The Sky Is Falling, and There's Nothing YouCan Do About It November 1997

Posted: 11/1997

The Sky Is Falling, and There’s Nothing You
Can Do About It

By Debera Bell-Beam

Chicken Little created more than a few anxious moments for
those who believed her greatly exaggerated rumor of the world’s
imminent demise. It turned out, after all, that she had
misinterpreted a natural event.

Whether such is the case now in the microcosmic payphone
industry, who can say. There is, however, plenty to talk about as
second-guessing abounds, and the rumor mill continues to grind.
The burning issue du jour: Independent payphone service providers
claim local exchange carriers (LECs) are taking anticompetitive
measures to ensure location providers use the LECs’ preferred
interexchange carriers (IXCs) for their long distance service.

Some further allege these are acts of even more ominous
portent: "If these RBOCs (regional Bell operating companies)
will stoop to such low tactics in a small niche market, what they
will attempt in the main market will be as bad or worse."
Hyperbole? Perhaps. But not as far as telecom attorney Charles H.
Helein is concerned. Helein, who represents the newly formed
Independent Payphone Service Providers (IPSP) Ad Hoc Committee
for Consumer Choice, believes this is part of a pattern of
conduct that has been exhibited for some 20 years. And he’s
taking action.

This comes at about the same time the Federal Communications
Commission (FCC) is considering proposed changes to its slamming
rules–rules that small long distance carriers claim are at best
disparate and at worst part of an overall attempt to sweep them
from the face of the planet (PHONE+, October).

It also comes at a time when RBOCs are trying to gain entry
into the long distance market, a move that must pass FCC muster.
The FCC requires a showing that actual local competition exists
in both business and residential services from a carrier using
predominantly its own facilities; the Bell company has complied
with the 14-point competitive checklist contained in the Telecom
Act; and grant of the application would otherwise be in the
public interest.

Some IPSPs contend they are being slammed by the LECs and
suggest their own tribulations should be enough to cause the FCC
to take a harder look at these long distance applicants and
whether the public interest will indeed be served by permitting
RBOC entry into long distance.

Regardless, the FCC has set in place rules that in effect
require one entity to go straight to its competition for service
and rights to the all important customer.

Some RBOCs assert this is not the case, and, moreover, they
are in full compliance with the Telecom Act and FCC orders
regarding payphones. At least one, Ameritech, says independent
agents are required to contact its payphone division–their
head-to-head competitors–to make primary interexchange carrier
(PIC) changes, but claims no one is taking unfair advantage of
the situation. Bell-Atlantic says it has two separate
offices–one that handles Bell-Atlantic matters and another that
handles independent company payphone matters. BellSouth says
independent agents have "absolutely no reason" to deal
with its payphone division, but a PHONE+ phone call
seems to indicate otherwise.

Sound confusing? Just wait.

In the meantime, here’s another interesting twist to ponder:
In this age of deregulation with sights set on competition and
fair play–a combination the more jaded might term somewhat
oxymoronic–the FCC continues to grapple with rules that will
allow deregulation, promote competition and ensure fairness. But
who said life is fair? Certainly no one espousing capitalism.
Justified or not, conspiracy theories are perhaps endemic in an
industry forced to deconstruct and reinvent itself on the fly.
Telecommunications is no exception.

The Rule

On Sept. 20, 1996, the FCC ruled that payphone operations must
be kept separate from the rest of a LEC’s business. LECs, which
include RBOCs, also were authorized to select their own preferred
long distance carriers, although the ultimate decision as to
which IXC will provide long distance service remains with the
location provider.

The complaint was that LECs could dip into the vast tills of
their local service to help fund their payphone operations,
leaving independent payphone providers (IPPs) at a distinct
disadvantage. The idea was to level the playing field when it
came to securing and maintaining those payphone sites.

The resulting order led at least one RBOC to create a separate
corporate entity. BellSouth formed BellSouth Public
Communications Inc. (BSPC) to take care of its payphone business.
When PHONE+ interviewed James B. Hawkins, president of
BSPC (PHONE+, March), he had this to say about the new
rules: "I think we are at the forefront of moving away from
traditional former monopoly telco structure. We are embracing the
chance to have the same business opportunities as our
competitors."

The Rub

And therein lies the rub. Some IPSPs say they are being robbed
of business opportunities their competitors enjoy. In fact, some
IPSPs are accusing some LECs, BellSouth among them, of slamming
long distance through public payphones via the very vehicle that
was intended to be instrumental in promoting fair and open
competition: the LECs’ payphone divisions.

Accusations are flying. Lawsuits are forthcoming. And
everybody’s talking.

Well, not everybody.

The Independent Payphone Service Providers (IPSP) Ad Hoc
Committee for Consumer Choice

The newly formed coalition committee intends to help
independent payphone providers and others in the industry segment
find a louder voice, says IPSP spokesperson Larry Kay. Despite
fears of retribution from more than one sector, or perhaps
because of it, members in this small community are beginning to
come together–a move some deem critical for their survival.

"The IPSPCC seeks to preserve the rights of operator
service providers, carriers, independent pay telephone agents and
location providers to maintain their existing agreement with the
location providers for public pay telephone services," Kay
said in prepared statements. "Additionally, the IPSPCC is
bringing to the attention of state regulatory bodies, state
attorneys general, the FCC and the (U.S.) Department of Justice
(DOJ), the abusive, anticompetitive and coercive conduct of the
RBOCs in the payphone marketplace."

Kay says he wants to tell the public that RBOCs are talking
from both sides of their mouths. At the same time they are
committing to free, open and fair competition, RBOCs are
"practicing the same old monopolistic, market-domineering
ways."

The Bridge

Here’s how it’s supposed to work: When an independent agent
contacts a potential customer (the location provider) and
convinces him to change his long distance carrier, the two of
them call the local exchange carrier to make the change via a
three-way phone call. This bridge or install call ensures the
location provider is authorizing a switch in his long distance.

The Pitch

Here’s how it really works, according to Kay: Agents and their
customers (location providers) agree to the offer and get on the
line with a LEC representative (usually in the payphone division,
he claims). LEC reps respond to the requested change at times
rudely, sometimes hanging up on the callers, or even telling the
agent to get off the line so the LEC rep can speak confidentially
to the customer about his account. Another avenue taken, Kay
says, is the LEC rep tells the location provider he will have to
call him later to discuss privately the location provider’s
account. At this point–Kay says he has numerous documented
examples–the LEC rep then sells the agent’s customer on a
service offered by the LEC’s preferred long distance carrier, in
effect stealing the customer from the independent agent.

Kay contends that LEC reps have gone so far as threaten to
remove the payphone if the customer does not agree to sign with
the LEC’s preferred provider.

The Threat

New developments have taken contentious issues to even greater
heights, according to Kay, who alleges Bell-Atlantic recently
planned to shut down the unit that takes its three-way call
installs. "I found out about it accidentally, because one of
my agents did a three-way call, and the person at Bell-Atlantic
said, ‘Well, I don’t know why you want to change your carrier,
because it’s only going to be good for two days, because as of
Monday (Aug. 11), we’re going to change all the phones to MCI.’
They (LECs) basically took the position that, ‘We own the phones,
so, therefore, we’re going to be selecting the carrier.’"

Moreover, Kay says he was told existing contracts would be
allowed to run their course, but upon expiration, location
providers would be told they must take Bell-Atlantic’s preferred
carrier. Location providers would be locked in at that point and
not allowed to make a long distance carrier change, Kay says.

Since then, rumors, accusations, faxes and phone calls have
been burning the airwaves. Several agencies have been contacted,
among them the DOJ, the FCC, state attorneys general and member
trade organizations–the Competitive Telecommunications
Association, which represents long distance carriers, for one.

The Trade Response

Genny Morelli, executive vice president and general counsel
for CompTel, says members have been talking about Bell-Atlantic’s
alleged recent behavior. "My response back to them was,
‘Let’s get some substantiation, and we’ll get to the bottom of
this.’ But I can’t tell you I know definitively that this kind of
activity is going on, and, at this point, we have not done
anything official other than ask our members to gather more
information.

"Our view is that section 276, the payphone provision of
the Telecom Act, gives the RBOC the opportunity to negotiate with
a location provider as to who should be picked as the carrier
from the location provider’s payphone, but it doesn’t give the
RBOC the opportunity or the right or the flexibility to restrict
the choices of the location provider, either the number of
choices or the specific carriers that the location provider can
pick from," Morelli says. "We would view any attempt by
an RBOC to restrict the choice of a location provider to be a
violation of section 276 of the act. If the facts bear out the
allegation that Bell-Atlantic or any other RBOC is limiting
location provider choice for the payphone, then we would consider
that to be extremely problematic."

The Letter

Helein, counsel for IPSP and a founding partner for McClean,
Va.-based Helein & Associates, PC, has written to several
agencies on behalf of the IPSPs to include the FCC, the DOJ’s
antitrust division and several state attorneys general.

Helein named names in a letter to Richard Welch, the FCC’s
policy division chief in the common carrier bureau, that include
BellSouth, Bell-Atlantic and Ameritech. Citing several examples,
Helein said that in one three-way call an Ameritech rep asked a
location provider if he was a new owner because his account
identification number did not match her records. At that point,
the LEC rep reportedly "abruptly stated that Ameritech would
send the customer a contract for long distance and that Ameritech
would be handling the long distance and hung up the phone."

In another example, Helein cited a business in Marathon, Fla.,
as being slammed by BellSouth. "Abruptly, payphones at this
location stopped showing any traffic under the existing IPSP
serving this location. This occurred after a site visit by a
BellSouth representative who also informed the end user that if
(BellSouth’s preferred provider) was not selected as the PIC,
BellSouth would remove its payphones from the premises."

Moreover, in a separate letter to Donald J. Russell, chief of
the telecommunications task force in the antitrust division of
the DOJ, Helein accused Bell-Atlantic of using strong-armed
tactics much like actions he attributes to BellSouth: "If
the end user wants to keep its payphone terminal, it may deal
only with Bell-Atlantic and its provider of long distance, in
this case, MCI." Helein says such actions tie the right to
retain use of a payphone terminal to the use of an RBOC’s
payphone service. He calls these measures anticompetitive and
says they "exert a chilling influence on end users’ freedom
of choice and independent payphone providers’ ability to
compete."

Finally, Helein said in both letters, "On a broader
basis, it clearly shows that, permitted their freedom to
‘compete’ in hitherto closed markets, the RBOCs’ monopoly
cultures will rule and control management decisions, resulting in
abusive tactics designed to ensure continued dominance over
telecommunications services in the RBOCs’ operating
territories."

Helein has offered supportive documentation and affidavits,
and he has requested a meeting with the FCC and the DOJ.

The FCC

Unsuccessful efforts were made to speak with someone on the
FCC’s enforcement task force, which looks at the state of
competition in all areas of telecommunications and reportedly to
whom Helein’s letter was forwarded and the RBOCs’ responses were
sent.

The FCC’s public affairs office confirmed the FCC did, in
fact, receive Helein’s letter. One FCC official said this is
uncharted territory in which no legal precedents define words
that make up the Telecom Act and FCC orders. For example, RBOCs
are not allowed to discriminate in favor of their own payphone
services, and they have the right to negotiate with location
providers. How much is too much? How far is too far? Those
yardsticks likely will be determined in courtrooms, he suggested.

The RBOCs

Bell-Atlantic, BellSouth and Ameritech responded to the IPSPs’
complaints as follows:

Bell-Atlantic

Bell-Atlantic declined PHONE+ requests for an
interview and comments on Kay’s allegations. It sent a prepared
statement through spokesperson Jim Smith, who said Bell-Atlantic
would not respond point-by-point to issues raised by the IPSP
committee to the DOJ.

"Bell-Atlantic is complying with its comparably efficient
interconnection plan for the provision of payphone services in
its interfaces with IXCs, OSPs and resellers providing payphone
services to PSPs (including both Bell-Atlantic and independent
payphone providers)," according to the statement.
"Bell-Atlantic has fully complied with all requirements of
the FCC payphone orders, and Bell-Atlantic Public Communications,
its payphone service provider, is operating in accordance with
the new FCC payphone regulations.

"Bell-Atlantic is committed to providing the public with
reliable payphone services at predictable, reasonable prices as
Congress intended in Section 276 of the Telecommunications Act of
1996. We will continue to compete fairly and vigorously, on fair
and nondiscriminatory terms, in accordance with FCC rules."

BellSouth Telecommunications Inc.

BellSouth declined a PHONE+ interview request to
speak with BSPC’s president, Hawkins, who previously had spoken
to PHONE+. BellSouth spokesperson David Storey provided
the RBOC’s response to the FCC along with a prepared statement
for PHONE+.

"We believe our practices are in compliance with the
Telecommunications Act of 1996 and any FCC orders that resulted
from this legislation," according to the prepared statement.
"We’re satisfied that our response to the FCC will bear this
out."

In its four-page written response to William F. Caton, acting
secretary of the FCC and the commission’s enforcement task force,
BellSouth said Helein’s letter was "riddled with
misstatements, half-truths and vague allegations."

Moreover, BellSouth said there is no reason an agent would
call BellSouth’s payphone division, "since it would be a
competitor to BSPC, and BSPC would be unable to change the PIC on
a competitor’s phone."

Storey clarified that statement for PHONE+: "An
independent payphone provider would be calling the BellSouth
Telecommuni-cations Payphone Service Provider Service
Center." There is "absolutely no reason" for an
IPP to call the payphone division, he says, "because an IPP
in some instances will be a competitor of ours."

However, the BellSouth phone number Kay says operator service
agents, for example, call with location providers to make PIC
changes is (800) 451-2646. PHONE+ called that number,
which answers with a recorded greeting: "Thank you for
calling the BellSouth Public Communications Service
Center"–remember, BellSouth Public Communications is
BellSouth’s payphone division–followed by instructive voice
prompts.

Following the prompts, the caller is told to press two
"for all other calls concerning BellSouth payphones"
(besides repairs), which leads to a customer service
representative (CSR). PHONE+ then asked the CSR if that
is the correct number an agent and location provider should call
to make a PIC change for BellSouth payphones. "You call this
number, that’s right," the CSR confirmed.

Finally, regarding the alleged Marathon, Fla., incident,
BellSouth wrote, "It is again not clear how BSPC could deal
with a competing IPSP. In any event, it is not BSPC’s policy to
remove payphones from premises based solely on the selection of
the PIC carrier but to make a business decision, as any IPSP
would, based on a number of relevant factors as to whether it is
in BSPC’s interest as a payphone service provider to provide a
payphone at a particular location. Neither is it BellSouth’s
policy to change the PIC without the authorization of the
location provider."

Ameritech

Ameritech, like BellSouth, offered both a prepared statement
to PHONE+ and a copy of its written response to the FCC.
"Their complaints are without merit, false and
inaccurate," Ameritech spokesperson Margaret Densley said in
a prepared statement. "Ameritech believes that it is in
complete compliance with the Telecom Act of 1996 and any FCC
orders resulting from that legislation. And, we are confident
that our response letter will bear this out."

Densley further confirmed that independent agents must, in
fact, make their bridge calls to Ameritech’s payphone division
for PIC changes. "It is the payphone division that the IPP
calls into when they are doing a PIC change with the
customer," Densley says.

In its response to the FCC, Ameritech says because those
represented in the letter are neither IXCs nor premises owners
(location providers), they don’t have a legal right to complain
about PIC changes at Ameritech payphones. "Moreover, the
complaint would be without merit even if brought in the names of
the right parties."

Ameritech further says the complaint "hopelessly confuses
the differences between a premises owner and an end user and
between the legal obligations of a LEC and its payphone
affiliate." Ameritech says the premises owner cannot be
slammed "because it is no longer the party with the
authority to submit PIC changes directly to the LEC." A
footnote states that "since Section 276 grants to LEC
payphone operations ‘the same right that independent payphone
providers have,’ the LECs now must look to their payphone
affiliates as the person authorized to make PIC changes at LEC
payphones, just as they have always accepted PIC changes directly
from independent payphone providers rather than the premises
owner or the IXC." The letter continues, "Instead, the
premises owner must negotiate with the LEC payphone affiliate
concerning who will be the PIC."

Finally, Ameritech says, "the LEC-affiliated payphone
operations, who are not common carriers and who are entitled to
be treated just like other payphone companies, are clearly not
required under the plain meaning of Section 276 to accept PIC
changes blindly from their premises owners in the same neutral,
uninvolved way that the LECs themselves must accept PIC changes
from their end users."

The Volley

Kay says that in subsequent conversations, Bell-Atlantic
"now, apparently, is recanting its position" to stop
accepting three-way calls. Bell-Atlantic’s "managers in
charge somewhat misspoke, that they weren’t going to flip all the
payphones over to MCI, but that will definitely happen over a
period of time. And, they’re not going to shut off the three-way
call installs. Then another person said Bell-Atlantic is shut
off, but NYNEX (with whom Bell-Atlantic recently merged) is not.
It’s a real mess right now."

An FCC staffer, who spoke on condition of anonymity, confirmed
she called her regulatory counterpart at Bell-Atlantic on a
strictly informal basis to relay information she had received in
a phone call from an IPSP regarding recent allegations involving
Bell-Atlantic’s payphone division and three-way calls. "I
explained to them what I had heard and suggested they might want
to look into it. When they called back later, they said, ‘Thank
you for bringing it to our attention. Somebody apparently
misinterpreted the new rules, and it’s been straightened
out.’" The FCC staffer said she later received a second call
from the original caller, who confirmed Bell-Atlantic had
attended to the problem.

Kay believes Bell-Atlantic was firing a test volley to see
what reaction such a move might invoke. Some IPSPs stand ready to
return fire.

The Issues

Two main issues are involved here, Kay says: First is who the
IPSP must call to make a three-way PIC change. Second is once a
location provider agrees to go with the LEC’s preferred long
distance provider, the LEC then can say it owns the phone and the
carrier, and the customer has no option to switch again, but must
remain with the LEC and its preferred carrier.

Remember, LECs were required to file plans with the FCC that
revealed their strategy to separate their payphone operations
from the Mother Ship, so to speak. In doing so, they were to show
how they were a separate entity in that they were not
cross-subsidized and, once disengagement occurred, that
favoritism would not be shown, Kay says. "They were to be
treated like everybody else who was selling long distance,"
he adds. "Well, that’s really not the reality of the
situation."

The Underlying Issue

The real underlying issue, according to Kay, is this: When an
agent makes a three-way call install, the number he calls–at
least Ameritech’s in case and disputably in BellSouth’s–is the
RBOC’s payphone division. Instead of calling the local phone
company, the agent and customer are calling the payphone
entity–the agent’s direct competitor–which has contracted with
a long distance carrier of its own.

"What has been happening time and time again is they (LEC
payphone reps) say they will have to call you (the location
provider) back privately, and, then, they get on the phone and
tell you (the location provider) that they will handle long
distance for you," Kay says. "So basically, they’re
taking a sale that is being brought to them that’s been sold
legitimately–in the name of fairness and competition–and
they’re going ahead and stealing it."

The Next Move

So, maybe it is all one big misunderstanding. It may be the
Bells have misinterpreted the term IPSP and are misconstruing
payphone service providers as independent payphone providers
(IPPs), who are, indeed, direct competitors. IPPs own their own
payphone routes and provide their own payphones to location
providers with whom they contract. An IPSP, however, oftentimes
is an independent agent selling carrier services to location
providers. Even so, an IPSP who provides operator services, for
example, likewise would be considered a competitor to an RBOC
whose payphone division offers the same service.

At any rate, Helein says he wants to sit down and hopefully
iron out some of the difficulties payphone providers are facing.
Otherwise, the next step might lead into the courtroom.

"We will try to make written contact with these three
giants and see if we can’t talk some sense into their heads. One
of the reasons we’re doing that is already one of them has
reacted to a call from the commission begging off and apologizing
for what they were intending to do," Helein says.
"Maybe there’s enough understanding at higher levels within
these companies to realize what’s at stake."

But Helein says he isn’t counting on achieving some greater
understanding with the RBOCs, which leaves payphone providers in
a tough predicament. He says that, in addition to limited
financial resources, some of his clients fear retaliation from
the FCC itself as well as the LECs, but at the same time his
clients face being driven from the marketplace.

"The trick in representing this segment of the industry
vs. the well-heeled big guys is you take it as far as you can
without spending yourself into non-existence. We’re going to take
this to the very bitter end. Eventually, what you have to do is
go to court."

The Real Issue

Reportedly, an RBOC manager told Kay, "The sky is
falling, and there’s nothing you can do about it." Well,
maybe there’s something.

The Telecom Act opened competition with a greater interest
beyond getting government out of the telecommunications business:
the consumer.

Ideally, competition spurs industry growth, which in turn,
provides consumers with more options. And, as by-products,
greater technology and a stronger industry develop. As well,
there is money to be made in a marketplace that becomes
fragmented before it is made whole again.

But attempts to decrease consumer choice by eliminating
options–if, indeed, this is occurring–appear to run counter to
the act’s bedrock intent. This is not to say opportunities will
not close, and ventures will not falter. The safety net is down,
and a delicate balancing act is required as contenders charge the
tightrope to capture what lies ahead. Efforts to deconstruct and
reinvent the industry likely will continue to succeed and, at
times, fail as an evolution driven by the human hand reaches for
completion.

Finally, such adversarial episodes could be called natural
events. Competition is a beast that can turn against itself when
opponents reach for the same object in a no-holds-barred contest.
In this case, the object is often couched in terms of market
share and the almighty dollar. Perhaps the consumer, though,
should not be left out of the mix. The sky is not falling, but
it’s awfully cloudy up there.

Editor’s Note: This is the second installment
of a two-part series examining issues surrounding slamming. Part
one (PHONE+, October) looked at the Federal
Communication Commission’s (FCC’s) proposal to revise slamming
rules and the effects of those rules, which small long distance
carriers claim are unfair at best and at attempt to wipe out
small players at worst.

VoiceLog Anti-Slamming Report

VoiceLog LLC, a national provider of automated third-party
verification services, has released its new state-by-state
anti-slamming rules report. The report shows 11 states have
passed either new bills or new rules related to slamming, and six
other states either have proposed new rules or are in the process
of proposing them. The anti-slamming report is free to all
qualified members of the telecom industry. An additional update
will be available at the Telecommunications Resellers Association
(TRA) Conference in Orlando, Fla., Nov. 3-6. For more information
or a free copy of the report, call (703) 356-1325.

State Anti-Slamming Rules