The Prepaid Press - February 15, 2008 - (Page 17)

CALLING CARDS February 15 · 2008 - 17 THE LEGAL LINE by Ed Maldonado Dear Ed: I’m sure there are a lot of Legal Line readers who are concerned about the economy and its effect on the prepaid markets. The way I see it, margins are already tight, so squeezing more out of our existing products will be tough. Not wanting to wait until things actually go bad, I have read several articles this past month with tips on how to financially recession-proof small to medium businesses. Most tell you to keep faith and watch your cash flow. Not tremendously insightful stuff and not really relevant to prepaid. In fact I haven’t seen a thing about what can be done for those of us who sell prepaid cards, wireless top-ups, and other retail prepaid services. Do you have any legal tips that would be good for helping prepaids in their recession plans? That’s my question. Thanks and I look forward to your response to this in Legal Line. Regards, Carmichael Dear Carmichael: As far as “recession-proofing” contingencies, aside from your question, no one has presented me with this issue in my own day-to-day practice. It is actually a good one, that most industry players are probably asking themselves at some level. Even when the economy is robust, financial concerns usually shape the legal alternatives companies use in business. They dictate when a company may sue for debt, leverage contractual alliances, acquire another company, begin new business lines, sell assets, or call in their chips under federal bankruptcy. When the economy is strained, it is more common for companies to exercise legal rights and remedies, as both large and small operations are trying to make every dollar count. One of the first Redline items that all companies earmark is the cost of their legal services, and the cost of recovering debt in litigation. The caveat is, if you cut your legal expenditures too much, it can also be your death knell from a liability perspective. So then, how do prepaid businesses prioritize legal expenditures in a volatile market? I have some observations from actions I have seen throughout the industry that may be a good start. The first has to do with how companies grasp the concept of “prepaid” itself. While term denotes that everything is paid upfront under a prepayment, the only one who actually pays completely upfront for most prepaid services is, in fact, the consumer. This is particularly true for prepaid calling services. The term is in fact a misnomer as the industry is underpinned by a wide variety of “open account” commercial relationships that range from reciprocal carrier arrangements, to first-use activation and payment, to wholesale PINs sold online. Much of how the industry players deal with one another is based upon invoices and open accounts. Companies who understand this well, and understand the risk factors come into play because of their “open account” commercial relationships, tend to better prioritize their legal expenditures, both preventative and in litigation. They realize that suing for every debt is not a viable option. They diligently monitor the “open-account” dealing to ensure that neither they, or the other side, becomes dramatically upside-down in debt, thereby placing that revenue stream at risk. They use informal dispute resolution within their contracts as an open forum for settlement workouts under continued business scenarios, as opposed to a formality on the road to filing a lawsuit. Examples are found throughout the industry, but some successful strategies that I have observed are: 1. Traffic Resale Carriers - There has been a stronger push to make better use of mediation to compel formal workouts for low amount disputes. Usually a clause is crafted that allows the parties to meet well in advance on any dispute. I have seen this being as quick as two or three days after the invoice is presented. The emphasis of these clauses is preserving the relationship while any upside-down debt scenario is small. Usually the parties have a history with one another and see the advantage of the longevity of their relationship as a force multiplier for increased business. I have seen clauses where the parties also establish a minimal threshold for litigation, for example any amounts over $75,000.00 USD in a single dispute event or bill. Anything under that amount is sent for mediation or arbitration to reduce costs. 2. Prepaid Wireless Accounts, Prepaid ANI & Interconnected VoIP Home/Business Accounts – Providers that have traditionally offered pay-as-you-go prepaid services have been slowly migrating their users into more long-term subscriptions using discounts for prepaid bulk minutes of service. In large part, this has been done through the use of re-occurring minimal charges on the consumer’s credit card. Problems with chargebacks have forced these providers to rethink their use of the credit card and opt for automatic payment, or EFT, from online bank accounts. Because of the re-occurring revenue stream, such providers are careful to be clear what charges will be levied for the service and how the rates apply to avoid cancellation of payments through the EFT. When faced with a consumer dispute, such providers now are giving credits on “soft” charges more liberally as to not lose the revenue stream of the account. Even providers that work on a solidly prepaid basis with consumers are re-evaluating “soft” charges, traditionally used to recover profit as negotiable items when faced with a consumer dispute that may result in a loss of business. 3. Distributors – “First-use” terms on card distribution seem to have taken a back seat to simple prepayment on activated services on cards. Because of this, providers and distributors alike are moving more conservatively when it comes to anticipated sales, and the vitality of the underlying carrier providing the service. “First-use” terms are in essence an economic hedge to mitigate loss if service is horrid, charges are unfair to the consumer, or the parties are new to one another. Providers and distributors are now moving more cautiously by ordering cards that they reasonably believe will be consumed based upon consumer popularity and the strength of the retailer’s sales performance. While this may be a reaction to POS distribution competition, it does represent a slow turn in how open account contractual relationships at the distribution level are being affected by the economic times. The second effect that I have observed is an increase in non-competition cases and civil disputes over unfair trade practices. The industry is taking stock in the strategic advantages they maintain and defending them where possible. While most perceive the value of prepaid services being simply their good price and service, the true assets of most prepaid operations walk out the door every evening – they are your employees, and more specifically upper level staff. How well they do their job, and how they serve as a force multiplier for increased business, is essential to future success. Many times money and time are invested into these people in the form of on-thejob training, trade conferences and shows, and experience through the regular business of the company. Here, I am not referring to low level or middle management personnel, as non-competition disputes over such personnel usually result in petty matters being litigated. I am referring to disputes over upper level personnel leaving companies to start their own business or after being solicited by a competitor after becoming gadded by the prior employer. Non-competition litigation in this arena seems to have taken a rise in the past year. In part, the cause starts with how fairly you treat and compensate your own people. However, in rough economic times, employees and upper level staff do look to furthering their own personal interests. The fact that companies are investing in such litigation illustrates that they are taking stock in key personnel and investing into such legal costs. This is significant because non-competition cases, unlike simple debt collection, are cases that involve injunctive relief. They are most effective in preserving interests rather than seeking money damages. It seems as if prepaid providers, particularly distributors, are investing into such actions to preserve cash flow streams built, in large part, by relationships established through key personnel. There has also been an increase in unfair trade practice actions, in part this may due to companies taking desperate measures. However, like non-competition actions, part of the remedies sought are vested Much of how the industry players deal with one another is based upon invoices and open accounts. in injunctive relief. The importance of all of this is placing more importance on the value of their personnel and on the ways prepaid operations conduct themselves. The third effect I have noticed is a greater awareness of regulatory requirements and fees now being integrated into product line planning. It used to be that clients would advise their attorneys that they were launching a new service or product line and needed consumer disclaimers to work through the regulatory requirements. Nowadays, prepaid providers are asking their regulatory attorneys what they can and can’t do as the product or service is being planned. The dialog is more permissive - “Can we do this?” They are also more willing to pay legal expenses to ensure what they are doing complies with regulations. For stored value card and e-payment service providers this has been well established a practice due to Federal Bank Secrecy Act requirements and regulation as a Money Service Business. For those in the prepaid phone card industry, the process is new, but becoming more of a concern prior to launching large distribution and marketing campaigns. The same is true for the incorporation of regulatory fees as a part of the rates charged resale carriers, prepaid providers, and end-users. Rates http://www.telritewireless.com http://www.xcytemobile.com http://www.usepuremobile.com http://www.telritewireless.com http://www.xcytemobile.com http://www.telritewireless.com http://www.usepuremobile.com

Table of Contents Feed for the Digital Edition of The Prepaid Press - February 15, 2008

The Prepaid Press - February 2008 Beachfront Property for Sale Cardholder Facing Systems Contents The Retske Report: Getting the Word Out 5 Minutes With Mark Flanagan, CEO of PrepaidWireless.com Regulatory Rundown: Mid-Winter Update 2008 Prepaid Wireless Handsets Consumer’s Union Raps Wireless Industry Prepaid Reviews Launches Canadian Website Maginpins and TúYo Mobile Form Alliance Prepaid Wireless in Brief Boost Mobile Introduces New $1/Day Chat Plan Mobile Voice to Overtake Fixed in Europe Prepaid Wireless Roundup Another Kind of Prepaid Calling Spot Rates VSNL Wins ATLANTIC-ACM Award The Legal Line Calling Cards in Brief Sapotek Partners with DigiLinea Pactolus Goes Live at Cable MSO Low-Income Market Initiatives to Drive Mobile Banking Payments in Brief Monitise Americas Expands Payments Network Charge Anywhere Mobile POS Wins Award Hypercom Introduces System for Small Merchants TIO Networks Announces TIO Prepaid MasterCard NPBCA Makes Leadership Change A Walk Down the Aisle Branding Your Retail Store Retailers Welcome Senate Approval of Stimulus Bill NRF Forecasts 3.5 Percent Growth in Retail Sales Cyphermint Teams With DHL Retail Focus in Brief Our Advertisers Contact Us

The Prepaid Press - February 15, 2008

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