Dialing for dollars: prepaid phone card category explodes with a variety of rates and services

Drug Store News, Sept 13, 1999 by Kevin O'Rourke

The prepaid phone card category began at convenience stores in urban areas in the early 1990s. Now, in the latter half of 1999, phone cards have surged to become a category manufacturers estimate to be worth $2 billion to $2.5 billion in sales per year.

Said Corey Eisner, vice president of marketing for Global Telecommunications Solutions, "The category has grown tremendously at the retail marketplace, in places such as convenience stores, drug chains and supermarkets, in the past two years."

"It has been the acceptance by the major drug chains and supermarkets which has helped broaden the phone card business," added Eisner.

Going forward, the potential growth of this category is staggering. According to industry estimates, less than 35 percent of the target population has purchased phone cards.

As with any new, exploding category, there are growth pangs. One of them is the number of vendors from which to choose. "There are about 400-plus providers in the prepaid card industry now," said Gordon Diamond, a spokesman for AT&T. He advised retailers, "With some of the problems that have plagued the prepaid card industry, it makes sense for retailers to partner with a prepaid card provider consumers know and trust."

To bong or not to bong

One of the trends in the industry, explained Joe Borocz, director of marketing for MCI WorldCom, is the advent of the surcharge. "These cards deduct a connection fee, regardless of whether the call is international or domestic. We then charge a flat per-minute rate for the remainder of the call. It enables both the retailers and the providers to offer competitive rates by subsidizing the low rates with a surcharge," he said. "The surcharge-type cards are becoming a more accepted means of calling internationally."

Surcharge cards often are called "bong cards" because of the bong-sound, which is heard signaling the caller the surcharge is being deducted.

However, the surcharge cards are not without their critics. "We have two series of phone cards. Our major series is from OTS. The reason I am using GTS is there is no 'bong' on them. I think people feel like they are getting cheated when they don't get the full amount of time on the card they paid for. The other is a surcharge card, and that is from MCI WorldCom," said one drug chain retail buyer.

GTS has introduced a phone card that breaks the mold of the flat-rate calling card. The GTS system can differentiate between a local and long-distance phone call and applies the best rate possible. "We have built a system that measures every single call made with our phone card, and gives the individual the most amount of minutes we can give them for that particular phone call," said Eisner.

Diamond explained that AT&T has introduced international phone cards that are country-specific. "We call them regional international cards, and they have very good rates to countries that are within certain regions," he said. For example, there is a Greater China card and a Latin America card.

One difference GTS has applied to its cards is the lack of an expiration date. "Most people feel cheated if they buy a $10 card, only use it once and don't use it again for six months. Then, when they go to use it, the card has expired," explained Eisner.

According to Eisner, GTS also allows for the transfer of funds between cards. "That way, if the consumer ever has leftover money on a phone card, but it is not enough to make the call he or she needs, the consumer can transfer balances. And the consumer doesn't lose that money."

MCI is offering retailers a co-branded card, which displays the retailer's logo and the MCI WorldCom name. "This will reassure consumers that besides the retailer's brand name, there also is a legitimate telecommunications company behind the card," Borocz said.

MCI WorldCom announced last month that the company had signed an agreement to provide Walgreens with co-branded prepaid calling cards and services, which include point-of-sale activation systems, said Charles Wiggs, vice president of MCI WorldCom Prepaid.

While MCI WorldCom is targeting the biggest of the retailers, Cable & Wireless is targeting the smallest, according to Kevin Martini, director of marketing for Cable and Wireless.

"We are offering a private brand program to retailers that typically would not get that service from our competitors because they are not big enough," said Martini. "For anyone with 25 stores or more, we will create a private label brand program. In many cases it is the only private label program they have."

Earlier this year, Sprint lowered its domestic and international calling rates for its Spree Prepaid Foncards. The $10 and $20 cards have seen the biggest percentage increases of additional domestic-calling minutes. "With more minutes on each card for consumers, that's good news for our retail distribution channel, too," said Amy Mosier, director of prepaid card marketing for Sprint. The minutes on the $10 card went up 29 percent from 30 minutes to 40 minutes, while the $20 card will allow callers to talk for 80 minutes, up from 63 minutes, she explained.