International Phone Card Buyers Beware

Park (31) frequently buys prepaid international phone cards to call his little brother in China. KT (001) and Dacom (002) charge 10,000 won every ten minutes, but with a prepaid international phone card, he can talk for 100 minutes for only 12,000 won.

However, Park recently had an unpleasant incident. His phone card company went bankrupt, while his card still had minutes left on it. He tried calling the number written on the card, but no one answered.

Cases of people losing money from phone card companies have been increasing recently. Many phone card companies are closing down, and it is difficult for their customers to receive compensation when that happens.

Increasing Losses–

According to the Ministry of Information and Communication, the number of prepaid international phone companies has been continuously increasing, from 55 in 2003, to 71 in 2004, to 74 in 2005.

These companies are classified as “special category telecommunications operators.” They borrow phone lines from telecommunication companies with telephone circuits like KT and Dacom and provide international phone call services. Since there are no infrastructure costs for these companies, the fees are low. But because the entry barriers into the market are also low, the competition in this industry is fierce. Nine companies have closed this year.

Recently a company called “ICN Telecom” went bankrupt, and the total amount of unused minutes in monetary terms amounted to 320 million won. The Seoul Regional Communications Office estimates that the company sold around 70,000 calling cards and that many of its customers will suffer losses.

Reimbursement Process Too Slow-

To limit losses by the customers, The Seoul Regional Communications Office requires companies to be insured. The insurance payment should be 20% of the total amount issued, so that the unused minutes can be reimbursed in cash if the company closes down.

However, even though the amount of cards issued increased to 120 billion won a year, reimbursements only amounted to 1.13 billion in 2003, 790 million in 2004, and 63 million from January to August of 2005.

The reason for this is that it takes a lot of time for reimbursements to be processed.

Customers must register their application form for compensation at the Seoul Regional Communications Office through mail, fax, or in person, and then personally check the plan for payment at the website (seoul.koreapost.go.kr). The public notification period is 45 days, a month for adding up the number of applications, and one to two months for screening and inspection, so people have to wait around four to five months to receive money.

Select Cards from Reliable Companies-

Therefore, it is important to select a reliable company when buying a prepaid phone card. Network service providers such as KT and Dacom also offer prepaid phone cards, but although they are reliable, they are expensive. On the other hand, special category operators only charge one-tenth of what network service providers do, but there are higher possibilities the company will file for bankruptcy.

The Seoul Regional Communications Office explained, “Special category communications operators are ranked according to the size of the company. The smaller the ranking number on a scale of one to three, the safer they are from bankruptcy. But bankruptcy is still possible even for category one companies, so consumers must be careful.”

Sang-Hoon Kim sanhkim@donga.com