PUC to Revamp Pay Phone Rules to Benefit Callers
A motorist recently pulled up to a phone booth outside a grocery in Marin County, dialed a number and heard a synthesized voice instruct him to deposit 65 cents to complete the local call. Finding only 40 cents in his pocket, he cursed, but noted that the phone was owned not by the phone company but by the grocery. He saw a Pacific Bell booth a block away and completed the call there for 20 cents.
In La Jolla, a caller tried to use her usual long-distance carrier on a pay phone installed in a shopping center, only to be informed, by a live operator, that she could not reach that carrier over that privately owned phone. The exasperated consumer drove to a nearby hotel, where she found a Pacific Bell phone and easily placed the call.
Such experiences have been all too common since regulators opened up the pay phone business--previously a monopoly of local phone companies such as Pacific Bell--to competition nearly five years ago. As a result, anyone can buy a pay telephone, lease a line from the local phone company and begin collecting money. Although California regulators limit how much can be charged, so far there has been no way to protect consumers from being overcharged.
Not surprising, the benefits so far have been mostly one-way--and not toward consumers. But that situation appears about to change radically--at least in California.
An investigation of the state’s pay phone market undertaken by the Public Utilities Commission nearly two years ago is expected to bear fruit by summer. The result will be a PUC order that will set uniform standards and rules to protect consumers from being overcharged. Regulators also hope that their order will enhance competition and speed introduction of new services in a former monopoly that for a century offered little more than “plain vanilla” telephone service.
The centerpiece of the impending order is a proposed settlement that reconciles the previously irreconcilable differences that had consumers, phone companies and pay phone owners constantly at one another’s throats almost from the moment that the PUC opened up the state’s pay phone market in November, 1985.
That settlement is anticipated to be a major part of a PUC order expected in June that will let Pacific Bell’s computers monitor pay phones hooked up to its system and reject billings that exceed state-imposed price limits. It will also require all pay phones to allow free emergency and service calls and free access to any long-distance carrier that the caller wishes.
Ken McEldowney, executive director of San Francisco-based Consumer Action, an advocacy group that is partner to the agreement, called it “a reasonable compromise of issues raised in the investigations.” Other partners to the accord include another prominent consumer group, Toward Utility Rate Normalization and the PUC’s consumer-support division, local phone companies and long-distance carriers.
For frustrated consumers such as the callers in Marin County and La Jolla, the anticipated PUC decision incorporating that agreement will come not a moment too soon. “It is a step forward and will give some protection to the customer,” said Steve Sazegari, telecommunications analyst with Dataquest in San Jose.
And if the settlement agreement works as expected in California--the richest market in the nation’s $6.9-billion pay phone business--it will likely spur efforts to achieve similar agreements in other states, said Eric Nelson, marketing research director of the North American Telecommunications Assn.
The commission’s decision would put the developing industry for the first time on a firm footing, said Thomas R. Keane, president of the California Payphone Assn., an organization of pay phone owners and equipment suppliers.
But start-up problems and consumer complaints were not just the work of a few bad characters trying to make a quick buck in the new business. Honest operators suffered frequently from their inexperience in the telephone industry and from inferior equipment. Other problems were created by the haste with which federal and state regulators opened the monopoly to competition. Local phone companies also had difficulty at times in balancing their conflicting views of these new pay phone owners, who were both customers for phone lines and competitors for pay phone revenue.
Then, too, some companies tried to offer fancy new equipment before it was fully tested or the market was ready for it, Keane acknowledged. “We were trying to interest people in (the promise of) tomorrow and not taking care of today--things like whether their calls went through or not,” he said.
It also took time for pay phone manufacturers, such as Dallas-based Intellicall, to produce reliable machines that solved the kinds of problems the new private pay phone owners encountered.
For example, privately owned phones don’t have access to the computer controls that phone companies maintain for their own sets. As a result, private pay phones have trouble detecting precisely when a connection is achieved and billing should begin--a piece of cake for phone company machines. One result for the new pay phone owners, whose phones might start billing after a certain number of rings: Customers were sometimes charged for uncompleted calls.
As part of the settlement, Pacific Bell, GTE California and Contel, the state’s three largest local phone companies, agreed to make available more of the call monitoring services that they use on their own pay phones.
That should help the industry combat fraud, which Keane said is “growing almost exponentially.” Again, the telephone companies have an advantage because the sophisticated electronics that control their machines and provide security against fraud are located miles away in their own buildings. Fraud is far easier to perpetrate on phones that have all their controls built into them, Keane said. Once those controls are bypassed, consumers can make all the calls they want for free.
Until now, industry efforts to thwart fraud have created new problems for law-abiding consumers, he said.
Take one attempt to combat what is known as “chain dialing.” This is a technique that allows a caller to make repeated free calls over a private pay phone unable to detect quickly enough when a call was completed. Some owners programmed their phones to shut off after a given number of digits were entered. That foiled would-be chain dialers all right--but also frustrated legitimate customers who needed to punch more than the allowed number of digits in order to respond, say, to an automated answering service.
Despite such problems, the market continues to grow, according to the North American Telecommunications Assn. California has more than 200,000 pay telephones--about a tenth of the nations’s nearly 2 million--with more than 30,000 of them owned by private parties rather than telephone utilities. The association expects private pay phones to make up more than a third of the nation’s total within five years, said Nelson, the director of marketing research.
“Installed in the right location, a pay phone produces a constant revenue stream,” he explained. And while some of the participants now have more than 1,000 phones, the business “can still be a mom-and-pop thing.”
The anticipated rapid growth adds to pressures from consumers and the industry to create standards and enforceable rules to ensure uniform service and reasonable rates at all pay phones. In California, Michael Galvin, a PUC administrative law judge, or hearing officer, is beginning to draft what will become his recommendation to the five commissioners.
Galvin said he expects to produce the draft decision by the end of April, receive comments on it for another month, then submit it to the commission for deliberation and probably a decision in June.
THE EVOLVING U.S. PAY TELEPHONE MARKET * 1889: First pay phone installed in the Hartford Bank, Hartford, Conn. * 1983: 1.9 million pay phones installed in the United States, owned by the Bell System and independent local phone companies. * 1984: Bell System ends, Federal Communications Commission allows privately owned pay telephones to be hooked up to the interstate telephone network but leaves it to state regulators to complete the job by opening the intrastate and local calling markets. * 1985: California Public Utilities Commission opens the state’s pay telephone market to competition. * 1990: California PUC expected to approve a settlement resolving most consumer-industry complaints concerning the competitive pay telephone market.
THE PAY PHONE MARKET IN THE U.S. In millions of units
Privately Utility owned owned Total 1985 0.03 1.84 1.87 1990* 0.39 1.85 2.24 1995** 1.05 1.84 2.89
* Estimate
** Projection
Source: North American Telecommunications Assn.
