October 9, 1997
Commissioner Susan Ness
Re: Implementation of the Pay Telephone Reclassification and Compensation Provisions of the Telecommunications Act of 1996
The Telecommunications Act of 1996 charts a course that is "pro-competitive" and "deregulatory." These principles are reflected, to varying degrees, in numerous provisions of the law. They have been front and center throughout our proceedings on payphone compensation.
Beginning October 7, 1997, and consistent with the goals of competition and deregulation, the rates charged for coin calls at payphones throughout the nation were deregulated. The expectation is that deregulation of coin rates will promote widespread deployment of payphones, while competition will put downward pressure on prices.
I hope marketplace forces will ensure that the rates charged are fair, both to consumers and to payphone service providers. But it is entirely foreseeable that there will be abuses in some locations, such as at airports or highway rest stops where the choice is not between one pay phone provider and another, but between using the pay phone that is available and foregoing (or delaying) the opportunity to communicate. Location owners may choose to prevent the payphone service providers from imposing excessive charges in these situations, but in any case the state commissions and the FCC are prepared to take corrective action if necessary. In fact, we have asked the states to review the status of the payphone markets during this next year of transition and to identify any situations that may require corrective measures.
As the statute clearly specifies, payphone service providers are entitled to be fairly compensated not only for coin calls, but also for coinless calls (i.e., access card calls and 800-subscriber calls). I support our determination today regarding the rate to be charged to interexchange carriers for coinless calls. This rate represents our best possible judgment, based on the record evidence, of the difference in the costs incurred by payphone service providers as between coin and coinless calls. But, importantly, the reasonableness of the rate is also demonstrated by a "bottom-up" analysis of costs.
I am concerned, however, that the price charged for coinless payphone calls may rise precipitously once that charge is permitted to "float" in relation to the coin rate charged at any particular phone. Therefore, I am pleased that we have extended the period during which the coinless compensation rate will be frozen at the level we are setting today. The additional period is needed because the results of our experiment with deregulation with coin phone rates will not be known for some time, and the ability of the "market" to discipline the compensation rates for coinless calls is even less certain.
In the case of coinless calls, the calling party does not directly pay -- indeed, has no immediate knowledge of -- the payphone compensation. The "marketplace" solution to excessive payphone charges is for interexchange carriers to block calls from all payphones, or to block all calls for which payphone charges exceed a predetermined rate. That, unfortunately, can leave the consumer unable to complete a needed call, or compelled to use the operator service provider with whom the payphone service provider has contracted. Clearly, neither approach optimally meets the immediate needs of the consumer.
Nor is the public interest served by establishing a coinless call compensation system that creates artificial incentives for payphone service providers to raise the coin rates that consumers pay, so as to enable them to extract higher compensation rates from interexchange carriers for coinless calls. Workable marketplace solutions to such situations may well be devised, but at present I am more comfortable with keeping the coinless rates in check for two years, while experience is gained with (1) the evolution of a competitive, deregulated market for coin phones and (2) the emergence of new relationships between callers, payphone service providers, interexchange carriers, and subscribers to 800 service.
Our actions in this proceeding affect many parties -- payphone service providers, location owners, interexchange carriers, 800 service subscribers, and their customers. We owe fair treatment to all of them. But the ultimate measure of our success is how well our decisions serve the interests of consumers. I intend to monitor marketplace developments carefully over the coming months and years to ensure that their interests are safeguarded.