Change for the pay phone

The FCC modified its pay phone compensation rules recently, allowing pay phone service providers (PSPs) to collect revenues more easily for calls placed using calling cards, 10-10 numbers and collect-call services.

The order clarifies the billing process by requiring “the first underlying facilities-based long-distance carrier to compensate pay phone service providers for completed coinless calls.” Still pending before the commission is the larger issue of cost-based line rates, which would provide guidance to state regulators on establishing line-rate tariffs.

Under the previous rule, payment responsibility was on the last carrier to receive a call. But coinless calls are often passed between multiple carriers before reaching a final destination. With no record tracking the calls' path, PSPs were left wondering which carrier terminated the call and should pay the 24¢ dial-around compensation rate.

While carriers bickered over fee responsibility, PSPs lost between 20% and 50% of potential revenues — almost $300 million annually, according to estimates from the American Public Communications Council (APCC).

“We were in a position of trying to collect dial-around from an unknown entity,” said Lin Harvey, director of regulatory affairs at PhoneTel Technologies, an independent pay phone provider. “By moving the tollgate, we have an identity of who we're dealing with.”

The commission ordered that carriers must track calls passed along to resellers to ascertain where calls are completed. The commission also said PSPs and carriers may negotiate the current dial-around compensation rate but cannot exceed the default 24¢ fee.

The pay phone industry slumped in recent years as competing technologies have emerged. Expensive operating costs, low revenues and a crush of wireless users have all contributed to the industry's woes.

The Cellular Telecommunications & Internet Association estimates that, since June 1999, the number of wireless users has increased 49% to 113 million. The number of pay phones in service has dwindled from 2.6 million to 2.2 million since that time, the APCC said.

Individual companies have felt the sting as well. Nasdaq delisted Davel Communications — the largest independent U.S. pay phone company — last year after its stock dropped from $27 to only 2¢ per share during a 24-month period. And Tampa, Fla.-based pay phone manufacturer Elcotel Telecommunications filed for Chapter 11 bankruptcy protection in January.

In February, BellSouth announced it was exiting the pay phone business by the end of 2002. Though BellSouth is the first RBOC to pull out of the pay phone segment, it isn't the first to consider the move.

“At one time or another every one of the regional Bell operating companies has had that discussion, but how serious they are about it is anyone's guess,” said Vince Sandusky, vice president of the APCC. “Large companies have other criteria for their decisions than a $10 per phone decision.”

Indeed, BellSouth said, even though the FCC's order could increase revenues, it has no plans to come back.

Once the FCC resolves the line-rate issue, Sandusky said the industry would come under control, but would not be an attractive market for start-ups.

“Even if those things do get worked out, it would be difficult to attract capital to a business that is perceived as one with no growth curve,” Sandusky said. “We may be able to stabilize the rate of loss, but significant growth in traditional pay phones is questionable.”

Why pay phones matter

1	Approximately 5.6 million American households do not have residential phone service
ABC 2	Roughly 1 in 4 poor Americans in rural areas lack basic phone service
DEF 3	Over the past two years, the number of pay phones nationwide has dwindled from 2.6 million to 2.2 million
GHI 4	911 calls are free on any pay phone, serving a public safety purpose
JKL 5	Pay phone providers lose an estimated $288 million a year in uncollected dial-around compensation
Source: The American Public Communications Council