A Special Report From The PELORUS Group

NORTH AMERICAN

PREPAID CARDS: WIRELINE MARKETS IN TRANSITION

Prepaid Calling Cards And Dialtone Opportunities And Strategies Through 2008

An Exclusive Study Dedicated To Analyzing A Market Being Redefined By New Players, New Directions, Shifting Strategies – And Emerging Opportunities

· Detailed Opportunity Analysis For The U.S. & Canada

· Key Prepaid Markets: Dynamics & Potential

- Value Shoppers

- Ethnic Markets

- Credit Challenged

- Youth Market

· Technology Issues & Developments

· Marketing & Distribution: Shifting Patterns

· Ethnic Marketing For Phone Cards

· Regulations

- Dial Around Compensation

- Universal Service Fund

· Prepaid Calling Cards: Quantifying The Opportunity

- Consumer Applications

- Business Applications

- Market Size & Demand: International & Domestic Markets

- Key Players, Card Vendors & Support Companies

- Distribution Channels

- Market Developments & Trends

· Prepaid Dialtone: Quantifying The Opportunity

- Consumer Applications

- Business Applications

- Market Size & Demand

- Key Players

- Distribution Channels

- Market Developments & Trends

· Emerging & Related Prepaid Markets

- Building On A Prepaid Telephony Base

- Benefits Of The Prepaid Business Model For Service Providers

- What Consumers Like about Prepaid

- Some Hot Markets:

- Stored Value, Gift Cards & Loyalty

- Benefit Programs

- Travel Related Services

· Market Forecasts To 2008!

A Granular Look At The Future Of Prepaid Calling Cards & Prepaid Wireline!

The PELORUS Group

Helping Navigate Change In

Prepaid Wireline Markets

The Prepaid Market Is Changing

In recent years, phone cards and prepaid dialtone have been bright spots in a relatively dismal telecom market. However, the prepaid wireline market is not immune to change and the challenges that are inherent in change. The market is growing more sophisticated; vendors are utilizing more technology to channel their products to end users. Some vendors are offering prepaid accounts which no long require a card. Indeed, the days of the live card may be numbered for any vendor that wants to realize a profit in phone cards.

Prepaid companies must now confront many of the same challenges facing traditional long distance and local exchange carriers. Wireless for wireline substitution and package deals are putting traditional services within the reach of individuals who, in the past, had no choice but to use prepaid services. Meanwhile, changes in the law relating to dial-around compensation and universal service funds will raise the bar for those who want to remain in the market.

The PELORUS Group’s new “North American Prepaid Cards: Wireline Markets In Transition” report is a highly granular and analytical document. It acknowledges that while there may be challenges, opportunities still abound. The international phone card market is growing. Some vendors are now offering low cost international rates in combination with wireless service. Voice over IP technology can reduce costs to only a small fraction of what they were just a few years ago. Ethnic marketing may still be used to sell international phone cards, but good customer service and rate plans structured to meet the needs of major user groups can provide significant competitive advantages. “North American Prepaid Cards: Wireline Markets In Transition” is dedicated to assisting prepaid vendors mine new opportunities through innovative strategic insights required to succeed in today’s rapidly changing marketplace.

The PELORUS Group’s

“North American Prepaid Cards: Wireline Markets In Transition”

isolates and analyzes

· The strategies and offerings of leading prepaid providers in dialtone and phone card markets in both the U.S. and Canada

· Market barriers such as the economy, churn, fraud, etc.

· Applications and corresponding market segments

· Current market dynamics and how the prepaid wireline evolution will likely track

· Trends in prepaid calling cards – domestic and international long distance, branding, pricing, and more

· Market revenue and call volume for prepaid calling cards

· Close-up: The credit challenged, the unbanked, and temporary users

· Major international phone card markets

· Ongoing and emerging regulatory issues

· The economics of prepaid dialtone

· The future of prepaid dialtone and prepaid long distance

· The impact of wireless cannibalization of wireline

· PREPAID MARKET FORECASTS, BY SEGMENT, THROUGH 2008!

CONTENTS

EXECUTIVE SUMMARY

PREPAID MARKETS: A REALITY CHECK

Overview

Background and History

Prepaid Calling Cards

Prepaid Wireless

Prepaid Dialtone

The Prepaid Market in 2003

Market Definitions

Types of Services

Prepaid Calling Cards

Prepaid Wireless

Prepaid Wireline

Key Markets

Credit-Challenged

Ethnic Market

Collector’s

Youth Market

Mainstream Market

PREPAID TECHNOLOGIES: FACTORS AND SOLUTIONS

Introduction

Point of Sale Activation Systems (POSA)

Types of POSA Systems

Customized Systems

Generic Systems

POSA Vendors

Blackstone

Debisys, Inc.

Q Comm International, Inc.

Western Union Swiftpay

Traditional Billing and Reporting Systems

Billing Platform

Network Hardware

Network Call Flow Control

Prepaid Switch Vendors

Lucent Technologies

NACT Telecommunications Inc.

Security Systems

Vesta Corporation

NEW STRATEGIES TO LEVERAGE THE MARKET

Introduction

From Impulse to Planned Purchase

The Addition of a Transaction Service

Destination Products

Merchandising Essentials

The Complete Offer

Displays and In-Store Promotion

Customer Loyalty

Retail Technology

Conclusion

PREPAID CALLING CARDS: ISSUES, VARIABLES AND EMERGING TRENDS

The Evolution of the Prepaid Calling Card

Access Numbers and Dial Around Compensation

The Growth of the Phone Card

History in Foreign Markets

Phone Cards are Debit Cards

Services and Definitions

How They Work

Refilling

Features

Restrictions on Use

Prepaid Calling Card Terminology

Technology

Applications

International Phone Cards -- Cost Savings are Essential

Domestic Calling Cards

Collecting

Promotions

Market Research

Cost Control

Phone Card Distribution

Distributors

Distribution by Retail Channel

Virtual Cards

Smart Cards

Vending Machines

Phone Card Pricing

Clean Cards

Types of Surcharges

Regulation

Dial Around Compensation

Universal Service Fund

Local Number Portability

State Regulation

THE MAJOR PHONE CARD PLAYERS IN 2004 AND BEYOND

Introduction

Key Players

9278 Communications

Blackstone

Encompass Communications

Global Crest

Global Prepaid Alliance

Goldline

GTS Prepaid

IDT

In Comm/U.S. South Communications

MCI

The Phone Card Warehouse

Touch Tel Communications

TSI Prepaid

Telstar International

PREPAID DIALTONE: ANALYZING THE MARKET DRIVERS

Overview

Services Definition Prepaid Dialtone

Obtaining Service

Features

Technology

Service Provisioning

Applications

Unable to Obtain/Maintain Service

Alternative Payment Option

Controlling Costs

Activating Short Term Service

Market Size and Demand

The Upside Potential

Customer Retention and Churn

Providers and Support Companies

1-800-RECONEX

Comm South

dPi Teleconnect

In Touch Communications

Metro Teleconnect

NOW Communications

Sure-Tel

Market Trends and Issues

Wireless for Wireline Substitution

Service Bundles

Changing Marketing and Distribution

PREPAID WIRELINE: CURRENT MARKET DIMENSIONS AND FIVE-YEAR FORECASTS

Introduction

Key Assumptions

The 2003 Prepaid Market – The Numbers Are In

Total Market Revenue and Forecast

Total U.S. Prepaid Telephony: 2003 to 2008

U.S. Calling Card Forecasts: 2003 to 2008

Canadian Calling Card Forecasts: 2003 to 2008

Major International Phone Card Markets

Prepaid Dialtone Forecasts: 2003 to 2008

Average Revenue Per User: 2003 to 2008

Can Prepaid Dialtone Be Profitable?

About The Authors

Tom Miezejeski is Vice President of Research with The PELORUS Group. With over 15 years experience in the communications industry, Mr. Miezejeski has an extensive background in market research, strategic analysis and technology assessment. In his current position, Mr. Miezejeski is primarily responsible for the company’s research in the prepaid telephony markets. Other areas of expertise include wireless, operator and directory services, calling cards and carrier infrastructure equipment. He has authored several influential studies including “The Future Of Prepaid Telephony” and “Stored Value: 21^st Century Currency.”

Prior to joining The PELORUS Group, Mr. Miezejeski was with Telcordia Technologies (formerly Bellcore) where he directed and managed its market research activities. In addition, Mr. Miezejeski consulted for research firms Northern Business Information (now part of the Gartner Group), The Eastern Management Group and Insight Research. During this time, Mr. Miezejeski authored over 20 major research studies and worked with key telecommunications carriers and manufacturers on competitive and strategic issues. Mr. Miezejeski has a BBA in Finance and Investments from the City College of New York, and a Master of Business Administration from New York University.

Editor Al Fross has researched and written about the wireless and prepaid arenas for three decades. He has edited and published many groundbreaking studies, including The PELORUS Group’s “Prepaid Wireless” and “Future Of Prepaid Telephony” reports. He holds an MBA in Finance from Rutgers University.

The PELORUS Group

Helping Navigate Changes in Prepaid Wireline and Calling Card Markets

The PELORUS Group is a market research, consulting, and business planning firm. Its charter is to provide market research, business management, strategic planning, and competitive intelligence services to its worldwide base of clientele.

Its challenge is to veer away from consensus research, and expose the myths within key telecommunications, financial and information services industries.

Additional reports available from The PELORUS Group:

“Opportunity in North American Prepaid Wireless and Beyond”	“Contact Centers: Re-Igniting The Market”
“Stored Value: 21^st Century Currency”	“Speech Recognition Technologies”
“Corporate Directory Assistance Markets”	“European DA/DQ Market”
“Enhanced Directory Assistance”	“Operator Services”
“North American Directory Assistance Markets”	“Prepaid Telephony”
“The Future Of Operator Services”	“Prepaid Wireless”
“The Future Of Prepaid Telephony”	“The Future of SMS"
“Global Speech Recognition”	“Unified Messaging CPE”
“Enterprise Unified Communications”	“Unified Communications For The Service Provider”
“Wireless Location-Based Markets”

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