THE WORD IS, KEEP EARS OPEN ON PHONE CARDS

Nancy Brumback

Unlucky retailers have learned that prepaid phone cards can become nightmares if they don't work properly, becoming a symbol to consumers of poor customer service or quality -- and it is the brand, not the phone-card company, that bears the blame.

In a widely publicized incident last year, Kmart was one of several chains and promoters who bought phone cards from an Atlanta company that subsequently turned off the the sevice, leaving thousands of consumers with dead cards and anger aimed at the retailer who sold them.

Despite this unfortunate incident, prepaid phone cards are growing increasingly popular with both consumers and promoters. Manufacturers and phone-card executives say the medium caries a strong upside and low risk to promoters who do their homework before choosing a phone-card provider.

"With the brand equity we have, we knew we needed a phone-card company with equal brand equity," said Jay Tresham, regional trade marketing director in New York for Kodak, who was an early user of the promotional tool with a regional phone-card campaign with ComTel two years ago.

Bill Ellis, brand manager for Anheuseer-Busch's O'Doul's nonalcholic brew, followed a similar line of reasoning when he went with a phone-card promotion this past holiday season.

"We are a large company and take a lot of pride in our reputation," Ellis said.

"We talked to as many as 10 [phone-card] companies, six or seven seriously, but for reasons of ultimate credibility, we decided to choose between the big three in phone service," meaning AT&T, MCI and Sprint, he added.

"Sprint best met our needs for that particular promotion. We definitely paid a little more using a big company, but credibility was of the utmost importance to us."

Prepaid phone-card providers suggest several ways a company contemplating a phone-card promotion can avoid the rise of working with a provider whose card will not perform and also enhance the value of the promotion from a marketing standpoint.

And the task of picking a vendor may become easier in the future.

The International Telecard Association, a Washington-based trade group with 188 members, is developing coluntarty industry guidelines for prepaid phone cards that may utilimately become the basis of compulsory standards.

In addition, Florida is considering legislation regulating phone cards that is expecged to become a model for other states wishing to better control these cards.

Howard Segermark, the ITA's executive director, noted that promoters interested in additional information on the guideline or phone cards in general can check the association's Internet site, www.tele-card.org. The ITA also operates a consumer hotline, (800) 333-3513, for card problems. Both the ITA guidelines and the proposed Florida legislation spell out the information that must be included on the cards, and they offer some customer-service capabilities that promoters may want to ensure are met by their phone-card providers.

The first criterion for a phone-card provider, according to card companies and users, is stability. Will the provider be around to deliver? Will the long-distance phone bill be paid so the service won't be cut off?

"Companies like ours or other major manufacturers are likely to stick with the big phone companies," noted Kodak's Tresham. "They were slow coming on board and lost some business to the smaller guys, but I would go with then now."

Quality cards are available from the major long-distance phone companies and also from companies that contract with them for long-distance time.

David Ford, director of prepaid marketing at MCI in Nashville, Tenn., noted that if a company reselling phone time offers a card with the MCI brand, "You know it's a good card. The pay us in advance for the time and we don't release our card unless we've been paid."

Such cards, Ford noted, are typically co-branded with a store or product logo and carry the MCI logo on either the front or back.

To check a potential supplier's credibility, Cory Eisner, vice-president of Global Telecommunication Solutions in Elmont, N.Y., advised promoters to find out how long the company has been in business in the United States, bearing in mind the industry as a whole didn't get started in this country in a big way until 1990.

"You might ask to visit their facilities," Eisner said, noting that just asking might weed out many of the shaky operators, "the one working out of their basement or a storefront. It's interesting a majority of the 500 or so firms in the business we would prefer you not visit -- for obvious reasons."

Ask for references, said John Crawford, vice-president of marketing at ComTel Debit Technologies, Lyndhurst, N.J.

"See if this company with a fairly deep track record that can provide it has worked on accounts with applications similar to what you want to do."

The long-distance phone companies and regional Bell operating companies are obviously good providers of phone service, he noted, but "are typically for really large applications.

They can give the lowest price, but may not be as good at customization," Crawford said.

Service bureaus, such as his firm and many others, can sometimes provide more creative options in a promotion, he said.

Segermark of the ITA recommended having a phone-card issuer certify via a letter from its accounting firm or attourney that the company conforms with all regulations and tax laws.

Taxes, said Adam Rubenstein, director of prepaid cailling-card services for ConQuest Telecommunication Services, Dublin, Ohio, are a major issue, since there is ongoing debate over whether these telephone services are subject to certain taxes.

"The major companies feel tax laws will soon address telecom products and will probably be applied, so they build taxes into the price of their products," said Rubenstein.

And conceivably, a promoting company could be liable for taxes if a card supplier goes out of business, added John Hall, director of national accounts at BLT Technologies, Vancouver, Wash., a subsidiary of World-Comm, which has just reached an agreement to market a Western Union phone card.

Hall also recommended finding out if the card provider's rates are tariffied - registered with the Federal Communications Commission for interstate and international calls and state Public Utilities Commissions for intrastate calls.

In addition to checking a company's financial stability, promoters considering phone-card promotions should ask about tecnical capability.

Catalina Marketing, St. Petersburg, Fla., which offers prepaid phone promotions in conjunction with its Checkout Coupon system, went so far as to hie a telecommunications consultant to evaluate the technical aspects of the providers it was considering, noted Cathy Hoover, director of new product marketing.

"Make sure the company's switch capacity can handle the calls per hour you anticipate the promotion generating," added Rubenstein. The capacity required will vary depending on the scope of the promotion.

Creativity is a third issue.

"We were looking for companies with vast experience in the telecommunications field," said the category promotion manager for a major food company who just finished a phone-card promotion. "Card companies should be able to display their work for you.

Many phone-card providers can help design promotions and even suggest ways to use the technology beyound just offering a card for a set number of minutes with the purchase of a product.

GTS, for example, did a recent promotion with Kraft Foods' Post children's cereals and cable television network Nickelodeon using an interactive voting phone card packed in boxes of cereal. The card let kids call and "vote" for the president.

Brand manufacturers, noted GTS' Eisner, do not always realize what the technology can do.

"With this card, kids could hear Nickelodeon stars and learn how the rest of the kids in the country voted. The card's personal identification number was tied to the cereal brand and delivered a different greeting for each brand," he noted.

"Packaged goods companies need to work with the vendor to design the promotion," said MCI's Ford, adding that MCI has hired people from the packaged-goods industry to help provide a creative component.

"The industry is always adding new things," Ford said.

"We can provide a survey or reward participation with more time. We can put a contest on the card. If you want to do a survey, you may be able to afford to give away 30 minutes as a reward -- it's still a less-expensive way to do market research."

It's up to the promoters to decide how much creativity they need -- and want to pay for. In the case of the O'Doul's "Ring home for the holidays" promotion, "We were strictly sourcing phone service," said Ellis. "We relied on our own agencies to do the promotion," which was an extension of an existing campaign.

"I suppose the creative options would be beneficial to smaller companies, but we have our own resources and companies to do that," he noted. Tresham of Kodak encouraged marketers to have phone-card suppliers outline the possibilities.

"One company showed us we could let consumers add on to the time available on the card. We weren't aware of that feature." Many other options are available, such as having account-specific messages tied to PINs, he noted.

When Miller Brewing Co. did a recent phone-card promotion for its Miller Beer brand, it used Momentum Marketinnnnnnnnng Services, a promotion agency in Lanham, Md., to do the promotion and contract for the phone time.

Momentum asked card providers for both client and credit references, and did small promotions with them to start, said Brad Beckstrom, vice president. (He looks for the phrase "all telecommunication taxes included" when signing a contract for phone cards.)

The promotion agency designed the Miller card and promotion, and the card vendor, Phone Card Express, printed the card and provided the phone service.

Miller made the five-minute cards available to its distributors to use as they saw fit, including phone-card giveaways in supermarkets and bars, perhaps as a reward for completing a simple customer survey or taste-test in a bar, he noted.

Price is a factor in choosing a phone-card supplier, but it should be considered along with stability, capacity and creativity.

"Take the time to do your homework on pricing," urged Eisner. "Find out where the playing field is -- buy a few cards and see what their cost is for what you get. Ask the big phone companies what their price is. If Sprint and Exxon are selling cards at 25 cents a minute, how can someone come in and do it for 13 cents?"

Kmart, he noted, got burned going for the low price and then getting stuck with a provider that didn't pay its phone bill. "We walked away from the Kmart proposal shaking our heads" over the price, he said.

As a guideline, Eisner noted long-distance domestic time currently runs about 25 to 27 cents a minute, with 19 cents a "very aggressive" price if you're dealing with "companies that are reputable and paying their taxes."

Hall of BLT also urged promoters to consider what billing options are being offered when comparing pricing.

Companies can buy the phone-card time up front, in which case the vendor typically builds the expected usage time into the price, or can be billed on the first use or total usage of the card. If one of the latter two options is used, companies need to consider "breakage insurance," which limits their exposure if the card usage is much more than was anticipated.