Originally created 09/02/01

Pay phones are disappearing as telecommunications moves to wireless



Superman, dope pushers, hard-boiled detectives and terrorists all rely on the telephone booth.

The anonymity that calling from random locations affords is a constant thread of American popular culture. But we should prepare to look back fondly on the days of dropping coins into slots to place calls.

Phone booths are being replaced by cellular telephones. BellSouth says it's dumping its 143,000 pay phones by the end of 2003, leaving only the 140,000 or so pay phones operated by independent providers.

BellSouth and other big phone companies, including Verizon and SBC Communications, have long complained about sagging pay-phone revenues as the growth of mobile phones exploded with nifty extras including voice mail, e-mail and Web access.

Not surprisingly, nearly 300,000 pay telephones have vanished from the American landscape.

The Federal Communications Commission deregulated the pay-phone industry in 1991, giving rise to hundreds of competitors to the regional Bell companies.

During this period, public demand for pay phones dropped so much that they just don't make money anymore, said Kevin Curtin, BellSouth's regional manager in Savannah.

"Most people can't remember the last time they used a pay phone," Mr. Curtin said. "I can't."

Fewer pay phones

More than 1,700 companies make up the pay-phone industry. Several besides BellSouth operate in Georgia.

The American Public Communications Council, a trade group representing independent pay-phone companies, sees BellSouth's exit from the market as an example of the problems facing the pay-phone business.

BellSouth is not the only company trying to ditch pay phones, said Vince Sandusky, president of the council. SBC Communications tried selling its phones but couldn't come to terms with prospective buyers, he said.

People still use pay phones, but when they use calling cards and toll-free numbers the fees that were normally paid to the pay-phone owner are often lost.

In BellSouth's case, the connection fees the company gets by switching calls made in its service area to other regions are not rolling in anymore.

If smaller pay-phone companies want to pick up some of the phones, BellSouth will sell. If not, these phones are destined for the junk heap. So far, no buyer has stepped forward.

BellSouth had planned to get rid of all of its pay phones by the end of next year, but clients have asked the company to hold off. It turns out the clients are having a tough time finding other pay-phone providers to fill BellSouth's void.

Some of BellSouth's locations might not be profitable enough to attract independent pay-phone companies.

Nationwide, banks are not willing to lend money to pay-phone companies.

To keep pay phones on site, locations increasingly are agreeing to take less or no commission from the pay-phone company, Mr. Sandusky said. Some have even offered to help pay the line fees.

But, with BellSouth committed to exiting thepay-phone business, will other large phone companies follow its lead? Mr. Sandusky says it's possible.

"But like BellSouth is finding out now, it's hard even to walk away," he said.

Meanwhile, BellSouth is considering raising pay-phone rates. Other regional phone companies, including SBC Communications and Qwest, have raised rates from 35 cents to 50 cents.

Landlines proliferate

Telephone companies such as BellSouth are scrambling to establish products that are still relevant to today's most prized customer - the business client.

While conceding that acceptance of cell phones is cutting into BellSouth's traditional business, Mr. Curtin balks at the notion that these phones are replacing the need for landlines.

"Replacements - we haven't seen a great deal of that yet," he said.

Residential phone lines are very affordable, rivaling the cost of cell-phone service plans, depending on calling habits. With flat-fee calling for local areas, Mr. Curtin said he expects many customers to cling to their landline. Long distance might be threatened, but that's not BellSouth's problem because it is still mainly a local telephone service provider.

What's really propelling BellSouth's landline business, though, is a healthy demand for high-speed Internet access. BellSouth wants customers to think of their phone company when looking to get online.

As of March 31, BellSouth had more than 57 million access lines companywide. This is a 25 percent increase from a year ago.

Digital and data services are pushing this increase. "That's where our future is," Mr. Curtin said. "Over half of the traffic on our network today is data."

As Internet provider, BellSouth confronts a business world chock full of competition - a bit of a change for a company created as a regulated monopoly.

As it fights to keep customers, BellSouth faces the reality that cell-phone users can drop their landline connections entirely and connect to the Internet through cable providers.

A little more than a year ago, cable operator Comcast Corp. launched its high-speed Internet connection via cable modem.

And like BellSouth, Comcast looks at current customers and sees a captive market ready for exploitation.

So far, Comcast has signed up a little more than 10 percent of its customer base, but it says its product continues gaining support.

Initially the online offering lost money, as expected. But there was never any doubt that this was something Comcast needed to get into, said Brianne Yontz, Comcast marketing manager.

"We are seeing more people spending more time online than watching cable programming," Mr. Yontz said.

Rise of wireless

As cell-phone use grows, and business segments such as pay phones take hits, BellSouth's officials have adopted what amounts to a "if you can't beat 'em, own 'em" plan.

BellSouth teamed up with SBC Communications to form Cingular Wireless, a company with assets of about $51 billion and 21 million customers.

Nationally, only Verizon Wireless, with 27.5 million customers, is larger than Cingular. Like Cingular, Verizon also was born by a mega-merger (GTE Corp. and Bell Atlantic).

Verizon says 203 million of the roughly 285 million U.S. residents are inside service areas where the company has FCC operating licenses. Verizon provides digital coverage in almost every major U.S. city.

But Mr. Curtin says there's plenty of room for Cingular's growth. So far, he said the partnership with SBC boasts a 17 percent annualized growth in markets that have about 190 million residents nationwide.

The company's growth is not just stateside. Parts of the world, particularly South America, where the landline telephone infrastructure lags behind that of the United States, are ripe for leap-frogging from limited or no communication into the world of wireless.

BellSouth has about 8 million subscribers in Latin America. Cingular's Latin American growth rate is about 43 percent, Mr. Curtin said.

"Wireless is the only way people often can get a phone in Latin America," he said. "It can be up to a year until you get a phone."

But BellSouth, Verizon and other traditional telephone companies operate in a wireless market thick with service providers, including Alltel, Nextel, Cellular One, AT&T, MCI WorldCom and Sprint.

With such stiff competition, Mr. Curtin says wireless providers need sales plans that make their company attractive to what can be a fickle customer base.

Increasingly, Mr. Curtin said, wireless providers sell flat-rate local calling plans and pre-pay services. These products are intended to capture the customers who don't want Internet access.

In some cases, these might also be the same people who relied on pay phones. With the pre-pay plans, customers don't need to put down a security deposit or have immaculate credit because the service is paid for in advance.

"There are all-you-can-eat wireless plans," Mr. Curtin said. "But with products like DSL (high-speed Internet access), we're bringing in products unavailable with other wireless plans."

Mr. Curtin says BellSouth hopes that customers with its high-speed Internet access will think of BellSouth when placing a cell-phone call. And because the phone line will be there, carrying e-mails and Web graphics, he reasons, the customer might as well hook up a telephone, just in case.

BellSouth is not the only company employing this strategy. AT&T, MCI and Sprint all offer discounted long-distance service to customers using their Internet access. Companies such as Nextel are developing their own wireless Internet hookups.

Happy to say goodbye

Not quite everyone is sad to see the pay phone go.

Having fewer pay phones might not cut down on the drug trade, but at least it will make it more difficult for dealers, said Steve Smith,the commander of the Chatham-Savannah Counter Narcotics Team.

"One of the things we see, and we see things from a different slant, is people using pay phones to proliferate drug transactions," Mr. Smith said.

For years, dealers have staked out pay phones outside convenience stores or on street corners. Mr. Smith questions the argument that poor folks who can't afford a home phone need these pay phones.

Can someone afford, he asks, to risk his life by cutting in on a deal going down? The phones might not receive incoming calls, but beepers solved that problem. Getting rid of the phones might also reduce loitering.

Landline to cellular

Alexander Graham Bell receives U.S. Patent No. 174,465 for the telephone.

First permanent outdoor telephone wire strung. U.S. commercial telephone service begins.

Workable exchange created to switch calls among growing number of subscribers.

Subscribers identified by numbers rather than names.

1880s

Long-distance services established.

William Gray files the first of 23 pay-station patents.

First automatic dial system patented by a Kansas City undertaker.

First coin telephone installed in Hartford, Conn.

Lee De Forest begins work on an "audion," a three element vacuum tube, which could amplify radio waves for long-distance calls.

American Telephone and Telegraph (AT&T) takes control of Western Union Telegraph Co.

The Bell System buys the rights to Dr. De Forest's patents.

Ten million Bell System telephones in service.

Transatlantic service from New York to London becomes operational via radio waves.

Research on electronic telephone exchanges begins; it is ultimately perfected in the 1960s.

First commercial mobile telephone service established, using radio to link moving vehicles to the telephone network.

Microwave radio transmission used for long-distance telephony. The transistor, a key to modern electronics, is invented at Bell Labs. AT&T proposes that the FCC allocate a large number of radio-spectrum frequencies so widespread mobile phone service could become feasible, giving AT&T an incentive to research the new technology.

Laying of transatlantic telephone cables begins.

Telstar, the world's first international communications satellite, goes into orbit as a collaboration between NASA and the Bell System.

Bell Labs develops a prototype cellular phone system; trial service is launched in Chicago the next year.

First commercial cellular-phone service starts in Tokyo.

FCC authorizes commercial cellular-phone service nationwide.

First U.S. commercial cellular-phone service offered in Chicago by Ameritech.

Cellular-phone subscribers exceed 1 million. FCC declares that cellular-phone licensees may employ alternative transmission technologies.

In-flight digital telephones deployed; now available on more than 4,000 commercial flights.

U.S. mobile-phone use reaches 13 million.

FCC authorizes new class of mobile-phone technology, known as PCS, which uses a higher frequency than traditional cellular.

U.S. mobile-phone use reaches 80 million.