Looking into the future
Eurodata have been looking at the future of the market for the different types of card system currently in use in Europe.Below,we
present a summary of their findings.The development of the telephone-card market in Europe is a reflection of the overall development of the telecomms market.Until recently,telephone cards were primarily a convenience for the national operators who generally had a monopoly. Now, the
market is vibrant with many new,innovative and entrepreneurial suppliers entering the business.Two years ago, the card market was dominated, almost exclusively by the monopoly telephone operators in each country.Thecards could only beusedin public pay phones and offered more benefit to the supplier than to the customer. Dominant companies
were able to control the market by limiting the number of 'phones which would accept cash. So in Italy, which is by far the largestmarket for traditional cards,there are few public telephones which willaccept anything other than a Telecom Italia card.
Since the beginning of 1996, however, the m~rket has changed substantially and dramatically.The market for pre-paiddisposable cards (the traditional magstripe or chip card) is saturated in most countries.Although some operators have taken steps tostimulate - i.e. to protect - their markets, the decline of the pre-paid disposable card is inevitable.Eurodata forecasts low growth for
this type of card and,in some countries, even a decline. In the language of the marketer, the pre-paid disposable card is at thematurity stage of the product's life cycle.Pre-paid remote memory cards, however ,are just enter ing the growth phase.
By the year 2000, Eurodata forecasts that the market share of pre-paid disposable cards will decline from 98% in 1996 to 76%and that pre-paid remote-memory cards will increase from nothing to 19%.Below we examine the trends affecting three different types of cards: pre-paid remote memory,smartcards and pre-paidmobile.
Pre-paid remote memory cards
Pre-paid r emote memorycards provide users with an account, details of which are stored in the network .Theuser accesses the
account from any phone, often in any country, via a freephone number and CIN (Card Identification Number).These cards can be
used by any company with the agreement of the re-seller and the network operator .This market segment has seen significant growth in the past 18 months as new companies see it as a fast-track entry to thetelecomms market. The UK and Germany have seen particularly strong growth in these products, though for different reasons. Inthe UK the market has been led by new entrants, such as World Telecom and Swiftcall,attracting a lot of business away from BT.
Bycontrast,in Germany, the market has been led by Deutsche Telekom.
Our forecast for this market is that it will grow from £40m in 1996 to £360m by 2000 with all European countries experiencingstrong growth.However, our exper iencealsoshows that many suppliers will miss out on that growth if they do not focus more on
the needs of the customer, and less on the product itself .The customer clearly wants simplicity and low cost calls, whereas toomany suppliers concentrate on product features which eat up profit margin.Some of the most successful applications of pre-paid remote memory cards are targeted at clearly defined sets of customers.For example, many operators provide a service designed for outbound tourists to dial back to the home country only. One UK supplier has developed a successful niche offering pre-paid Internet access.These cards also represent a major competitive threat to the incumbent supplier, especially amongst highly price-sensitivecustomer groups.For example,there is some evidence that immigrant workers, who used to buy several disposable phonecards
each year are switching to pre-paid remote memory,which allows them to make substantial savings on calls to family and friendsoverseas.Eurodata's research indicates that the market for this type of card will mature fairly quickly.There will be little opportunity for suppliers to increase the value of each customer, who is generally price sensitive,or to extend the market beyond certain coresegments.Further the growth of the mobile phone market will limit this growth potential still further.
The second major development in the past two years has been the introduction inseveral European countr ies of smartcar ds,or
multi-function payment cards.Denmark has led the way in this market with
,whilst both Finland and the Netherlands arealso well developed.A smart card can be used to pay for severalitems, usually travel tickets, parking and small value goods suchas
a newspaper .In Europe at least,most can also be used to make telephone calls.Eurodata's research indicates that there is a strong move away
from traditional telephone cards towards smart cards on the part of the customer.Suppliers,such as
Telecom,are making thismove easier by creating hybrid cards which can be used as both pre-paid remote memory cards and as smart cards,so extending the
pre-paid market from the public pay-phone to any phone.Some incumbent operators are not involved in smart card trials at all, arguing their use will take revenue away from their owntelephone card business. Eurodata believes that such an attitude will ultimately be to the operator's detriment they will see revenue,and profit,move to companies who do offer telephone functionality.Further ,such an attitude will mean that they cannot take
advantage of new smart card developments.