AT&T Kills Payphone Business
AT&T will exit the “shrinking” payphone business by the end of 2008, it said Monday. “AT&T’s Public Communications unit has continued to experience significant pressure from reduced payphone usage, primarily as a result of the growth of alternative communications choices, such as wireless phones and personal communication devices,” it said. “This is the right time for us to take this step on behalf of our customers, employees and stockholders,” said AT&T’s David Huntley, Customer Information Services senior vice president. “We expect that independent providers will pick up much of this business, and, as we exit the business, we will be able to refocus our resources to areas that offer stronger growth potential and greater opportunity for the company.”
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The move affects AT&T payphones only in its “traditional” 13-state service area, the company said. Recently acquired BellSouth previously exited the payphone business in its nine-state area, AT&T said. AT&T wholesale payphone services are not affected. AT&T will “phase out” public payphones and phones provided under contracts at government correctional facilities, it said. Existing contracts and customer service commitments will be honored during the phase-out, it said.
Independent providers “no doubt” will step up and keep AT&T phones in service, said Randy Nichols, president of the American Public Communications Council, a group whose 1,200 independent members operate about 52 percent of deployed payphones. In 2003, independents picked up a “significant number” of BellSouth phones when the incumbent exited the business. In 2004, independent FSH Communications acquired Qwest’s payphone business.
Independent payphone providers responded earlier than incumbents to cellphone growth and still are making money, Nichols said. When cellphones “got hot” in 2000 and 2001, independents immediately removed excess payphones, he said. Incumbents hesitated to ration phones and are paying the price, he said. A payphone market still exists, Nichols added. In a 2006 report, the FCC said about 6.5 percent of households lack phone service, he said. Payphones are those homes’ “life line,” he said.
AT&T’s exit is a “real demarcation point” that could foreshadow Verizon’s exit from the business, Nichols said. “It wouldn’t surprise me” if the news encouraged the last Bell payphone provider to follow suit, he said.
“Verizon’s payphone business is faring well,” said a spokeswoman. “Of course, because of the popularity of wireless phones, payphones serve a much different function than they once did and the economics of providing them are far different than in the past. Nevertheless, through such innovations as providing advertising space on phone enclosures, Verizon has been able to keep payphones financially viable and continue to provide the service in our territory.”
Federal and state regulation largely has kept payphones a viable business, according to the FCC. Much FCC regulation has centered around ensuring payphone providers get paid even when callers use a pay card rather than pocket change. And many states run public interest payphone programs, subsidizing payphone costs for areas they decide need service.
Telcos often undergo a regulatory process to discontinue service, according to the FCC. It’s unclear whether that process applies to AT&T’s payphone exit. Regulatory requirements for discontinuation vary by state, an AT&T spokesman said. “We will provide formal or informal notices or submit applications to the states depending on their respective requirements. We are sensitive to any concerns regarding public interest or high profile location payphones, and we will work with each state to alleviate any concerns should they arise.” Letting others operate phones is possible, he added. “While we are exiting this segment of our business, AT&T will still provide wholesale access to the lines. We may also potentially sell relevant equipment to interested parties who could maintain these lines.”
Analysts we contacted largely were unconcerned with payphones. Incumbents’ payphone businesses “are non-core, no growth operations,” said Jeffries’ Jonathan Schildkraut. The sector has “been out of favor for a while,” said Stanford Eagle’s Clayton Moran. “I don’t know of anyone else that covers it.” Current Analysis and Telegeography analysts concurred.