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Prepaid Phone Cards
Prepaid phone cards advertise great some rates. While extremely convenient, they also
offer some additional risk and hidden costs many consumers fail to take into account when
making an evaluation. Here are just a few:
Prepaid means they are using your money. Also, if they go out of business before your card
balance has been used up, they stole your money.
Many services 'round up' to the nearest whole 4 minutes. If you have a 20 minute card, just
a few one minute calls can virtually eliminate the entire card balance.
Your prepaid card can be hacked. That's right. Unscrupulous operators can determine your passcode through the use of computers and use up your entire balance. If you have a high value card or an automatically 'rechargeable' card, the risk is even greater. There is an FCC mandated access charge for calls made from pay phones. This means that either the phone card service provider tacks on a 'connect' fee, or he ignores the law when customers use a pay phone to make a call. That means the card users run the risk of higher charges (and fewer minutes than they bargained for) or run the risk that the card provider will be 'shut down' for legal reasons, making the remainder of the card worthless. However, better than any description we might offer, the following letter from a prepaid card seller which appeared in the March 2002 issue of a trade magazine for that market, sums up the past, present, and future of the prepaid card industry. I am writing this letter in an attempt to stop what I see as a downward spiral of a great industry. In the past 19 months, 34 phone card competitors have gone out of business, representing more than $750 million in annual gross sales.
Most of these were savvy operators who, due to industry conditions, are no longer in business. Many were offering products that were not profitable, and they were not running sound businesses.
A new trend I've been noticing is more phone card providers using prepaid wireless as an entry into new retail markets. By doing so, they are slowly replacing phone card gross margins of 10 percent to 20 percent with branded wireless airtime products of 3 percent to 4 percent gross margins.
Compounding this is the upward trend in wireless usage. According to Frost & Sullivan, "By 2004, prepaid calling cards will account for only 27 percent of the total prepaid market, while wireless will represent 65 percent." At this rate, phone card providers will soon find themselves out of business because selling wireless at those margins will not sustain a company for long.
The other threat to our industry is the dealers and carriers who continue to offer products such as a 1-cent per minute, 39-cent connect fee card at a 40 percent margin. To offer this rate, these companies can't be paying their taxes, FCC fees or their carriers. As a result, more scrutiny is being placed on the industry and will persist as companies continue to go out of business.
Our company is trying to create value and wealth and operate competitively. We pay our taxes and are tarriffed, but we find it increasingly difficult to compete with others who are not responsible. Additionally, financial markets now shun us like the plague, citing reasons such as too easy for competition to enter the market, margins too low, and shifty operators that destroy the market.
Fellow associates, if we do not embrace sound business practices, pay our taxes, provide products and services of value and make a profit, then all we are doing is trading worthless dollars and minutes of our lives.
(Author name omitted)
Page updated: 12/14/2004 12:41PM | Printer Friendly Version
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