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

ESTABLISHMENT OF PUBLIC INTEREST PAYPHONES

264. Section 276(b)(2) of the 1996 Act directs us to determine whether there is a need for maintaining payphones serving public health, safety, and welfare goals, and, if so, to ensure that such payphones are supported fairly and equitably. As noted above, we recognize the potential that a freely competitive marketplace may not provide for payphones in locations where they serve important public policy objectives, but which, for various reasons, may not be economically self-supporting. To address the potential for such market failure, we establish guidelines by which the states may ensure the maintenance of payphones serving public interests in health, safety and welfare, in locations where they would not otherwise be available as a result of the operation of the market. Consistent with our primary reliance on the competitive marketplace, however, these guideline require that the states administer and fund such public interest payphone programs in a manner which is competitively neutral, and which fairly and equitably compensates entities providing public interest payphones.

      

     1.The Notice

265. Section 276(b)(2) of the 1996 Act directs the Commission to "determine whether public interest payphones, which are provided in the interest of public health, safety, and welfare, in locations where there would otherwise not be a payphone, should be maintained, and if so, ensure that such public interest payphones are supported fairly and equitably." In the Notice, we sought comment on whether it is in the public interest to maintain payphones. We also sought comments on options for maintaining public interest payphones. One option would be for the Commission to prescribe federal regulations for the maintenance of these payphones. A second option would be for the Commission to establish national guidelines for public interest payphones. A third option for maintaining public interest payphones would be to defer to the states to determine, pursuant to their own statutes and regulations, which payphones should be treated as "public interest payphones."

      

266. In the Notice, we also sought comment on whether a "public interest payphone" should be defined as a payphone that both (1) operates at a financial loss, but also fulfills some public policy objective, such as emergency access; and (2) even though unprofitable by itself, is not provided for a location provider with whom the PSP has a contract. Under this definition, many payphones that fulfill important public policy objectives would not be included because they would be paid for, in the form of lower commission payments, by the entity that is requesting that a payphone be placed in a particular location to fulfill a public policy objective.

      

267. In addition, we sought comment on appropriate mechanisms for meeting the statutory directive that we ensure public interest payphones are funded "fairly and equitably." We sought comment on whether such a mechanism should be addressed through federal regulations, federal guidelines for the states, or by the states themselves. We requested that those commenters supporting a Commission-mandated funding mechanism detail how the mechanism would function, including who would be eligible to receive funding, who would be responsible for paying into the fund, and who would administer the funding mechanism.

      

     2.Comments

268. Most commenters agree that payphones can serve important public interests in health, safety and welfare, and that there is a need to ensure that payphones are maintained in locations where they may not be self-supporting. For example, New York City asserts that, in the absence of incentives, PSPs are unlikely to place payphones in indispensable locations such as under-served residential neighborhoods and areas with significant emergency demands. New York City states that payphones in such areas serve an important role in providing the public with basic communications services, an avenue to obtain information, and access to critical emergency services. Idaho PUC states that payphones in rural areas often generate little revenue, but may be the only means of public telephone communication for miles. New Jersey DRA also asserts that public interest payphones provide services to individuals in poor and isolated communities who might otherwise not have any access to the exchange network, and are particularly necessary for assuring that such individuals have access to emergency services such as 911. Puerto Rico Telephone states that those who by necessity use payphones as a substitute for residential telephone service rely on such payphones as their means of access to emergency services, as well as their means of communication with family members, employers, businesses and others. Many commenters agree that public interest payphones are an integral part of efforts to achieve universal service.

      

269. A few commenters, however, assert that the Commission need not take any action at this time to ensure the maintenance of public interest payphones. MCI contends that the issue of public interest payphones is part of the larger question of ensuring that all consumers have access to telephone service, and should, therefore, be referred to the Federal-State Joint Board on Universal Service. The Iowa Utilities Board argues that the Commission should defer to the states with respect to public interest payphones because Iowa has found that it is "not necessary to establish rules requiring public interest payphones" in that state.

      

270. Most commenters assert that the Commission should leave to the states the primary responsibility for administering public interest payphone programs. A number of state and local regulatory agencies argue that any public interest payphones program should be left primarily to the states, because national guidelines could not adequately and economically prescribe locations or criteria for such payphones throughout the country. These commenters emphasize that state and local entities, including police, fire, rescue and public welfare agencies, are best situated to evaluate community needs and objectives. Several state agencies note that they already have, or are prepared to develop, programs which provide for placing payphones in locations where they might otherwise not exist. For example, several states comment that they require incumbent local exchange carriers in their jurisdictions to place at least one payphone in each exchange area.

      

271. One state plan referenced often in the comments is the California Universal Services program. California's program requires that LECs maintain "public policy" payphones at locations where revenues are not sufficient to profitably support a payphone. The program requires that: (1) a selected committee evaluate the need for payphones at locations where they do not already exist; (2) the LECs install and maintain these payphones with the acknowledgement that revenues will not cover costs of installation and operation; (3) all PSPs support these payphones through a monthly rate charged to connect their payphones to the network; and (4) all LECs with payphones support these payphones with a contribution from their competitive public and semi-public payphones. Thus, the costs of supporting these public interest payphones are borne not by the general body of ratepayers, but rather by the payphone industry as a whole. CPA asserts that this program does not place an undue burden on PSPs because the criteria for public interest payphones has been narrowly drawn, resulting in only one per cent of all payphones in the state being identified as public interest payphones. The RBOCs, however, assert that the California plan may not work in other states, particularly in rural areas where the number of competitive payphones may be small relative to the number of public interest payphones.

      

272. Several commenters, particularly the BOCs and independent payphone providers, urge the Commission to adopt national guidelines for state implementation of a public interest payphone program. The RBOCs argue that the 1996 Act requires the Commission to adopt a narrow definition of what constitutes a public interest payphone in order to limit what state and local governments can require of payphone providers. They argue that since the 1996 Act requires the installation of public interest payphones only "in locations where there would otherwise not be a payphone," state and local regulators should not be allowed to require the installation of public interest payphones in locations where a payphone already exists, or on the premises of a location provider who has an existing contract for the placement of a payphone. Ameritech specifically recommends adoption of guidelines, similar to the existing California model, which specify that a public interest payphone is one that would not "break even," and would not exist in the location absent public intervention. The RBOCs and Ameritech urge rules limiting the designation of "public interest payphones" to those requested by state or local governmental agencies for purposes of ensuring health, safety, and welfare. The RBOCs also contend that local governmental agencies already provide for the public interest payphones by requiring the placement of certain numbers of non-profitable payphones as part of their contracts with individual payphone service providers for the placement of competitive payphones. A few state commenters also stated that it may be appropriate for the Commission to adopt basic national guidelines in order to ensure the deployment of public interest payphones in critical locations.

273. Puerto Rico Telephone contends that because of the particularly low level of residential telephone service, any definition of public service payphones adopted by the Commission should include payphones that are used as a substitute for local residential telephone service. GVNW, which represents small LECs, also recommends a broader definition of public interest payphones in order to ensure adequate access to payphones in schools, public parks, and other public locations.

      

274. Among the independent payphone providers, APCC argues that the legislative history indicates that location providers, including state and local governments, having an existing contract with a PSP for the placement of payphones, should be precluded from having public interest payphones located on their premises. CPA argues that the Commission should set basic national guidelines, while leaving implementation to the states. It recommends the criteria of the California program as a good model for narrowly defining the scope of public interest payphones.

      

275. Many commenters, particularly state and local regulators, contend that funding for public interest payphones should also be left to the discretion of the states. Maine PUC asserts that if the Commission does attempt to prescribe national siting standards, then the Commission must also provide the states federal or interstate-derived funding to support such requirements. Otherwise, it contends, the Commission should not limit the funding options available for state administration of public interest payphone programs. Other commenters argue that to meet the 1996 Act's requirement that public interest payphones be "supported fairly and equitably," such payphones should be paid for by the requesting party. Specifically, the RBOCs assert that the Commission should require requesting entities, including state and local governments, to compensate PSPs in an amount that allows the PSP to recover its costs for establishing a public interest payphone, plus a reasonable rate of return. The BOCs argue that any funding mechanism that requires the PSPs to share in the responsibility of providing public interest payphones would necessitate a complex analysis of market share or a running tally of the number of payphones each PSP provides in a particular area. Puerto Rico Telephone and NTCA also contend that, if the Commission determines that public interest payphones should be maintained, then the Commission is also obligated to ensure that such payphones are properly funded. They recommend that the Commission establish a fund segregated from other universal service support mechanisms, and administered by the NECA, to support public interest payphones. NECA affirms in its comments its ability to implement such a program.

      

276. APCC also maintains that the states should be given the discretion to determine the funding mechanism for public interest payphones, including funding based upon surcharges for all PSPs serving the location, or through a universal service mechanism funded by all rate payers. While endorsing the funding mechanism adopted in the California plan, CPA argues that an alternative funding mechanism would be to allow PSPs to seek subsidy support for non-self-supporting payphones determined to be in the public interest, with award of the payphone location to the PSP bidding to provide a payphone at that location for the lowest subsidy amount. GTE asserts that the Commission should require states to adopt rules for public interest payphone programs that are competitively neutral, including requiring fair compensation to PSPs providing public interest payphones, and ensuring that all PSPs may participate in such programs on a voluntary basis. GTE argues that states may establish funds to ensure that public interest payphone programs are supported fairly, or could support such payphones as part of their state universal services fund. SW Bell also urges the Commission to require the states to adopt competitively neutral funding mechanisms for public interest payphone programs, including the use of competitive bidding for the right to provide public interest payphones.

      

     3.Discussion

277. We conclude that there is a need to ensure the maintenance of payphones that serve the public policy interests of health, safety, and welfare in locations where there would not otherwise be payphones as a result of the operation of the market. As demonstrated by the comments, all payphones serve the public interest by providing access to basic communications services. We are particularly concerned about the role served by payphones in providing access to emergency services, especially in isolated locations and areas with low levels of residential phone penetration. Indeed, in some such areas, payphones are the only readily available means of accessing these critical communications services. Moreover, as several commenters recognize, some payphones which are most critical for public health, safety and welfare purposes, are also the least likely to be economically self-supporting. With the elimination of subsidies which have helped support such payphones in the past, as directed by the 1996 Act, it is possible that many of these payphones could disappear absent the availability of alternative methods to ensure their existence.

      

278. Many states have already developed systems for identifying the need for public interest payphones, and developing solutions to address that need. Indeed, we find that the states are typically in a superior position to evaluate the need for payphones which serve community interests in health, safety and public welfare. In particular, the states are better equipped than the Commission to respond to geographic and socio-economic factors affecting the need for such payphones that are too diverse to be effectively addressed on a national basis.

      

279. We also find that the existence of a variety of state and local plans already providing for payphones serving public welfare goals demonstrates that the states are able to successfully administer such programs. For example, we note the program adopted in California, which all parties involved appear to view as having successfully provided for public interest payphones in the most critical locations. The California program is funded by the payphone industry as a whole, yet is endorsed by payphone providers doing business in the state because, in part, it narrowly defines the criteria for public interest payphones to locations where there is a true public welfare need not being met by the competitive marketplace. These criteria include requirements that a public interest payphone not be located on the premises of a person receiving compensation under a contract for the placement of other payphones, that access to the payphone be unrestricted, and that the payphone be at least a specified distance away from any other payphones. The experience in California has been that only a very small number of locations, relative to the overall number of payphones, meet the narrow criteria for public interest payphones. It may be, however, that in other states such a program would not effectively provide for public interest telephones because there are insufficient numbers of competitive payphones available to adequately and fairly support the locations meeting the criteria for public interest payphones. Other states, however, have responded to an identified need for payphones necessary to satisfy public health, safety, and welfare concerns by requiring LECs to provide at least one public payphone in each telephone exchange, or by requiring the placement of unprofitable payphones as part of contracts with PSPs for the placement of profitable payphones on public property.

      

280. The existence of these various and diverse plans confirms both that the states have the authority to adequately address the need for public interest payphones, and that any effort to implement a uniform national program is unlikely to be as successful in accounting for differing conditions among the states. We also believe that any effort by the Commission to implement such a national program would be beyond our current resource capabilities. For all of the above reasons, we conclude that the primary responsibility for administering and funding of public interest payphone programs should be left to the states.

      

281. While we leave the administration of public interest payphones to the states, we believe that the 1996 Act requires us to impose minimum guidelines for establishment of a public interest payphone program to meet our statutory obligation to ensure the maintenance of such payphones. In particular, we believe it is very important to establish a basic definition of public interest payphones that is narrowly tailored to payphones that are truly needed for the public interest reasons enunciated in the statute. The 1996 Act describes public interest payphones as those "which are provided in the interest of public health, safety, and welfare, in locations where there would otherwise not be a payphone . . ." The Conference Report further explains that "the term does not apply to a payphone located near other payphones, or to a payphone that, even though profitable by itself, is provided for a location provider with whom the payphone provider has a contract." The definition proposed in the Notice encompasses both of these statements. We also note that the limitations reflected in the Conference Report are similar to those included in the California program's criteria for "public policy payphones."

      

282. We adopt as a definition of "public interest payphone," a payphone which (1) fulfills a public policy objective in health, safety, or public welfare, (2) is not provided for a location provider with an existing contract for the provision of a payphone, and (3) would not otherwise exist as a result of the operation of the competitive marketplace. This definition is similar in effect to the one proposed in the Notice. We conclude that the statute and Conference Report reflect a congressional intent that reliance on the public interest payphone provision is to be limited to instances where a payphone location serves a strong public interest that would not be fulfilled by the normal operation of the market. Thus, a state may not require that a public interest payphone be installed on premises where a location provider already has a contract for the maintenance of a competitive payphone, even if such contract requires the location provider to pay for the continued maintenance of such payphone.

      

283. The 1996 Act directs the Commission, in the event that we 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" 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. Similarly, a state or local government may include requirements for placing non-profitable payphones as part of a voluntary, contractual agreement with a payphone services provider for the installation of competitive payphones on public property.

      

284. Alternatively, states may address the need for public interest payphones by adopting appropriate rules in conjunction with their responsibilities for ensuring universal service pursuant to Section 254(f) of the 1996 Act. We note that issues relating to public interest payphones were not referred to the Universal Services Federal-State Joint Board in Docket 96-45. Section 254(f), however, provides that states may adopt regulations to preserve and advance universal service within each state, not inconsistent with the rules we will eventually adopt in that proceeding. Accordingly, any state may adopt regulations to provide for additional definitions and standards to preserve and advance universal service within that state so long as such regulations include additional specific, predictable, and sufficient mechanisms to support such definitions or standards, and that do not burden or rely on federal universal service support mechanisms. We note that among the among the criteria established by the 1996 Act for defining services that are to be supported by a universal services program, are whether such telecommunications services "are essential to education, public health, or public safety . . . . [and] are consistent with the public interest, convenience, and necessity." We find that the implementation of a public interest payphone program is consistent with these goals, and may be a valuable tool in the states' efforts to achieve universal service. Therefore, we find that states may establish funding mechanisms for public interest payphones either by meeting the funding requirements of Section 276(b)(2), as limited by Section 276(b)(1)(B), or in accordance with state universal service rules adopted pursuant to Section 254(f) in conjunction with Section 276(b)(2) and (b)(1)(B).

      

285. In furtherance of our statutory responsibility under Section 276(b)(2), we direct each state to review whether it has adequately provided for public interest payphones in a manner consistent with this Report and Order. In particular, each state should evaluate whether it needs to take any measures to ensure that payphones serving important public interests will continue to exist in light of the elimination of subsidies and other competitive provisions established pursuant to Section 276 of the 1996 Act, and that any existing programs are administered and funded consistent with the requirements described above. This review must be completed by each state within two years of the date of issuance of this Report and Order, and may be conducted in conjunction with each state's study of the payphone marketplace which we are requiring in connection with the transition to market-based payphone compensation.

      

286. Finally, we do not delegate our entire responsibility under Section 276(b)(2) to "ensure that such public interest payphones are supported fairly and equitably." If interested parties believe that a state is not supporting public interest payphones fairly and equitably, such parties may file a petition with the Commission asserting that the state is not providing for payphones in accordance with Section 276(b)(2) and the guidelines we adopt in this Report and Order, as may be amended from time to time.