Here Come Talk 'n' Toss Cell Phones

Sensing a big potential market, two companies are hoping to add a new kind of disposable to your shopping list

"Honey, could you run to the store and pick up some milk, cereal, and a couple of cell phones?" Sounds strange now. But two companies are preparing to roll out disposable cell phones next year, offering the devices in supermarkets, gas stations, and convenience stores around the country. The phones will function like prepaid phone cards, offering 30 or 60 minutes of airtime before you just throw them away. Price: anywhere from $10 to $30.

The two companies pushing them -- San Francisco-based Telespree and Cliffside Park (N.J.)-based Dieceland -- believe that their disposable phones will appeal to an eclectic mix of customers. Seniors might prefer them for their ease of use. Travelers fearing loss or theft of their expensive cell phones could pick up a disposable from an airport kiosk. And parents could stick a phone in their children's pockets to encourage them to call home if they're running late.


  Analysts agree. Many think disposable cell phones might also win a following among people on low budgets or with blemished credit records. Such users shy away from long-term service contracts or don't want to undergo credit checks. "A lot of people who don't use cell phones are just scared of the cost," explains Iain Gillott of wireless consultancy iGillott Research. Strategy Analytics analyst David Kerr claims that by 2006, 15 million to 16 million disposable units will be sold in the U.S. annually. That's a market worth $150 million to $500 million in revenue.

The two phones slated for launch have completely different looks. The plastic model from Telespree, created by founder Alon Segal, will come in a rainbow palette of six colors including "calypso green," "scuba blue," "supreme violet," "citrus yellow," and "night-sky blue." Beatrice Santiccioli, a color designer who was part of the team that designed Apple's iMac, devised the eye-catching shades. Unlike a regular cell phone, the Telespree device has just one button: Its voice-activated system allows users to dial numbers vocally. With initial models, you'll be able to make only outgoing calls.

In contrast, Dieceland's Phone-Card Phone has the look, shape, and size of a pocket calculator -- complete with a full numerical keyboard. It's about three credit cards thick and was developed by Dieceland founder Randi Altschul to fit easily in a shirt pocket. It, too, will allow for only outgoing calls, but a pricier version will have two-way calling capacity. Altschul holds 20 patents relating to her disposable phone. Telespree's snazzier phone will likely cost around $30, while Dieceland's version might retail for as low as $10.


  Actually, some services have been offering prepaid cell phones since 1997, but they've failed to gain widespread acceptance. The problem: They tend to be bulky, and older models sold for as much as $100, says Michael Sadaka, an analyst with consultancy Jupiter Research. Activation often takes several days, and under many plans, minutes purchased expire after a few months. "It's a very frustrating experience for the user," says Sadaka.

Only 6% of the 110 million cell-phone customers in the U.S. use prepaid versions today. This group consists mainly of people with credit problems, seniors who prefer the simplicity, teens with no cash, and people who keep the phones only for use in emergencies -- exactly the market Telespree and Dieceland have targeted. They plan to undercut existing prepaid services with lower prices, while drawing new customers into the mix. "It's an entire untapped market," says Sadaka.

The teen market looks especially attractive. Today, U.S. cell-phone penetration stands at 35% of the population. But only 30% of youths 15 to 17 years old own them, according to Jupiter. Disposable phones could be a good testing ground for teens, helping them to choose higher-end services later in life, say analysts.


  The devices would also give carriers a higher-earning alternative to unprofitable low-rate calling plans -- now almost extinct. These are the plans primarily used by customers who just want a cell phone for emergency use. This group accounts for less than 10% of all wireless subscribers, Kerr estimates, but he believes that it could be expanded with a little marketing.

Right now, carriers spend on average about $300 to $400 to acquire each new customer, no matter what service is bought. Telespree and Dieceland think they can cut that to $150 per user, especially at the low end.

So far, wireless carriers such as Sprint, Verizon, and Cingular have declined to comment on the disposable-cell-phone rollout. The disposables will need alliances with the wireless service companies for network access and marketing. Altschul claims she already made an agreement with a wireless carrier (she won't reveal which one), and her phone will be widely available in the third quarter of the year.

Telespree is still in talks, but Segal hopes his phone will be easy to find as early as Christmas. Regional trials are expected over the summer. Pretty soon, getting a cell phone at 7-Eleven may be as mundane as buying a Big Gulp.

By Olga Kharif in New York

Edited by Alex Salkever

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