[Congressional Record (Bound Edition), Volume 146 (2000), Part 17]
[Extensions of Remarks]
[Pages 24710-24711]
[From the U.S. Government Publishing Office, www.gpo.gov]



                             PAY TELEPHONES

                                 ______
                                 

                          HON. JAMES A. BARCIA

                              of michigan

                    in the house of representatives

                      Wednesday, October 25, 2000

  Mr. BARCIA. Mr. Speaker, I want to spend a few minutes today 
discussing a segment of the communications system that we often take 
for granted--pay telephones. We have all had experiences using pay 
telephones when we are away from home. Even in these days of wireless 
telephones, pay telephones are essential for many Americans. They are a 
great convenience when we are traveling, when we are away from the 
office, and, in many cases, when we have an emergency.
  There are about 2 million pay telephones in the country today, about 
1.5 million of which are owned and operated by the same companies that 
operate local telephone exchanges. Another 500,000 phones are owned and 
operated by independent pay telephone companies. For thousands of 
people in rural and low-income areas, pay telephones are a source of 
basic telephone service. About 6% of all households in the country do 
not have a telephone. In poor urban areas, 25% or more of households do 
not have a telephone, and up to 20% of rural households do not have 
telephones in some areas. For families in these households, pay 
telephones often provide basic telephone service.
  Our national policy regarding pay telephones has evolved 
significantly over the last twenty years. Prior to 1984, pay telephones 
were a regulated monopoly owned exclusively by the local telephone 
exchanges. In 1984, the Federal Communications Commission ordered local 
exchanges to provide service with independent payphone companies that 
wanted to install their own payphones. This development introduced 
competition for the first time in the payphone industry. However, full 
competition did not develop because charges to payphone companies were 
still set high enough to subsidize other services.
  In 1996, another development occurred. With the 1996 
Telecommunications Act, Congress stated that it wanted to further 
competition in the payphone industry so that there would be widespread 
deployment of payphones. Rates paid by payphone companies to local 
exchange carriers were to be based on costs so that there would not be 
a cross-subsidization of other services. During the late 1980s, 
consumers had begun to experience the convenience of dialing ``800'' 
numbers at payphones without having to pay for them at the payphone. As 
the volume of these calls increased, it became clear that, as a matter 
of fairness, the payphone operator should receive some compensation for 
them. After all, the 1996 Act mandated that the payphone owner was to 
be fairly compensated for each and every call of this kind since it was 
his or her equipment that was being used to make the call.
  Unfortunately, the goals of the 1996 Act have not been fulfilled. 
There has been substantial confusion about the definition of ``cost-
based'' rates. While the FCC has taken some steps toward defining 
``cost-based'' rates, it still has not given state regulatory 
commissions and local exchange carriers final guidance concerning the 
proper standard. The FCC's Common Carrier Bureau recently ordered 
Wisconsin carriers to file cost-based rates so that the FCC itself 
could review them. However, that order was stayed after an objection 
was filed. My concern is that a protracted proceeding before the FCC to 
determine the precise definition of ``cost-based'' could mean that 
payphone companies will pay substantially above costs for months or 
even years.
  A related issue is the problem of dial around compensation. It is a 
great convenience for consumers to be able to dial ``800'' numbers 
without having to put coins in a payphone. However, it's only fair--
and, in fact, it is the policy of the 1996 Act--that payphone owners 
are fairly compensated. These companies purchase, install and maintain 
the equipment and pay line rates for access to the local telephone 
exchange. The FCC has given some guidance as to which carrier is 
responsible for paying compensation, but the current system has proven 
to have a number of serious problems. Often, several companies are 
involved in carrying the signal from the caller to the final 
destination, and it can be difficult to determine

[[Page 24711]]

what company is responsible for paying the compensation. In many cases, 
all the carriers deny responsibility and payphone owners must initiate 
expensive litigation to receive any compensation. The FCC should move 
quickly to review its current approach to dial around compensation in 
order to resolve outstanding questions and to come up with a workable, 
effective system.
  While these regulatory issues remain unresolved, the payphone 
industry and, ultimately, American consumers are being injured. Up to 
300,000 payphone lines have been disconnected around the country in the 
last few years. Some of this may be due to the market forces from 
competition from wireless telephones. To the extent that market forces 
are reducing the number of pay telephones, that is the fair result of 
competition. However, it is likely that much of this reduction is due 
to the twin effects of payphone operators paying excessive costs for 
line rates and receiving inadequate compensation for dial around calls. 
This squeeze on payphone companies has led to the disconnection of 
telephones and in some cases companies dropping out of the market 
entirely.
  In Michigan, there has been about a 25% reduction in the number of 
independent telephone companies in operation. The largest independent 
payphone company providing service in Detroit, with over 2000 phones, 
is in bankruptcy. I have heard story after story of payphones being 
disconnected, in rural areas, in urban playgrounds, and in other areas.
  One of the particularly troubling aspects of this story is that we 
could have substantially better payphone service. The technology exists 
to provide Internet access, video services, and other services to 
consumers at pay telephones if the economic incentives allowed these 
developments. Today, in Europe, many of these services exist, and in a 
limited number of cases, they exist in the United States. However, our 
policy, although well intentioned, has had the effect of discouraging 
technological developments in the industry while individual companies 
struggle to survive.
  I urge the FCC to look into these issues and take action to resolve 
these issues. Consumers in Michigan, indeed all over the country, will 
benefit from the Commission's efforts.

                          ____________________