II. Background

III. Issues
The Payphone Marketplace
Compensation for Each and Every Completed Intrastate and Interstate Call Originated by Payphones
1. Payphone Calls Subject to this Rulemaking and Compensation Amount
2. Entities Required to Pay Compensation
3. Ability of Carriers to Track Calls from Payphones
4. Administration of Per-Call Compensation
5. Interim Compensation Mechanism

Reclassification of LEC-Owned Payphones
1. Classification of LEC Payphones as CPE
2. Transfer of Payphone Equipment to Unregulated Status
3. Termination of Access Charge Compensation and Other Subsidies
4. Deregulation of AT&T Payphones

Nonstructural Safeguards for BOC Provision of Payphone Service

Ability of BOCs to Negotiate with Location Providers on the Presubscribed InterLATA Carrier

Ability of Payphone Service Providers to Negotiate with Location Providers on the Presubscribed IntraLATA Carrier

Establishment of Public Interest Payphones

Other Issues
1. Dialing Parity
2. Letterless Keypads on Payphones
3. Oncor Petition

IV. Procedural Matters
1. Petitions for Reconsideration
2. Paperwork Reduction Act Analysis
3. Regulatory Flexibility Act Analysis

Conclusion

Ordering Clauses

Appendix A
Text of Section 276
Appendix B
List of Parties Filing Comments
Appendix C
List of Parties Filing Replies
Appendix D
Immediate Rules Adopted by This Order
Appendix E
Rules Adopted by This Order
Appendix F
Interim Compensation Obligations

Entities Required to Pay Compensation

a. The Notice

77. In the Notice, the Commission stated that either a "carrier-pays" system, where the IXC who receives the call would be required to pay a per-call charge to the provider of the payphone, or a "set use fee" system, where the toll-carrier would bill and collect from the end user and then remit payment to the PSP, would satisfy the requirements of the 1996 Act. The Commission stated, however, that the carrier-pays mechanism is preferable because it would result in less transaction costs because the toll-carrier could aggregate its payments to payphone providers. Under a set use fee, the Commission stated, these payments would be spread among a vast number of payphone callers through their individual telephone bills. Therefore, the Commission tentatively concluded that the appropriate compensation mechanism is a "carrier-pays" mechanism that builds on existing procedures under which IXCs currently pay access code call compensation. Commenters were encouraged to include data on the transaction costs that would likely be imposed by either the "carrier-pays" or "set use fee" compensation mechanisms.

     

    b. Comments

78. A wide range of commenters, including AT&T, the RBOCs, GTE, various states, and some independent payphone providers, supports the Commission's tentative conclusion that a "carrier-pays" system for per-call compensation should be adopted. They argue that this approach is the least burdensome, most cost effective, and places the obligation to pay on the primary economic beneficiary of the calls, the carrier that carries the call. Some parties assert that under this system, or any other system in which the carrier is responsible for paying compensation, it is the underlying, facilities-based carrier that should be responsible for paying compensation to PSPs. Two debit card providers argue that IXCs and LECs should not be permitted to pass on the costs of per-call compensation exclusively to 800 subscribers. Frontier contends that, under the carrier-pays system, LECs as well as IXCs should be required to pay compensation. Frontier also contends that the Commission should adopt a carrier-pays system that is administered by the LECs, who, unlike the IXCs, will be able to leverage their existing business relationships as billing and collection agents for other carriers.

     

79. Other commenters, including APCC, MCI, and Sprint, contend that the Commission should adopt a "set use fee," which would be collected by the carrier that handles the call and remitted to the PSP to compensate it for the use of its payphone. These commenters argue that such a government-mandated fee would give visibility to the costs of payphone compensation, and would appropriately place these costs on the cost causer and lead to better economic decisions. They also argue that the carrier-pays approach involves greater transaction costs than the set use fee, and that the carrier-pays approach is simply a payment of a subsidy to PSPs. Other parties specifically oppose a set use fee on the grounds, among others, that it would make the IXC an involuntary billing agent for the PSPs. With regard to subscriber 800 calls, PageNet, a paging service whose customers use subscriber 800 numbers, contends that charging 800 subscribers a set use fee would be an unjust and unreasonable practice under Section 201(b) of the Act. In addition, Intellicall, a debit card provider, argues that imposing fees on 800 subscribers would interfere with existing contracts between carriers and debit card providers. While favoring a "carrier-pays" system, PacTel argues that the Commission should "grandfather" the existing set use fee imposed at the state level by the California PUC. The RBOCs further argue that the Commission should grandfather all existing state set use fees. On the other hand, Sprint and MWAA argue that the Commission must preempt all existing state set use fees and that the states must be directed to follow federal compensation models to avoid inconsistent state regulations.

     

80. Various commenters, including small IXCs and paging services, argue that the Commission should adopt what they call a "caller-pays" compensation system. Under this system, the calling party would always pay for the call by either depositing a coin or by billing the charge to a credit card or calling card. For subscriber 800 calls, the calling party would always be required to deposit a coin into the payphone. These commenters argue all of the following: this approach would be no more burdensome than a local coin call; it would reduce transaction costs; and it would avoid the coin-free approach that is inconsistent with CPE treatment. At least two commenters dispute the Commission's statement in the Notice that TOCSIA barred the Commission from imposing a coin-deposit compensation system for access code calls. The two commenters argue that the adoption of rate guidelines or a rate cap would not be a prescription of advance payment by callers, as prohibited by TOCSIA. A number of parties oppose either a fee imposed on the calling party or the coin-deposit requirement for certain types of calls under this system. They argue that the impact on callers should be either minimized or transparent.

     

81. Conquest, Intellicall, MobileMedia, and PageNet contend that the Commission should recover the funds necessary for per-call compensation by raising the monthly subscriber line charge ("SLC") that is paid by all telephone customers. They argue that because payphones are used at one time or another by virtually all telephone customers, they should collectively bear the cost of per-call compensation. In addition, they argue that there are no reliable data that show which segments of the population use payphones more than others.

     

82. Some commenters argue that some parties should either be exempted from the obligation to pay per-call compensation or be allowed to "phase-in" their payment obligations. TRA and Scherers argue that resellers of interexchange service should not be required to pay per-call compensation, at least on an interim basis, because they are unable to pass on these costs without severely impacting their business. TRA, ITA, and American Express further argue that all existing debit cards should be "grandfathered" and the carriers exempted from having to pay per-call compensation on the calls associated with those cards. ITA and Voice contend that per-call compensation obligations associated with debit cards should be phased in after six months.

     

    c. Discussion

83. We agree with those commenters who maintain that the primary economic beneficiary of payphone calls should compensate the PSPs. We conclude that the "carrier-pays" system for per-call compensation places the payment obligation on the primary economic beneficiary in the least burdensome, most cost effective manner. The Commission has previously adopted such an approach in the access code compensation proceeding, and the compensation participants have created a payment system that is an appropriate model for this proceeding. We conclude that the carrier-pays system also gives IXCs the most flexibility to recover their own costs, whether through increased rates to all or particular customers, through direct charges to access code call or subscriber 800 customers, or through contractual agreements with individual customers. Although some commenters would have the Commission limit the ways in which carriers could recover the cost of per-call compensation, we conclude that the marketplace will determine, over time, the appropriate options for recovering these costs. In addition, under the carrier-pays system, individual carriers, while obligated to pay a specified per-call rate to PSPs, have the option of recovering either a different amount from their customers, including no amount at all. We conclude further that all IXCs that carry calls from payphones are required to pay per-call compensation.

     

84. In the Notice, we discussed the option of adopting a "set use fee, " which would be collected by the carrier and remitted to the PSP to compensate it for the use of its payphone. We tentatively concluded that this system involved greater transactions costs than the carrier-pays system, because a set use fee would spread payments among a vast number of payphone callers through their individual telephone bills. A number of commenters maintain that the set use fee would involve fewer transaction costs and that the carrier-pays system represents the payment of a subsidy to PSPs. We disagree and conclude that the Commission's mandating that a particular set use fee be imposed and collected from callers on millions of payphone calls would lead to far greater transaction costs than through the carrier-pays system, particularly given the flexibility the carrier has under the carrier-pays system to recover the costs of per-call compensation as it sees fits.

     

85. The "caller-pays" system advocated by a number of commenters is a variation of the set use fee under which the caller, as the "cost causer," would always be required to deposit coins to make a subscriber 800 call, and would have the option of either depositing coins or receiving a charge through a calling card for placing other types of calls that do not use a payphone's presubscribed carrier. For reasons similar to those cited for rejecting the set use fee system, we likewise reject the caller-pays system. While depositing coins into a payphone to make, for example, a subscriber 800 call may not be more burdensome than a local coin call and may involve fewer transaction costs than a billed charge, we found in the Notice that any payment system that relies upon the deposit of coins "would appear to unduly burden many transient payphone callers by requiring them to deposit coins in addition to providing call-billing information." We also noted in the Notice that "TOCSIA expressly prohibits the Commission from adopting compensation rules for interstate access code calls that require 'advance payment by consumers.'" At least two commenters argue that the Commission could interpret this statutory prohibition as applying only to the prescription of a specific compensation amount, which would not preclude adoption of compensation amount guidelines, including a coin-deposit approach, but we conclude that such an approach would contradict the congressional intent, and possibly the plain language, of Section 226(e)(2) of the Act. We also reject the approach suggested by some commenters that the Commission should increase the monthly SLC, which compensates a LEC for non-traffic-sensitive costs associated with the use of its network, for all telephone customers to fund the per-call compensation system. We conclude that raising the SLC for this purpose would be contrary to the goals of the Act, because these payments would not be borne by either the primary economic beneficiary of payphone calls or the cost causer.

     

86. Some commenters, including APCC, GTE, New York DPS, and Indiana URC, argue that it is the underlying, facilities-based carrier that should be required to pay compensation to the PSP in lieu of a non-facilities-based carrier that resells services, for example, to specific subscribers or to debit card users. We agree. Although we have concluded that the primary economic beneficiary of payphone calls should bear the burden of paying compensation for these calls, we conclude that, in the interests of administrative efficiency and lower costs, facilities-based carriers should pay the per-call compensation for the calls received by their reseller customers. Because they do not have their own networks, it would be significantly more burdensome for resellers to track calls from payphones. In addition, telecommunications services are often sold in advance, particularly in the debit card context, and resold more than once before a caller ultimately uses the service. In such situations, it would be difficult to identify the party that is liable for the per-call compensation. We conclude further that the facilities-based carriers may recover the expense of payphone per-call compensation from their reseller customers as they deem appropriate, including negotiating future contract provisions that would require the reseller to reimburse the facilities-based carrier for the actual payphone compensation amounts associated with that particular reseller.

     

87. Various commenters, notably resellers and debit card providers, argue that the Commission should either exempt them on an interim basis from the obligation to pay compensation, or to "grandfather" debit cards that have already been issued from the compensation obligation. We conclude that, because Section 276 creates no exceptions for calls facilitated by resellers or debit card providers, such exemptions from the obligation to pay compensation, even on an interim basis, would be contrary to the congressional mandate that we ensure fair compensation for "each and every completed intrastate and interstate call." While we have not placed the burden of paying per-call compensation directly on resellers or debit card providers, we conclude that the underlying carrier must begin paying compensation on all compensable calls facilitated by its reseller and debit card customers and it is, in turn, permitted to impose the payphone compensation amounts on these customers.