Tim Williams Proposal: The Australian phone card market

1) Introduction

This submission is focused on the role of competition and regulation in the Australian international phone card industry.

The phone card market is possibly the most competitive segment of the telecommunications industry in Australia with over 600 phone card brands available to consumers at the current time. This highly competitive environment has lead to great reductions in call cost to many destinations.

Despite the diversity of products available it can be extremely difficult for consumers to make an educated decision about which products will suit their needs. This is largely due to a distinct lack of detail in the terms and conditions offered by most service providers on promotional material, an issue which is exacerbated by poor customer support across much of the industry.

However by far the most disturbing problem phone card consumers face is the advertising of false call rates/talk time in conjunction with the use of misleading voice prompts to overstate the talk time available for a given call. Test calls included in this report show that half of the 26 products tested defraud consumers through the use of false voice prompts.

It is the duty of regulators to ensure phone card service providers offer accurate and detailed product information. Consumer protections have been strengthened in recent years, yet at the same time there has been a steady decline in standards of conduct within the industry.

The recommendations of this submission are focused on the need for regulators to work with industry players and consumers to ensure users of telecommunications products are better protected, while encouraging competition to thrive.

2) Understanding Phone Cards

This section of the submission is to assist those unfamiliar with phone cards to understand how they work and how they are used.

What is a phone card?

A phone card is quite simply a card which gives the user access to a telephone service. In most cases phone cards are pre paid and offer discounted call rates.

There are two main types of phone cards in Australia . The first are the smart chip cards which payphone operators offer. This type of card can only be used in compatible public payphones. In Australia , Telstra and Tri Tel are the two main proprietors of this kind of technology.

The second type of phone card is commonly referred to as a long distance calling card. These cards consist of a voucher that includes a PIN (Personal Identification Number). The PIN number is used to identify the card and gain access to the service. To access the calling card service the user must dial the appropriate access number, enter their cards PIN number, then follow the prompts to dial the number they wish to call using their phone card.

The calls they make using their card are billed to the calling card at the applicable rates and the only cost to the users home phone account will be the cost of accessing the service. This is normally a local call.

This second type of card is predominantly used by people who make long distance phone calls in order to reduce their call costs. This submission only deals with long distance calling card products and only those available as pre paid products.

3) Industry Background

Pre Paid phone cards are a simple and effective way for telephone users to reduce the cost of their long distance phone bill. The convenience of phone cards has made them a popular product with people who make regular international phone calls, and as a result the industry has expanded rapidly since the Australian telecommunications market was deregulated in the 1990s.

Most industry experts agree that the Australian phone card market has grown at approximately 25-30% per annum over the past decade and it is estimated the industry is currently worth $250-$300 million a year to the Australian economy.

The industry is expected to continue growing, due in part to increased growth in immigration over the coming decade. It is already the case that the greatest area of sale growth is from products targeted at new migrants and international students.

In recent years product innovation has also lead to the development of products targeting the growing number of mobile phone and wireless internet users. These are consumers who do not commonly use phone cards, as they often have little access to a fixed line phone.

The industry is extremely competitive with over 40 phone card service providers offering a combined total of over 600 individual phone card brands to consumers. This highly competitive environment gives consumers a mind boggling array of choice.

Consumers have seen a substantial reduction in international rates to most destinations over the past decade, particularly in the past five years. This has been due to a number of factors, the dominant two being stiff competition at the wholesale and retail level, and the rising Australian Dollar which has generally reduced the cost of buying bulk call minutes.

Intense competition for market share has led to a rise in the margins offered to retailers by wholesalers. The average profit margin at which phone card retailers purchase cards is currently 27% of the face value (in 2008). This is up from an average margin of approximately 23% in 2003. During promotional periods offered by service providers retailers can buy at profit margins as high as 50% on some products.

While strong margins have benefited some retailers it has also lead to a growing number of retailers selling cards at a discount. Some retailers will only buy cards at margins of 30% or greater, these retailers then discount the cards by 20% to consumers, which in effect means the retailer only makes 10% gross profit.

Many retailers actively encourage customers to change to the card that makes them (the retailer) the greatest profit margin. Consumers, in most cases respect the advice of the retailer and try the cards they are offered.

It is also true that many users change service providers on a regular basis of their own accord, either because they are looking for lower call rates, are dissatisfied with the quality of service offered or because the retailer they visit does not sell the card the user would normally purchase.

Whatever the reasons for users changing product, the lack of customer loyalty has placed a substantial amount of pressure on service providers to lower their call rates while at the same time increasing the margins offered to retailers.

Players in the phone card market must adapt rapidly to stay competitive. Many service providers have introduced new methods of billing and new ways to market their products to consumers so they remain profitable while further reducing headline rates to consumers.

Five years ago account keeping fees, in-call services fees and large increment blocks were not common on Australian calling cards, however these fees are now found on many popular cards, particularly on products targeting consumers from non-English speaking backgrounds. These fees have made it possible to lower headline call rates and instead turning a profit through increased breakage.

An alarming concern for both consumers and industry is that some service providers have gone beyond these legitimate means to strengthen their market position. A large number of providers have in fact taken to misleading or defrauding consumers in order to remain competitive on headline rates.

In recent years the detail provided in the terms and conditions, as listed on promotional material, has become far less detailed. In many cases this information is inaccurate. It is now often the case that specific information on the cost of connection fees, surcharges, service fees, the length of increment blocks, and other charges are not listed.

It is now common practice for service providers to simply state that “connection fees may apply” without stating the cost of such fees, which can be as much as $3.50 per call on some cards.

Exacerbating this problem is the fact many phone card service providers no longer include contact details on their promotional material and a growing number do not have active customer care hotlines at all. This makes it very difficult for consumers to find out specific information about the fees and charges before or after purchasing a product, let alone take issue with a service provider in the event they find the product does not meet their expectations.

The abovementioned issues are symptomatic of the most serious problems facing the industry and its regulators. The most disturbing trend in the phone card industry is the massive growth in the number of products which defrauded consumers.

As users of phone cards will know, most cards give an automated announcement at the beginning of each call which states how much credit or talk time the user has left to complete their call. These announcements are commonly known as automated voice prompts. The most common way in which products currently deceived and defraud consumers is with the use of voice prompts that have been intentionally adjusted by the service provider to overstate the talk time available for each call.

The way in which service providers have developed products to do this is explored later in this submission, however the key issue is why service providers have resorted to such billing practices and more importantly why regulators have failed to end these practices. Before elaboration on these issues it is important to understand how wide-spread the use of false voice prompts is within the phone card industry.

As stated in the introduction, this submission contains test call record made using phone cards from 26 service providers in the Australian market. These test calls show that the use of false voice prompts is now common practice with approximately half the service providers tested using false prompts that overstate the talk time available on the card.

These test calls have also uncovered products which charged for calls that did not connect. In the case of one card, it was not possible to access the service at all as the access numbers were not connected.

A summery of the test calls can be found in the section 5 of this report.

4) False Voice Prompts

In recent years call rates have dropped rapidly and competition between players has intensifying, largely due to the strong Australian Dollar and the entry of strong new market players. Some smaller service providers found it increasingly difficult to compete with larger players such as Card Call, Tel.Pacific and World Telecom which hold much greater buying power.

Under pressure from wholesalers and retailers to stay competitive on margin and rates, smaller service providers resorted to the use of false voice prompts to remain competitive. Initially they only added 5% extra talk time to the prompts and this did not create any great waves in the market. However by mid 2006 most service providers using false prompts were using the prompts to overstate the talk time by as much as 40%.

As a result of the success of some products with false prompts other service providers came under pressure to use false voice prompts. Wholesalers wanted the most competitive products no mater the cost to consumers.

Even the likes of Tel.Pacific (an ASX listed company) and World Telecom (one of the first phone card service providers in the world) have now taken up the use of false voice prompts.

While some of the first player to use false voice prompts are now no longer defunct (eg AstraCom and EzyCom) the virus of false rates has spread to a large part of the phone card market.

5) Test Calls

The only way to confirm that phone card service providers use false voice prompts is to test the products available in the market. This report tested a wide range of products to give an overall market picture. One card was selected at random from the range of each service provider. The selection of cards was limited by the stock available in stores at the time of purchasing.

The results of the test calls were damming. The calls showed the use of false voice prompts is now wide spread, with approximately half the player in the market using false prompts. The extent to which false prompts differed from the actual talk time was shocking in many cases.

Here is an example of how test calls are made. The card tested is a $2 Super Fast Calling Card, produced for the Australian market by German service provider Mox Telecom. This card was chosen at random from the Mox products available in Sydney retail outlets. To test the accuracy of the voice prompts, neither call party can hang up until the call has been disconnected by the service provider. In this case the full $2 credit was used in one call.

The call connected successfully, with the voice prompt announcing 10 minutes talk time would be provided. However the call was disconnected by the phone card service provider after just 6 minutes and 56 seconds. The remaining credit balance was not provided, however the prompt said the card had “insufficient credit” to make further calls.

The reason provided by Mox Telecom customer care for the difference between the prompt and the actual talk time provided was that the talk time voice prompt does not include the cost of the connection fee. However the representative contacted could not indicate the exact cost of the connection fee, nor could she provide the exact call rates for calls using the card.

A chart summarising all 26 product tests can be found on the next page

6) Test Call Overview Chart

Service Provider	Product Name	Accurate Prompt	Voice Prompt	Actual Call Duration	Credit Remaining
1 World Telecom	Fantastic	Yes	15 mins	15mins 5 secs	"You have used up all of the time on your card"
ABC Calling Cards	Batavian	No	up to 14 mins	12mins	Inefficient Credit
C2 Communications	Click Vietnam	Yes	36 mins	35 mins 56 secs	10c
Card Call	Call Mama	Yes	21 mins	21 mins	0c
Chi Tel	Salamat	NA	NA	NA	Access and customer service lines disconnected. Unable to test.
Estar Tel	SuperCat	Yes	1 mins	1 min 1 sec	50c
ExeTel	X Platinum	Yes	20 mins	19 mins 59 secs	0c
IDT Telecom	Bonus	Yes	37 mins	36 mins 59 secs	0c
iTalk	Himalaya	No	94 mins	51 mins 1 sec	"zero balance in your account"
Lime Telecom	Call Everywhere	Yes	34 mins	34 mins 26 secs	0c
Memphis Telecom	Hong Kong Post	No	43 mins	30 mins 7 secs	Less than the minimum amount
Motion Telecom	Xcite	No	13 mins	3 mins 39 secs	79c
Mox Telecom	Superfast $2	No	10 mins	6 mins 52 secs	"Inefficient Credit"
MyNetFone	MyFoneCard	Yes	6 mins	6 mins 4 secs	0c
Pre Paid Services	Anytime	Yes	9 mins 35 secs	9 mins 37 secs	9c
Prepaid World	Lite	No	15 mins	12 mins 40 secs	"Zero Balance"
Shinetown Telecom	Savers	No	10 mins	7 mins 59 secs	"Insufficient funds"
TCI Prepaid	Arabjan Knights	No	21 mins	17 mins 57 secs	11c
Tel.Pacific	Time	No	39 mins	26 mins 34 secs	10c
Telekom Australia	Yes Lebanon	No	16 mins	9 mins	3c
Umate	Namaste	Yes	51 mins	50 mins 55 secs	"Insufficient credit to make another call".
United Wholesale Distribution	Talking Cow	Yes	12 mins	12 mins 12 secs	50c
Worldtel (World Cards)	Yes Sydney	Yes	23 mins	22mins 59 secs	0c
World Telecom	Mega Mouth	No	45 mins	36 mins	0c
Unknown Provider	Easy Talk	No	16 mins	14 mins 1 sec	"you have insufficient credit for this call"
Unknown Provider	Let's Talk	No	1 hour 31mins	20 mins 56 secs	4c

The calls shown are the last call made on each card. All calls disconnected by the service provider.

7) Manipulating Voice Prompts

With a modern telecommunications switch voice prompts can be adjusted to the need of the service provider. This may involve some software development, however it is merely a matter of programming time and is of minimal cost to the service provider. Some phone card service providers have purchased switching systems that offer adjustable voice prompts as a standard feature at the time of purchase.

Below is an example of a basic billing system by which the voice prompt varies from the actual talk time available. The system runs two sets of call rates, one for the “actual” and one for the “prompt” minutes. The prompt is inflated by 20% in this example.

Actual Talk Time Remaining	50	49	47	45	40	35	30	25	20	15	10	5	0
Voice Prompt (minutes)	60	58.48	56.24	54	48	42	36	30	24	18	12	6	0
Size of increment blocks (Minutes)	NA	1	2	2	5	5	5	5	5	5	5	5	0
Cost of individual block	NA	0.2	0.4	0.4	1	1	1	1	1	1	1	1	$0 call disconnected
Credit remaining	$10	$9.80	$9.40	$9	$8	$7	$6	$5	$4	$3	$2	$1	$0 call disconnected

Unless the user is timing the call, they are unlikely to pick up the difference.

8) Terms and Conditions / Customer Care

The standard of terms and conditions has declined in recent years. Just over five years ago it was rare to find POS with terms and conditions that did not include such information as the exact length of increment blocks, the exact cost of any connection fees, the company ABN and contact number.

It is now the case that the important details are no longer specified. For instance POS material commonly states fees “many apply”, with no description of the exact cost, and the contact details provided are often directed to answering services that the service provider never checks. The lack of detail in terms and conditions has also made it much easier for products with false voice prompts to go unnoticed.

It is now also the case that many service providers refuse to provide full details of terms and conditions over the phone. In many cases the customer care representative only has access to terms and conditions found listed on POS material.

Customer service standards need to improve substantially, and this will only happen with pressure from regulators.

9) Cyclical Marketing Practices

Many of the industry players that have been vigorous users of false voice prompts have also been involved in developing a cycle of marketing cards designed to make fast sales and leave retailers and consumers with products that do not come close to meeting the advertised talk time or premium call quality. The cycle these service providers have developed is characterised below.

New phone card products are introduced to each market segment on a monthly or weekly basis.
A new product usually offers excellent value for money and call quality when first released. The early feedback to retailers from user is generally glowing.
Promotional margins are often provided to retailers to encourage them to stock the new card and follow up sales are generally strong.
The card is promoted through eye catching POS (Point of Sale) material.
Rates are often offered at cost for the first month to improve sales, although cards commonly feature false voice prompts.
Once word has spread about the card in the ethnic community targeted (this usually take a month or two) the service provider increases the call rates of the card without notice. Retailers are not informed of the change and POS is not updated to reflect the new rates. In many cases the original voice prompts remain but the actual talk time is reduced substantially from its initial level.
As sales start to drop off, calls are switched to cheaper lines that are less reliable and often have poorer call quality. This increases profit but reduces sales.
Some service providers introduce call duration restrictions so they make increased profit from breakage .
Often sales almost stop as consumers no longer want the product
By this time the same company will have a new card in the market again offering strong talk time and call quality. The cycle begins again with the new product. It will have a fresh new design, look and feel so retailers do not recognise it as a card from the same service provider.
Retailers are stuck with stock of the old card but end up buying the new card as it is now popular with customers.
As call quality declines customer service is cut or it is in the form of a message service which is not checked.
The card is removed from the company range and stock is often cancelled after 6 months. No returns are accepted by the service provider.

Most service providers involved in this kind of cycle marketing use wholesalers to sell their cards to retailers and therefore can continue the cycle with some anonymity at a retail level.

Thankfully most service providers avoid cycle marketing.

10) Issues for regulators to address

There are a range of specific issues regulators need to address with players in the phone card industry.

False Voice Prompts – Voice prompts that overstate the credit or talk time remaining on a card.
Calls intentionally “cut off” before maximum call duration can be reached, often at random intervals (instances not related to call quality issues)
Customer service hotlines which are intentionally disconnected. Customers can not contact the service provider
Customer service hotlines which offer a message service yet no calls are answered or returned
Customer Service Lines requiring a PIN number to access the system which prevents prospective users and users with expired cards from enquiring about rates, terms and conditions.
Cyclical Marketing - Advertising and offering strong talk time on new products. When sales reach a strong level, call quality and talk time are reduced and substantial profit is made from consumers hoping to get the original rates and quality.
Product with service/account-keeping fees not indicated on POS material or by customer care staff. Some companies charge fees at random to increase profitability in ways which can not be stated on promotional material.
Providing new POS material advertising strong rates to retailers to promote products in store then increasing call rates only days after without advising retailers of the change. Some companies change call rates every week without notice.
Claiming that overseas carriers may charge a one off fee which is out of the control of the service provider. An angle to avoid providing detailed terms and conditions.
Cards with undisclosed maximum call durations, eg. all calls are disconnected after 30 minutes. If disclosed in terms and conditions this is legitimate, but if not disclosed it is misleading.
Charging for calls that are never connected (particularly were customer service is not available).
Products which do not identify the company providing the phone card service.
Claims by call centre staff that voice prompts and advertised talk time do not include connection fees. An excuse used to cover up false voice prompts.
Customer service lines that have staff without information about rates, terms and conditions or access to call records needed to answer customer queries.
Call centres that will not provide a company ABN number or other company information on request.
Cards produced with no legitimate customer service numbers printed on the card or promotional material
Cards which expire before the advertised expiry date
Increment blocks larger than those advertised on promotional material.
Advertising of rates or talk time accompanied by no terms and conditions or incomplete terms and conditions not indicated on POS material

11) Recommendations

This submission has shown many phone card service providers are wilfully misleading consumers about the products and services they offer.

The most common and serious issues can be summarised as follows:

- inadequate standard of terms and conditions (inaccurate information and/or lack of detail required to determine applicable charges)

- use of false voice prompts, including the advertising of false call rates and/or talk time

- poor standard of customer service support offered to consumers (full and accurate terms and conditions not available)

These issues must be investigated and dealt with by regulators in an expedient fashion. Government may need to provide greater resources so regulators can continue to monitor the phone card market in the longer term.

The phone card market is leading the development of new fees and charges, some of which will be copied in other corners of the industry in coming years. It is important the market is looked at by regulators before bad practices spread further.

The following recommendations focus on how both regulators and industry stakeholders can work in partnership to ensure vast improvements in the standard of service to consumers. It is important all phone cards users have access to full and accurate information about products available in the market at the place of purchase, as well as via the customer care hotlines and websites of the relevant service providers.

12) Recommendations to Regulators

An Immediate Warning to Industry

The first step to cleaning up the industry is regulators broadly advising market participants that they will be under closer scrutiny from this point on. The initial communication should to be in the form of a public warning to all service providers, wholesalers and retailers that the sale of products which do not meet current regulations (such as those that use false voice prompts, have insufficient terms and conditions, and/or offer insufficient customer support) is to be investigated, and that the phone card industry has a set period of time to improve standards (preferably two months from the time of the warning).

Such a warning must set out the basic customer service and terms and conditions standards that all service providers must meet. It should specifically state that the intentional use of misleading voice prompts on phone cards is illegal and breaches will result in prosecution.

In order to keep the warning straightforward it may be necessary to provide a more detailed warning, with relevant supplementary material on the regulators website. The information to be covered in the supplementary material may includes details of how terms and conditions should be defined including compulsory content of terms and conditions (eg. full details of how increment blocking and service fees are applied must be included), minimum standards of customer service (via phone and internet), what information must be provided to customers about rates and how voice prompts should accurately reflect the talk time available.

2) The regulators should invite the industry to develop its own model terms and conditions. These would cover all information specific to billing as well as contacting the service provider.

The basic terms and conditions would likely cover:

a) Product name
b) Company name
c) Company contact details (including customer service phone number, business address, Australian Business Number (ABN) and website address).
d) Detail of call restrictions (e.g. Call duration limits, numbers that can not be called from the card such as 1300 or 1800 numbers and restrictions relating to Premium Services and Satellite Phones)
e) Full detail of increment blocking (e.g: The first increment block is 30 seconds in length, the following two increment blocks are 3 minutes in length and all subsequent increment blocks are 10 minute in duration.
f) Specific information on surcharges (including the time at which any given surcharge applies, the exact cost of a surcharge, to which numbers the surcharge applied (on an in-dial surcharge) and from which destinations the surcharge applies
g) Exact connection fee or disconnection charge for any destination
h) The exact cost of any account keeping fees and when they are applied to the account (e.g. weekly, daily or monthly)
i) The exact cost of any in call service fees and at what time during the call each fee is charged (e.g. 20c charged after 5 minutes).
j) The date from which the terms and conditions apply
k) Accurate call rate and talk time advertised for each destination. All posters should include call rates where minutes are advertised.
l) The exact card value on which the advertised minutes are available. E.g. minutes advertised are on a $10 card used for one continuous call.
m) Accurate Call Rates - with all rates inclusive of GST.
n) Company policy on credit transfers and refunds.
o) Company policy on responsibility for lost or stolen cards
p) Full terms and conditions to be provided online
q) The end date for any promotional rate or activity should be listed.

r) Detailed terms and conditions should be listed on the service provider's website along with details of the companies other policies and procedures (eg complaint handling procedures, returns policy/procedures, or how to register for special services such as preselect or PIN-less access services)

3) Open channels of communication with service providers and other industry players.

At the current time there is no formal representative body or discussion forum that draws representatives of the phone card industry on mass. To open channels of communication with the industry as a whole it would be necessary to invite industry representatives to a single location to communicate the current regulations and requirements while giving members of the industry the opportunity to ask questions. Information conveyed on mass in a forum, conference or workshop environment with group participation is more likely to be absorbed than information convey only in writing, particularly considering a number of service providers in the Australian market have relatively poor written English skills.

4) Develop an industry code of practice in partnership with the industry.

It has been shown in many other industries that when the players in a given market take ownership of the rules that govern that market the participants are more likely to adhere to the rules and thus fewer breaches of the industry codes will arise. For this reason the phone card industry should be encouraged to develop its own code of practice that highlights the need for service provides to be honest and provide a reasonable standard of customer service. It would need to develop this code in partnership with ACMA and the other relevant regulators.

5) ACMA needs to develop a register of phone card service providers and write to these providers on a semi regular basis to request feedback on issues facing the industry. Service providers should also be encouraged to air their concerns about the practices of their competitors as the major Telco's often do.

6) Develop a position within ACMA for a key contact officer for phone card service providers, wholesalers, and retailers. Give this person time to look at issues within the industry.

7) Currently Consumer Affairs Departments in most parts of the country test equipment such as service station pumps and drink pourers (in pubs and clubs) to ensure they offer accurate measures. It should be encouraged that testing of phone cards and other telecommunications services also take place on a regular basis.

8) Many shops in Sydney have phone card posters on display that are three or more years out of date. Random inspections of retail outlets should be considered to ensure that only up-to-date promotional material is on display.

9) ACMA and The TIO needs to seek out service providers not registered as members of the TIO.

10) Regulators must ensure full terms and conditions are provided on POS material. ACMA may decide to request service providers voluntarily provide ACMA, the TIO or the ACCC with a copy of all product terms and conditions and any new point of sale material as it goes to market.

Other suggestions include targeted surveys, newsletters via monthly email and website distribution of reminders to industry, public forums, information evenings, online industry forums/discussion boards, public enquires into specific or broad issues and greater surveillance of the market. These developments would all make a difference to communication between industry, consumers and regulators.

Regulators need to listen to the industry but most importantly regulators must ensure that they clearly define rules under which the players in the industry must compete. The implications of breaching such regulations should also be clearly defined and example should be made of players who seriously breach the guidelines and legislation.

13) Recommendations to Government

The recommendations in this submission are specific to the phone card market, however the problems around a lack of attention from regulators also apply to many other markets.

The key to better regulation in the phone card market is not more or tougher legislation but ensuring that regulators are well resourced and funded to enforce the existing legislative framework. ACMA must be funded in ways that encourage it to give time to the lower end of the market where many industry wide problems could stem in future.

The phone card market is extremely competitive and there is a high chance of a number of service providers collapsing in coming months. The government must also ensure ASIC has the resources to ensure Telco's do not trade while insolvent as some now defunct service providers have done in the past.

The government should look at ways it can assist the phone card industry to develop a peak body. A small grant to start an industry peak body or develop a code of practice may be what is needed to give the industry ownership of the task of improving standards which would truly benefit consumers.

Support Material

How much do phone cards cost?

Phone cards come in a range of values from $2 to $100 although most cards are only produced in $5, $10 & $30 denominations. By far the most popular denomination is the $10 card. Due to the popularity of this value many companies focus their advertising on the talk time available when using a $10 card.

How much do calls cost when using a phone card?

Call rates start from as little as ¼ cent per minute to places like China and the USA . Cards which offer rates this low have some other fee or billing method which means users end up paying 2-4 cents per minute on average. Call rates vary from destination to destination and from card to card. The service provider sets the rates on each card in their range to suit the target market and maximise their profitability on each card.

When considering the cost of using a phone card the user should also consider the cost of accessing the service. This is normally the cost of a local call, but accessing a service via an STD call or from a mobile phone can be more expensive.

How to use a phone card

To use a phone card the user needs the PIN number and the access number for their card. Each card has a unique PIN number which allows the user to access their account. The PIN number is normally concealed under a scratch panel which the user can remove when they want to start using their card.

The PIN number, access number(s) and usage instructions can be found on the back of each card. The usage instructions vary from card to card, however the basic process remains the same on almost every phone card.

Once a user has purchased a card the first step to using their card is scratching the security panel on the back of the card to reveal the card PIN number. The PIN number will later be used to gain access to the account relating to their phone card.

To start using their card the user must dial an access number. This is a phone number which diverts calls to the phone card service providers switching platform. Most phone cards have a series of access numbers across the country that allow users in the local call area of the access number to access the service providers platform at the cost of a local call. Many phone cards also have 1800 and 1300 access numbers, but the phone card service provider usually charges a surcharge on top of their usual call rates for the use of such access numbers.

Once the user has called an access number they will need to follow a series of automated voice prompts so the user can make calls with their card. Most phone cards follow the process outlined below.

1)The voice prompts will ask the user to select the language they require the voice prompt to use.

2) The next voice prompt will request the user enter their PIN number. Once the PIN number has been correctly entered the user can start making phone calls.

3) The user dials the number they require. For international calls, the user must dial the international code first. The voice prompt will say “Dial the number you wish to call, including the area code, followed by the # key.”

4) The user will then receive a voice prompt telling them how much talk time they have remaining on the card for the call. For example “You have 300 minutes and 30 seconds remaining for this call”.

5) The call will then be connected or if the wrong number has been dialled the user will be asked to “Check the number and try again”

6) When the user has finished their call they can simply hang up or they can make another call. To make another call the user must press the redial key designated by the phone card service provider. This key is normally the # key although sometimes it is the * key. Most cards ask users press the # key twice to make a follow on call. Once the user has done this the voice prompt will return asking them to enter a new phone number followed by the # key. The user may hang up or if they wish to make another call and dial the new number followed by the # key

7) When the cards credit is full used the service provider will disconnect the call. Most cards have a warning tone or announcement when the user has 2 minutes remaining. Users then need to recharge their card or discard it and purchase another. Most users will purchase a new card.

Some cards allow users to recharge and use their card on a regular basis. These consumers may choose to take advantage of card features such a PIN saver service so they do not have to choose a language or enter their PIN every time they wish to use their phone card account.

Glossary of Terms

Phone Card – When used in the context of this report this term refers to international long distance calling cards with a PIN and access number. These are sometimes known as RSV (remote stored value) cards. This report does not relate to Pre Paid Mobile or Telstra (and other) Smart Card technology.

Access Number – This is the phone number a user must dial in order to use their phone card. A user dials the access number from their home phone or mobile then enter the PIN number found on the back of their phone card. Phone card service providers may have a range of access numbers for users to choose from.

It is common for phone cards to have an access number in every capital city and some regional areas so users in these areas can access the phone card service at the cost of a local call. Some phone cards also have 1300 nation wide local call access and even 1800 free call access however a surcharge often applies to the card when using these access numbers. The most popular access numbers are commonly listed on the back of the card.

Call Rate – This is a recurring fee normally charged by the minute and is the main cost incurred when using most phone cards. The rate will normally vary from destination to destination depending on the target market for the card and cost of wholesale rates. Call rates change from time to time.

Landline – This is the term used to describe a fixed line phone such as a home or office phone.

Mobile – A phone that connects to a telecommunications network using wireless technology. Sometimes called a cell phone.

PIN (Personal Identification Number) – This is commonly an 8 or 10 digit number found under a scratch panel on the back of the phone card. The user enters this number into their touch tone phone after dialling the access number in order to access their phone card account. Every phone card has a unique PIN number as generated by the phone card service provider.

Surcharge – This is a per minute charge on top of the standard call rate when a user accesses a product under specific circumstances, commonly during a peak call period or when dialling a special access number (eg 1300 or 1800 access numbers). Some cards also charge a surcharge for long calls. Surcharges can vary from destination to destination or from access number to access number at the discretion of the service provider.

Example:

1) Peak/Off Peak Surcharge - The standard call rate (off peak rate) to the USA is 0.5c per minute available between 12midnight & 6am. Calling between these hours the user pays 0.5c per min to make their call. Outside these hours there is a 3c per min surcharge. This means users end up paying 3.5c per minute when calling between 6am and midnight which is the peak period.

2) Access Surcharge - The standard 24 hour flat rate to India is 10c per minute but the user dials the 1800 access number which incurs a surcharge of 15c per minute. As a result the user will then be charged 25c per minute if they choose to use the 1800 access number.

3) Long Call Surcharge – A surcharge may be applied after a specified length of time to one or all destinations or one or all access numbers. This is an example of a surcharge that applies for calls longer than 10 minutes. The standard call rate is 5c per minute. For calls over 10 mins a surcharge of 7c per minute applies. That means for calls shorter than 10 mins the user pays 5c per min, but once a call goes longer than 10 minutes the effective per minute rate increases to 12c per minute (ie 5c rate + 7c surcharge = 12c per min). If the user makes a 15 minute call then they pay the following (assuming calls are charged by the minute):

Cost of first 10 mins is = 10mins x 5c = 50c

5 minutes with surcharge = 5 mins x 12c = 60c

total call cost = $1.10

Serial Number – This number is visible on the back of the phone card and is usually used to track the sale of individual cards.

POS (point of sale material) – Posters and Flyers used to promote the sale of products in store. When used to sell phone cards this promotional material carries information on call rates, available talk time and should list terms and conditions in relation to the use of the card. The most common forms of POS used to promote phone cards are A4 Posters and DL Flyers.

Service Provider – This is a business which produces phone cards and is responsible to consumers for the operation of the cards. A service provider is ultimately responsible for developing card branding, printing cards, choosing call rates, defining terms and conditions, designing and maintaining promotional material, providing customer service, ensuring cards operate properly and ensure their products and promotional material meet any legislative requirements.

In most cases service providers operate their own switching infrastructure, however a number of smaller service providers outsource switching in order to lower their start up cost.

Most service providers have a range of phone card products targeting a variety of destinations.

Switch – Put simply this is a computer connected to a series of phone lines which can receive and connect many phone calls using automated systems. Many different phone cards can operate through a single switch at the one time and a switch can connect many thousands of phone calls in a day.

Carrier – This is the company that provides phone services line out of Australia to the international call destination. Some of the leading carriers that provide services to the phone card industry in Australia are AAPT, Telstra, Optus, MCI and Primus Telecom.

Increment Block – Throughout the telecommunications industry the cost of phone calls are normally advertised as per minute rates, however in most cases calls are not billed by the minute.

Calls from mobile and home phones are normally billed by the second or in 30 second groupings, however most phone cards bill in longer groupings. It is common for calls from phone cards to be billed in blocks of 3 minutes, 5 minutes or even up to 30 minutes or more.

There is more information about increment blocks on page …. Of this report.

Examples

1) Calls are billed in 30 second increment blocks. Calls are charged at a rate of 10c per minutes. That means each 30 second block is worth 5c.
a) User makes a 20 sec call. The user pays for 1 x 30 second block = total cost of 5c.
b) User makes a 2 min 20 sec call. The user pays for 5 x 30 second blocks = total call cost of 25c

2) Calls are billed in 5 minute increment blocks. Calls are charged at a rate of 10c per minute. This means each 5 min block is worth 50c.
a) If a user makes a 2 min call. The user is charged for 1 x 5 min block.= total call cost of 50c.
b) If a user makes a 26 min call. The user is charged for 6 x 5 min blocks = total call cost of $3.

3) The service providers can change the length of increment blocks throughout a call. Calls are billed initially in 30 second increment blocks, followed by 10 minute increment blocks. Calls are charged at a rate of 10c per minute. This means a 30 sec block is worth 5c and a 10 min block is worth $1.
a) If a user makes a 6 min call. The user is charged for 1 x 30 sec block, and 1 x 10 min block, which means they pay $1.05
b) If a user makes a 26 min call. The user is charged for 1 x 30 sec block, plus 3 x 10 min blocks = total call costs $3.05

Connection Fee – A one off fee charged at the start of a phone call. This fee only applies on some cards to some destinations at the discretion of the service provider. The cost of a connection fee varies from destination to destination and from card to card.

Service Fee – The term service fee is commonly used to describe two different types of charges. These are the “account keeping fee” and “in call service fee”. These two terms are defined below.

In Call Service Fee – An in call service fee is like a connection fee except it is not charged at the beginning of a call. It is a one off fee charge, billed at a set time during each call. Some service providers vary the service fee from destination to destination, but most have the same service fee for every destination on the card. A number of cards targeting South Asia and the Middle East charge a $1 service fee after 10 mins instead of charging an up front connection fee.

The advantage of using a product with an in call service fee, as opposed to a product with a connection fee, is that if the user makes a short call they do not pay the service fee while they will always pay a connection fee, even on a call of just a few seconds.

Account Keeping Fee – This is a recurrent fee which is charged at set intervals (eg daily, weekly or monthly). The fee is of fixed value and is said to be charged for the provision of the service. This fee has now become common because it allows service providers to lower headline call rates while maintaining profitability. The account keeping fee is also commonly referred to using a number of other terms including “maintenance fee”, “service fee”, “daily fee”, and “usage fee”.

“A” Party – The person making a phone call. When a fault is reported this term is used by a telecommunications carrier when tracking issues with the call. It describes the phone number from which the call originated. The term “origin number” is sometimes used to describe the A party.

“B” Party – The person receiving a phone call. When a fault is reported this term is used by a telecommunications carrier when tracking issues with the call. It describes the phone number which has been dialled. The term “destination number” is sometimes used to describe the B party.

Origin – The place from which a call is made.

Example: Australia – Mobile

Australia - Landline

Destination – The place which a call is received.

Example: India - Hyderabad (this means landlines in Hyderabad ) or India – Mobile (this means any mobile [excluding mobile satellite phones] in India )

When the destination is a mobile phone the geographic point within a country is normally irrelevant as mobile rates across a country are usually charged at the same rate. However some cards may vary their rates to mobiles depending on the carrier called, as the wholesale rates may vary from mobile carrier to mobile carrier.

Voice Prompt – When a user dials a phone card access number they will be connected to a computerised system which gives verbal instructions which allow them to use their phone card. The voice prompt is the computer activated voice which users hear. Voice prompts are used to indicate how much talk time or credit remains on a phone card and take the user through the process using their phone card. Most phone cards give a talk time remaining voice prompt at the beginning of each call. The voice prompts can be changed by the carrier through simple changes to the programming of a computerised switch.

Credit Balance – This is the store dollar value of a phone card account. If a users credit balance is $10 it means they have $10 worth of credit to use to make calls. Most phone cards will give a voice prompt with the credit balance shortly after the user enters their PIN number.

Telecommunications – T he assisted transmission of signals over a distance for the purpose of communication. In these times telecommunications normally refers to communication via telephone or telephone line or related infrastructure.

Margin (Profit Margin) – In simple terms the margin is the difference between a purchase price and the price at which the same item is on-sold. It can be described as the proportion of money made from the sale of an item or service, less the cost of purchasing the goods or offering the service.

The profit margin is normally expressed as a percentage.

Example 1
A $10 phone card is purchased by a retailer for $7.50.
The retailer sells the phone card to a consumer for $10.
The retailer makes a profit of $2.50
$2.50 is 25% of the $10 sale price which means the margin made is 25%.

Distributor – This is the business responsible for ensuring products are available to retailers. They sell products to retailers across a wide geographic area and often have strict contractual arrangements with service providers as to how and at what price they should sell the service providers products. Phone card distributors tend to ship their products using couriers.

Breakage – This term refers to credit consumers pay for but do not spend in the process of obtaining the phone card service. Examples of breakage include the credit collected by a service provider when a card expires, account keeping fees collected on a weekly or daily basis or the extra credit collected when a user hangs up part way through an increment block.

Wholesaler – An individual, partnership or business which sells products to retailers. Wholesalers generally sell a wider range of products than distributors, as they aim to be a one stop shop for their retailers. They are more likely to sell products on a face to face basis and often focus on small geographic areas or specific ethnic markets.

In-Dial Surcharge – This is a charge that is specific to an access number. An example of this is the surcharge on calls when using a 1800 access number.

Maximum call duration restriction – A service provider may terminate all calls on a card after a fixed length of time. This is known as a maximum call duration restriction. This billing tactic is commonly used to prevent users from making long calls on products with a connection fee and low call rates. Long calls made on such products can substantially reduce the profitability of such products, so restrictions are placed on call lengths by service providers to limit the extent of losses.

Document ID: 83489 |
Last modified: 30 April 2008, 5:11pm