONTHS TO 3/14) 30% PRINCIPAL MARKET NYSE MCI SALES (LATEST FOUR QUARTERS) $2.5 BILLION CHANGE FROM YEAR EARLIER UP 30% NET PROFIT $113.3 MILLION CHANGE UP 91% RETURN ON COMMON STOCKHOLDERS' EQUITY 9% FIVE YEAR AVERAGE 16% RECENT SHARE PRICE $12.750 PRICE/EARNINGS MULTIPLE 27 TOTAL RETURN TO INVESTORS (12 MONTHS TO 3/14) 44% PRINCIPAL MARKET OTC