Phone cards call up added sales for retailers

Discount Store News, Nov 4, 1996 by Andrew Carbone

NATIONWIDE DSN REPORT -- Just in time for the Holiday season, the prepaid calling card industry is promising to make phones and cash registers ring with profit margins of between 20% and 25%.

MCI, looking for a piece of the stocking-stuffer market, has brought out "Ring in the Holidays" cards. The series features images of a stocking with candy and treats, a snowflake and an ornament with toys and gifts to appeal to Holiday shoppers. The cards are merchandised on a freestanding Christmas three display.

And between Dec. 14 and Jan. 5, Sprint will offer an additional 10 free minutes to the carriers of its Spree card for this year's Holiday push.

A relative newcomer to the U.S. marketplace, the prepaid phone card industry has been widely used in most parts of Europe, Japan and Hong Kong since the late 1970s. In the United States, calling cards have been actively selling in convenience stores and college campuses since the early '90s. When the cards began appearing in the U.S. market, they were viewed as sort of a novelty, with most interest taken place by collectors and by students looking to save a few dollars on calls to home. However, their popularity continued to increase, and sales have grown significantly since the beginning of the decade.

From 1990 to 1996, prepaid phone card revenues in the United States have grown from $20 million to $500 million, with retail contributing more than 30% of sales, according to Frank Canty of Atlantic-ACM, a strategic consulting firm specializing in global telecommunications. Analysts expect prepaid phone card sales to exceed $1 billion worldwide in 1996 and $5 billion by 2000, with retail accounting for almost 60% of the market.

Small start-up companies account for much of the industry. They buy blocks of time through major long-distance carriers and charge per minute rates of anywhere from 30 cents to 60 cents. According to SmarTalk TeleServices of Los Angeles, which has private label cards available in Office Depot, Hills, Bradlees and PriceCostco, the bulk of the business at retail is for the 60-minute card, where the rates run as low as 33 cents to 40 cents per minute based on how the retailer prices card.

Long-distance giants have also recognized the benefits of phone cards and have come out with their own versions, AT&T's PrePaid Card, Sprint's Spree card and MCI's PhoneCash Card are often offered as premiums along with other products, but have also been selling at the retail level.

AT&T's cards can be found in Staples, Service Merchandise and OfficeMax. They are sold in dollar units, rather than time units, in denominations of $10, $15, $25, $50 and $100.

Sprint has a co-branded card with retailing giant

Kroger and is currently running a promotional contest with its Spree-branded cards and the NFL; the winner will receive a free trip to the Super Bowl. The $20 cards are football-shaped and the $10 cards feature the images of each of the 30 teams in the NFL.

Wal-Mart, Kmart and Target all carry the MCI line of prepaid cards. They are available in four general sales units: 15-, 30-, 60-, and 75-minute formats. Customized floor and counter displays feature interchangeable headers for seasonal and promotional changes.

Ames signed U.S. Long Distance Corp., a San Antonio-based company to supply its 307 outlets with prepaid long-distance calling cards. The cards feature the Ames store logo and are sold in $10 and $20 denominations. They are displayed by the front registers as well as in the electronics department. Ames advertises its cards with flyers describing what the cards are, how they work and what the benefits of prepaid calling cards are.

As a telecommunications product, calling cards are subject to regulatory issues. At the federal level, card suppliers must be certified and must pay FCC interstate tariffs. States require the prepaid calling card supplier to be certified and regulated as a reseller.

However, the burgeoning industry is not without its problems. There is a difference of opinion, for example, about rechargeable cards. The argument is that retailers won't want to sell rechargeable cards because the sale will be a one-shot deal. The counter argument holds that rechargeable cards offer retailers extra revenue from the recharge residual fees.

Theft and fraud rank among other concerns for retailers. To counteract this, SmartTalk has developed the SmartSwipe activation system for its cards. Cards are activated at checkout by swiping the card through the retailer's existing Veriphone, cash register or other credit card approval system. No special terminal or additional dedicated phone lines are required. MCI also offers POS activation, while other companies use a "scratch-off" coating over the card's authorization code to deter theft.

Retailers can also take steps to prevent shrinkage. Incredible Universe, which carries the Talk 'N Toss brand from BLT Technologies as a private label, uses a retail sleeve program; customers can see the card merchandised on the sales floor and redeem it by bringing the sleeve to the register for purchase. According to John Hall, Director of National Accounts for Talk 'N Toss, sales have increased more than 54% since the strategy was introduced. "It allows the customer to see the product rather than have to ask for it", he said.