New York, NY U.S. - New York, NY June 2, 1997 (ICB TOLL FREE NEWS) A section of the Telecommunications Act of 1996 (Section 276) was intended to ensure that payphone providers were fairly compensated for all calls completed from their public pay stations. It. s the Federal Communications Commission. s definition of fair, though, that has most of the nation. s top long-distance carriers, toll-free marketers, and many state public utilities commissions perplexed.
While most industry studies estimate the cost of a coinless call, typically a calling card or toll-free call, at about 6 cents per call, the FCC. s payphone compensation plan reimburses payphone operators at 35-cents for each completed call. This amount was selected based primarily on the local coin rate established in the only four states to have unregulated their coin phone business to date: Iowa, Nebraska, North Dakota and Wyoming. Not only is the cost associated with coin calls higher due to theft, collections costs, repair, etc., but these four states represent rural communities, where the general cost of supplying telephone services is significantly higher than that of urban areas, where payphone usage is more prevalent. During the first phase of the FCC. s plan, the top 22 long-distance companies must each pay a share of a total of $45.85 a month for each of the nation. s 2.2 million payphones. The only qualification for their inclusion on this list was toll revenues over $100M in 1995. The flat charge of $45.85 was based on an FCC estimate of 131 coinless calls made per payphone per month, and compensated at 35-cents per call. According to the FCC. s formula, AT&T, MCI and Sprint are accountable for over 87% of this total, or $40 per month per payphone (times over 2.2M sets.) This amounts to over $1B, when annualized over a 12 month period.
To recover these increased costs, it is anticipated that all long distance carriers will be forced to significantly raise prices on a variety of business services that include interstate toll-free services, international business services, and interstate outbound services. Across the board rate increases are the only means by which a long distance company can recoup these incremental expenses, until a satisfactory tracking methodology is deployed industry-wide, later in the year. The existing means used to identify operator services calls placed from pay telephones does not clearly identify the type of coinless calls for which the long distance company will have to provide compensation to the owner of the payphone.
The second phase of the FCC. s plan, to be implemented in October, replaces the monthly pay out with a 35-cents per-call surcharge for each call placed from a payphone. It is anticipated that a universal tracking mechanism can be implemented by the long distance companies, who are responsible for keeping tallies on their compensation due. At the present time, an obstacle to this requirement could be posed by the LECs, who will need to incur some developmental costs to upgrade all of their end offices with the technology necessary to identify coinless calls placed from public pay stations. They are reluctant to incur these costs, even though they stand to gain the most from compensation paid by long distance providers. It is estimated that the LECs currently process over 80% of the coinless payphone originated calls from their payphones, and consequently stand to gain a sizable share of the $1B+ in new revenue to be generated from these calls.
Most large long-distance carriers and state regulators have formally appealed the FCC. s order in federal court, contending that it sets compensation well above costs and creates an unwarranted windfall for payphone owners, namely the LECs, at the expense of the toll-free industry and its customers.
Ultimately, it is foolish to ignore the fact that these sizable incremental
costs to the toll-free and calling card business will be passed onto the
consumer in some form or another. The case is scheduled to be heard by the U.S.
Court of Appeals in Washington, D.C., with a decision expected late in 1997. If
the appeal is successful, the FCC could be forced to rewrite its current order,
and long distance companies could provide refunds to their customers for any
rate action now deemed unnecessary.
Author/Correspondent's Profile: Judith Oppenheimer, Publisher, ICB Toll Free (800/888) News