THE LAST TWELVE MONTHS IN TELE-communications history have seen the bankruptcies of Enron, WorldCom and Global Crossing. This has, unquestionably, deeply affected the U.S. economy. But if you think that the entire telecom industry is headed for disaster, think again. A little niche segment—prepaid communications—has emerged as a hotbed of opportunity. This is an industry that has managed to survive the current telecom turmoil, showing signs of maturity with slower growth.

According to the latest report of ATLANTIC-ACM, a telecommunications consulting and research firm, the U.S. prepaid calling card industry grew at a Compound Annual Growth Rate (CAGR) of 25.4% from 1995 to 2002, reaching $3.7 billion in 2002. The CAGR from 2002 to 2008 is expected to be just 9.7%, with revenues in 2008 expected to reach $6.4 billion. Reduced rates and smaller margins are contributing to this slowdown in growth.

Compared to the local and long distance markets, however, the prepaid industry is holding out very well with steady year-to-year growth. “Lower wholesale costs as well as packet technology improvements have helped the prepaid industry remain competitive,” stated Dr. Judy Reed Smith, CEO of ATLANTIC-ACM. “Growth is being sustained by the rise in the number of prepaid calling card users, as well as providers’ diversification into other prepaid services,” she added.

The Players
Competition in the prepaid industry is fierce, and providers are scrambling to find new and unique ways to attract consumers.

Tier one carriers—AT&T, MCI/WorldCom, and Sprint—dominate the market. The Tier two and three providers—IDT, 9278, Blackstone, and GPA, to name a few— have bought wholesale minutes on the tier one backbones and further distribute them to retailers. They have thrived in niche segments such as international markets, smaller retail outlets and distributors—segments into which Tier one carriers have not forayed.