The Prepaid Press - October 15, 2008 - (Page 4)

PREPAID BUSINESS October 15 · 2008 - 4 THE RETSKE REPORT By Gene Retske The Game Changer If you are a sports fan, you are well aware that there is an overall rhythm to the game in its momentum. As events occur, there are slight momentum changes as the ball changes hands, or a score is made, or missed. You can read it in the way players play, the way the crowd reacts and other subtle clues as to the flow. These waves of momentum often escape the attention of the analysts, and frequently defy logic. Then, there are those rare events, game changers, that represent a complete shift in momentum. The prepaid calling card game is no exception. In its infancy, most of the pundits confidently predicted every year that the next year would be the end of prepaid calling cards. They had lots of good reasons for their predictions. I remember one conference in 1996, where Dr. Judy Reed Smith of Atlantic-ACM and I were the only speakers, out of at least a dozen, that predicted growth in prepaid calling cards. Dr. Smith’s opinion was based on her incisive and detailed analysis of the underlying drivers; I took a stab based on my frequent contact with industry players, and the energy I felt from them. Nearly all of the experts had a different opinion. They saw the market for prepaid calling card service as a temporary measure, appealing only to a small, quickly diminishing market niche. These learned folk had all the numbers to back up their opinions, and colorful, intricate graphs that proved their thesis beyond a reasonable doubt. Prepaid calling cards simply could not fly, they said. There is an old joke that goes like this, “Why can a bird fly, but a man can’t?” The answer, “Because nobody told a bird it couldn’t.” Apparently, the providers of prepaid calling cards services were not listening to the experts, so they were unaware that their business was on the verge of ending. Instead, these entrepreneurs used their creativity to design new products or altering existing products to meet the needs of new markets that they uncovered. Like the little birds, they continued flying, at times, soaring. The prepaid calling card business was the epitome of free market principles; let free markets decide whether a product had consumer appeal. A hands-off approach to an industry makes for a lot of unemployed pundits, but it does liberate the innovators who can design products and distribution strategies to meet market demands, without artificial limitations. Fast forward to 1999. As conditions began deteriorating in the economy in general, and telecom particularly, prepaid calling card providers were also feeling the pinch. Products had reached a technological maturity, and the “enhanced services” theory completely discredited. Branding had failed to produce momentum, so prepaid calling cards became the prisoner of commodity competition. Unable to make a significant case for product differentiation based on quality or reliability, price became the sole criterion. Using the creativity that had served the business in its early days, prepaid providers hit upon a simple formula for communicating their price advantage to consumers, the number of minutes a particular card could provide. Unfortunately, this was not a simple formula, and the promise required a plethora of disclaimers for the honest operators. Other operators did not place a high value on honesty, so the promised delivery was often misleading, at best, and too often a bald face lie. Consumers who felt cheated by this chicanery turned to state regulators, the FCC, consumer advocates and elected officials. To call the problem widespread would be exaggerating, but to call it insignificant would be delusional. Unfortunately, the industry lacked two elements that could have mitigated the problem. First, there has been no effective industry association after the collapse of IPCA (International Prepaid Card Association), who could have fielded complaints and worked with regulators. Second, there was no clear market leader who could set the pace, offering a cleaner product with less emphasis on price. Passage of the law is a moment where the entire ball game not only changes, but it is transferred to a new arena. In open defiance of the experts, prepaid continued to grow, often at double-digit rates. Then, there are those rare events, game changers, that represent a complete shift in momentum. Although there are laws at the state and federal level to prosecute and punish consumer fraud, members of Congress did not feel that this was sufficient, so a bill, HR 3402, was introduced in the US House of Representatives by Eliot Engel (D-NY) in 2007 to force calling card companies to fully disclose the rates and fees on calling cards. The “Calling Card Consumer Protection Act,” as it is called, was passed by the House on September 25, 2008 and is now on its way to the Senate. Fully informing consumers is a laudable goal, but the details may prove to be vexing. The bill is very specific as to what has to be disclosed, and how it is to be made available. It evens prescribes what the voice prompts must say regarding fees. Rep. Engel’s staff has done an exemplary job of researching the details of calling card provisioning as it is today, in 2008. The law, which has a reasonable likelihood of passing the Senate unaltered, is a game changer. Passage of the law is a moment where the entire ball game not only changes, but it is transferred to a new arena. Now, calling card providers have to design products not only to meet market demands, but a staff of regulatory attorneys will now put on Product Management hats and have the final say on whether a product meets the legal requirements. This is not saying that the trade off of flexibility vs. consumer rights is inherently wrong, just that regulation will replace the free market as the arbiter of what is in the interest of consumers. Whether you agree or disagree with the legislation, it is undeniable that, henceforth, the Federal Government will set the rules of the playing field for prepaid calling cards, not the marketplace. It is a game changer. For those of us who enjoyed watching or playing the game for the last 20 plus years, there is a sense of sadness at the change. But, lest we dwell too long on what was, let us remember what the inventor of the telephone, Alexander Graham Bell, said: “When one door closes, another opens; but we often look so long and so regretfully upon the closed door that we do not see the one which has opened for us.” It is time to start looking at the open door. http://www.lunexcenter.com http://www.lunexcenter.com

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

The Prepaid Press - October 15, 2008 Oblio Wins Judgment Mobile Remittance Providers Look to Latin America Contents The Retske Report: The Game Changer Regulatory Rundown: New Rules and Requirements Likely for 2009 5 Minutes With Saul Bienenfeld, President of Pop2Call Prepaid Wireless Roundup MetroPCS Sues Virgin Mobile Wireless in Brief Leap’s Cricket Service Introduces Cricket PAYGo Virgin Mobile USA to Launch the Shuttle New Study Shows Mobile Phones Merging Roles TracFone Launches SafeLink Wireless in FL IVI and Titan Sign Agreement with YA Global Boost Mobile Launches New Phone The State of Prepaid Technology: Will the Coming Market Bring You Problems or Opportunities? Calling Cards in Brief The Legal Line Tata Awarded Cisco Powered Status IDT Fails to Meet NYSE Listing Standards BillSoft Offers New Taxation Service Dialogic to Acquire NMS Platforms Business STi Acquires Sprint’s Calling Card Business TelcoBridges Introduces ToolPack System Manager Hypercom Increases Multilane Team Mobile Banking: CGAP Spurs Market Prepaid Resources Introduces PORTABLES Bancorp and Obopay Introduce Payment Card Verities, Inc. Partners with BBB and i2c Inc. The Bancorp Bank Partners with LeagueSafe Donor Dialogue Partners with Springbok Services Mercator Offers New Merchant Report Travelex Launches Budget Calculator MPOWER Companies Join Clinton Global Initiative Payments in Brief Promotions Evolve into Must-Have Marketing Strategy for Prepaid Sector Access Launches Cash-Back Rewards VendTek Partners with United Bank Card Flash Foods, Tedeschi Partner with Pinnacle Prepaid 101: Basics of PINs Gasoline Cards to Benefit Armed Forces, Veterans i2c Inc. Signs Agreement with Diestel iPayStation Partners with Pronto Envios Sodexo Releases Prepaid Incentive Card Heartland Leverages VeriFone Managed Services Retail Focus in Brief Our Advertisers Contact Us

The Prepaid Press - October 15, 2008

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