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Federal Communications Commission
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Washington, D.C. 20554
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This is an unofficial announcement of Commission action. Release of the full text of a Commission order constitutes official action. See MCI v. FCC. 515 F 2d 385 (D.C. Circ 1974).

Report No. CC 99-2 COMMON CARRIER ACTION January 28, 1999

(CC Docket 96-128)

The Federal Communications Commission today adopted an order addressing payphone compensation issues remanded by the United States Court of Appeals for the District of Columbia Circuit (D.C. Circuit). In today's order, the Commission resolved compensation issues for so-called "dial-around" calls, which allow a consumer to use a long distance carrier other than the payphone's presubscribed carrier. Dial-around calls include long distance access code calls, such as those using familiar 10-10-NXX codes, as well as calls to toll free numbers. Today's order sets a rate of $.24 per call that long distance companies must pay to owners of payphones for delivery of these calls. Prior to the 1996 Act, payphone owners received little or no compensation for these calls even though they were required by other provisions of the Act to allow consumers to access these services.

In the Telecommunications Act of 1996, Congress directed the Commission to establish rules that benefit the public by promoting the widespread deployment of payphones in a competitive marketplace. While the Commission in prior orders largely has achieved the goals of the 1996 Act, the D.C. Circuit remanded the Commission's rules governing one payphone issue. The 1996 Act specifically requires the Commission to establish a per-call compensation plan to provide fair compensation for all calls made from payphones. The D.C. Circuit ordered the Commission to provide a better explanation of its per-call compensation plan.

In today's Order, the Commission reaffirmed that payphone compensation issues are best addressed in the marketplace by negotiations between long distance companies and payphone owners. In the absence of such a negotiated rate, however, the Commission established a default rate of $.24 per call. Although this rate represents a reduction from the $.284 rate remanded by the D.C. Circuit, the Commission explained that this reduction resulted primarily from the use of more up-to-date information concerning the costs of providing payphone service. The Commission emphasized that its decision would ensure that payphone owners are fairly compensated while satisfying Congress's mandate to promote the widespread deployment of payphone services to the benefit of the public.

In previous orders, the Commission calculated the cost of providing payphone service using a "top-down" method that subtracted certain costs from the prevalent price of a local payphone call. On appeal, the D.C. Circuit questioned this approach and found that the Commission had not adequately explained its reasoning in this area. In this order, the Commission decided to use a "bottom-up" method, in which the costs of providing payphone service are added together to calculate a fair compensation amount.

In previous Orders, the Commission already has taken steps to increase competition in the payphone industry. In those orders, for example, the Commission eliminated implicit subsidies that local telephone companies historically provided to their own payphones because these subsidies gave local telephone companies an unfair advantage over other payphone providers. The Commission also established non-structural safeguards to prevent Bell Operating Companies from discriminating in favor of their own payphones in the provision of local service, as well as other measures designed to place all providers of payphone services on an equal competitive footing. The Commission also deregulated the local coin rate for payphone calls to allow the competitive marketplace to determine the cost for such calls.

Action by the Commission January 28, 1999, by Third Report and Order and Order on Reconsideration of Second Report and Order (FCC 99-7) Chairman Kennard, Commissioners Ness, Furchtgott-Roth, Powell, and Tristani.


Common Carrier Bureau contact: Glenn Reynolds at (202) 418-0960.
News media contact: Emily Hoffnar at (202) 418-0253.
TTY: (202) 418-0485.