Originally created 01/07/01

Pay phone decline hurts those in need



In the age of cell phones and wireless connections, 5.7 million American households still lack residential phone service.

For these families, pay phones aren't a luxury - they're a necessity.

Last year alone, Georgia lost 1,700 pay phones. There were about 2.6 million pay phones in America in 1998; that number shrank to nearly 2.1 million in 2000.

The decrease coincides with the increasing popularity and affordability of wireless telephones.

But the American Public Communications Council, a lobbying group for independent pay phone companies, says local phone companies and long-distance providers have accelerated the decline by not adequately reimbursing pay phone providers under federal regulations.

The organization says pay phone disconnection has a disproportionately negative impact on poor and minority households - people who are most likely to not have residential phone service.

APCC President Vince Sandusky said local phone companies overcharge independents for connections, and long-distance companies do not fully compensate them for some types of pay phone calls.

"They're getting squeezed from both sides," Mr. Sandusky said. "It makes a huge impact on whether it's economical to keep a phone in place."

Both the overcharging and the undercompensation are contrary to the spirit of the Telecommunications Act of 1996, which was designed to open local phone service to competition.

Telecom Act problems

Independent pay phone service providers pay a monthly fee to local phone companies, such as BellSouth, for a dial tone. The Telecom Act requires local phone companies to provide the hookup at near-cost so local companies can't use their monopoly pricing power to squelch competition.

"Unfortunately, the Feds never issued clear guidelines as to what `cost' means - it was left up to the states to decide," Mr. Sandusky said.

Some phone companies use this interpretive freedom to set high costs with generous profits built in, Mr. Sandusky said.

BellSouth charges independents in Georgia $33.80, which is the true cost of providing service to any customer, BellSouth spokesman Joe Chandler said.

However, he pointed out, residential customers pay less and business customers pay more.

"We charge less than $18.50 for residential phone service," he said. "We charge businesses well above $33. Historically, business has always subsidized residential phone service."

Mr. Chandler said BellSouth's rate for pay phone companies was $46 a month. The new lower rate took effect July 1, 1999, after negotiations with the Georgia Public Communications Association, a state association of independent pay phone providers.

But the APCC said the fee should be no more than $20, well below the $55-$60 that the average independent pay phone provider pays in the United States.

"The fight federally is to get the FCC to issue clear guidelines," Mr. Sandusky said. "For the most part, the phone companies are on one side and we're on the other."

The Telecom Act also requires independent pay phone service providers to be compensated 24 cents for each "dial-around" call, which is a call made through a service such as 1-800-COLLECT and 10-10-220, in addition to toll-free 800 numbers.

Yet the APCC says independents go unpaid on 35 percent of dial-around calls because large long-distance companies, such as AT&T and MCI WorldCom, have not been held responsible for the second- and third-tier companies they allow to use their networks.

The smaller companies, which buy the larger company's excess network capacity at wholesale prices, are the last link in the chain and are theoretically responsible for compensating the independent pay phone companies under Federal Communications Commission rules.

The trouble is, the large phone companies do not disclose, for proprietary reasons, their wholesale customers. Pay phone companies have no way of knowing which calls were wholesale, and to whom.

In the heady world of independent pay phone telecommunications, payment for services rendered hinges on the honor system.

"The system itself is the problem," Mr. Sandusky said. "Essentially, you get paid by those who recognize their obligations; you don't get paid by those who don't."

He estimates uncompensated pay phone calls cost independents $300 million per year.

The American Public Communications Council is lobbying the FCC to revise its regulations to require the first link in the chain be responsible for compensation.

"That's the only way it's able to be audited," Mr. Sandusky said.

Creating a social issue

According to the U.S. Census Bureau's March 2000 survey, 95 percent of American households have telephones. For families with incomes below $10,000, that number drops to 88 percent. For families with incomes below $5,000, it drops to 80 percent.

The trend continues in minority households: 95 percent of white households have telephones; 90 percent of black and Hispanic households do.

Poor minorities fare even worse. Just 71 percent of black families earning less than $5,000 per year have a telephone; 81 percent of poor whites do.

A sampling of independent pay telephones disconnected between January 1998 and July 2000 in Illinois, Maryland, Michigan and South Carolina shows the percentage of disconnected pay phones in ZIP codes with high percentages of poor and minority households is significantly high.

"It breaks down on racial and income levels," Mr. Sandusky said. "Pay phones are disappearing in economically disadvantaged neighborhoods and minority neighborhoods, where they're clearly needed the most. Many households depend on pay phones because they don't have a phone in the home."

ZIP codes with a high minority percentage in Maryland and Michigan have experienced about double the proportion of disconnected pay phones compared with the states' populations.

The proportion of disconnected pay phones in the low income and minority ZIP codes of Illinois and South Carolina are also greater than those of the states' populations.

In order to get the FCC to change its regulations, Mr. Sandusky said he plans to stress the situation's social aspects.

"There's no appetite for the FCC to continue the battle, and the carrier community would dispute some of this stuff," Mr. Sandusky said. "Some carriers say the system is not broken; some say it is. Pay phone service providers want to see a change. Perhaps by stressing the social elements, we will see some action."

Reach John Bankston at (706) 823-3352 or jbanks15@hotmail.com


Demographics of cellular phone ownership

Category/ Percent of People Owning Cellular Phones

Household Income over $75K/53 percent

$10,000-20,000/ 13 percent

Less than $5,000/ 8 percent

Urban/ 32 percent

Suburban/ 54 percent

Rural/ 14 percent