New Federal Rules Expected to Result in Pay Phone Hikes
The price of a pay phone call appears headed up to 35 cents across much of the nation, under new federal rules going into effect today that free telephone companies to charge whatever the market will bear.
Pacific Bell, which operates about 65% of California’s 227,000 pay phones, acknowledges that the days of 25-cent calls are coming to an end but will not say how big a rate increase it is planning to make.
Most industry analysts and consumers groups, however, say the cost of local pay telephone calls--now 25 cents in most places--will most likely rise to at least 35 cents. Among the hardest hit will be residents of urban areas and captive customers in places such as airports, industry critics charge.
“Clearly, the industry feels a rate higher than 25 cents is justified, [and] what’s likely is a rate of 35 cents a call,” said Robert M. Johnson, a telephone analyst at Chicago Corp.
Carriers are also expected for the first time to start charging for local directory assistance under rules approved by the Federal Communications Commission last October. Emergency 911 calls, however, will remain free of charge.
Telephone officials caution that it will take months to fully implement any price changes because they must post prices and adjust coin mechanisms before instituting new rates.
“While this will likely mean a price increase for local pay phone calls sometime over the next few weeks, we are still evaluating our pricing and service options for customers of Southwestern Bell, Pacific Bell and Nevada Bell,” said Ron Jennings, vice president and general manager for the pay telephone operations of SBC Communications Inc., the owner of Pacific Bell.
“We are going to see higher pay telephone rates, no doubt about it,” said Ken McEldowney, executive director of Consumer Action in San Francisco.
The sweeping new pricing rules, aimed at creating more competition in the telephone industry, are the latest fallout from the landmark Telecommunications Act of 1996. The measure was intended to bring consumers more choice and lower prices through competition, but few prices appear to be falling.
Some experts say the current 25-cent rate is already delivering fat profits to many pay telephone companies.
In August, for instance, Tampa, Fla.-based Davel Communications Group, one of the largest independent providers of pay phone service, reported that its net income rose 57% to $2.7 million in the six months ended June 30. The company’s president, Robert D. Hill, said Davel’s gross profit margin on sales was nearly 50% for the period.
The rule changes have already touched off a bidding war for choice pay telephone locations, with some small proprietors reaping fat commissions and huge signing bonuses in exchange for allowing operators to locate pay phones in high-traffic locations.
“Competitors are coming in and offering really enticing deals, especially in some mom-and-pop locations,” said Bruce Renard, executive vice president of People’s Telephone Co., a Miami-based pay phone company that operates in California and 39 other states. “Some of them are telling [owners] ‘we will give you a $2,000 signing bonus.’ ”
Coin phone operators have long complained that cellular phones, prepaid calling cards and toll-free numbers are eroding their bottom line, but the price hike could also ignite consumer backlash and defection to other phone services.
In markets such as San Francisco, where Air Touch has advertised cellular phone rates as low as four cents a minute, mobile phones service could be a beneficiary of higher pay phone rates, experts say.
Indeed, a spokesman for the regional Bell phone company US West Corp., which serves a sparsely populated northwestern region, said his company was leery of increasing pay phone rates in its territory because of the fear of alienating customers.
“We don’t feel that because rates have been deregulated that we should raise prices willy-nilly,” US West spokesman Jerry Brown said.
But consumer groups say residents in poor urban communities and those in airports or other transportation facilities could be hard hit.
McEldowney of Consumers Action argued that such pay phone users, like hotel occupants, typically have little ability to shop around for local phone prices.
“My fear is that” pay phone operators will take a cue from “the hotels that a few years ago had outrageously high phone prices,” McEldowney said.
A key aspect of the pay phone rules still faces a challenge before the FCC. Long-distance carriers have balked at a provision of the rules that would increase their fees to pay phone operators. A federal court ordered the FCC to reconsider that portion of the rules.
