Phone Cards
May/June 2003
ª Print this Page ªClose this WindowPrepaid Telecoms - Do it Now
rom inauspicious beginnings as a product for the 'credit-impaired', phone cards are enjoying that rare combination of dramatic growth rates, high unit value, high margins, low space usage and diminishing risk. And, it is C-Stores that are the clear winners from the shift to prepaid telecoms products. Make the best of it while it lasts.
According to the AC Nielsen 2002 Convenience Report, phone cards is the fastest growing category by far, with an annual growth rate of 60%. The category is growing so fast that already the name is out-of-date. New technologies and products mean the category is more accurately called PREPAID TELECOMS - everything from the familiar plastic phone cards to electronic vouchers for prepaid internet. The main products are international calling cards and mobile phone recharge cards and vouchers.
The Australian total prepaid market is valued at $1.5 billion (and 5 million customers), and is expected to increase to between $3 billion and $4 billion over the next few years. Over 80% of the market is mobile recharge, nearly 15% calling cards, and the rest prepaid internet, still in its infancy.
Mobile phone market penetration is 65%, and is estimated to grow quickly this year to between 70% and 75%. "We see a tremendous shift in the mix of sales into the prepaid space driven by consumers but encouraged by suppliers," says Ian Scherger, Director Consumer Markets, Vodafone. "We estimate that over the next few years, more than 70% of mobile telecommunications sales will be prepaid. This and the introduction of new products means very strong growth in prepaid."
Total global sales of calling cards is about 2 million per month, of which 150,000 are sold in Australia. This is on a steep growth curve. In the past, international calling cards were mainly used by backpackers and other travellers. With nearly 25% of the Australian population born overseas, the potential to make inroads into the $2 billion long-distance home market is enormous. Suppliers are responding to the increased general awareness of consumers of the potential to control their budget, lower costs, and choose from a wide range of products and features, without sacrificing service quality.
Further, the product suits the convenience channel. "The convenience channel (including petrol and route) is the largest distributor of prepaid products, with over 50% of total sales and 50% of new connections," says Graham Jorgensen, CEO, Ozicom Group (Unidial). "From the start, petrol stations and newsagents were popular places for customers to buy prepaid due to the natural combinations. Customers get into regular habits and the prepaid card fits with their regular visits." It is repeat business. Approximately 50% of prepaid cards are recharged.
Simon Mouat, Managing Director, Alpha Telecom, agrees: "We are expanding our offer through convenience and route. The channel of local stores, open long hours, is ideal for these products. Research in Europe shows that customers tend to return to the same couple of stores in their local area."
"The product suits the convenience channel," says Hamish White, National Sales Manager-Retail & Dealers, AAPT. "Convenience retailing suits people with a phone and a number. The convenience channel came into its own with number portability. Some 30% of mobile phone users change carrier every year."
Dial into the demographic
Suppliers are tailoring their product for the convenience demographic - the young, the mobile, and the technologically aware. Boost, who put the first telco stands in Caltex sites, targets the youth market. "More than 50% of new connections are for people under 25 years of age, says Paul O'Neile, Managing Director, Boost Mobile, "Our biggest customer base is 13 to 19 years old."Attracted by the growth trend, AAPT launched a prepaid mobile recharge product in April. "Our campaign will target the 22 to 35 age group," says Hamish White.
"Vodafone Live is aimed at people that want to stay in touch across all age groups," says Ian Scherger, "with downloads of news, weather, sport and entertainment. The internet interface on the mobile phone screen is icon-based - like having Windows on your phone - easy to use and very fast. The product suits a prepaid environment and people on the move."
Tapping into the potential of the home market, both Unidial and CardCall have cards for the home phone, and Alpha is introducing its home phone card shortly. CardCall is introducing a single card that stores three prepaid values - for international calls, mobile phone calls, and local calls from the home phone. Alpha's 3-in-1 product will not be too far behind once it has secured a deal with a mobile carrier. The long-term trend is for extension of the principle to prepaid internet, and even to prepaid toll fees and electricity.
Let's get electronic
Electronic distribution through a POS terminal is rapidly replacing physical stocks in-store in many circumstances. This is understandable given the list of advantages:· Cheap - no stock to purchase
· Superior financial arrangements - usually pay after sale
· Free machines (minimum sales and minimum term)
· Safer - less theft
· Less space used
· Bigger product range
· Better sales information from electronic reports"The good news is that electronic distribution favours the corner store," says Simon Docherty, Marketing Manager, e-pay Australia. "It can supply all network products without the hassle of holding stock, reordering, and up-front purchases. As early as a year ago, most retailers were limited to a couple of majors, and this disadvantaged small retailers. Now all convenience retailers can deliver the whole product range."
"Many retailers have experienced the problems of being stuck with phone cards which have lost popularity, or worse, originate from companies which have gone into liquidation," says Allan Clark, Managing Director, Telecommunications and Phone Card Distribution Services (TPC). "Electronic delivery effectively removes these issues so it is no surprise that this technology is gaining ground so fast."
Current technology is a dedicated POS machine that prints a voucher with a unique pin. It is a 2-stage process: the first printout is used to verify the product purchased; the second is the voucher that, once printed, is like cash. "Always get your money before you print the voucher in order to eliminate returns and fraud," warns Rick Arden, Product Marketing Manager, Ezipin.
You should be aware that there are some disadvantages of electronic delivery: The system can occasionally be either very busy or interrupted, the print on the thermal paper can fade, and some customers such as the elderly prefer a card to a voucher. Customers such as travellers keep the cards as a souvenir. The solution is to keep a small stock of physical product tailored to your location and your customers' preferences. You will also need to stock physical SIM cards and starter packs.
To some extent, these are short-term issues. The technology of delivery is constantly changing. Ezipin and NAB are now offering an integrated EFTPOS. The next generation of POS will use a card with a magnetic strip that is swiped at the store (no vouchers or PINs). And, you need to make the best of the product while it lasts because the technology after next is direct recharge from the customer's handset. Opinions vary on how much impact this will have, but there will always be customers that prefer to recharge through a retailer for a variety of reasons.
Mighty Margins
For relatively high-value tickets items, margins on these products are great:
International calling cards 20% - 30% Starter packs/SIM cards 15% - 35%
Mobile recharge cards and vouchers10% - 15% Home phone cards $10 sign-on fee plus 15% for recharge The trend is downward for mobile recharge, and could go below 10% if overseas trends are a guide. Although handsets are attractive with 15%-20% margin on sales of between $100 and $200, they do not sell well in the convenience and route channel. However, Boost's universal mobile hands-free kit and charger are expected to sell well at $19.95 each, and offer a margin of 40% to the retailer.
Make the best of it
To make the best out of prepaid telecoms, it is vital you and your staff understand the product well to avoid customer disappointment and returns, and for this and everything else, choose products and suppliers wisely."Retailers should stock as wide a range of cards as possible from different telecommunications companies, to meet all their customer demands," says Joe Ayoub, Managing Director, Prep Com.
"Problems arise when the product terms are not clear," says Steve Picton, CEO, CardCall. "Different products suit different customers. They have different flagfall rates, and some have time-of-day restrictions. This is not a problem as long as it is clear to the retailer and the customer. That is why clear POS material, staff training and promotions (particularly for part-time staff) are so important. You need incentives for staff to know and market the product."
To facilitate staff training and to give retailers information on the large and complex range of products available electronically, Ezipin produces a reference guide that includes a generic description of prepaid products, instruction on how to use the terminal, and a 'frequently asked questions' section. The guide was distributed to 2,500 retailers in March. Ezipin can also supply POS material for all the products available through the terminal.
You should also look for a supplier with longevity, financial strength, national 24-7 customer support, and with electronic distributors, favourable financial terms and service arrangements. Balance margins with these other considerations.
All this means is that if you take advantage of suppliers' promotional material, training, and support, just by having a good understanding of your customer and the products that suit their needs, you can generate high margins and cash flows from a big ticket item that uses very little space.
WHO's WHO IN PREPAID TELECOMS
The carriers produce their own mobile recharge and international calling card products, and sell space on their networks to other suppliers of products. They tend to use exclusive distribution partners as well as the electronic distributors. Vodafone uses the Cadbury/Schweppes distribution footprint for conveniences stores and route trade, and uses Crossmark for larger retailers and petrol stations. Customer service is direct with the carrier and retailer support is through the distributor.CardCall has equal market share to Telstra in international calling cards, and supplies 10,000 retailers across all channels. With 8 cards in the product range tailored for different geographic and ethnic groups, its most common are Gotalk, Ozcall and RateSaver. It also distributes Optus, Boost and Virgin mobile recharge and prepaid internet products.
Unidial (now owned by Ozicom) was the brand of the first long distance phone card in Australia. With its own infrastructure and intelligent network system, Unidial achieves both speed and flexibility in switching its own calls. Its main product is the Supersaver phone card which is available at 8,000 outlets and has 18% of the market. This compares to Telstra and Optus combined share of 50%. Unidial also distributes Telstra mobile recharge products. It sells direct to major retailers and through distributors for smaller retailers. Unidial has a strong presence in the convenience channel, including partnerships with 7-Eleven, Quix, BP, Shell, Caltex and Mobil, as well as a large share of independent stores and the route trade.
Alpha Telecom started in the UK in 1996 and is now the largest prepaid card operator in Western Europe. After only 12 months in Australia supplying the Boomerang Phonecard, it is already a substantial player. It distributes direct in Sydney, and through distributors in the other states. It is currently negotiating with a carrier to supply a mobile recharge product (SIM card and recharge), to be the newest mobile virtual network operator (MVNO).
The MVNOs operators buy space on the carriers' networks and supply the same range of products as the carriers. The carrier still provides customer support and the MVNO looks after the retailer.
Boost produces and markets prepaid telecommunication products, targeted at the youth market in Australia, New Zealand and the United States. In Australia, its carrier partner is Optus, and Boost repackages Optus services and provides additional products under the Boost brand. Distribution is outsourced to Prepaid Services who also distribute Optus products.
AAPT's recent launch of a prepaid mobile recharge product - starter pack (SIM card) and recharge - will use the Vodafone network. In recognition of the trend in delivery, recharge will only be available through the electronic distributors for electronic delivery.
Prep Com distribute mainly Vodafone SIM cards and recharge products and Pineapple international calling cards nationally to newsagents, tobacconists, service stations, mobile phone stores and convenience stores. It also distributes Telstra recharge cards and Phoneaway cards to some outlets.
TPC Distributions have a national network of agents distributing Vodafone products (recharge cards and connection packs) plus a wide range of calling cards throughout the convenience market. The group distributes the full range of Telstra products to service stations and video stores. TPC are also agents for the electronic provider, Ezipin.
The carriers, MVNOs and calling card suppliers are increasingly using dedicated, exclusive distributors for physical stock, but this trend is are being superceded by the shift to electronic delivery.
e-pay Australia is an electronic distributor of prepaid products including mobile recharge - Telstra, Optus, , Vodafone, Boost, Virgin and Orange, calling cards - SuperSaver, Telstra, Boost and Green, and prepaid internet - Optus. All products are available through all outlets with e-pay systems. Whereas you might buy from a number of physical distributors, it would be unusual to use more than one electronic distributor. e-pay has contracts with a number of major chains: 7 Eleven, BP, Mobil, Quix, Night Owl and Woolworths (supermarkets and Petrol Plus). This year, e-pay is actively targeting the remaining convenience channel and the route market.
EziPin is an electronic distributor of prepaid products - mobile phone recharge, calling cards, internet, home phone products, adult products, and anything else that can be prepaid and printed on a voucher. Its product range includes Telstra, Optus, Vodafone, Boost and Virgin mobile recharge and Gotalk, SuperSaver, Boost, and Green (formerly Apple) calling cards. Ezipin focuses on newsagents, convenience stores, general route, and independent service stations.
