In May, Colorado-based U S West joined the ranks of telephone companies marketing cobranded credit cards.

William F. Keenan, who was hired away from First Omni Bank to become managing director of Phoenix-based U S West-BRI Credit Card Services, gave an upbeat progress report in an interview with American Banker reporter Stephen Kleege.

Q.: How has the U S West card fared so far?

KEENAN: We're very happy with the results. The industry average response rate is about 1.5%, and we're considerably above that. Our expectation is to grow to 500,000 accounts in 24 months and a million by our fifth year.

Q.: What value does this cobranded card offer?

KEENAN: The value we add to it is the brand and the equity we've built in our mutual market, our 14-state franchise.

The most important functionality is calling-card access. It also offers a competitive rate, a rebate on purchases, no annual fee.

Q.: What are the rates?

KEENAN: The product is evolutionary. We're being responsive to the market. But the initial offering was 16.9% for classic, 15.9% for gold. No annual fee. Up to 1% rebate on all purchases, and up to 2% on calling card.

Q.: Why did U S West choose U.S. Bancorp [of Portland, Ore.] as the issuer?

KEENAN: One of the initial decisions by U S West was to cobrand the card not only with a major mark, Visa, but also to have a relationship supported by a national bank.

For the most part, banks were responsible for growing and building the Visa and MasterCard associations, and we wanted to go with an organization that had that equity.

U S West went though a fairly exhaustive selection process, and U.S. Bancorp met the initial criteria.

The organization has strong skills in managing relationship-driven, cobranded opportunities -- they've got a very big portfolio with the American Automobile Association -- and we thought it was a very good fit. Because they're on the West Coast, there was a strong geographic fit, too.

Q.: What were the precursors to your card?

KEENAN: The Discover card stimulated a lot of demand and educated the market on the no-fee proposition. Advanta Corp. was very successful in marketing a no-fee gold card, which differentiated them in the marketplace based on price.

AT&T came along and assessed the success of both Discover and Advanta and took the no-fee position to gain critical mass.

Q.: What do the phone companies get out of these deals?

KEENAN: The value AT&T, U S West, Ameritech, MCI, Sprint, and some of the large telecommunications players see with credit cards is that it's another extension of the brand -- personalized billboard advertising in the consumer's wallet.

They can use that credit card as platform for helping market some of their core services, especially the calling card.

GM is following a similar formula, using the credit card and rebate structure as a vehicle for generating higher incremental profits.

Q.: Aside from the calling feature, what products or services does U s West plan to sell through the card?

KEENAN: We're very interested in the credit card as a channel for marketing a number of core services.

We have a lot of regulatory constraints and issues we have to manage through, but within that framework we're examining a lot of possibilities. I'm not in a position to go into detail, because I don't want to tip off my competition.

Q.: Can you at least say what kinds of products we can expect? What is it that has prompted all these phone companies to issue credit cards?

KEENAN: The Visa and MasterCard networks offer lot of potential for synergy, with MasterCard developing a fiber optic network in Project Omni, and Visa making tremendous in-roads with its Payment Service 2000.

The credit card industry may look entirely different 10 years from now. Today it's credit and payment utility. In the next decade you'll also have the information-access tie-in with the card.

It'll carry forward as far as our imaginations lead -- to home banking, electronic banking, and a lot of other ideas that I'm sure all of us are looking at.

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