As retailers and marketers have found, sometimes painfully, the low cost of entry into the prepaid phone-card business has brought some into the market who could not deliver on their promise of product reliability or service. Caution is advised for those considering retailing prepaid phone cards or using them as promotional pieces. Most importantly, common business sense should prevail when cutting

As retailers and marketers have found, sometimes painfully, the low cost of entry into the prepaid phone-card business has brought some into the market who could not deliver on their promise of product reliability or service. Caution is advised for those considering retailing prepaid phone cards or using them as promotional pieces. Most importantly, common business sense should prevail when cutting the deal, said industry experts.

h the Federal Communications Commission. Examine other programs they have done. Call up and use the cards and test their customer service. If they say they have 24-hour service, seven days a week, call at 3 a.m.

If you are located in the company's vicinity, visit their offices and talk with them. Educate yourself.

Remember you are not just shopping for rates. The lowest price is not always the best. Something that looks too good to be true may be just that. If you're putting the store's name on the calling card, you want to be sure your customer has access. The decision cannot be based just on dollars. Use common sense. When you have a private label, pricing is not the only issue. Service also is important.

VERES: People need to be careful. There have been some creative marketers. I have seen prepaid-phone-card issuers that say they charge six cents a minute, but when you read the fine print, there is a 10 cents a minute minimum and the first minute is $5. The retailer needs to read everything to know what he is selling.

CAPKA: The job of a consultant is to look at the demographics of a store and its clientele because no one carrier fits every situation and every need in America. It has to be individualized.

If you operate stores in California, for example, and 80% of your customers are Hispanic, you will want a carrier that specializes in trafficking minutes to Mexico in order to offer competitive rates. Other carriers who do not traffic a lot of minutes to Mexico price themselves out of the game. One of my clients is [the Korean-American Grocers Association]. I had to find a major carrier who trafficked a lot of minutes to the Pacific Rim. I have no affiliation with these carriers, but I know which carriers do the best job for the client. I represent both the client and the carrier. I don't charge retailers for my services. I go to bat for the chain to find them the best deal available. The carrier pays me.

CANTY: You want to look for a company that is a member of one of the industry associations. The International Telecard Association has established a code of conduct for its members. There have been proposals that the states regulate phone-card companies more closely. The industry would prefer to regulate itself. That is what the ITA is looking to do. A lot of companies are not regulated by the ITA. If you are a retailer buying a lot of prepaid cards, you should be careful who you buy from. Check with the Better Business Bureau.

SEGERMARK: Under any circumstances, you should know how much you are going to pay for a call. Know the name of the company providing the services. You should have a toll-free number for customer service. Also, you should check for an expiration date on the card.

GOLDBERG: There are many ways one can go about buying time to put on a phone card. There are different pricing structures based on the number of cards and whether they are paper or plastic. There are many different long-distance companies or third-party suppliers that offer cards. How much will you have to guarantee up front for long-distance service? You will need to calculate the price of the card itself, the price of long-distance service and the guarantee behind it when you buy.

For example, say you want to issue 1 million cards. You go to a company that will put time on the card. You can pay for it many ways. They want a certain amount of money up front. You project you will get 60% to 80% usage of the cards. You pay for the time whether it is used or not. That is called the guarantee.

A company will sell you an insurance policy against the guarantee. If you are going with a guarantee of 60%, the insurance will take anything that goes beyond. There are all different kinds of packages. The major long-distance carriers have packages, or you can go through a third party that has bought huge chunks of time from the phone company to resell.

Where you might buy 1 million units of time from the long-distance carrier, the third party may have purchased 50 million units to resell. That means even with a markup the third party may be cheaper than buying direct from the carrier.

CAPKA: What the grocery store should be looking for is a partner in business.

If you can get a blend where the carrier will blanket the store with point-of-sale material and activation equipment, do a customized card, provide advertising dollars and pay for all of this, plus give you a fair rate -- that makes for a nice partnership. Carriers have to realize the more money they spend to get the cards out the door, the more minutes are used, the more money they make. Those deals are available from all the major carriers. SEGERMARK: Sometimes marketers don't ask the right questions. A company thinking about marketing a phone card should determine if the issuer is properly certified, meaning registered with a public-service commission in the state. It should also verify if there are tariffs or a price list filed with the state. The marketer should also check business references, which some people don't bother to do. He should be able to check the vendors to that card provider, the underlying person providing underlying services.

It's been my experience that most companies that go bad are not certified or already have damaged reputations. A good check of references and the company's certified status will eliminate 90% or more of the potential problems. A retailer can also check our member services, which is on our web site.

SCHLOSS: The state of Alaska doesn't let anyone into the state to do business that it doesn't approve. A lot of phone companies have tried to do business here and have been rejected. The state did not feel they were ready or worthy. The state has strict rules and regulations. When we were putting our business together we had to make sure the vendor could pass regulations. The state of Alaska does a good job of regulating.

SEGERMARK: Buy a few phone cards and test them out. Observe people who may be buying them. That will give you an idea of how you can sell them. Explore the various kinds of services they offer in view of their particular constituency. Some cards can offer collectability which may appeal to younger people. Other phone cards offer information services such as sports scores or soap-opera summaries.

VERES: Ask questions. Know the price per minute, your profit margin, how much you must commit to. Learn what type of POS materials the vendor will give you, such as fliers and signs. People have to know you have the cards.

GOLDBERG: The retailer or manufacturer needs to be an educated consumer. These cards are like money and should be treated as such.

VERES: Supermarkets need to remember that this is a telecommunications product subject to many laws. Make sure it is tariffed in all 50 states. It should have 24-hour customer service. It should have good quality control, meaning that if there is a problem and someone calls customer service, you have people who can help. I call customer service when I test cards. Many times they can't help me.

I called customer service for one of the largest carriers, a publicly traded company. They took my name and said someone would call me back during regular business hours. It took three phone calls for my problem to be resolved. The average customer won't call back. Instead, he will go back to the store and complain. When your name is on that card, people will remember where they got it. You had better be sure it will work.

The retailer has to practice due diligence, asking questions about the vendor, contacting the ITA to find out if the vendor is a member in good standing. Contact the local attorney general to ask about complaints. Talk with other retailers that carry the prospective issuer's phone cards. Use common business sense.

GOLDBERG: With any new technology, there will be people getting into the business that are unprepared to handle the response. When a manufacturer looks at using a prepaid phone card as a promotional vehicle, he needs to be sure he is going with a company with a good reputation that has been in business for a while. Go with a company that has the capability of handling volume so consumers don't get busy signals. Have an operator available 24 hours a day so the consumer can talk to someone and get his problem resolved. Go with a company that uses a credible long-distance carrier that will always be in business.

Decide whether it is important to be able to recharge the card. Some companies don't want to offer the recharge. If that is important to you, it could be a profit center. You must go with a company that offers the recharge option easily.

If you follow basic common sense, you should be able to avoid most of the pitfalls that were evident in small degrees when the whole technology came into being a few years ago.

SCHLOSS: We've spent the last 12 months looking at 100 different phone companies we could have gone with. Everyone wants to be in the business. A lot of companies have been shaken out. During the year, we did market research to be sure we were picking the right company. We wanted a company that is consumer driven and really understands the retail and grocery business. We did not use a consultant, but we talked with other noncompeting supermarkets around the country. Our supplier is a provider of long-distance service that is listed on the stock exchange. It is a major phone company.