Prepaid Phone Cards Boom, Buoyed by Promotional Uses

BETWEEN the rigors of Navy basic training and trying to keep warm in North Chicago, one may wonder where Eric Barker gets the time to call his mother in Texas. The answer is a Venture department store.

That's where his mother, Kathy Carroll, bought three prepaid phone cards, each worth 60 minutes of long-distance service. The first two she sent to her son as an easy way for him to reach out and touch her without putting so big a touch on her wallet. She kept the third for herself.

''I've been carrying it around in my purse and have used it a couple of times,'' she says. ''I don't have to make sure I have quarters. And when I'm at my sisters' houses, I can just use the card and not worry'' about running up their telephone bills.

Convenience and relatively low costs are just two of the factors fueling a boom in prepaid calling cards in the United States (they have been used overseas for years). The cards are also proving attractive as a marketing tool for businesses, which use free calling time as a reward or enticement for customers.

Hundreds of American companies are using prepaid phone cards to promote everything from the new Ace Ventura movie to Delta Burke's full-figured fashion line. You may find one in a box of Multi-Bran Chex cereal, buy one at the gas station, or get one as a thank you for using Avis rental cars. Beyond the usual marketing, there are cards depicting the US Postal Service, the peace agreement between Israel and Palestine, and Pope John Paul II, to name but a few.

By some estimates, prepaid phone cards were a $500 million industry in the United States last year, with projected annual growth of 30 percent. There may be about 500 American companies currently involved various aspects of the industry, ranging from huge long-distance providers to mom-and-pop resellers. Relatively low startup costs and the youthfulness of the American industry have made it attractive to entrepreneurs. The resulting competition should bode well for consumers as issuers try to capture customers with lower rates.

Ms. Carroll's 60-minute cards, for example, cost $17.99, which works out to a long-distance rate of 30 cents per minute.

That may not sound spectacular, given that traditional calling cards offer competitive rates. But with those cards, service fees and local phone-company surcharges can make costs soar, especially for short calls.

The prepaid cards aren't always cheap, but they are simple to use. Callers use any telephone to dial a toll-free number, enter a personal identification code, and then the number they want to call. Each minute or other increment is deducted from the prepaid amount of the card. And once the original prepaid time has been used up, you can add time at the original rate, with a credit card and a phone call.

Prepaid cards debuted in Italy in 1976 as a deterrent to pay-phone thefts, and currently are in use in nearly 190 countries.

Prepaid phone cards are becoming quite the collectible. In addition to company logos, many sports stars are now found on the plastic cards, as are popular characters such as Superman and Disney's Pocahantas. Collectors can pick up any one of a half-dozen prepaid phone card magazines, travel to trade shows or even go on-line to browse by computer.

Scott Looney, publisher of Telecard World Magazine, says that a prepaid card given away at the 1992 Democratic National Convention in New York City is now on the market for as much as $1,700, although he adds, ''I don't know who's paying that.''

In addition, there are a couple of trade associations, an industry-sponsored consumer hot-line, and talk of regulating the industry. Authorities even used records from a prepaid card to track down and gather evidence in the Oklahoma City bombing case, using a long-distance carrier's records to detail a suspect's whereabouts prior to last April's bombing.

Yet Howard Segermark, executive director of the US Telecard Association, estimates that only 5 percent of Americans have ever used a prepaid card. ''Over 20 million Americans live in households without regular phone services,'' he says. ''And for every person who travels and needs phone card service, a prepaid phone card can save a lot of money over credit cards.''

Prepaid cards also can provide a measure of security not found with regular credit, debit, or calling cards. Since the prepaid card is worth only the face value or the recharged amount at any time, the owner's liability is limited to that should the card be lost or stolen, Segermark says.

Phone cards are becoming fund-raising tools, too. Depending on the arrangement, a charity can receive a percentage of the original sale of the cards and then continue to get a portion of all purchases of new time. Fund-raising cards generally require a broad target audience to be financially feasible, but a handful of high schools are experimenting with the idea, as are chapters of the Salvation Army and the American Red Cross.

And though few Americans have even heard of prepaid phone cards, the industry already is evolving. Some cards can be used to access voice mail and fax-on-demand services. Others include marketing messages or offer access to weather services and cable-television listings.

''It's growing daily,'' Mr. Looney says. ''For the next two to three years, it's going to be very popular in the premium promotion market. After that point, it's going to become a utility item.''