The Prepaid Press - December 15, 2007 - (Page 9)

GENERAL PREPAID December 15 · 2007 - 9 GUEST EDITORIAL by Pete Pattullo Time to Stop Subsidizing Failed FCC Payphone Compensation Policies? The Prepaid Phone Card and Payphone industries have been at odds and battling in the courts and at the FCC for the past 11 years. This struggle has enabled a group of opportunistic institutional litigants, employment of a large number of FCC staffers and a herd of Washington attorneys, to all make a living off failed FCC % of completed Toll Free calls from Payphones (500 + million calls) % 11.0 10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 Average Payphone Retail Rates per Toll Free call $ 1.20 1.00 0.80 0.60 Subsidizing Consumers Average Toll Free Retail Rate Non-subsidized Retail Rate @ 40% discount Average Coin Rate (est.) FCC mandated DAC free increase If you look at the prepaid phone card and payphone industries from a business perspective, you would realize we should be close allies policy. The result is that both industries have become polarized and are acting like feuding enemies in the market place. If you look at the prepaid phone card and payphone industries from a business perspective, you would realize we should be close allies, both effectively serving the have-nots, credit challenged and a large number of immigrants that need convenient and cost effective access to the public phone network. Unbelievably, during this period, almost everyone has failed to address the impact of these policies on the consumer. The original 1996 FCC payphone order stated, “We conclude further that the ability to make coinless calls from payphones is a convenience that transient callers value.” Sadly, the FCC got it wrong, and did not contemplate, and still does not understand, the impact of their payphone compensation policy on telecom products sold through retail distribution. Their original assumptions were based on direct to consumer products (e.g. post paid calling cards and paging services). They didn’t understand the impact that retail distribution and payphone compensation tracking would have on these products to cover discounts, commissions and proﬁt margins. FCC mandated DAC free increase 0.40 0.20 07/04 01/05 07/05 01/06 07/06 01/07 07/07 month/year 07/04 01/05 07/05 01/06 07/06 01/07 07/07 month/year In 2004 the FCC tried to help the payphone industry by increasing the payphone compensation fees. This action actually just accelerated the demise of the Payphone industry and further drives the consumers away. In the end the FCC has failed at meeting its stated goal to “pro- Sadly, the FCC got it wrong, and did not contemplate, and still does not understand, the impact of their payphone compensation policy on telecom products sold through retail distribution. mote the widespread deployment of payphone services to the beneﬁt of the general public”. Recently, NetworkIP has been analyzing the data and facts on how our customers and their consumers have adapted and reacted to the FCC payphone compensation policies and fees over the last several years. We feel it’s time for the Prepaid Phone Card industry to step back and reconsider its payphone strategies. We believe there are three key issues in determining a strategy going forward: A The dramatic drop in payphone use by consumers of prepaid phone card products. The data shows the use of payphones has dropped from over 25% back in the late 90’s, down to 10% by 2004 and to less then 3% today. (See above left chart) Some will be quick to jump to the conclusion that it’s a direct result of the proliferation of cell phones. Although there is certainly an impact from cell phones, we believe this decrease has been ampliﬁed by the relative high cost of calling from a payphone. B Higher payphone fees being charged on prepaid phone card. The FCC’s lack of understanding on retail distribution of telecom products has resulted in the consumer being charged a highly disproportionate fee that is not competitive and unfair. In reality, the consumers should be paying at least $1.00 using a toll free number to utilize a phone card vs. the $0.35 – $0.50 in coin it cost them to call a local number. C Most of the service providers are partially subsidizing the payphone fees on their cards. Currently, most of the prepaid phone card industry, and our customers, are charging the consumer on average about $0.80 per call. (See above right chart) They are collectively subsidizing over $0.22 per call completed from a payphone. Compared to the cost of making local calls from payphones or using other access methods, neither of these prices is competitive, or fair to the consumer. We also believe the average consumer using a payphone blames the prepaid phone card provider for the high cost. win-win strategy going forward. 1) Stop subsidizing the payphone industry and consumers, raising their payphone fees to cover the total cost and the target margins you are trying to achieve on your products. 2) Implement recordings, warning and notifying the “consumer using a toll free number from a payphone” is not cost effective, and they should either hang-up and use a local number if available and deposit coins ($0.35 - $0.50) or utilize the service from a non-payphone. (To call and hear example of a recording dial 1-800-580-2854) 3) Also consider the option of blocking all inbound calls from payphones, playing recordings warning and notifying the consumer that is no longer cost effective to utilize payphones to use our service. (This was identiﬁed as an option in the original FCC payphone order.) It’s time to rethink our payphone strategies and drive changes needed to protect our consumers, customers and businesses. – Pete Pattullo Pete Pattullo is CEO of NetworkIP. He can be reached at pete_pattullo@networkip.net. A New Strategy: After reviewing the facts above, we believe the prepaid phone card industry has the following options: A Continue to bury our heads in the sand and continue to partially subsidize (lose money on) the consumer, who will still have a negitive perception of your brands B Fully subsidize (and lose even more money on) the handful of consumers who are forced to continue to utilize payphones, hoping the consumer will actually appreciate it and become loyal to your brand. C Implement the following measures to either minimize, or make irrelevant, the compensation to the payphone industry, or get their attention to sit down with us and develop a AT&T to Withdraw from Payphone Business SAN ANTONIO, TX (December 3, 2007) AT&T Inc. (NYSE:T) is going to exit the shrinking payphone business by the end of 2008, according to a press release issued today. The company said that existing contracts and customer service commitments would be honored while the business is phased out. AT&T said its Public Communications unit has experienced “signiﬁcant pressure” from reduced payphone usage, and blamed the growth of alternative communications choices, such as wireless phones and personal communication devices, for the reduction. The move affects AT&T payphones in the company’s traditional 13-state service area only. BellSouth Corp., which was acquired by AT&T Inc. in late 2006, had previously exited the payphone business in its nine-state service area. AT&T’s wholesale payphone services are not affected. “This is the right time for us to take this step on behalf of our customers, employees and stockholders,” said David Huntley, senior vice president for Customer Information Services. “We expect that independent providers will pick up much of this business, and, as we exit the business, we will be able to refocus our resources to areas that offer stronger growth potential and greater opportunity for the company.” Payphones in the United States have declined across the industry from about 2.6 million phones in 1998 to an estimated 1 million phones today. Huntley said the company will be attentive to the needs of both customers and employees during the 13-month process of phasing out the business.

Table of Contents Feed for the Digital Edition of The Prepaid Press - December 15, 2007

The Prepaid Press - December 15, 2007 GENERAL PREPAID 2007: Prepaid in Review New Prepaid Association? Contents A Funny Thing Happened on the Way to the Forum Regulatory Rundown: FCC Enforcement, SEC Cracks Down, VoIP Hacking, & Wireless Regulation The Legal Line WIRELESS Prepaid Wireless Roundup kajeet to Offer Horoscopes, Jokes and Trivia Redknee Extends Converged Billing Solution AT&T GoPhone Offers Roaming Option in Mexico Total Call Mobile Introduces Holiday Bonus Wireless in Brief INTERNATIONAL Spot Rates Keycorp to Distribute Hypercom in Canada International in Brief Mobile Communications in Latin America Gets a Leg Up TELECOM & TECHNOLOGY T&T in Brief Phone House Launches New Card Facebook Goes Mobile CVT and Total Call Settle IDT Lawsuit Wireline Capex Grows 7% in Third Quarter PAYMENTS Transcard Selected for Discover Payroll Cards Vesdia and MXT Card Services Form Alliance The Giving Tree Card Gives Back MasterCard Launches Prepaid Travel Card Payments in Brief 7-Eleven Pushes Video Games Capital One and NetSpend Merger Off i2c Launches New Release of Campaign Manager Prepaid Card Dispensing from ATMs Credit Card Design Competition Begins NRF Says Gift Cards Gaining Popularity EXTRAS Classifieds Contact Us Our Advertisers

The Prepaid Press - December 15, 2007

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