Collection Challenge Stymies Payphone Potential

Posted: 09/2000

Soap Box

Collection Challenge Stymies
Payphone Potential
By Vincent Sandusky

Someday soon, almost everyone, from mainstream consumers to high-end businesspeople, will have the opportunity to fulfill nearly any telecommunications need, from buying a movie ticket to participating in a videoconference, just about anywhere. And they will be able to do this with a high-tech device already planted on street corners, in building lobbies and at restaurants throughout the United States. This device is called the payphone.

As it has for decades, the payphone industry of the 21st century will lead the way in delivering telecommunications services to consumers who are away from their homes and offices.

Today, the service is primarily voice
transmission–local, toll-free and long-distance calls. But as technology evolves, the
services offered and devices deployed by the payphone industry will evolve too.

The most valuable asset a payphone service provider (PSP) owns isn’t the device, it’s the contract to place a terminal fed by a telecommunications line in a specific location. In today’s new economy, information services are becoming more ubiquitous, and devices are becoming more useful. When those services and devices are combined with a PSP location contract, the possibilities become endless.

A lost traveler might stop at a street-corner terminal to print out maps and directions. An executive on the go might send or receive faxes and e-mails in the lobby of an office building. Consumers might drop by a PSP terminal in a restaurant to buy tickets for the movie they’ll see after dinner.

Telecommunications carriers will be the conduits for those services and more–like checking bank balances and keeping up to speed on the latest news.

The economic models exist to make these services–including phone calls–virtually free to the consumer. Sponsors will pay to deliver their content. Revenue from advertising displays and commissions on transactions could replace coins dropped into a payphone. Internet telephony will reduce the cost of long-distance voice calls dramatically. And telecommunications services overall will become cheaper as their pricing becomes commodity based.

Does this mean the payphone as we traditionally know it will disappear? Of course not. Consumers always will be enthralled with the latest gadgets, as will the industry that makes them. But in the end, most consumers likely will discover they don’t need them.

For most users, a street-corner terminal will remain what the payphone is for millions of people today: The cheapest, most convenient and reliable communications device away from home or office.

To be sure, wireless communications devices, like cell phones, are changing the role of payphones. Wireless devices offer some added convenience for voice-only calls. But while the technology for delivering data, voice and video to payphone terminals is within grasp, the right blend of bandwidth and infrastructure remains years away for wireless devices.

Even then, most businesspeople won’t want to risk a dropped call or poor cell for a service as important as a stock transaction or videoconference.

As consumers use telecommunications services away from home more and more, they’ll become less tolerant of devices that are only as useful as their batteries’ lives are long.

It’s time to see the payphone industry in a different light–as the premier provider of a wide-ranging suite of telecommunications services away from home or office with more than 2 million distribution points. The possibilities are limited only by our imaginations. But their practicality may well be limited by poor policy environment.

One of the primary challenges facing today’s payphone industry is its difficulty in collecting the revenues to which it is entitled by federal law, especially in the area of dial-around compensation.

Whether today’s 24-cent-per-call charge to long-distance providers is too high or too low is a separate issue. (The fee already has been adjusted downward twice.) Regardless of where the rate is set, the fact remains that about one out of every three dial-around calls made from a payphone goes uncompensated.

Even at the comparatively low rate of 24 cents per call, uncompensated dial-around calls are costing PSPs nearly $24 million a month–or $288 million a year.

That staggering sum of legitimately earned revenue is being withheld from an industry in dire need of the capital because it is required to meet a Congressional mandate for the widespread deployment of payphones.

Just as important, withholding this
revenue deprives the industry of the capital it needs to deploy the next generation of public communication terminals for U.S. consumers.

The lack of compensation comes in two forms. Some facilities-based carriers and resellers underpay PSPs because they do not count or track every call. Others simply do not pay at all.

These companies offer a range of excuses for dodging an obligation they clearly are required to meet.

Some claim they were unaware they had to pay, or that they thought their underlying carriers would pay. Others say they knew they had to pay but didn’t have the money. Some carriers complain that paying takes too much administrative effort or that they should not have to pay for short calls. Still others protest that the LEC did not deliver appropriate coding digits–ignoring the fact that the carrier didn’t bother to order them.

The excuses are as ridiculous as they are numerous. None of them would be acceptable for failure to pay for any other product or service. And the unfairness is outdone only by its irony: So far, many carriers have had no trouble hitting consumers with a
payphone surcharge more than double the 24 cent rate. And few would accept from consumers any of the excuses carriers routinely offer to PSPs for their failure to pay.

An American Public Communications Council Inc.-led coalition has filed more than 30 lawsuits against nonpaying carriers. It has settled almost all of them. The APCC
( is committed to defending the rights of its members. But neither does it think litigation is the most efficient solution. The problem of underpayment should be attacked at its source–nebulous FCC
( rules that are not specific enough regarding carriers’ responsibilities in tracking calls and paying

Under current rules, PSPs must use their best judgment and scrounge any information they can to identify carriers that meet the FCC criteria and are therefore responsible for paying.

The system is highly inefficient. In addition, it penalizes legitimate carriers while allowing the less ethical players to dodge their responsibilities.

This situation should be a concern to PHONE+ readers. The more it costs PSPs to collect–and the more difficult it is to document who is failing to pay–the higher the per-call charge is bound to be. Rogue carriers place legitimate ones at a competitive disadvantage. Because they do not meet their obligations to PSPs, rogue carriers can offer customers lower rates or simply pocket the surcharge they collect.

A simple FCC rule change (a petition is pending and ripe for action) would resolve the problem. Instead of placing the tollgate at the last switch in the line, the FCC should place it up front, assigning the responsibility for tracking and paying dial around to the first carrier who gets a call out of the LEC switch. Because the number of carriers involved with the process would drop, hassles–and, therefore, costs–would too.

Most of the PSP industry, as well as many thoughtful people on the carrier side, support that approach. In fact, the FCC adopted it in its initial rules implementing the payphone provisions of the Telecommunications Act of 1996. But it was replaced with the cumbersome “last switch in the line” method after the large carriers complained they should not be responsible for their resellers.

Time has proven that position harmful, even to the large carriers. Because many of them pay on some but not all of their reseller customers, they must maintain overly complicated tracking systems.

To prove who is responsible for paying in this muddled system, some large carriers have been placed in the awkward position of providing evidence in court against their own customers. Others are being undercut in the market by their own resellers, who are dodging their payphone compensation obligations.

Some carriers object to the “first switch in the line” approach on the technical grounds that they cannot know positively whether a call has been answered once it moves to a reseller’s switch. That problem eventually will have a technical solution, if there is a market for one. In the meantime, the issue can be handled by employing surrogates for completion rates or simply by market negotiations between carriers and PSPs.

The dial-around debate demands a quick solution. The FCC needs to change its rules, and carriers need to meet their obligations. Most of all, PSPs need the revenue–earnings to which they clearly are entitled–to invest in the next generation of telecommunications services for consumers on the go.

Vincent Sandusky is the president of the American Public Communications Council Inc.
(APCC), a national trade association that represents the independent (nontelephone company) payphone service provider industry. He can be reached at


On pending congressional legislation that would tax IP telephony providers …”Bowing to pressure from the Bells to allow Internet telephony to be regulated would be like letting old mainframe computer companies regulate the PC business. The ultimate loser here is the consumer.”

Tapolsky, chairman, president and CEO, Firetalk Communications Inc. (

“Just as millions of people are beginning to use the net to talk with families, friends and e-commerce sites, the Senate is considering old-economy legislation that imposes regulations which will interfere with this growing application. We’re concerned that there is a real lack of understanding by lawmakers and their staffs.”

Zydney, co-founder and CEO, (

“Our network is enriched by the ability of everyone to have affordable access to it. I believe that unfettered growth of the Internet and digital delivery mechanisms will result in more rapid delivery of better services, lower cost and more choices than have ever been seen before. Competition by service providers will put downward pressure on prices–even to rural America. Competition–not

regulatory action–is the preferred course of action.”

–Susan Ness, commissioner, FCC

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