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Deregulation Will Soon Be Taking Its Toll on Pay Phones


Today marks the debut of Telecom Talk, a weekly column aimed at helping consumers and businesses get the most out of the telecommunications revolution.


Now that you've grown accustomed to slogging through a blizzard of TV ads, direct mail and telemarketing calls urging you to choose a long-distance carrier or mobile phone company--or even, as of late, a local telephone company--get ready for another challenge to your telecommunications buying savvy: pay phone deregulation.

Come Oct. 7, pay telephone companies will be able to charge whatever they wish for local and directory assistance calls. The method for seeking a refund or reporting faulty equipment will also change. And your calling card rates may increase because pay phone operators will now be compensated for all card calls.

These changes threaten to make an already infuriating industry even more complex and frustrating for consumers.

"The ultimate message of deregulation is that brand will make a difference and that the consumer will have to educate themselves about the options they have to choose from," said Don Wood, Western-area manager of public access for GTE.

The Federal Communications Commission removed most controls over pay phone pricing last fall, part of an overhaul of the $5-billion industry that was mandated by the Telecommunications Act of 1996.

Industry experts now expect the cost of a local call from one of California's 270,000 or so pay phones to jump initially from 20 cents to about 35 cents. But because there won't be any controls over pricing, the cost of a local call at one phone could be 25 cents, while the phone right next to it could charge 75 cents.

Exactly how much rates will increase is difficult to predict. In states where deregulation has already occurred--including Wyoming, North Dakota, South Dakota, Nebraska and Iowa--local rates average about 35 cents. There have been reports of rates jumping to as much as 50 cents at some phones.

Hardest hit by rate increases will be low-income consumers who can't afford phones at home, and tourists and immigrants who often rely heavily on pay phones.

Pay phone operators say fierce competition in California among large concerns such as GTE and Pacific Bell, publicly traded independent companies and small mom-and-pop shops that own one or two phones should work to keep rates low.

"If the majority of operators go with 35 cents, maybe one company will go with a quarter and try to draw people in that fashion," Wood said.

GTE, which logs about 35 calls per telephone per day on its 40,000 phones statewide, says it expects to charge 35 cents for a local call after Oct. 7. PacBell, with 140,000 phones, said it hasn't yet decided what it will charge.

To ensure Californians aren't surprised by rate increases, consumer advocates are ramping up efforts to teach consumers to shop for a pay phone just as they would for orange juice or a car battery.

This push will be led through a self-regulatory process unique to the state that emerged from rules enacted by the California Public Utilities Commission in 1990. These regulations, which came in response to widespread consumer anger over price gouging and malfunctioning phones, capped rates for local coin calls (20 cents) and for long-distance calls made within the state.

The Consumer Owned Pay Telephone Enforcement Group, which includes representatives from the PUC, pay phone companies and consumer advocates, is charged with enforcing state regulations and educating pay phone vendors and users. The group has contracted with Consumer Action, a San Francisco-based advocacy group, to print brochures in eight languages explaining the new laws and to otherwise publicize pay telephone issues.

PacBell and GTE expect to launch modest marketing campaigns to inform consumers of the new rules, but both companies said they are waiting until a federal appeals court rules on challenges to the FCC decision by states, local phone companies, long-distance firms and the paging industry. A decision isn't expected for several months.

In the meantime, consumers should start paying attention to the location of pay phones in neighborhoods they frequent so they can compare rates, Wood said. Callers should know whether they plan to pay for calls with coins, a prepaid calling card, credit card or telephone calling card, he added.

They should read the signage on the phone to see who provides the local service, who the long-distance carrier is, what the rate is for a local call and where they can call for a refund.

Consumers should be aware that using a calling card for a long-distance call offers no assurance that the price will be reasonable: The so-called operator service provider that has the contract to provide long-distance services on the phone can use a calling card number for billing information while charging its own rates.

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