Phone Plus Prepaid: Industry News

Posted: 6/2003

Industry News
Atlantic-ACM Projects Continued
Prepaid Growth

By Tara Seals

Atlantic-ACM predicts continued
growth in the prepaid calling card and wireless industries for the next few

The U.S. prepaid calling card
industry will grow at a 9.7 percent compound annual growth rate (CAGR) to reach
$6.4 billion by 2008, according to Atlantic-ACM.

The research firm’s new report,
"Prepaid Calling Cards: Market Dynamics and Forecast 2003-2008," cites
lower wholesale costs coupled with packet technology improvements as primary
factors driving industry competitiveness, while industry growth is being fueled
by simultaneous increases in the number of prepaid calling card users and
diversification of service providers into other prepaid services, says the firm.

"While the prepaid industry is
maturing and cannot maintain the blistering 25.4 percent compounded annual
growth rate we witnessed from 1995 to 2002, the industry will continue to
experience solid growth over the next five years as the $3.7 billion market
expands by another 73 percent," says Imke Louis Mensah, Atlantic-ACM’s vice
president and an analyst covering the prepaid industry. "Providers are
aggressively targeting user segments — cash-based, students, ethnic groups,
etc. — and expanding their offerings to drive revenue growth."

Other key findings include: Gross
margins for service providers have stabilized, with nearly 44 percent of
providers achieving gross margins (on sales) of 25 percent or higher. Retail
breakage (the amount of unused time on a prepaid card when it expires or is
discarded) has declined from and average of 12 percent in 1998 to 10 percent in
2002. Seventy-four percent of service providers expect to add point-of-sale (PoS)
activation features by 2005. Sixty-nine percent of service providers expect to
include foreign language options on their prepaid card offerings by 2005.

Meanwhile, the prepaid wireless
segment will remain a hot spot in the U.S. telecommunications industry for the
next four years, the research firm says. Atlantic-ACM’s new study, "Prepaid
Wireless: Maximizing Opportunity 2003-2007," projects the industry will
grow from $3.3 billion in 2002 to 4.4 billion in 2003.

"The prepaid wireless industry
continues to gain momentum — especially compared to other communications
industry segments," says Mensah. "While wireless penetration is
reaching the saturation point by many standards, more than a third of consumers
who apply for wireless telephones are declined because of bad or nonexistent
credit. Nonetheless, just as with prepaid calling card users, prepaid wireless
users are price savvy. Successful providers will recognize that one of the major
drivers of growth in the sector is a steadily declining price per minute and
will adopt smart pricing strategies to capture market share."

The pool of competitors is growing
as wireless providers operating in the saturated postpaid wireless market seek
growth opportunities, which contributes to downward price pressure as well as
technology and service improvements — each of which is also a driver of
adoption, says the firm.

"If service providers expect to
compete tomorrow for prepaid wireless customers they must realize that prepaid
wireless is becoming a mainstream service today," says Dr. Judy Reed Smith,
Atlantic-ACM CEO. "This is a critical development time in the industry, and
those firms that effectively measure and execute strategies to seize the growth
opportunity presented by the demand for prepaid wireless services will be
rewarded for their efforts."

Source: Atlantic-ACMSource: Atlantic-ACM

Youth Market Will `Flip’ for
Virgin Mobile USA’s Audiovox Phone

Vox 8500

Virgin Mobile USA has rolled out a
new handset, the Audiovox CDM-8500 (better known as the Vox 8500), which offers
a silver clamshell-style format. The phone comes with Virgin Mobile’s
pay-as-you-go wireless service and, like Virgin Mobile USA itself, targets the
youth market.

The phone features a blue-lighted
keypad, dual LCD screens with animation and seven backlighting colors that light
with Caller ID. These colors can be programmed to change each time the phone is
flipped open. The Vox 8500 also offers downloadable polyphonic ring tones,
including favorite Top 20 hits, two-way speaker phone functionality and SMS text

The Vox 8500 and Virgin Mobile also
offer a suite of content called VirginXtras, tailored to youth interests and
lifestyles. VirginXtras are available to all Virgin Mobile subscribers and
include features like the Hit List (which lets users vote on and share new music
with friends) and the Rescue Ring. By setting a Rescue Ring, users can program
their phones to ring at a specific time to help them escape from a boring
situation, such as a family reunion or a bad blind date. VirginXtras also
features exclusive content from MTV and VH1 and additional content from
Nickelodeon. Features include MTV Video Voting, VH1’s Top 20 Questions rock
trivia game and SpongeBob’s Deep Sea Thought of the Day.

"We think that our customers
are going to love the Vox 8500 flip phone," says Dan Schulman, Virgin
Mobile USA’s CEO. "It has all the features young people need to get the
most out of the Virgin Mobile experience."

The Vox 8500 is a tri-mode, CDMA2000
1X-capable handset that supports Virgin Mobile’s 3G network. It supports
high-speed wireless connectivity for Web browsing, e-mail and mobile e-commerce
functions. The handset is also equipped with vibrating alert and voice mail
notification capabilities.

Virgin Mobile USA will offer the
Audiovox Vox 8500 for $129. The service runs 25 cents per minute for the first
10 minutes of each day, and then 10 cents for every minute thereafter. Customers
can top up their accounts as needed online or through their Virgin Mobile

IPCA Backs Phone Home Free Act

By Tara Seals

The International Prepaid
Communications Association (IPCA) has endorsed a bill introduced by Sen. John
McCain (R-Ariz.), the "Phone Home Free Act of 2003."

The bill is the first in the history
of federal legislation to specifically mention prepaid phone cards and directs
the Secretary of Defense to provide $40 per month of "prepaid phone
cards" or a similar telecom benefit to troops serving in the Iraqi or
Afghanistan theaters.

The IPCA informed McCain of its
support of the bill "to support the morale of the brave men and women of
the United States armed services stationed outside the United States who are
directly supporting military operations in Iraq or Afghanistan."

The measure provides the benefit up
until 60 days after the official end of Operation Iraqi Freedom.

The Secretary of Defense will work
with telecommunications providers to facilitate the deployment of additional
telephones for use in calling the United States "as quickly as practicable,
consistent with the availability of resources," following a competitive
bidding process.

Funding for the project will come
from existing Department of Defense telecom budgets and programs to enhance
morale and welfare as well as private support organizations. The program can
also use other available DOD funds that aren’t otherwise obligated.

The IPCA has recommended two changes
to the legislation. First, instead of a dollar-amount, the bill should provide
for minutes of conversation time per month per trooper. Secondly, the IPCA
recommended that the program continue as long as U.S. troops are in Iraq or
Afghanistan, regardless of when Operation Iraqi Freedom ends.

"In view of the fact that our
military men and women may be in Iraq or Afghanistan after the cessation of
Operation Iraqi Freedom, but nevertheless be in possible danger and in need of
telecommunications to their loved ones, they should still have the morale
enhancing benefits of communications with their families," reads IPCA’s

AT&T Donates Cards to Troops

AT&T Corp. donated 160,000
prepaid phone cards worth $3 million for use by U.S. troops fighting in Iraq.
The company also is seeking permission to install as many phones and as much
capacity as possible to make it easier and more affordable for troops to
communicate with friends and loved ones back home in the United States, it says.

AT&T’s donation of 160,000
prepaid phone cards represents nearly eight times the amount of free calling
that AT&T provided to U.S. troops in 2002.

"There should be no obstacle in
the way of our troops trying to call home," said Dave Dorman, chairman and
CEO of AT&T, in a statement. "No price can be placed on the service
these troops are providing to their country. Our donation of free calling is
made in the spirit of enabling them to connect and communicate with the people
they love back home."

AT&T is working with the United
Service Organization (USO) to distribute the cards to soldiers, sailors, airmen
and marines overseas. Separately, AT&T is working through its contracts with
the military exchange service to increase the number of payphones available for
use by the troops. This includes building and provisioning additional network
infrastructure and making prepaid phone cards available.

AT&T is reminding troops, as it
has in the past, that the most economical method for calling home is to purchase
prepaid phone cards at the military exchange (PX) in Kuwait. AT&T’s
agreement with the military exchange service makes these prepaid rates the most
competitive available, at less than 30 cents per minute.

"Our primary goal is to put as
many prepaid phone cards into the hands of deployed military personnel as
quickly as we can," says Elaine Rogers, president of the USO chapter in
metropolitan Washington D.C. "The ability to keep in touch with their loved
ones at home is an invaluable boost to the morale of our troops."

Phoenix Telecommunication Buys
Alcyone Assets

Phoenix Telecommunication Group has
acquired certain assets of Alcyone Communications. Phoenix intends to integrate
Alcyone’s well-established line of toll-free calling cards, such as the
nationally recognized "El Triangulo" and "Chit Chat" cards,
into its product mix.

"By applying our efficient
business methods, competitive rates and credibility to an established brand,
Phoenix is now positioned to grow by over 300 percent this year," says John
Gill, CEO of Phoenix.

Key to the negotiations and
migration of the business was Ray Valmi, CEO of Telecom Dynamics, a Miami-based
telecom consulting firm specializing in assisting carriers and wholesale
distributors in the prepaid industry, and Joseph Goldberg of New York law firm
Bondy & Schloss LLP, an attorney whose practice focuses in serving the
telecom sector.

"At its peak, the Alcyone line
of prepaid cards was generating over $2 million dollars per month in sales. I am
confident that John and his team at Phoenix can restore the luster and revenue
of this phenomenal acquisition," says ValmH.

Phoenix offers local dial tone,
long-distance services, wireless, paging, conferencing, callback services and
Internet services (including Web design, hosting and e-commerce solutions). Its
products are designed for both the residential consumer and small business
markets. Phoenix offers its switched and dedicated long-distance services over
traditional fiber-optic and VoIP networks.

Q Comm Raises $1.5 Million in

Q Comm International Inc., which
focuses on the electronic distribution of prepaid wireless airtime and other
prepaid products, announced that it has raised $1.5 million from private
investors as a result of the sale of stock, warrants and convertible debentures
due March 31, 2004.

"This money allows us to pay
the balance owed on … 1,000 Qxpress 200 terminals … and also enables us to
contract manufacture 500 additional terminals," says Q Comm CEO Paul
Hickey. "These 1,500 terminals represent significant revenue potential for
Q Comm."

The company also filed a
registration statement with the Securities and Exchange Commission in connection
with a proposed $10 million underwritten public offering of stock and warrants.
The net proceeds of the offering will be used primarily to contract-manufacture
additional Qxpress 200 units, the company’s proprietary point-of-sale terminal,
and for the repayment of debt. The lead underwriter of the offering is Paulson
Investment Co., headquartered in Portland, Ore.

"Our biggest obstacle to date
has been financing the manufacture of our Qxpress 200 point-of-sale
terminals," says Hickey. "This financing will allow us to satisfy the
demand for our products."

AT&T Corp.
Audiovox Communications Corp.
Phoenix Telecommunication Group
Q Comm International Inc.
Virgin Mobile USA

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