Article

Step inside this house

A whole new world of pay phone functionality is changing the pay phone industry, signaling the end of an era for traditional phone booths. Today's public phones are Web-equipped and able to perform many communications functions.

April 7, 2002 by

That bank of payphones at your local airport isn't getting as much attention from travelers as it used to. Most likely, a frequent traveler rushing through airport concourses has a mobile phone attached at the hip, or the ear.

It's likely the old-fashioned telephone booth will soon be just another relic of a bygone era, a nostalgic reminder of the pre-wired world. Average payphone usage has dropped from 720 monthly calls in 1997 to about 500, according to the American Public Communications Council.

The payphone business is going through a dramatic downturn in usage, just as the use of mobile phones is rocketing upward. Most analysts say there will always be a place for a coin-operated phone, but the business is nowhere near as lucrative as it once was.

The economics of the payphone industry are forcing a re-evaluation by the major players. Some, such as BellSouth, are leaving the arena altogether. Verizon Communications Inc. and SBC Communications Inc. have scaled back their pay phone operations. Others, including AT&T, hope a new product will bring new opportunity.

In February, BellSouth announced it would get out of the payphone business, selling its 140,000 phones located throughout the southeastern United States. Company officials said the phones will be sold to other service providers or removed from operation under a plan expected to be completed by the end of next year.

"The payphone industry is in a world of hurt," said Francie Mendelsohn, president of Summit Research Inc. "The smart providers are going to (Web payphones) frankly as one possible salvation."

Mendelsohn said the departure of BellSouth finally puts some attention on the fact that payphones "simply aren't making money anymore."

Increased use of mobile phones is the biggest reason for the decline in payphone revenues, Mendelsohn said, a sentiment echoed by BellSouth officials.

"Cell phones are the major factor," said BellSouth area director John McKinney. "People are now using wireless devices to communicate, and so pay phones just aren't as necessary as they used to be."

While that's not the only reason, it is the overriding factor. Mendelsohn said there was "some erosion because some locations were overpopulated, but with cell phones consumers just don't see why they need to use payphones anymore."

A new breed of payphone

A new breed of payphone, one that combines high-speed Internet access, e-mail delivery and other communications services, is slowly gaining acceptance. But simply switching from a traditional payphone to a Web payphone isn't cheap, or simple. Retrofitting is not an option, Mendelsohn said, because the new machines require new equipment.

"Typically, it has a screen," Mendelsohn said. "In most cases it has a keyboard. It may or may not have a handset. Some of them have printers."

James Agliata, business development manager for AT&T, said his company is deploying the AT&T Public Phone 2000i model in locations deemed suitable for Web payphones, replacing its Public Phone 2000.

"The PP2000i can be placed in a kiosk, but it fits in place of a standard payphone, reducing the costs of refitting, so our primary intention is to replace those units," Agliata said.

Agliata said the PP2000i is appealing in its physical look. It offers a 12-inch touchable screen that can display targeted advertising. Users can surf the Internet or check e-mail via Ethernet, DSL, cable or dial-up. It has a full-size keyboard and speakers. The phone allows for simultaneous use of the phone and Internet, and can accept cash or credit cards to pay for the connections, at a price of 25 cents per minute. Advertising on the screens will generate additional revenue, he said.

For special needs users the phone offers TTY, a hearing aid-compatible handset and volume control.

Location, location, location

Mendelsohn said some Web payphones don't physically replace payphones but rather are set up as stand-alone units. However, most applications target existing locations have so many inherent advantages.

"Where the payphones are you already have the signage," Mendelsohn said. "You have really good locations, especially in places like airports. So if you can team with the providers to swap out the underused payphones and replace them with these, they likely will be successful."

Agliata said this is what AT&T is doing, taking advantage of its "strategic real estate." He said this year the company plans to install Web payphones in Atlanta, Dallas, San Francisco, Newark and others. The company also has installed its product at Walt Disney World in Florida.

Mendelsohn said the most successful locations are places where people are waiting, from airports to rest areas to shopping malls to hospital waiting rooms. She said that even inside a hospital, a Web Payphone would work in a quiet, waiting area but not in a busy, loud corridor.

Michael Nastanski, executive director of marketing and business development for Sarasota, Fla.-based Elcotel Telecommunications , said the bank of payphones on a wall in an airport represents extremely valuable real estate, both for the location and the infrastructure. "If you go much outside that you have to start ripping up walls, so we chose to use the footprint of a payphone," he said.

Elcotel has targeted airports, and Nastanski said the company's products are installed at New York's airports, and those in Phoenix, Milwaukee and Indianapolis. Elcotel has installations scheduled for Los Angeles and Oakland, with several others set for the spring. Elcotel also has Web payphones in some Radisson hotels and the Indianapolis Convention Center, he said. Cost per use is 25 cents per minute, sold in four-minute increments.

Who's playing the game

With the changing dynamic of the payphone business comes opportunities for smaller companies to enter the arena and challenge for supremacy. BellSouth's departure opens doors for upstarts and entrepreneurs.

Major players either building or deploying these devices (or both) include Get2Net  of Englewood, Colo., Schlumberger Network Solutions' TelWeb, KPN Telecom  in the Netherlands, Kiosk Information Systems  and Quortek, Mendelsohn said.

Elcotel, which filed for bankruptcy protection to reorganize in January, is continuing its operations. Its Grapevine unit represents a middle ground for Web payphones, Mendelsohn said.

"You have a bunch of buttons to allow you access to certain applications, but you can't fully surf the Web with it," she said. "A user can't just type in a URL and go anyplace on the Web that he or she might want."

Nastanski said the Grapevine system is part of Elcotel's strategy to provide all three elements of Web payphones: the hardware, the applications and the network/back-office to manage the web phones. "We're the technology provider, the ASP of the web phones," he said.

What users want

Nastanski said Web payphones are being deployed to "fulfill an unmet need in the public spaces."

"Payphones were put out many years ago to bring voice communications to a public space, so people could make a phone call where they previously could not," Nastanski said. "A Web phone does the same thing for the Internet. We're becoming communications junkies in terms of wanting to stay connected via e-mail, wanting to check our stocks or our horoscopes. The Web phone is a way to get that to a public environment. The value to the end user is to stay connected to the information services they have become accustomed to. The value to the provider is to create new revenue streams and establish new points of presence."

What users want most from Web payphones is access to their e-mail, Mendelsohn said. "The killer application for all this is e-mail, without a doubt," she said. "The popular applications are things like sports, stocks, weather, news, shopping, chat - all the basics. In some cases it might be local attractions or travel information, depending on where they are. In some countries you see gambling or astrology."

Mendelsohn said offering these applications on these new devices may save some companies that rely on payphones for their survival, or at least for significant revenue. "Some predictions I have seen are overly optimistic, but these can be successful if you put them in the right place," she said.

Another factor that will lead to success is high-speed access, she said, as travelers seek ways to check e-mail as they switch planes in an airport. "People who travel want to stay in touch. And the WAP phones and Internet-enabled cell phones aren't happening as fast as predicted, so there is a sizable window of opportunity for these guys."

Nastanski said speed is one reason the telephone units don't try to emulate kiosks, which he said are basically "PCs in a box."

"Travelers don't want to take the time to wade through all that. There are a lot of intimidation issues with the PC space. The Web phone is for users with less than 10 minutes available. You can still make that phone call, but you can also check e-mail much quicker. It's a strategic difference," Nastanski said.

Plus, there's the inevitable cell phone quality issue -- they simply can't touch landline quality. "If you can't establish a meaningful connection on a cell phone, you have to turn to a land line. So their role may diminish, but it won't disappear," Mendelsohn said.