Back when there was only one phone company, there was one Yellow Pages.
Now, several fat yellow phone books land on doorsteps in many neighborhoods, and a fierce battle for readers and advertisers has spilled into the courts.
Verizon Communications Inc., which calls its product SuperPages, sued competitor Yellow Book USA for running ads claiming "more people are choosing Yellow Book, not the other book."
In a ruling last week, a U.S. District Court judge in Brooklyn agreed with Verizon that Yellow Book made false claims that probably misled some advertisers. But Judge Jack B. Weinstein concluded that "the actual damage shown to date is slight, bordering on minuscule." The parties settled the case but did not disclose the terms.
On Wednesday, Verizon ran full-page advertisements in 32 major newspapers, touting the decision and saying: "Yellow Book lied."
Yellow Book chief executive Joseph Walsh called Verizon's lawsuit, and its ads, a case of sour grapes. Yellow Book is winning more advertisements by selling them at half the price Verizon charges, he said. "They had been unsuccessful at competing with us in our markets," he said, "so they sued us."
The very public skirmish underscores the contest for advertising in the $14-billion-a-year yellow pages business -- a business that is changing rapidly under pressure from smaller competitors such as Yellow Book and from new technologies such as online and wireless directories.
Verizon is still a giant among directory publishers, with 116 million volumes in circulation and $4.1 billion a year in revenue from directories. But Uniondale, N.Y.-based Yellow Book, which is part of British company Yell Group PLC, is eating into that. Its revenue grew from $70 million in 1996 to $1 billion this year, mostly at the expense of Verizon and other major phone companies.
The lucrative Yellow Pages were published exclusively by AT&T Corp. until the government broke up its monopoly. Competition arrived with the Telecommunications Act of 1996. It required regional Bell companies such as Verizon and SBC Communications Inc. to make their phone listings available to competitors such as Yellow Book, which at the time published only neighborhood directories.
Yellow Book went national, and it now publishes in 42 states and the District. At least 200 other independent publishers emerged across the country.
In 1995, the major local phone companies controlled 96 percent of directory ad revenue, according to the Kelsey Group, a Princeton, N.J., research firm that tracks the yellow pages business. By 2003, their share was 85 percent.
At the same time, directories compete for local ad dollars with cable television channels, direct-marketing services, newspapers and neighborhood-focused fliers.
"This is still a great business, people still use it, advertisers still get value, but it is facing a lot more competition from a lot more areas, and it's not a growth business," said Charles Laughlin, a program director with Kelsey.
Verizon's directories revenue has remained essentially flat since 2000. The company has averted a decline by starting new directories in areas where it isn't the main local phone company and by venturing into new businesses such as Internet search engines, according to Lester Chu, vice president of marketing and strategic planning for Verizon Information Services.
The number of advertisers in the SuperPages has been decreasing, he said, in part because of defections to the Internet, where the phone companies compete with online-only directories, and to other media.
Also, mom-and-pop advertisers are giving way to national chains that don't advertise in phone books, Chu said. Doctors used to be among the top advertisers, but with the growth of managed care, consumers go instead to their insurance companies to research in-network physicians.
"We love competition. It's an opportunity for us to grow our business," Chu said, noting that the company started selling phone books in Miami, Denver and San Diego, places where it does not sell local phone service.
For all the challenges, the directory business remains a lucrative investment that has attracted private equity groups.
Kohlberg Kravis Roberts & Co. bought Bell Canada's Yellow Pages Group business in 2002. The same year, Carlyle Group and Welsh, Carson, Anderson & Stowe bought Qwest Communications International Inc.'s Dex Media for $7 billion, later taking that company public. Last month, Bain Capital bought Verizon's Canadian directory business for $1.5 billion.
"These are really well-run, really lean businesses" that generate a lot of cash, said Stephanie Hobbs, a spokeswoman for the Yellow Pages Association, which represents the biggest publishers of directories. "People research on the Internet but buy with the yellow pages."
Some small businesses, such as Rockville plumbing and heating firm James Vito Inc., have found an advantage in all this competition.
The company started advertising in Verizon's yellow pages many years ago, "because they were the only game in town for a long time," said the company's president, Jim Vito. "People always go to those books when they have a problem."
More recently he started running ads as well in Yellow Book, which charges the company $45,000 a year, about a third of Verizon's price. He said SuperPages costs too much, so he's thinking of dropping the Verizon ads and spending that money on cable TV.
For now, he's happy because he can play the directories off of each other, he said. "I know they're at each others' throats."