Prepaid Competition Cutthroat

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Prepaid Competition Cutthroat

This fall, two companies are targeting the convenience store demographic with the release of rechargeable cell phones that will retail for less than $40. At less than half the pre-rebate price of similar packages from established providers such as AT&T and Verizon, the offerings could potentially tap new demographic markets or create a price war in the prepaid products category — or both.

Orlando-based New Horizons Technologies International and Garden Grove, Calif.-based competitor Hop-On Wireless Inc. initially planned to create "disposable" wireless phones stripped down so that their retail price point would rival standard prepaid phone cards. For example, the phones would be able to make, but not receive calls, and would feature voice-activated dialing, but no keypad.

After using up the prepaid phones, customers could either throw them away or return them to the company for a small refund.

Although the refund/recycling option is still available from both companies, their plans have changed considerably. "The technology just isn't out there yet to build a $10 cell phone," said Peter Michaels, chairman and chief executive of Hop-On. "But, we've built very efficiently."

"The original concept for us and our competitors was a phone that you use and throw away," said Stephen Romeo, vice president of sales and marketing for New Horizons. "But we did some research and test groups kept saying, 'What if I want to keep the phone?'"

The second wave of disposable phones now have keypads, along with the ability to receive calls, but will not offer features such as LCD displays, call histories, digital phone books, call timers, text messaging, games or customizable ring tones that are typical offerings on other prepaid phones.

Many prepaid customers, particularly those from lower income demographics, may overlook the lack of added features if the price is right. Romeo noted that in the traditional cell phone world, a significant percentage of customers are not able to obtain contracts due to a poor credit history or a lack of credit history, yet currently, the only option that exists for these customers is more expensive prepaid plans.

"A lot of the people buying prepaid cell phones are just looking for the best price and the most minutes for their money," said Nannette Brooks, buyer for West Point, Ga.-based Spectrum Stores Inc.

Although retailers may be able to leverage competition between the carriers to their advantage in certain markets, Brooks noted that a phone's features and appearance would still be a priority for other target groups, such as teenagers.

"Teenagers are quite a different customer," she said.

Regardless, following the success of programs such as AT&T's Free2Go Wireless at major chains such as 7-Eleven, both companies will be hoping to net convenience store chains as a primary outlet.

7-Eleven: Big Bucks in Prepaid Products
7-Eleven Inc. helped kick off the first annual Prepaid Markets Expo, a three-day event held in New York last month. The event addressed marketing and product development in prepaid calling cards, wireless products and Internet access.

Tim McCallum, director of services at the Dallas-based convenience store chain, said that 7-Eleven is the number-one c-store chain in prepaid wireless sales, and that AT&T is the chain's ninth-largest vendor. "We sell more AT&T products than we do Miller Beer or Coors Beer," he said.

McCallum said the customer of prepaid products has changed, and is no longer predominantly "credit-challenged," budget-conscious and very young. Business among senior citizens has tripled in recent years, he said. Prepaid products earn an average transaction of $35, quite a boost considering 7-Eleven's average ring otherwise is $4.