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OTHER PREPAID SERVICES

While applications being developed for prepaid plastic are designed to offer added value and convenience, it remains to be seen which ones will be embraced fully by consumers and sold successfully at retail. ests have not been as promising so far, with one concern being low service-renewal rates.Another emerging market segment is prepaid local dial tone, which allows the user to make local calls with

While applications being developed for prepaid plastic are designed to offer added value and convenience, it remains to be seen which ones will be embraced fully by consumers and sold successfully at retail.

ests have not been as promising so far, with one concern being low service-renewal rates.

Another emerging market segment is prepaid local dial tone, which allows the user to make local calls with a prepaid phone card. This service is being offered by some vendors, but rarely yet at retail.

Interactive voice response, which allows customers to use a prepaid phone card to receive information, record messages or answer surveys, among other functions, has been available for two to three years, and its cost has decreased significantly.

One successful application is user surveys incorporated into promotional phone cards. "It's great for customer feedback," said Howard Segermark, executive director of the Washington-based International Telecard Association. Recent examples include an HBO promotion that required recipients to answer a few questions before they could activate their calling card. Atcall, Vienna, Va., supplied the cards, compiled the survey responses and returned the data to HBO.

Meanwhile, Southern New England Bell, Stamford, Conn., distributed 200,000 cards for Pfizer, through doctor's offices, which gave recipients free phone time if they answered a survey about one of Pfizer's medicines.

The use of IVR technology also allows retail prepaid calling cards to incorporate other functions, such as the ability to retrieve stock quotes, horoscopes or baseball scores, or to press a number and connect with a traveler's assistance operator. Attempts to market these extra-feature cards at retail have rarely met much success. They cost more to produce than a traditional card, and the cost cannot be passed along to consumers, since they are not willing to pay more for such features and services. Indeed, consumers tend not to use these features at all. For these reasons, the use of IVR technology largely focuses on promotional efforts.

A segment of the market that is just beginning to emerge is the multiple-use card, one that combines prepaid phone service with other functions normally associated with plastic or paper cards. For example, Catalina Marketing Corp., St. Petersburg, Fla., is developing a system to integrate shopper-loyalty cards and prepaid phone service. With this type of program, consumers could retain the same card or certificate to earn frequent-shopper points and make long-distance calls. They could also earn extra phone time depending on their in-store purchasing levels.

Mobil and Kmart are among the retail chains starting to experiment with "stored-value cards," which take the place of gift certificates or credit slips. They can be used to buy anything in the store, including prepaid phone service.

Setting up a program that ties in phone service with a store's loyalty program requires technological upgrades and costs. "That's not a trivial thing," said Chris Smith, director of marketing at MCI WorldCom Prepaid, Atlanta. He adds that marketing expenditures for such a program would also be high, not only to generate awareness for the specific program but to change the way consumers perceive their loyalty card, a difficult proposition. "People are used to single-use plastic," Smith commented.

Multiple-use cards are also not likely to generate a significant enough volume to satisfy the major suppliers, according to Smith. "If you got 3% [to use phone-card service on the loyalty card], you'd be really successful," he said, noting that this translates to just a few million units, a small return for a non-niche player.

A significant technological transformation on the horizon, which will affect the entire telecommunications industry, is the changeover from a traditional voice-switch system to an Internet base. While this will not be overtly noticeable to most prepaid customers, it will affect them indirectly by lowering the cost of all telephone services, including prepaid. It also is likely to further the shakeout of companies involved in the industry, leaving just a few major players.

Consolidation has already begun, and the transformation to Internet telephony will hasten this trend. Qwest Communications purchased LCI International within the last year and AT&T just announced its intention to buy SmarTalk Teleservices, which recently filed for Chapter 11 bankruptcy protection.