Vicious Circle

Phone companies claim pay phones don't pay

Superheroes needing a place to change may have to turn to cyberspace for privacy. Not only are telephone booths disappearing, the pay phone itself is fast becoming the dinosaur of telecommunications.

Corporate executives in the pay-phone industry said they hope offering Internet access and seeking regulatory protection will let them escape the stranglehold with which wireless phones are choking the life out of public phones.

The question is: Will help come in time?

Over the past two years, the wireless-phone boom has turned profits by pay-phone providers from meek to bleak.

Davel Communications, the nations largest independent pay-phone company, was delisted by Nasdaq last year after its stock fell from $27 to 2 cents per share over 24 months. It has twice restructured its debt, and is holding on. Competitor PhoneTel Technologies filed for Chapter 11, and so did Elcotel Telecommunications, a major manufacturer of pay phones in Tampa, Fla. Demand for new equipment has fallen as the number of public phones across the country has shrunk from 2.6 million to 2.1 million.

Some companies are seeking to turn pay phones into 21st-century equipment. Elcotel is test-marketing a line of phones called "Grapevine network terminals" that allow instant Internet access for e-mail and other services. Those are being tested in major airports from New York to Los Angeles.

Mike Nastanski, executive director of marketing at Elcotel, said the companys bankruptcy is a temporary step to protect its heavy investment in that technology, as well as in software and back-office systems to support its new network.

"We think this is going to revitalize the pay-phone industry," Nastanski said, allowing people who are away from home to quickly and inexpensively access the Web, especially where wireless service is spotty.

Still, some major players in pay phones are abandoning the market. BellSouth said last month that it will phase out 143,000 pay phones in its home territory, allowing contracts for phones in service stations and malls to simply expire.

"We dont see the broadband potential in the pay-phone market," BellSouths Dave Blumenthal said. "And broadband is our focus now."

Vince Sandusky, president of the American Public Communications Council, a Virginia-based group that represents some 1,600 independent phone companies, said his clients cant raise money from the capital markets to finance their business strategies, primarily because of unsettled regulatory issues — despite government commitments to preserve pay phones for the public interest.

"There are still 5.5 million households without telephone service," Sandusky said. "Wireless phones reach 30 [percent] to 40 percent of the adult population. Its not as if there are other alternatives for a significant portion of the population."

But, Sandusky said, for the industry to thrive again, two regulatory issues must be resolved in favor of pay-phone providers: insuring payment to phone providers from "dial-around" long-distance service, which puts no coins into pay phones, and ending the high rates that pay-phone companies now pay the Bells in various states to get dial tones to their phones.

"Im still optimistic that the FCC [Federal Communications Commission] will address these issues this year and resolve them in favor of the pay-phone companies," Sandusky said. "Its a social and public policy issue to make sure pay phones are available to everyone who needs them. They are still a lifeline of many people."