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Holding All the Cards

As a concept, prepaid phone cards are not new. Retailers have been selling long-distance cards for years, and even prepaid wireless has been around for a while. But recently, the popularity of this new payment option has taken flight.

Last year, payments on prepaid gift cards alone were estimated at more than $30 billion, and are projected to exceed $73 billion by 2007, according to TowerGroup, a global financial services industry research and advisory firm.

"It's still one of the fastest growing pieces of our business," said Kevin Cooper, retail services category manager at Dallas-based 7-Eleven Inc. "We keep it in a prime position in our stores."

What has contributed to this sudden surge? Expanded options. Cards for online games, cell-phone ring tones and music downloads brought new life to the category, and continue to do so as more and more prepaid online offerings become available.

"The biggest part of the business is wireless, but the newest to become big within the last 12 months is online content," said Khaled Sakr, vice president of business development at Pre Solutions, a prepaid card supplier based in Norcross, Ga.

Even the big guys like MasterCard and Visa have joined the prepaid party, offering gift cards to be used anywhere their cards are accepted. "The prepaid branded credit cards like Visa and MasterCard are expected to be the fastest growing over the next two years," said Brooks Smith, CEO of Atlanta-based prepaid provider InComm.

In addition to the point-of-sale-activated (POSA) cards or hard cards, retailers now have the option of using printed receipts with e-pin numbers and listed activation numbers, eliminating the need for storing card inventory. Taking this concept one step further, many manufacturers now offer self-service vending machines using the receipt concept, though these are also available with the hard-card option.

ExxonMobil is one retailer testing the vending option. The company recently deployed 41 self-service, automated touchscreen terminals from Info Touch to its Tiger Market stores in Memphis, Tenn. The company is currently testing the terminals, which offer a variety of services including bill payment, using both cash and credit

cards, wireless access, money transfer, money-order purchasing, prepaid telecommunications and prepaid mobile phone content, including games and ring tones.

Proprietary Prepaid

True to its innovative nature, c-store giant 7-Eleven is once again leading the way with its proprietary prepaid wireless service, now available in select markets. Through an agreement with Dallas-based Ztar Mobile Inc., the company is offering two versions of mobile phones in a program called Speak Out wireless. Though the phones are made by Nokia and the service is provided by Cingular Wireless, the packaging highlights the Speak Out initiative, provided by Ztar Mobile.

"We are one of the first to offer a color-screen prepaid phone," said Kevin Cooper, retail services category manager at 7-Eleven, noting there is also a non-color option available. "Our customers want the cutting edge. Also, with most carriers, you buy the phone and go home to call an 800 number to activate it. Ours works right out of the box and is ready to go as soon as you hit the parking lot. It has a pre-charged battery."

The company initially tested Speak Out in 65 stores throughout the Dallas/Fort Worth area last fall, eventually expanding the test to include 250 stores in the Dallas area. "We started small to see if a customer would buy the program without a major carrier's name, and we found they are paying attention to the value," explained Cooper. "We saw a really good customer response."

The value 7-Eleven offers with its program differentiates it from other programs in the industry. Domestic, long-distance and on-network roaming charges carry a flat rate of 20 cents per minute, and there is a 120-day expiration for rollover minutes starting after the first call is made — twice as long as the industry standard of 60 days.

"We've seen the JD Power studies, and one of the most frustrating things people own is a cell phone, and the biggest problem is the changes in rates," said Cooper. "Other plans have tiered ratios where if you spend more up front, you get a better rate. That is like dangling a carrot out there that most customers can't take advantage of because they don't have that kind of money in their pockets."

To recharge the phone, customers return to participating 7-Eleven stores to buy a prepaid card for $25, $50, $75 or $100. "They can only get prepaid cards for the Speak Out program at 7-Eleven, which offers us a competitive advantage," noted Cooper.

Another competitive advantage is customer service offered in both English and Spanish — 24 hours a day, seven days a week. "Bilingual customer service is important for a lot of Hispanic customers, so we have bilingual customer-service associates and the side panels of the boxes are printed in Spanish," said Cooper.

This project has been in the works for two years, according to Cooper, and the company studied customer needs and saw they wanted a better value. "We think there is a huge opportunity in the United States for more prepaid usage, and we think we will start a trend," said Cooper. "You will see more retailers trying to do it on their own."

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