Prepaid Services on the Rise

Raritan, NJ, April 21, 1999 (DLD Digest) - A new report from The PELORUS Group entitled "Prepaid Telecommunication Services" characterizes prepaid telecom as a hotbed of opportunity. Each component of prepaid telecom - prepaid calling cards, prepaid wireless, prepaid wireline, and prepaid Internet telephony - has a story of remarkable potential. But that story is changing. In 1998, prepaid telecom revenues totaled $2.8 billion. Calling cards accounted for over half (53%) of prepaid revenues. By 2003, they will provide less than a third of the market's revenues. Concurrently, prepaid wireline will shift from just 4% of the total to 32%. The changes don't stop there. Prepaid wireless and prepaid Internet telephony are also ready to redefine their parameters.

From 1993 revenues of less than $300 million, the total prepaid telecommunications market had leapt ten-fold to nearly $3 billion by the close of 1998. After a slow start, prepaid calling cards expanded beyond niche markets. Today, they appeal to a variety of markets including college students, travelers, people on the move, businesses, and charitable organizations. Although also initially slow to take off, prepaid wireless, which includes cellular and paging services, is expected to grow significantly.Prepaid wireline, which was not even a product offering just a couple of years ago, is expected to grow as much as prepaid calling cards, but in a shorter timeframe.Prepaid wireline is comprised of prepaid dialtone and prepaid long distance. Already prepaid wireline has been growing at a rate of about 30 percent per month, with an average revenue of $50 per month per customer. Prepaid Internet telephony, with improved voice quality now truly a cost effective alternative to long distance service, will also enjoy strong growth.

Non-traditional providers - the upstarts, the ISPs, the resellers, and CLECs - have lured customers away from traditional providers. If these mainstream companies wish to retain their customer base and grow revenues, then they must act soon to stem the seepage - before it erupts into a flood.

In 1998, prepaid services generated $2.84 billion. Prepaid calling cards contributed $1.52 billion, prepaid wireless $1.19 billion, prepaid wireline $100 million, and prepaid telephony $30million. The report projects strong growth for each component through 2003.

Editor's Response

The prepaid calling card industry certainly has been shaken-up over the past two years. When the industry was in its infancy a few years back, it largely consisted of a collector's market (which has all but disappeared), pyramid schemes and cons (remember Destiny Telecomm?) and a few legitimate users. Now, the marketplace seems to have settled down. Most of the MLM's and pyramid schemes have disappeared, as has the collector's market.

Prepaid phonecards have finally gone mainstream. There are still plenty of cons going on in this industry, but by and large it has really matured. It is probably one of the most lucrative markets currently being neglected by small carriers and resellers.

In my area, for example, most of the local retailers sell cards from extremely small and unreliable regional providers. The rates are high. Service is bad. Commissions are low. A small carrier or reseller could not only make a very decent profit by setting up a retail marketing channel for their prepaid cards, but also gain a way to advertise their other services to thousands of additional consumers. Selling prepaid cards via retail establishments also helps to build brand-name recognition.

There are some carriers and resellers who have done an excellent job of using their cards to market additional services and build brand-name recognition. These include PT-1 (STAR), IDT and SPRINT. Companies who have REALLY missed the boat when it comes to offering or distributing prepaid phonecards include Excel, Tel-Save and most dial-around companies.