Channel Partners

March 1, 1998

9 Min Read
Did Somebody Say "Outsource?"

Posted: 03/1998

By Jennifer Knapp

Any company looking to step into the prepaid phone card industry should know two
things: First, creating a successful prepaid platform is a monumental task with myriad
steps. Second, help is available! Companies with experience in the many facets of the
industry can assist with resale, wholesale and promotional programs.

But completely outsourcing a prepaid program may not be the perfect solution for
everyone. And most importantly, just because someone else is doing the work does not mean
a company doesn’t have to be knowledgeable about the industry.

The Ins and Outs

A full-service bureau, such as Houston-based Creative Communications, "can turnkey
an entire prepaid card package from design, creation and production to assisting with
negotiating licensing fees," says Tim Barto, senior vice president of sales and
marketing for the company.

"Anyone starting out should go small and outsource," says Gian Dilawani,
senior vice president and general manager for specialized calling services at Cable &
Wireless Inc., Vienna, Va. "As you build your business, and you have enough people to
manage the program, then you might consider doing it in-house."

"In-house" means a company has the facilities to accomplish each segment of
the program within the company without looking for external vendors. This includes
attending to legal requirements; providing the hardware and software to accommodate call
volume; creating personal identification numbers and 800 numbers; creating the cards’
artistic presentation; printing and distributing the cards; advertising and marketing the
program; setting card costs; and orchestrating the card’s greeting and interactive voice
response options. And these are just to start.

"Some people are more interested in, ‘How can I make a buck?’ than, ‘How can I
make a buck lawfully?’" says Mark Haney, founding partner of Haney & Ticknor, a
Dallas-based law firm specializing in all aspects of telecommunications law. Haney
cautions that losing sight of legal issues can be severely detrimental to a program in the
long run.

Any company planning to provide phone card services in-house must be properly certified
and tariffed. Companies need a domestic and an international tariff filed before the
Federal Communications Commission (FCC), a Section 214 Authority application for
international services and a certificate of public convenience and necessity (CPCN). There
also is the issue of bonding requirements. According to Mark Payne, senior vice president
of IdealDial, headquartered in Denver, bonds must be posted in each state the company
intends to do business. They protect consumers from companies that sell phone cards and
mysteriously disappear, leaving behind unusable cards. A bond guarantees that if a network
is inoperable, the consumer can file a claim with the state public utilities commission
for a refund.

If, on the other hand, a company decides to outsource its platform to a bureau, Haney
suggests it takes all steps to ensure the carrier it uses is properly tariffed. "You
want to confirm that the tariff offerings the company has are consistent with your
intentions," he says. "But if you can’t or don’t want to go through the trouble
of verifying that, you need to make the provider give an affirmative representation that
they are in compliance." In other words: Get it in writing.

IdealDial’s Payne says his company is tariffed as a telecommunications provider in all
but a few states where it has not had the demand to offset the sizable bond these states
require. So, while a company such as IdealDial or Creative Communications can offer a
turnkey prepaid program, a company needs to determine in which states its cards might end
up, and check the company’s tariff statuses respectively.

Hardware and Software

A basic understanding of company goals will help a company determine which path to take
in orchestrating its prepaid program’s technological requirements.

Elder "Kip" Ripper, president of Lake Mary, Fla.-based Telephone Company of
Central Florida, notes, "If you want to do a million dollars a month in prepaid, then
the inexpensive PC solutions are fine. If you want to do a couple million dollars a month,
then a small switch is fine. But if you want to do tens of millions of dollars a month,
you better be ready to invest $50 to $100 million in a private network, and you better go
to a major corporation, such as Northern Telecom (Nortel) to do the software so you can
deploy a network that will really support your services."

While buying the technology needed for a prepaid program is an option, it is helpful
for companies to know the pros and cons of buying vs. outsourcing.

The advantage of service bureaus is the technological aspects are addressed for a
company. "Everything is done turnkey," says Ed Metcalf, director of sales and
marketing for Vancouver, Wash.-based Cashel Communications, which sells prepaid call
processing platforms. "You could buy the time or buy the cards from a service bureau,
so there is less work involved." On the downside, however, Metcalf warns that a
company may have less flexibility with a service provider’s platform. But whether buying
or outsourcing, "Make sure the system you choose is flexible enough to accommodate
some new applications that your business might want to explore," says Metcalf.
Cashel, for example, offers a PC-based platform with Java-based software, which allows the
company to write customizable applications for its clients, who then can turn around and
offer new marketable services on their platforms.

"Make sure your provider has state-of-the-art equipment," says Tim Coffey,
switched services product manager of IXC Communications, an Austin, Texas-based digital
and long distance provider. "That way, you know the provider will not be going down
every day. Also, talk to other customers who use the provider’s services, and you can even
test their cards yourself."

Unbillable 800

The existence of hidden costs in telecommunications is not new news. How many people
get their phone bills and discover, for instance, a $3-per-minute charge for calling
someone’s cellular phone? There also are unforeseen charges in offering prepaid phone
services, which need to be accounted for right from the get-go. According to Creative
Communications’ Barto, one of the nastiest is known as unbillable 800. "That means,
if I give you a card, and you are the corporate client, you are going to dial into the 800
number just to listen to your custom greeting and play it for your peers," says
Barto. "When you hang up the phone, you don’t get charged for that call because you
are buying prepaid turnkey. Your customer doesn’t get charged for that because the
industry standard is to debit for minutes that are completed only. But as the carrier, we
have to pick up that 800 inbound charge. So, about 25 percent to 40 percent of the inbound
leg are additional charges to the carrier that are not absorbed into the

Other instances of unbillable 800 occur when a card holder simply calls the 800 number
to verify the remaining minutes on the card or, as Intele-Card News’ President Laurette
Veres explains, occurrences of pilot error when people call into the 800 number and try to
enter a personal identification number, but do so incorrectly. There is no back-tracking
option, so they hang up and try again.

"For unbillable 800 some companies are starting to offer the local access cards
where you have a local number instead of 800 to check time on a card," says Veres.
"Of course, not everyone is able to do this, though, so it is only available in the
major areas like New York or Miami."

The best advice this editor can give comes from one of life’s original lessons: It
never hurts to ask. So ask away, because whether a company orchestrates its prepaid
program in-house or outsources the whole kit and caboodle, knowledge will be the best
navigator through the obstacles on the prepaid path.

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