While traveling in Europe last fall, Anthony Tabasco had a revelation in a telephone booth.
The PHH Corp. manager was charging a call using a plastic prepaid card -- commonly used overseas to reduce callers' hassles with coins -- and thought: These must be big money-makers.
So when he came back to his Hunt Valley office, he decided PHH should launch a telephone card here in the United States.
And for the past three months, PHH salespeople have been touting a card, looking very much like a credit card, but embossed with an 800 number and an identification code that gives users anywhere from 10 to 50 minutes worth of telephone time. Customers call the toll-free 800 number, punch in their code, then dial the number they want to reach.
"We've been running with it," said Mr. Tabasco, who heads PHH's technology services division. "This is a hot item."
Indeed.
Prepaid telephone cards, almost unknown in the U.S. just a year ago, are suddenly everywhere: in high-tech Mother's Day cards, as promotional giveaways at McDonald's, and on display at convenience stores everywhere.
The cards are being sold by everyone from one-person startup companies to Fortune 100 giants like PHH.
Why the frenzy?
"The reason is that it is so darn easy" to get into the prepaid telephone card business, said Scott Ableman, senior manager of pre paid card marketing for MCI Communications Corp., which is marketing its own card, as well as providing the time for PHH's cards.
"All you need is a 486 personal computer and an 800 telephone number," he said.
And there appears to be lots of money to be made -- and not just from sales of the cards, he said.
Companies like PHH and the Southland Corp., which owns the 7- Eleven convenience store chain, he said, pay anywhere from 18 to 28 cents per minute for time on telephone networks owned by the telecommunications giants such as MCI, AT&T; or Sprint. The companies then print up cards to resell the time to customers for anywhere from 30 to 60 cents a minute.
Analysts have predicted sales of the prepaid cards will skyrocket from almost nothing to a projected several hundred million dollars this year, and may reach the billion-dollar mark in a few more years, Mr. Ableman said.
The earliest buyers were foreign travelers, who were used to the cards and don't want to hassle with coins for pay phones.
But the cards are now proving popular with prisoners, soldiers, college students, immigrants, and the approximately 25 million Americans without telephones.
And as more people learn about the cards, many in the industry believe that the cards will become popular even among telephone-savvy business people.
The reason: Although calls made using prepaid cards are more expensive than those dialed directly from a home or business telephone, they are much cheaper than collect calls, or long-distance calls made from pay phones. And, for brief long-distance calls, they are also less expensive than credit card calls.
For example, calling New York from Baltimore on a weekday using a PHH card would cost 35 cents a minute. A regular calling card would incur an 80-cent connection fee and then about 30 cents a minute.
And many companies are seeing even more ways to profit.
PHH, for example, is selling the cards to businesses as a marketing tool, Mr. Tabasco said.
Businesses can hand out free prepaid cards emblazoned with their customers' name and logo, and give them to clients. When the clients call the 800 number to be hooked to their call, they hear a five-second message from the client company, he said.
PHH, which also sells other phone services to corporations, has yet to make any money from its prepaid card but hopes to be reaping pretax profits "in seven figures" within three years, according to Roy Meierhenry, chief financial officer.
So, he said, PHH is spending money now to acquaint consumers with the card and kick-start the hoped-for repeat business.
PHH has provided the Federal Employees Education Association, for example, with 5,500 free cards worth 15 minutes each. If the recipients call up PHH to buy more time using their credit cards, PHH will rebate 5 cents a minute to the FEEA.
Other companies are hoping to profit from persuading customers not to use the phone cards they buy.
Several companies have licensed images ranging from Elvis to baseball players in an effort to create collectible cards, said Ron Choura, a telecommunications economist who wrote a report on the new cards for the National Association of Regulatory and Utility Commissioners.
Mr. Choura said the collectible market has already taken off. A neighbor of his, in rural Michigan, runs a baseball card trading business and recently got hold of an MCI Olympic card worth as much as $4,000, he said.
But there are some problems, he added.
Some card buyers have been burned by fly-by-night companies that sold cards with calling time that expired in a few days, or that had no time charged to them at all, he said.
And many companies are profiting from customers' tendency to leave a little extra time unused on their card, he said.
All of this creates a confusing picture for consumers, said Ken McEldowny, executive director of Consumer Action, a San Francisco-based consumer group.
Americans will see even more prepaid telephone cards -- both for sale and promotional handouts -- because it is so easy to get into the business and because they make so much sense for some callers, he said.
But that means it will be even more difficult for callers to make sure they are getting the best deal. The advice he gives to those trying to figure out what -- if any -- cards they should buy: "Lots of luck. It is very complicated."
SOME COMPARATIVE COSTS
COST PER MINUTE FOR PREPAID TELEPHONE CARDS:
7-Eleven $20 card: 33.3 cents
PHH Prepaid Calling Card: 35 cents.
AT&T;: 45 cents
Sprint $20 Prepaid Foncard: 53 cents
MCI $18 PhoneCash card: 60 cents
COST OF 5-MINUTE CALL FROM BALTIMORE TO SAN FRANCISCO:
AT&T; Prepaid Card: $2.25
AT&T; Calling Card: $2.35 day, $2.00 evening, $1.75 night
AT&T; residential service: Day, $1.40; evening, 85 cents; night, 75 cents.
AT&T; Collect Call (1-800-CALLATT): $2.64 day, $2.24 evening, $2.09 night.
(Note: AT&T; discounts per-minute residential and calling card charges between 10 percent and 30 percent on long-distance bills of more than $10 a month.)
Sprint Instant Prepaid Foncard: $2.65
Sprint Foncard: $2.35 day; $2.00 evening; $1.75 night
Sprint residential service: $1.10 7 a.m.-7 p.m.; 50 cents 7 p.m.-7 a.m.
Sprint collect: $3.50 day, $3.20 evenings and $3.00 nights.
MCI $18 PhoneCash card: $3.00
MCI calling card: $2.33 days, $1.98 evenings, $1.73 nights.
MCI residential service: $1.04 day; 63 cents evening; 56 cents night.
MCI collect call: (1-800-COLLECT): $2.84 day, $2.40 evening, $2.24 night.
(Note: MCI is offering discounts of 25 percent to 30 percent on its per-minute residential and calling card rates.)
PHH Prepaid Calling Card: $1.75
7-Eleven prepaid card: $1.65