Dialing for Dollars : Deregulated Pay Phones Spawn Consumer Gripes, Promise New Services
Airline pilot Bill Conrey routinely stays at hotels along his flight path, regularly phoning home to Tennessee and charging the calls on his AT&T; “Calling Card.” He considers such expenses unavoidable in his line of work, and normally is a good judge of what hotel calls cost.
So Conrey was stunned when he spotted a $50 charge on his phone bill for a call from Washington that he had expected to cost about $25. Moreover, the charge wasn’t from AT&T;, but from a long-distance company he’d never heard of.
When Conrey investigated, he learned that the hotel had changed management, and the new team had cut a deal with another long-distance carrier that offered to pay more to handle the hotel’s phone service.
“It’s not like a legitimate long-distance company,” Conrey complained. “They’re just providing a service where they can bill you twice as much as AT&T;!”
Conrey is not the only telephone customer outraged by unexpectedly high bills for calls made from hotel rooms or from coin-operated phones. Deregulation of the pay-phone business, a byproduct of the 1984 breakup of American Telephone & Telegraph, has brought forth a legion of new pay-phone entrepreneurs, looser governmental oversight--and a flood of consumer complaints.
The nature of the complaints has changed somewhat over the five years since private investors--not just AT&T; and local phone companies--were allowed to buy, install and operate pay phones and to handle phone service in hotels, motels and hospitals. Poor service and simple mechanical breakdowns on private pay phones remain problems, but these are diminishing as technology improves. Meanwhile, regulatory reform has reduced complaints in some parts of the country, including California, about high charges from little-known phone companies on calls from private pay phones at shopping centers, restaurants, bars and other high-traffic sites.
But room-phone service remains exempt from regulation and continues to draw heavy fire from consumers. “They are totally unregulated,” said John O’Keefe, president of the California Payphone Assn. and a former Pacific Bell executive. “The burden is really on the consumer.”
Not everyone is suffering under pay-phone deregulation.
Innkeepers, restaurateurs and convenience-store operators are benefiting from the commissions they receive for allowing private pay phones to be installed on their premises. New enterprises, as well as vending firms that have added pay phones to their other coin-operated machines, maintain the phones and share the revenue with the property owners.
And the pay-phone business is getting even better these days, thanks to so-called alternative operator services--new companies that provide credit-card and collect-call service for pay-phone owners and long-distance carriers that have no operators of their own. These operator-assisted calls produce hefty revenues that once eluded owners of private pay phones. Previously, their customers could dial an AT&T; or local operator for nothing and charge their calls, providing revenue for the operator’s company but nothing at all for the phone’s owner.
Price Gouging
It’s another story, however, for consumers such as Gayla Daugherty, who sells insurance in Oklahoma City. Daugherty said she placed an early-morning call home from a hotel room in Las Vegas and, like Conrey, used her AT&T; Calling Card. Only later did she learn that the operator who handled her call was not an AT&T; employee, as she had assumed, but worked for an alternative operator service allied with another long-distance carrier. As a result, her call was billed at more than $1 a minute at an hour of the day when AT&T; would have charged about half that.
“I was livid,” she said.
The lodging industry insists that price gouging on room phones is the exception, not the rule--certainly among those hotels catering to repeat customers, particularly business travelers and affluent vacationers. Michele Kelley, spokeswoman for the American Hotel-Motel Assn., said innkeepers also have a right to recover the cost of their investment in telecommunications equipment, especially in view of demands by guests for such new services as electronic checkout.
Still, unexpectedly high tolls charged by unfamiliar companies are only part of what galled Daugherty and Conrey. How was it possible, they wondered, that another carrier could take their business when they had charged their calls--or thought they had--to AT&T;?
The answer goes back once again to the 1984 breakup of the Bell System.
Before AT&T; and its local phone companies were forced to go their separate ways, it was the subsidiaries, the so-called Baby Bells, that issued telephone charge cards. Their customers could use these to make local and long-distance calls while away from home. When AT&T; and the locals parted company, however, AT&T; had to develop its own card and, in doing so, used subscriber data maintained by the Baby Bells.
But the Baby Bells also were required to make the same information available to other carriers and operator-service firms. Consequently, the newcomers were able to use AT&T;’s Calling Card data to bill for their own calls, and customers often learned the difference only after their local phone bills arrived, listing their away-from-home calls.
Horror Stories
Now, to meet complaints by its customers, AT&T; plans to issue cards with new codings that can’t be used by other companies.
The alternative operator services have created consumer confusion and generated complaints almost since they first appeared in 1985. Since then, the Federal Communications Commission has received more than 2,000 complaints regarding them.
Although industry executives acknowledge some horror stories, such as those related by Conrey and Daugherty, they insist that most were the unintended consequences of introducing competition in a former monopoly area and that, in any case, the worst is over. Moreover, they promise that the payoff for consumers, in the form of such new pay-phone services as voice-messaging, is less than a year away, thanks to development of new software and other technology designed to increase the private phones’ versatility. Such services, they say, would never have come about were the old Bell System monopoly still in place.
“We pay a price for freedom and innovation,” said Paul Gamberg, founder and president of Operator Service Providers of America, a year-old trade group. “The litany of horror stories is part of that price.”
Many of those bad experiences, Gamberg said, stemmed from converting a complex network originally built to serve a single entity, into one able to serve many companies offering a variety of services at different prices. “We are doing our best to clean up our industry, but we all have to funnel through the bottleneck that is the old Bell System.”
Gamberg’s view is supported by consumer advocate Ken McEldowney of San Francisco-based Consumer Action and past president of the Consumer Federation of America. “It’s a system that was not set up for competition,” McEldowney agreed. “It’s not just bad guys.”
Even before the emergence of hotel billing problems, the appearance of privately owned coin phones brought “incredible price gouging,” acknowledged O’Keefe of the California Payphone Assn. But that, he insisted, “has really settled down.” For one thing, O’Keefe said, some of the worst offenders, particularly active in Florida and North Carolina, are no longer in business. And the survivors are setting their own service standards to avoid future complaints.
But if the worst is past, problems continue for captive consumers, as trucker Kevin Krofchik can testify.
Some Reforms
Krofchik drives a tractor-trailer from his home in the Washington suburbs, and he uses whatever pay phones he can find at truck stops along his route. Like many a hotel guest, he charges the calls to his AT&T; Calling Card. But last February, Krofchik’s phone bill showed calls handled by a company called International Telecharge Inc., or ITI, that totaled $36.12. That’s 2 1/2 times the cost, he calculated in a complaint filed with the Federal Communications Commission, of the same long-distance calls over AT&T.;
At one stop, when Krofchik tried to reach AT&T;, the ITI operator invited him to find another pay phone, causing the trucker to point out to the FCC: “It is difficult for a loaded tractor-trailer weighing over 75,000 pounds to drive through congested cities looking for a regular telephone.”
As a result of such experiences, some reforms have been imposed on the new operator-services firms and pay-phone owners. In California, for example, the Public Utilities Commission has limited the amount that private pay-phone owners can charge on calls within the state to a maximum of 10 cents more than applicable local phone company or AT&T; charges. And the PUC is expected this summer to approve a comprehensive agreement among Pacific Bell, GTE California, consumer advocates and the smaller firms that will, O’Keefe predicted, “bring stability to the pay-phone marketplace in California.”
Among other things, the new agreement calls for the private pay phones to roll back their price for making a local call to 20 cents, instead of the 25 cents they have been allowed, and to freeze it there for five years. And the local phone companies agreed to pay private phone owners for toll-free calls placed on their telephones.
But such regulations do not apply to calls between states, which provide “most of the money these companies make,” said David Wagenhauser, who heads the Telecommunications Research and Action Center, or TRAC. “That’s the jurisdiction of the Federal Communications Commission,” he said, “and the FCC, to put it mildly, has been lax.”
Price Limits
Last Feb. 27, however, the FCC responded to a complaint TRAC filed last summer by imposing the first standards for interstate pay-phone services. These include requiring all operators to identify their companies and to make available information on prices. They also must try to connect callers with the long-distance carrier of their choice. (Not all pay phones have this capability.)
But TRAC, which still wants federally imposed price limits, has appealed the FCC decision.
Support is building in Congress, meanwhile, to enact proposed telephone operator consumer protection legislation introduced by Rep. Jim Cooper (D-Tenn.) in response to constituent complaints. That measure, which won unanimous approval last month from the House telecommunications and finance subcommittee, seeks to protect consumers from unfair rates and unpleasant surprises without squelching the new competitors. It has the support of the Washington-based Competitive Telecommunications Assn.
Ron Evans, vice president of Van Nuys-based Com Systems, a long-distance carrier with its own operators, said consumer complaints run in cycles as private pay-phone vendors and operator-service companies enter new areas. “Where competition has been in place for 12 months, the complaints start going down,” he maintained.
Moreover, private pay phones are better built today. Mark L. Mawrence, vice president of corporate development for U.S. Teletron, a fast-growing City of Industry partnership that supplies and operates 2,000 investor-owned pay phones, said fewer than 5% of its high-technology machines are out of service at any one time--about half the rate, he said, for the much simpler Bell phones.
New Software
Improved equipment is important because, unlike most phone-company instruments, which are controlled by the local switching office, privately owned phones have to contain within them all the smarts needed to price calls and collect and return coins. At an industry meeting last April organized in Las Vegas by Telestrategies, an industry support firm in McLean, Va., telecommunications equipment vendors showed off pay phones that could transmit facsimiles as well as a system that automates even operator assistance.
Mawrence said his company and a national hotel chain are about to start testing “operator-in-a-box” software enabling innkeepers to connect guests directly to the guests’ desired carriers and provide automated operator assistance at competitive rates, plus a specified surcharge to compensate the hotel for its equipment investment. That system, he said, will meet the hotels’ revenue needs without undue cost to guests. This, he predicted, will become “the standard within a few years.”
Still, Commissioner Andrew Barrett of the Illinois Commerce Commission, who spoke at the gathering, said the key to consumer acceptance of the newcomers is “lower prices--or at least reasonable prices--and more choices and better services.” So far, Barrett added, “the public is not seeing any of those things.”
Moreover, consumer advocate McEldowney said that, while new services are likely, he doubts that rates will decline much for basic calling, despite the new competition for customers. That troubles both him and Gene Kimmelman, legislative director of Consumer Federation of America.
“They may say we offer you greater services and quality and you should pay more for them--and that’s fine, if you want the greater services and quality,” Kimmelman said. “But if all you want is basic service--plain vanilla--why should you have to pay more?”
