Pay Phone Carrier Settlements: Billing's Wild West Show

Are long distance carriers getting away with murder as payphone service providers struggle to get dial-around and toll-free compensation? Or are local exchange carriers and independent payphone providers misconstruing the laws governing payment for these services?

Pay phones generate about $5.7 billion in revenue per year. However, there has been much dispute about how the revenues have been allocated among payphone operators and carriers since the sweeping reform of the 1996 Telecommunications Act. Section 276 dictates that payphone service providers are to be “fairly compensated for each and every completed … call” made from a payphone. This mandate includes access-code and dial-around calls that enable callers to choose long distance service through 10XXX calls or 800-COLLECT calls, as well as toll-free 800 or 888 calls from an IXC.

According to most payphone service providers (PSPs), whether independent or LEC, such compensation has yet to arrive: “The FCC has adopted a profoundly regressive economic policy, in effect forcing us to provide services below cost,” says Jim Hawkins, president of BellSouth Public Communications Inc. Many RBOCs are incensed by the FCC’s decision to allow IXCs to police themselves in payphone compensation.

Adding salt to their wounds is the FCC’s recent decision, announced early in February, to reduce the default per-call compensation rate for otherwise uncompensated calls from 28 cents to 24 cents. “The true cost of providing payphones is much higher than that rate,” says Hawkins, who believes many long distance companies have already used the FCC’s rulings as an excuse to overcharge customers. “The long-distance carriers reap huge profits from their heavily advertised toll-free and dial-around services, plus they save tens of millions of dollars in commissions to PSPs and payphone location owners as a result of the shift from 0+ calls. These increases, access charge and commission savings reductions have been more than enough to cover payphone compensation.”

Despite that fact, Hawkins says, only a handful of hundreds of carriers pay what they owe. He contends that IXCs are double-billing customers with surcharges and raised rates: “During the last year, long distance companies have imposed several across-the-board increases in toll-free rates-each time asserting that the increase was for the explicit purpose of covering PSP compensation for toll-free and dial-around calls from payphones.” Hawkins says that while LECs have tried to make the FCC aware of such abuses, “we have not been heard; apparently, our advocacy voices are small, comprising only a small portion of the toll-free class, a fraction of what for MCI and AT&T is a multibillion-dollar issue.” (The FCC was contacted several times, yet declined any comment at this point.)

According to “The Toll-Free Truth,” a document available from the Payphone Communication Alliance (www.payphone.org), formed by various RBOCs and GTE, long distance companies have pocketed more than $250 million a year in recurring savings, specifically due to elimination of payphone subsidies. As stated on its Web site, “Telephone companies reduced federal access charges to long distance carriers to reflect the reduction in costs ensuing from the elimination of payphone subsidies as directed by Congress in Section 276 of the Act. For this reason, the PCA believes the new per-call charges that long distance companies imposed last fall on their toll-free and credit card subscribers (28 cents by AT&T, 30 cents by MCI and Sprint) is entirely unjustified since these companies have already more than recovered the cost of the FCC’s payphone decision.” This, the PCA believes, is creating backlash from toll-free subscribers and consumers against a proper and fair decision by the FCC.

Long Distance Carriers Speak Out

In light of these and other accusations, one of the two largest IXCs believes it is “being blamed for everything but original sin. I’m used to people in this business mixing apples and oranges, but here we’ve got people mixing apples, oranges, bananas, and enough to make a fruit salad,” says Mike Cuno, AT&T’s long-time spokesperson and PR manager. “What the PSPs are failing to recognize is that the 1996 Telecommunications Act dictates that payphone owners should be compensated for their ‘costs’ in handling coinless calls; it said nothing about sharing revenues or profits.” He says AT&T studies reveal that the actual cost of a coinless call is 10 to 12 cents. “So I can understand why they feel deeply wounded that they can only mark that up 100 percent,” he adds. “As for their claim about their voices not being heard, how many are going to believe that the five RBOCs are dwarfs in this whole thing? Besides, this is not a matter of lobbying. These are matters of fact that the courts have decided.”

Concurring is Mike Catey, who has taken over as spokesman in light of Cuno’s recent retirement. “We have publicly stated that our goal is to cover only our costs out of pocket for administering the program and the actual compensation. This is not something that we see as a revenue-generating opportunity.”

Both Catey and Cuno believe the LECs and PSPs are being disingenuous on this issue. “They fed into this; they were part of the process, so they are not a victim here in terms of methodologies for collecting. They’ve had three years to say something,” says Catey. “If there are discrepancies, let’s all sit down and work it out. Why this hasn’t been done, I don’t know. It’s not like we don’t work with these LECs on a continual basis in all areas of telecommunications. There is a customer-supplier relationship here. If our customer or supplier says ‘problem,’ then let’s work it out. If PSPs say there is a discrepancy over switch records, and they want independent auditing, they should sit down and talk to us.”

MCI concurs, adding that for a solution to emerge, Bell Atlantic and other LECs need to stop creating myths in the industry. “The two sides of the payphone industry are much like the Hatfields and the McCoys,” says Bill Wilde, executive director of network systems management for MCI. This animosity he attributes to false accusations and myths. “In our discussions with payphone operators, most say approximately 35 percent of calls are missing on reports. I break that down as approximately 20 percent lost to LECs not passing proper info digits [payphone-specific coding digits], as mandated by the 1996 order in regards to ANI standards. We know through testing that not all payphones are transmitting the proper info digit to identify whether a phone is a payphone or not,” says Wilde. He attributes another 5 percent of the 35 percent lost to the fact not all calls in payphone records are completed. “If an 800 call goes to an operator, it can show a duration of several minutes, without ever actually being completed.” And the last 10 percent or so Wilde attributes to cheating by the smaller IXCs or resellers. “Some smaller companies have no intention of paying. When someone comes after these prepaid providers, they dissolve their companies and pop up somewhere else.”

As for claims that MCI has benefited from access call reductions, Wilde responds, “We see only 25 cents on the dollar, despite what the LECs will have you know. As much as they cry, the entire payphone order is based on LECs.” These are the same LECs that are saying MCI removed payphone operations from subsidized accounts so that deregulation would ensue and access charges would be reduced accordingly. “Yes, they did lower access charges, but they don’t mention the fact they are still putting surcharges on payphones,” says Wilde, who contends that LECs have removed some but not all payphone-related subsidies from access rates. In fact, he says, the FCC and IXCs expected to see three times as much revenue on access charges for intra- and interstate calls: “We see expected costs on interstate access, but little or no charges on intrastate access, which suggests all subsidies have yet to be removed; or, if in fact they are removed, then the LECs have been falsely representing for many years the amount or degree to which payphones needed to be subsidized.”
“The LECs always try to justify access charges, so now they misrepresent how they are ‘removing’ payphone-related costs from subsidized accounts, but many are not,” says Wilde. This is evidenced, he says, by cases like that of Bell Atlantic-Maryland, which recently was found to not be removing all payphone subsidies.

Another myth, according to Wilde, is that IXCs add surcharges. “We only add surcharges to those calls we track and pay for,” he says. “And we do pass the savings in access on to our customers, which is why we need the per-call surcharges on calls we track.”

Joining Forces

To clear up disputes about myths, all parties are calling for action on regulatory and systems issues. As a result, LECs and PSPs are coalescing. One outspoken organization formed in a fight against MCI for a pay station service charge is the California Payphone Regulatory Alliance, whose principals include the heads of California Coin Phones, Praytel, and Orion Payphones. “CPRA was formed with the determination to have our voices heard in regulatory matters,” says Irene Lopez of IDeaL Telecom Consulting, which handles critical regulatory issues for CPRA. “The FCC says compensation should be paid on all calls, but they didn’t factor in an audit trail or any penalties for nonpayment. Instead, it’s been left to each carrier to devise systems. Did they really think the carriers would effectively police themselves?” she asks incredulously. With more than 700 carriers in California alone, only a handful pay LECs and IPPs anything at all, Lopez says. “Pacific Bell has paid, but all other carriers only pay some of what they owe,” she says. “It’s so inconsistent, yet the IPPs and Baby Bells stick around-the incentive being the pot of gold promised to them if they fight hard enough.”

“We would like to see independent auditing on both sides. I would support an audit process to audit carrier payment and billing from our side. I think this would lead to more widespread compliance,” says Vincent Sandusky, president of the American Public Communications Council, a Fairfax, Va.-based organization that supports payphone initiatives. “The IXCs can deny it all they want. There are approximately 500 to 700 entities required to make compensation payments, yet only 50 to 60 make actual payments. It is obvious that IXCs are avoiding payment obligations. And although a number of carriers do make compensation payments, it is questionable how accurate those payments are. Their records definitely do not match up with ours.”

Richard Fouke, Bell Atlantic’s product manager for public communications, attributes what he deems carriers’ “conservative” estimates and payments of per-call compensation in part to prepaid card vendors, “which are taking on the responsibility of paying, yet have been slow to build accurate systems for tracking and paying for these calls.” Bell Atlantic, for one, is attempting to work with carriers through the Per Call Compensation forum, headed by Rodger McDowall, general manager of IS at Ameritech. “We see some of the larger carriers making an effort to attend, namely AT&T, Sprint, MCI, Frontier, and Cable and Wireless,” says Fouke.

McDowall is responsible for creating a centralized database, in conjunction with TELCO Solutions in Ramsey, N.J. “ANI verification for provisioned payphones was causing a major headache,” he says. “IXCs get thousands of diskettes in thousands of formats, so there is great difficulty in getting all that data in some semblance of order to process call records against them.” With the new system, McDowall says, participating IXCs will receive two CD-ROMs on a quarterly basis: “One CD will have the ANIs of all payphone providers that are participating, and other the ANIs provided by the LECs. This will help both sides match their records.”

“Without access to their records, we can’t pinpoint an exact amount owed us,” says Fouke. “We currently are not getting enough data from carriers. If we give them a thousand 800 numbers, they can’t spit back who the resellers are,” whether PTI, Smart Talk or others. He says part of the problem is that IXCs like MCI WorldCom are the ones that have the relationships with the prepaid vendors, making it nearly impossible for LECs to track the origin of 800 numbers and their duration. “MCI has its own view of the world; we do know we are getting less from them than what we are owed. It will just take patience and time before we can prove it. We need MCI to identify resellers, who should really be paying the per-call compensation, rather than the carriers.”

Fouke notes, however, that AT&T has made efforts in per-call compensation by listing 800 numbers so LECs can track information. “That’s what we want, but there’s a problem when only one out of hundreds of long distance carriers gives that to us,” says Fouke. He says he wishes all IXCs would make similar efforts.

The Outsourcing Option

Billing Concepts currently reconciles quarterly payphone payments through a central database that complies with new laws. “We started in January of last year. Qwest is one of our large carrier customers,” says Alan W. Saltzman, president and COO. “They send us a tape of all 800 calls that originated on their network. We take that tape of millions of calls and match it to the phone numbers in our database. We then provide a reconciliation form, specifying how much they owe each payphone owner.”

Billing Concepts then sends invoices to both sides and cuts checks to the payphone owners on behalf of Qwest. “The real complication is maintaining an active list of payphones, owners, names and addresses to return the money,” Saltzman says. “It’s very difficult to keep your arms around it, matching hundreds of millions of calls from payphones and from dial-around activities.” He believes that the difficulty of the process will drive more long distance carriers, who bear the burden of liability, to use aggregators such as Billing Concepts. “Because there is little or no automation in terms of payphone movement and changes of location, almost everyone is trying to outsource that now,” he adds.