Channel Partners

February 1, 1998

8 Min Read
The Buck Stops Where?

Posted: 02/1998

The Buck Stops Where?

By Debera Bell-Beam

The cost of payphone compensation has begun its run down the
telecom food chain. The payout, however, earmarked for payphone
owners, remains elusive and locked in litigation as lawyers and
judges hammer out what fair compensation means in dollars and

The Personal Communications Industry Association (PCIA) has
filed a motion to delay implementing a Federal Communications
Commission (FCC) order that requires service providers to pay
payphone owners 28.4 cents for all access code and subscriber 800
calls that originate from their payphones. Otherwise, the
professional organization says paging companies will be
irreparably harmed, according to court documents filed Dec. 22.

The PCIA wants the delay to remain until "LECs (local
exchange carriers) are providing unique payphone coding digits
for transmission by PSPs (payphone service providers) to enable
carriers to block calls from specific PSPs, and interexchange
carriers have demonstrated they can make blocking available to
end users in an economic sense, i.e., at a realistic and
reasonable price, for substantially all subscriber 800 and access
code calls originated from payphones," according to court
documents. The PCIA says interexchange carriers (IXCs) stand to
profit from call blocking at paging companies’ expense.

Meanwhile, the turf battle between state and federal
regulatory agencies continues. Two state agencies have filed suit
asking the U.S. Supreme Court to determine whether the
Telecommuni-cations Act of 1996 preempts state authority to set
local coin rates. The U.S. Court of Appeals for the D.C. Circuit
had upheld the FCC’s authority to set payphone rates on an appeal
filed by the Virginia Corporation Commission, which has been
joined by the Texas Office of Public Counsel to bring the issue
before the Supreme Court.

Alongside the PCIA motion, an appeal challenging the current
rate remains pending. "MCI is leading the charge on this
one," says Steve Augustino, an attorney at Kelly, Drye and
Warren LLP, a Washington-based firm that specializes in
telecommunications. MCI, likewise, is seeking a stay of the 28.4
cents rate pending the appeal’s outcome. A number of carriers
have intervened on behalf of the appeal, which is opposed by the
FCC, the American Public Communications Council (APCC) and the
regional Bell operating companies (RBOC)/GTE/SNET Payphone
Coalition, Augustino says.

Smells Like Money

The PCIA motion was filed with the D.C. Circuit, which last
July upheld the FCC’s authority to set payphone rates but ordered
the FCC to refigure its 35 cents payphone compensation rate. The
current rate has faced an onslaught of motions and an appeal in
the same court, which has yet to reach a decision.

Alternatively, the PCIA wants a stay until March 9, when
"the current waiver of LEC obligations to provide PSPs with
coding digits expires." The PCIA contends that "paging
carriers are presently faced with the choice of either trying to
absorb the cost of potentially ruinous compensation obligations
or discontinuing a key component of their service to paging
customers–the ability to call a paging carrier’s 800 number to
collect messages," according to documents.

Some providers are taking no chance of getting stuck with the
bill. In fact, some may be catching a whiff of opportunity as
they pass along price hikes or block calls that will increase
their costs. "The lion’s share of the burden on payphone
compensation is ultimately going to fall on businesses that
provide toll-free services," says AT&T spokesperson Mike
Cuno. "Just as AT&T is having to recover its costs by
collecting the revenues from toll-free services, those companies
are incurring an expense. And we anticipate they are going to
have to recover it. Who are they going to have to recover it
from? They are going to have to recover it from the

What Were They Thinking?

If FCC members thought the new compensation rate would settle
litigation that has generated enough paper to level a forest,
they thought wrong. Most long distance providers blast the
current rate as an unfair windfall for payphone owners, just as
they did before.

On the other side, payphone owners saw opportunity plunge from
35 cents to 28.4 cents a call, and it’s not over yet. The RBOCs,
GTE, Sprint Corp. and AT&T own about 80 percent of nearly 2
million payphones in service, according to Dallas-based Hoak,
Breedlove, Wesneski & Co. Independent payphone providers
(IPPs) account for the balance.

And, that’s not all. Because some providers already are
passing on anticipated new costs, the PCIA has asked the court to
"clarify that end users are under no obligation to pay
compensation through increased IXC rates or charges until such
compensation obligations are, in fact, effective."

Just trying to Recover a Buck, Ma’am

Despite their precarious legal status, increased rates are a
reality that already is making its way down the telecom food
chain. Since the ruling took effect, calls from
payphones–toll-free, collect, credit, calling card and
coin–have become more expensive and even impossible in some
cases. Coin calls have increased across the nation with several
providers raising calls by 10 cents. And some companies have
suspended use of toll-free calls from payphones.

Apparently, AT&T’s customers, at least, will carry the
brunt of payphone compensation as AT&T warned. Since November
1996, AT&T has implemented a formidable cost recovery
program. Toll-free prices went up in February 1997 and again in
May, but this time coupled with hikes to outbound domestic and
international long distance. In November, AT&T imposed a
per-call charge on coinless calls from payphones. Finally,
AT&T rang in the year with a first-time-ever prepaid charge.
Cuno makes no bones that those rate changes are directly linked
to payphone compensation.

AT&T is not alone. The FCC’s payphone compensation rule
sparked an average 7 percent, across-the-board jump in 800 rates
in addition to per-call charges, despite an FCC-ordered access
charge reduction of $600 million to $800 million, says APCC
President Vince Sandusky. The trade organization represents
independent payphone providers. "They do pretty damn well on
this payphone compensation," Sandusky says. He isn’t
referring to payphone owners, who barely had cashed their initial
checks before payment was stopped to await legal outcome.

A Public Relations Assault

Meanwhile, all sides are firing public relations volleys. And,
the FCC has received at least 11 petitions for reconsideration
that include data AT&T claims shows the 28.4 cents per-call
rate should be cut dramatically.

Moreover, "some long distance companies are advising
consumers that the FCC decided that consumers making calls from
payphones should pay a per-call charge to compensate the
PSP," according to FCC consumer information released by the
agency’s common carrier bureau. "The FCC left it to each
long distance company to determine how it will recover the cost
of compensating PSPs."

The FCC says the "per-call compensation rate is a default
rate that can be reduced or increased at any time through an
agreement between the long distance company and the PSP."
The leverage is intended to be buttressed with call blocking,
which allows carriers "to block subscriber 800 calls from
payphones when the associated compensation amounts are not
agreeable to the carrier," according to court documents. The
FCC acknowledges, however, that 800/888 and 10XXX access code
calls are unlikely subjects of such contracts. The PCIA says call
blocking has serious shortcomings, with only two options: block
none or all toll-free payphone calls.

MCI’s website warns people through consumer advocate David
Horowitz that rate hikes will benefit "the local telephone
monopolies" at consumers’ expense. Taking the greatest hit
will be "military personnel, business travelers and worst of
all, lower-income people who can’t afford their own home
phone," MCI says. "The local telephone monopolies have
said that compensation should be as much as 90 cents per call,
which is unreasonable for consumers and much more than the actual

Payphone Compensation:
A Humanitarian Effort

Congressional intent was clearly enunciated in legislating the
Telecom Act: Consumers are the beneficiaries of an open market
that offers better service at competitive prices. So far,
however, ambiguity has ruled the day when it comes to
implementation. Customers are on the receiving end of rate hikes
and incessant litigation (for which they are or will be paying in
one form or another).

And, while some providers are pondering new-found–if not yet
received–wealth, others are trying to hold onto theirs and
perhaps looking for opportunity along the way. The cost effect,
so far, appears to be on a downhill slide that may follow an
uphill battle.

Mobile Telecommunication Technologies Corp. (Mtel), for one,
recently announced restrictions on 800/888 calls from payphones.
Mtel, which claims more than 1 million customers, now blocks such
calls into its SkyTel system, which provides SkyPager, SkyWord,
SkyWord Plus, and SkyWriter services. The company is avoiding the
per-call surcharge, which includes 1.6 cents tacked on by long
distance. SkyTel payphone access numbers are charged as long
distance to callers outside the company’s Jackson, Miss., area.
Mtel also is blocking Motorola prepaid paging numbers from
payphone access.

Personal and corporate 800/888 numbers remain accessible from
payphones, but their use is accompanied by the per-call charge.
Or, these SkyTel customers may opt to have their numbers blocked
from payphone usage.

Mark McElroy, Mtel director of corporate communications, notes
that less than 3 percent of 800/888 calls come from payphones,
but the company does have corporate customers who have been
rightfully concerned. Moreover, the cost hike is not lost on Mtel
itself. "It certainly means there are fees we will have to
pay," McElroy says. "Our customer service number is not
blocked. We’ll just have to absorb those expenses or pass them on
as any business must."

Absorbing the cost of payphone compensation just doesn’t seem
a likely strategy for most links along the telecom food chain.
And those at the top still look hungry. "AT&T is not
making money on this," Cuno explains. "What we’re
trying to do is recover our costs. As it happens, we are still
out of pocket on this."

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