U S WEST Communications UT-970301 Questions Related to Public Interest Payphones Question No. 1 Can a public entity enter into a contract with a payphone provider with the result that one or more payphones at a location would be subsidized by the commissions from other payphone locations without being required to follow the FCC guidelines for public interest payphones? Response Yes. Currently, USWC has a number of contracts with public entities that result in one or more public entity payphones at different locations being subsidized by the revenues from the same public entity’s other payphone locations. This situation existed prior to deregulation of the payphone industry, and will continue to exist. The FCC Report and Order (FCC 96-388) included “guidelines” on Public Interest Payphones; these guidelines are not prescribed “rules”. The FCC Order does not preclude payphones subsidized by other payphones within a given contract. A payphone provider is free to enter into a contract with a public entity, which includes requirements specified by the public entity, and whether or not the payphone provider must decide whether it can provide service and make a reasonable profit from each and every payphone location. The public entity, on the other hand is free to establish its terms for such a contract and negotiate specific contract terms with any payphone provider. The market currently encourages payphone providers to seek contracts that address multiple locations for public entities as well as businesses and will continue to do so. In its Order, the FCC recognized that the State is the appropriate entity to conduct an investigation of the Public Interest Payphone issue specific to its jurisdiction. The FCC recommended the State decide if a Public Interest Payphone program is required and if such, how such a payphone program should be funded. Question No. 2 Could a government agency, representing a variety of public property owners (local, state, port, etc.) negotiate a set of contracts with payphone service companies with the expressed objective of subsidizing unprofitable locations with revenues from profitable locations? Could that agency disregard the FCC guidelines for public interest payphones? Response Yes, there is no FCC requirement that proposes to regulate contractual relationships between public or private entities and payphone providers. Again, as we noted in our response to Question No. 1, the payphone provider is free to enter into such a contract or to abstain. Public entities should be encouraged to review their public interest health and safety needs related to Question No. 2 Response (continued) payphone locations and to continue to include those locations in the process of negotiating contracts with payphone providers. This approach is far superior to establishing a separate State funding mechanism for such locations. Question No. 3 Can you envision a situation where the contract between a public entity and a payphone service provider would have to follow the FCC guidelines for public interest payphones? Response: No. However this is an issue that must be carefully managed by the State policy or the Commission. If a State fund is established for public interest payphones, it may provide a false incentive for public entities to not address those payphone locations within their jurisdiction that are not self-supporting. Because payphone providers pay compensation based on revenues, the public entity may decide the State fund should support such unprofitable payphone locations so that the public entity is not burdened with them. Clearly this would not be in the best interest of the State. State policy should be most clear that public entities should continue to be responsible for all public payphone locations within their jurisdictions and should dictate that public entities should include public health and safety locations when they negotiate with payphone providers for the overall public entity payphone service. The FCC’s payphone orders specifically make a distinction between payphones under contract and those not under contract. The Commission should be very clear in its determination of a need or lack there of for a State funding program, that payphones under contract are not considered public interest payphones eligible for special funding. Question No. 4A.: Whether any type of review or audit has been contemplated by your company regarding the removal of unprofitable payphones as a result of the FCC payphone order and by payphone competition. What were the results of the review or audit? Response: Yes. U S WEST began an investigation in Washington of unprofitable payphone locations in August, 1996. Our investigation focused on payphones earning $1.00 or less per day in local and intraLATA revenue on an annual basis. 591 indoor and 377 outdoor payphones were identified within this parameter; this does not include any payphones that are managed under contract. Question No. 4A. Response (continued): An additional 307 U S WEST payphones were identified in the Seattle Metro area that earn less than $1.00 per day on an annual basis. A process of contacting location providers (property owners) where these U S WEST payphones are located was also initiated in August, 1996. This process included sending a letter to each location provider explaining that the payphone industry was being deregulated. Each location provider was given the opportunity to convert their unprofitable payphone to Semi-Public status at the current rate or to have the payphone removed. As of July, 1997, 475 such letters have been sent As of July, 1997, 42 payphones have been converted to Semi-Public status, and 182 have been removed. No complaints have been received. Question No. 4B. i.: How many payphones have been removed since October 1996 because they were found to be unprofitable? Response: Since August, 1996, 182 payphones have been removed in Washington. Question No. 4B.ii.: How many payphones have been removed since October 1996 because they were found to be unprofitable as a result of changes in FCC rules? Response: See response to 4A and 4B.i., above. Question No. 4B.iii.: How many payphones have been removed since October 1996 because they were found to be unprofitable as a result of payphone competition? Response: Although some U S WEST payphones have been displaced by competition, we are not aware of any USWC payphones that have been removed since October 1996 because they were found to be unprofitable as a result of payphone competition. Question No. 4C: Of those payphones that were removed, how many were located on privately-owned land and how many were located on publicly-owned land? Response: The information requested has not been tracked, and would require a special study. However, it is highly probable that the payphones were on privately-owned land since the payphones that have been removed were not payphones covered by public entity contracts. USWC currently has contracts with public entities and major accounts which include public area payphones that if not under contract might be classified as “public interest payphones”. Question No. 4D: How does the possibility of a higher local coin rate and the new compensation for toll-free calls figure into projections of a payphone’s profitability? Response: The possibility of a higher local call rate, and per-call compensation from the long distance carriers for dial-around traffic makes it possible for some payphones that are not profitable today to become profitable in the future. However, market factors must also be considered. Consumers have alternatives to payphones, and history has shown that increases in the local call rate certainly impact the use of payphones for local calls. An increase to $.35 will cause a decrease in usage. The ability of the Payphone Service Provider to collect $.35 per dial around call from the long distance carriers will likely cause payphones with low local and intraLATA usage, but high interLATA/interstate usage to become profitable. Question No. 4E: In cases where the location provider compensates the payphone company for a payphone, what is the average amount of compensation? Response: The only compensation received from a location provider for the provision of a payphone by U S WEST is the revenue associated with Semi-Public Service. (Rate Group 1 and 2 are priced at $29.25, and Rate Group 3 is priced at $29.60. The non-recurring rate is $48.00.) Please note that Semi-Public Service is included in the definition of Payphone Service, and is deregulated under Section 276 of the Telecommunications Act of 1996. Question No. 5/Response: This question applies to public entities and location providers. No response is being provided by U S WEST. Question No. 6: The FCC order defines public interest payphones as those which fulfill a public policy objective in health, safety, or public welfare. How should that public policy objective be defined? What criteria should be used to identify an eligible location? Response: The public policy objective of defining “health, safety and public welfare” should be met by allowing the communities of interest (public and private) to determine the strength of the need for payphone service in a given location and respond accordingly by supporting a Semi-Public payphone, or including such payphone locations in contracts which also include profitable payphone locations. If the level of calling at a location can provide a profit to the payphone, then there is no public interest payphone issue for that location. Also, if a public or private entity can include a public interest location in a contract that includes profitable payphones as well, then there is no public interest payphone issue, because the payphone provider is free to enter the contract or not. It is only those locations where no contract exists, there is a clear health, safety and public welfare need, and the location cannot support a profitable payphone, where the public or private entity would need to examine the strength of their need and pay the market rate to support a Semi-Public payphone. Such payphone service needs could be met by directly requesting service from a payphone provider, or for example, asking for bids. Question No. 7: The FCC order precludes a location provider with an existing contract for a payphone from also having a contract for a public interest payphone. Would this preclude a public entity, which holds a contract with a provider, from having a public interest payphone at one of its locations? If so, how should that public entity be defined (e.g. State of Washington, State Parks & Recreation Commission, or Millersylvania State Park)? Response: The FCC order precludes a location provider with a payphone contract in place, from also having a “state defined” public interest payphone on the same premises where he/she has a payphone contract in place. Question No. 7 Response (continued): This does not preclude a public entity from having payphones under contract in one location (e.g., office buildings, airports, etc.) and identifying their own public interest locations separately, but included within the contract (e.g., parks, swimming pools, etc.) The public entity (e.g., the state of Washington) could include all of its payphone needs in a single contract, whether some locations are profitable or not. Once a given location is included in a contract, it no longer fits the definition of a “state defined” public interest payphone location. Such a location simply becomes part of the overall payphone needs identified by the contracting party (e.g., state of Washington). Question No. 8: The FCC order prohibits a public interest payphone from being located in competition or proximity with a competitively-placed payphone. Is there a need to define the term “proximity” in that context? Response: Yes, but only if the Commission determines that a public interest payphone program and funding mechanism should be implemented in the state of Washington. If the Commission decides to allow the free market to determine where all payphones should be located, and how they will be supported, such a definition would not be necessary. Question No. 9: If a state universal service fund were created, would you support funding a public interest payphone program from that fund? What other funding source or sources would be acceptable? Response: U S WEST believes that implementing a public interest payphone program, and establishing a funding mechanism should not be viewed as a first alternative, but rather as a fall-back position if the market place cannot meet all payphone needs. With that said, funding from a universal service fund could be an acceptable alternative. Another alternative may be funding such a program from the state’s general fund. FCC Docket 96-128, Report and Order (FCC 96-388, at para. 283) states: “The 1996 Act directs the Commission, in the event that we [the FCC] find the need for public interest payphone programs, to ‘ensure that such public interest payphones are supported fairly and equitably.’ We find that this provision requires a national guideline that companies providing public interest payphones be fairly compensated for the cost of such services. We leave to the discretion of the states how to fund their respective public interest payphone programs, so long as the funding mechanism, (1) ‘fairly and equitably’ Question No. 9 Response (continued): distributes the costs of such a program, and (2) does not involve the use of subsidies prohibited by Section 276(b)(1)(B) of the 1996 Act. Thus, a state may choose to fund public interest payphones from its general revenues through a process that ensures that companies providing public interest payphones are fairly compensated and in a manner that does not otherwise affect the competitive balance of the industry.” Question No. 10 What part of the payphone service should be supported by a public interest payphone program? Could support be limited to access lines or should it include the payphone equipment, answer supervision, and\or location commissions? How should the amount of the support be determined? Response: All of the costs associated with the public interest payphone should be supported by a state program, including the access line, payphone equipment, answer supervision, maintenance costs, location commissions, etc. The amount of the support should be determined based on the actual cost (average cost, or actual cost in some cases). If a public interest payphone program is implemented, the state should follow the FCC guidelines that companies providing such payphones should be fairly compensated for their cost. Although the FCC doesn’t specifically define “fair and equitable” compensation, the state should recognize that public interest payphones are likely to be in remote locations where, on average, the cost of support would be much higher than other payphones. Therefore, a determination of cost for supporting payphones in such locations should be made, then the level of support for such payphones should be based on these costs. Question No. 11 What rates should be charged to consumers at public interest phones? Response: If the Commission determines a Public Interest Payphone program is necessary, the amount of funding support required for payphones in public interest locations could be decreased by pricing local calls from these locations higher than other more competitive locations; a rate of $.35 is recommended. The price of a local call from such a payphone may have to be set as a part of a state public interest payphone program, to ensure that payphone providers do not unduly profit from providing payphones at these locations. Question No. 12 Please identify any other issues that you believe the Commission should consider in developing a state policy for ensuring the provision of payphones that meet health, safety, or public welfare objectives. Response: See response to Question No. 6. The Commission should develop a state policy that allows the market to meet the needs associated with health, safety, or public welfare objectives. Question No. 13 The staff intends to recommend to the Commission, through this rulemaking, that it do everything it can to encourage an effectively competitive payphone market, but that we not sacrifice consumer protections in the process. Within that context, staff would appreciate your comments on the following issues where we may propose additional rules: Response: USWC does not believe the Commission should attempt to regulate any Payphone Service Providers, either directly or indirectly. Existing state agencies are in place to protect consumers from unlawful activity specific to adequate disclosure, minimum service and quality standards and operator service requirements. Furthermore, it is almost impractical for the Commission to regulate every payphone service provider in that the market is analogous to the customer premises equipment marketplace in many respects. Some small business owners are their own payphone provider. Registration: Should the Commission feel a need to indirectly regulate Payphone Service Providers, a very abbreviated registration process would be appropriate, so long as a registration fee is not attached. Disclosure, service and quality standards: Clear and legible disclosure of the rate for local calls and directory assistance charges, including any variations, or restrictions on the length of calls is not objectionable. The addition of the area code to current requirements for displaying the telephone number of the payphone is reasonable. The full use of automated systems that require keypad tones should be further investigated by the Commission prior to establishing specific rule language. The payphone provider may need the ability to disable certain keys after a specific number of key strokes have been made in order to help prevent toll fraud. Question No. 13 Response (continued): Prohibition of advance payments of any kind for access code calls or toll-free numbers is acceptable. Adoption of a specific time period for updating the placard when an OSP changes is reasonable. Limitation of advertising to that which does not in any way affect the various disclosure requirements or confuse the consumer is inappropriate. A requirement that reported malfunctions of the payphone or rule violations be corrected within a reasonable period of time is reasonable. The name, address and telephone number of the payphone provider and a toll-free number for consumer complaints should be posted to allow complaints to be handled by the payphone provider prior to escalation to a state agency. The appropriate state agency number should be posted as well. Question No. 14 Staff also intends to address the issue of fair and equitable competition among all PSPs. Please comment on the following issues: Response: The FCC already prohibits any form of discrimination among PSPs by the Local Exchange Company (LEC). There is no need for a Commission rule on this issue. U S WEST was required in the FCC Order on Reconsideration (FCC 96-439, at para. 132) to file a Comparably Efficient Interconnection Plan (CEI Plan). This plan has been filed and approved by the FCC. It specifies how U S WEST Communications, Inc. will provide no competitive advantage to its own deregulated payphone operations. That is, competitive payphone providers will have similar access (e.g., to the network, to maintenance and installation) on equal terms and conditions. Clearly, under the Telecommunications Act, LEC owned payphones or payphone operations cannot not have state requirements that differ from other payphone providers. The FCC requires the unbundling of any network service or feature that the LEC makes available to the LEC owned payphones in the Report and Order (FCC 96-388, at para 146). There is no need for a Commission rule on this issue. Payphone service providers clearly have the right to presubscribe to an Operator Service Provider of their choice for local, intraLATA and interLATA long distance. Current rules require all Operator Service Providers to register with the Commission, to adhere to existing rules and to have an appropriate tariff or price list on file with the Commission for their services. There is no need for a Commission payphone provider rule on this issue. An appropriate federal or state enforcement agency should accept, investigate, and expeditiously resolve complaints regarding anti-competitive or discriminatory behavior among Payphone Service Providers. The Commission should not be involved in this process, be it formal or informal. Additionally, the Commission already has an established process for dealing with anti-competitive or discriminatory behavior by a Local Exchange Carrier, no new or additional process is necessary. Question No. 15 Please comment on Locational Monopolies: Response: The issue of “locational monopolies” should be monitored to determine whether any such monopolies exist. The FCC has left the door open for a return to regulation in some form if the competitive market does not meet the needs of the public. The FCC has stated that it would continue to monitor the progress of the deregulated market, as should this Commission. The Commission should allow the market to work for a period of time, gather evidence if required and then act if needed. If the deregulated market is not meeting the needs of the public in some situations, the Commission has the right to petition the FCC at any time, for a return to state regulation over the local call rate. It is in the best interest of the payphone providers themselves to act responsibly in setting rates. Question No. 16 Please identify any other issues that you believe the Commission staff should consider in the payphone rules. Response: New or additional payphone rules do not need to be established for the deregulated market by this Commission. Should the Commission decide rules are necessary, the current rules should be revised to provide greater market freedom. Payphone providers should not be constrained from meeting current customer needs. For example, payphone providers should be allowed to restrict the use of coins at the payphone in certain situations (e.g., after a certain time of night) at the request of the property owner and law enforcement without going through an awkward and time Question No. 16 Response (continued): consuming process of approval. Payphone providers should also be allowed to block incoming calls at the payphone simply at the request of the property owner. Question No. 17 Do you feel it's worthwhile or necessary to conduct another workshop, or a similar type meeting? If so, would you recommend a workshop with staff and representative affected stakeholders; or a public meeting forum? Or, would you prefer to receive and review draft rules; provide written comments, and participate in a subsequent workshop or public meeting at that juncture? Response: At this time it does not appear that another workshop is necessary. USWC would like to continue to receive and review draft rules should this process continue, and will provide written comments and participate in meetings as required.