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The public pay phone is certainly on its way out, particularly in the United States. It was primarily the cell phone that assured its demise; increased rates for using pay phones merely accelerated the process.

I was researching something called "default compensation to payphone service providers", a concept that was introduced in 1996.

Here's a little bit of history about this. Following the AT&T divestiture, many companies entered the long distance business. They could provide service through special access numbers, dial-around codes, calling cards, as well as toll-free (800) service.

For a time, all pay phones were owned and operated by the local phone company (or LEC). The LEC got a "piece of the action" of every phone call that initiated from its lines, regardless of the carrier or the way the call was paid for.

Subsequently, competition entered the picture in the local service arena. This included competitors to local phone companies (CLECs) and customer-owned coin-operated telephones (COCOTs).

Although every COCOT operators went into business with their eyes wide open, fully realizing that their phones would need to allow for toll-free calls, and that customers could "dial around" the long distance service provided by their phone service, the COCOTs eventually prevailed upon Congress and the FCC to receive compensation for these services.

This fee, in theory, was to be negotiated between long distance carriers and COCOT operators. The decentralized nature of COCOT operators (to say nothing of the hundreds of long distance carriers) would make it seem economically infeasible to individually negotiate the fees between COCOT operators and long distance carriers; notwithstanding this delusion, the law provided that these rates should be negotiated, but in the absence of an agreement, there should be a default rate of compensation provided to the COCOT owner, aka the payphone service provider.

Now when you make a calling card call, a prepaid calling card call, or an 800 number, this fee is charged to the long distance carrier. The long distance carrier invariably passes this cost on to whoever's paying for the call, often adding its own markup.

FCC Lie 1

The lies are on this page: http://www.fcc.gov/cgb/consumerfacts/Payphones.html

Some long distance companies are falsely advising consumers that the FCC requires consumers making calls from payphones to pay a per-call charge to compensate the PSP. The FCC has not imposed such a requirement. Long distance companies have significant leeway on how to compensate PSPs. The FCC allows each long distance company to determine how it will recover the cost of compensating PSPs.

There's an overriding economic law that applies here: competition drives prices to costs. This means that, if competition is effective, the prices charged to customers will be driven to be close to costs. This means that long distance carriers are going to impose charges based on the costs they incur. If they incur a 50¢ charge for using a payphone, you can be sure that they'll almost always charge customers at least 50¢, and sometime they'll charge more. But they're highly unlikely to charge less than 50¢. Long distance companies, as a practical matter, must compensate the payphone service providers (PSPs), on a per-call basis. It's disingenuous of the FCC to claim that the FCC doesn't require consumers to pay these charges. It is indistinguishable from a statement that the FCC allows long distance carriers to offer free long distance service. Of course long distance carriers are permitted to offer free long distance service, but obviously long distance companies need to recover their costs somehow, if they're going to stay in business.

FCC Lies 2 and 3

If you think that the rate for placing a call from a payphone is too high, a less expensive payphone could be around the corner.

This is subject to a couple of different interpretations. Are they talking about making a long distance call when you're not using a calling card or when you are using a calling card?

Even if you're not using a calling card, where do they think you are when you're making that call? Perhaps you're in an airport... an airport with numerous phones. In many cases, all the phones are there through a single service agreement with the agency that runs the airport, so no matter how many phones you try, no matter how many corners you go around, the rates are most likely going to be the same. This isn't true 100% of the time... I've been in airports where there's one phone that would have charged me about $5 for a 3-minute call, while the phone next to it would have let me make a 4-minute call anywhere in the country for $1.

If you are using a calling card, the payphone surcharge imposed by your long distance carrier is a function of the rates charged by your long distance carrier. So it doesn't matter which payphone you call from, the surcharge will be the same.

FCC Lie 4

Let that PSP know that the rates are too high. It is in a PSPís best interest to meet the needs of its customers. The PSPís number should be on the payphone.

Oh, right, try to get through to the operator. There's no schmuck working for any of these operator service providers or the PSP you'll be able to get hold of that will have any say over the rates. The idea is to maximize the gross profit per call. When somebody's making a call from a pay phone, it means they don't have a cell phone. Without a cell phone, their choices are already pretty limited, and the reduction in pay phone competition means those choices are getting more limited every day.

Insulting Lies

FCC, stop insulting us with your lies and deceptions. The system is broken in so many ways. Blame Congress, blame the courts, blame history. But don't offer the consumer false information. Admit that the system is broken and try to provide accurate and relevant information about effective strategies for minimizing such costs. As it is, your consumer information pages are worth less than nothing.

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