By Playing His Calling Cards Right, He’s Found His Niche

When Bob Lorsch was young, his mother had a dream that one day he would work in a big building surrounded by thousands of telephones.

Forty-some years later, Lorsch, 47, has gone a long way toward making at least a modified version of that dream come true. His start-up company, SmarTalk TeleServices--launched a little more than two years ago from a room over his garage--is growing at a frantic pace, capitalizing on one of the hottest niches in the phone business: prepaid calling cards.

Consumers activated 924,449 SmarTalk cards in 1996, up from 71,319 in 1995. The cards, sold in 30-, 60- or 120-minute increments, are available at more than 8,000 storefronts throughout the country, including Best Buy, Office Depot, Sav-On and Robinsons-May in Southern California.

The prepaid calling card industry logged a whopping $1 billion in U.S. sales in 1996, up from $75 million in 1993. And SmarTalk, which went public in October--exactly two years after it was founded--posted $15 million in sales last year, up from $453,916 in 1995.

A user activates a SmarTalk card by calling a toll-free number and punching in a 10-digit access code that connects them to a bank of calling card minutes.

Consumers can access additional SmarTalk services--including a private answering machine and fax machine, a speed-dialing menu, a conference calling feature and a news and weather service--by purchasing a personal toll-free number from the retailer where they buy a card. SmarTalk also sells its cards in bulk to corporations, marketing them as a way to keep communication costs down.

SmarTalk sells its cards to retailers with a suggested retail price of 40 cents a minute. Retailers then set their own prices for the cards, requiring consumers to divide the time limit on the card by its price to determine how much they are actually spending for call time.

A strong balance sheet is essential to convince retailers the firm will be able to deliver the phone services it promises, Lorsch said.

But with the credibility that goes with being a public company, SmarTalk is well-positioned not only to compete in a burgeoning market, but also to be a possible takeover candidate for larger telecommunications companies seeking to diversify their services.

“We saw this dinosaur named MCI, this aircraft carrier named AT&T; and this bullet train called Sprint coming at us and we said, ‘What resources do we have to compete?’ Lorsch said.

“Now we’re our own little bullet train.”