Future on hold for pay phones

Communications: Wireless technology has caused a decline in that American mainstay, the pay phone. But for many lower-income callers, it's a necessity.

July 18, 1999|By Mark Ribbing | Mark Ribbing,SUN STAFF

Not long ago, the cellular phone was a futuristic oddity, a toy for the rich and self-absorbed. Now, mobile phones are everywhere: Suit-clad business people mutter into snazzy digital phones as their restaurant meals grow cold, motorists carry on calls while veering from lane to lane, and teen-agers break out multicolored handsets for urgent chat.

The rise of wireless communications has meant uncertain times for an American mainstay, the pay phone.

First used in Hartford, Conn., in 1889, coin-operated phones became fixtures of public spaces, from street corners to hospital waiting rooms. Now, phone companies are taking out pay phones more quickly than they are installing them.

According to the American Public Communications Council, a Fairfax, Va.-based trade group representing independent pay phone operators, there were 2.4 million pay phones in the United States in 1997. Since then, the number of pay phones has declined to 2.1 million.

Agatha Poon, an analyst with Frost & Sullivan Inc. in New York, said that number will continue to dwindle at least through the end of this year, to about 2 million. "We can see a lot of service providers who, instead of expanding pay-phone [deployment], are re-evaluating their locations," she said.

The spread of mobile phones is often pointed to as a primary reason for that decline. As the cost of a mobile call has gone down, callers who formerly reached for coins to make calls from train stations or theater lobbies now often grab a cell phone.

In addition, the cost of a pay-phone call has risen in many areas, dissuading some would-be customers. In Maryland, Bell Atlantic Corp. raised the price of a local pay call from 25 cents to 35 cents in November 1997, and there have been similar increases around the country.

"People don't think twice about making a wireless call. It's sometimes cheaper to make a wireless call than a pay-phone call. That didn't used to be the case," said Robert J. Venable, an analyst with Robert W. Baird & Co. Inc. in Milwaukee.

Those developments have helped pull down pay-phone call volume, though experts vary widely in their estimates of how steep the decline has been. Venable said it's between 5 percent and 10 percent a year, and John S. Bain of Hoak Breedlove Wesneski & Co. in Dallas put the annual slippage at 20 percent to 30 percent.

"If the trend continues, the outlook for the industry in general is not very good," Bain said.

The $4 billion pay-phone industry is looking for ways to respond to the downturn. Vincent Sandusky, president of the American Public Communications Council, acknowledged that "there's no question the trends have been downward" in pay-phone use, but he added that all is far from lost.

"Clearly, the pay phone is going to have a role for quite some time. It may not be as prominent as it is today," Sandusky said.

Crafting that new role might not be easy. The industry is gradually introducing phones that allow customers to perform such high-tech functions as surfing the Internet, but there is no guarantee that such offerings will succeed in the age of the laptop computer.

"Nobody's going out to the airport to put in 500 Internet links," said Bain. "The basic [pay phone] industry stinks."

If pay-phone operators are going to boost revenue, industry experts said, they will have to conduct themselves more like other businesses. The pay-phone industry has been a monopolist's venture, and though independent operators such as Tampa, Fla.-based Davel Communications Inc. have begun to gain prominence, the huge regional Bell companies operate more than 70 percent of U.S. pay phones.

Not that pay phones are such a big part of the Bells' business -- the pay-phone industry is dwarfed by the $100 billion local telephone industry, which is also dominated by the Bells.

The average pay phone costs about $2,200 to install and can be expected to take in $2,000 to $3,000 in gross revenue a year. The amount is heavily linked to location.

Phones in retail spots with heavy traffic typically do well. So do phones at places that cater to travelers, such as airports and truck stops.

Given the challenges facing the industry and the high costs of maintaining the equipment against vandalism and normal wear, phone placement has become increasingly important, and phones in unpromising spots are being pruned. Pay phone operators pay property owners commissions to deploy phones, and commissions have risen as pay-phone competition has heated up.

"The business has truly become location, location, location," said Sandusky.

But planting a phone in a lucrative place might not be enough.

"The pay-phone operators in the past have not thought much about marketing their services. They just put the phone out," said Venable, who added that along with installing Internet terminals, pay-phone operators might become more aggressive about selling advertisements on the side panels and other parts of the phone stand.

Baltimore Sun Articles
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.