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Payphone Industry Association

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					                             Submission by the

                    Payphone Industry Association

                                          To

               Australian Communications Authority

                         Payphone Policy Review




October 2003



John Bucknell
President, Payphone Industry Association
Unit 6, 5-13 Parsons Street
Rozelle
NSW 2039

Phone:         02 9810 0146
Fax:           02 9810 3045
E-Mail:        j.bucknell@tritel.com.au
Contents                                            Page


Background…………………………………………………………….                  2

Payphone Tariff………………………………………………………..              2

Free to Caller Compensation…………………………………………..       3

    Impact of Free to Caller Calls………………………………….    4

    Charging for Free to Caller Calls………………………………   4

Directory Assistance……………………………………………………            5

Line Access……………………………………………………………..                5

Grandfather Clause……………………………………………………..            6

Calling Cards…………………………………………………………...              9

Universal Service Obligation…………………………………………..      10

    USO Levy Fund………………………………………………..               10

    USO for Payphones……………………………………………              10

Disability Access………………………………………………………              11




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Background

Payphones have been around for over a hundred years, yet they still represent an
important element in the telecommunications mix for many Australians and visitors.

Until quite recently the Australian payphone market remained a Telstra monopoly and
in some respects it still is. In 1998 TriTel Australia entered the market followed by a
few other operators, but Telstra remain the dominant force with a ratio of
approximately 34 payphones to every one payphone of alternate operators.

The Payphone Industry Association (PIA) was formed in 2000 to represent the
interests of independent payphone operators. PIA members are companies who
actively participate in the payphone industry. Associate membership is available to
operators of Customer Operated Payphones, such as Goldphones and Bluephones.

There are a number of reasons for the lack of competition that this submission will
attempt to highlight. This submission will also address the relevance of the Universal
Service Obligation (USO) in relation to payphones and access for people with
disabilities.

Payphone Tariff

It is well recognised that a monopoly can create artificially high prices to consumers.
It is not quite so obvious that a monopoly, whose pricing regime is controlled by the
Government, can also create artificially low prices to consumers. This is done in the
name of trying to protect the poor from being priced out of a vital service. However
the effect of this “Retail Price Maintenance” is a barrier to competition, as the retail
price does not reflect the true cost of providing the service. Therefore other potential
operators will not enter the market, as they believe they can‟t make a profit from
payphones from the very low margins forced on them by this Retail Price
Maintenance.

In the last ten years operating costs have risen dramatically. Costs such as petrol,
tolls, wages and insurances continue to rise. Even operating costs controlled by the
Government have risen, such as line rental, which has increased several times over the
last ten years. As time goes by and costs to operate payphones continue to rise,
operators will have no choice but to withdraw services, thereby hurting the very
people who were meant to benefit from the Retail Price Maintenance in the first place.
This process of payphone rationalisation has already begun, with both Telstra and
Customer Operated Payphones reducing in numbers over the last few years.

The payphone tariff for a local call is controlled by the Minister for Communications
I. T. and the Arts and was last increased from 30c to 40c in 1994. In 2000 a reduction
of one eleventh was thrust upon the payphone industry due to effects of the GST.
This makes the current payphone local call tariff 36.3c.

The tariff cap of $0.36.3 + GST applies only to Telstra. Other operators may charge
whatever they wish. However, Telstra‟s market dominance is such that they set the
standard price. Any operator that has a payphone located near a Telstra payphone or
competes with them in similar locations is subject to the same pricing regime as


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Telstra. Market pressures dictate that these payphones charge the same as Telstra.
One private operator in a major city location, tried to price their local call at 50c, but
was soon forced by centre management to reduce their price to 40c. This change was
forced on them by customers complaining to centre management that their payphones
were a „rip off‟ for charging the extra 10c. While Government may claim that the
Retail Price Maintenance only applies to Telstra, it is clear that their market
dominance is such that it also applies to their competitors.

In January 2002 the Payphone Industry Association put a submission to the Minister
for Communications I. T. and the Arts requesting approval of a tariff rate increase
from 40c (inc GST) to 50c (inc GST) for a local payphone call. Although the
arguments put were extremely powerful, the Minister did not approve the increase.

As a consequence Australia has fallen well behind other countries in the price of a
local payphone call. For example New Zealand has been $NZ 0.50 for some time and
the USA is $US 0.50 also. While it may seem desirable for Australia to be cheaper
than other countries it makes it very difficult for payphone operators to make a
reasonable living in Australia, thereby further reducing competition and the number of
payphones available to the public.

We have recently seen the Minister approve an increase in Line Rental and the price
of a standard letter postage stamp to 50c (inc GST). The rise for a standard letter
postage stamp received no adverse publicity and we believe a payphone call rise will
also pass with little or no adverse publicity. The public has an expectation that prices
will rise over time.

This Retail Price Maintenance applies to a local call from a fixed phone or a
payphone. All other calls are subject to market forces. With the broad range of
telecommunication services available, what is so special about a local call that it alone
is subject to Government price control?

If the Government is to continue this Retail Price Maintenance, then a formula should
be applied to the tariff to ensure that appropriate rises are granted when they are due.
This would remove the decision from political inputs, such as the sale of T3. It would
be quite simple to link any tariff increase to the CPI. A process such as this is vital
for a competitive and sustainable payphone industry.

Free To Caller Compensation

Payphone operators in Australia do not receive any compensation for Free to Caller
(FTC) calls. However payphone operators in other countries do receive compensation
for these calls. In the USA payment by the carriers to payphone operators followed a
ruling by the Federal Communications Commission (FCC) in 1996. In the USA
payphone operators are now paid $US 0.24c for each of these FTC calls. In the USA
this is called “Dial Around Compensation”, and is paid directly to the payphone
operator by the carrier. Payphone operators in the USA currently have an application
before the FCC to increase Dial Around Compensation to $US 0.48c for each call.

FTC calls are mainly 1800 calls but also include Telecard, Homelink, Reverse Charge
and some special numbers set up by the carriers for their own marketing purposes.


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Network operators such as Telstra and Optus, receive payment for these calls either
by carrying the calls or by interconnect arrangements with other carriers, while the
payphone operator who pays all the costs associated with providing access to the
network, receives no payment. These costs include Line Rental, maintenance,
cleaning and capital equipment costs.

The carriage of FTC calls is a major expense for payphone operators and represents
approximately 12% of all calls made from a payphone.

Impact of Free to Caller Calls

A major impact on the payphone operator comes from Remote Access Calling Cards.
Access to these cards is often via an 1800 number that allows a caller to use another
carriers switch to place a long distance call. There is a perception by the public that
these cards provide cheap calling rates, although they do carry hidden charges such as
a flag fall and an 1800 surcharge. High long distance rates from Telstra payphones
have largely contributed to that perception.

The end result of the proliferation of these cards is that long distance calls from
payphones have all but vanished while the costs of maintenance, line access and
capital equipment required to carry these calls remain. The payphone operator must
pay these costs while not receiving any income for the calls.

In addition there are other costs that are harder to quantify such as the time a Service
Person must wait for a free caller to finish their call so that they can service the phone.
This is a real problem as these callers sometimes buy a high value card (up to $50)
and talk until it is finished. When asked to move to another phone they often refuse
because these cards charge a call connect fee, therefore they are not prepared to break
their call and start again.

There is also an opportunity cost due to the fact that while the payphone is tied up on
a free call it cannot be used to make a paid call. During one month a PIA member
reported that one payphone was tied up for over 27 hours by free calls.

Charging for Free to Caller calls

An obvious answer seems to be to charge for these calls from a payphone, however
there are several reasons why these calls can‟t be charged.

(a)     A payphone must receive a signal from the exchange in order to charge for
any call. This signal is required to tell the payphone to take the money and un-mute
the handset so that the conversation can begin. Telstra will not send this signal on a
free to caller call.

(b)    Telstra has heavily marketed these calls as Free Calls. If any private operator
were to charge for these calls they would be leaving themselves open to claims of
“ripping off” the public by charging for a so called Free Call. This would put them at
a disadvantage in the market place.




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(c)     The 30,000 or so Goldphones and Bluephones don‟t have the technology to
either bar or charge for selected calls as they rely solely on network signaling to
charge for calls.

Compensation for Free to Caller Calls needs to be addressed and a process put in
place to ensure all payphone operators are compensated. There are approximately
30,000 private payphones in Australia and the carriers are getting a free ride on these
payphones by not paying compensation for FTC Calls.

Directory Assistance

Private payphone operators are now being charged 40c for Local Directory Assistance
and $1.60 for International Directory Assistance. If a local call customer gets the
number from Directory Assistance and then makes the call, the payphone operator has
to pay 40c for Directory Assistance plus the cost of the local call. In return he
receives 36.3c from the customer to pay for his local call. You don‟t have to be a
mathematical genius to see that this is a loss making exercise for the payphone
operator.

In the case of International Directory Assistance the situation is even worse because
most customers use calling cards to make International calls. In this case the
payphone operator doesn‟t get paid at all but is expected to bear the cost of
International Directory Assistance. Some operators have blocked access to
International Directory Assistance to reduce their losses on Directory Assistance.
This delivers a reduced service to the public, so the issue needs to be resolved.

The PIA believes that Directory Assistance should be included in the line rental for all
payphone operators.

Line Access

Payphones operate on two types of payphone lines known as ELQ and ELR.

An ELQ line is the standard product offered by Telstra to operators of Goldphones
and Bluephones. It provides network signalling, called „meter pulses‟, to tell the
payphone when to take the next call fee on a timed call. An ELQ line does not allow
Carrier Preselection or Carrier Override Codes to be dialled, therefore effectively
locking the line onto the Telstra network.

An ELR line was created in late in 2000 after Telstra was issued with an Interim
Competition Notice by the ACCC on the basis that the ELQ line was a restrictive
trade practice. An ELR line allows independent payphone operators to preselect to
other carriers and to Least Cost Route their calls to other carriers.

However Telstra created the ELR line as a wholesale only product. This means that
any company wishing to access an ELR line must be a wholesale customer of Telstra.
The PIA sees this restriction as another restrictive trade practice and is a further
barrier to entry into the payphone industry for smaller operators. We believe this
product should be available to all payphone operators, regardless of their size.



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The requirement to be a wholesale customer of Telstra to access this line is simply
replicating the problem with the ELQ line. Once again Telstra are trying to lock
payphone operators onto their network.

Grandfather Clause

Telstra (and its predecessor Telecom Australia) have enjoyed extensive powers to
install and maintain payphones for many years, most relevantly under the
Telecommunications Act 1975, the Telecommunications Act 1989, the
Telecommunications Act 1991 and the Telecommunications Act 1997.

Although over those years the nature of Telstra‟s exclusive rights in relation to
installation of public payphones has markedly changed (and that exclusivity was lost
under the 1997 Act), there has been remarkable continuity in the statutory statement
of Telstra‟s powers to enter onto land and to install and maintain facilities.

In working out the scope of Telstra‟s past and current powers to enter on land to
install and maintain public payphones a key question is whether a public payphone is
a “facility” under the relevant legislation.

Pursuant to the Telecommunications Act 1997 (section 7), “facility” is defined to
mean:

       “(a)    any part of the infrastructure of a telecommunications network; or

         (b)   any line, equipment, apparatus, tower, mast, antenna, tunnel, duct,
               hole, pit, pole or other structure or thing used, or for use, in or in
               connection with a telecommunications network”.

“Telecommunications network” is defined as “a system, or series of systems, that
carries, or is capable of carrying, communications by means of guided and/or
unguided electro-magnetic energy”. The definition is not limited by reference to the
part of a telecommunications network that is established by a carrier in the exercise of
rights that may only be exercised by a licensed carrier.

Similarly, the general carrier‟s powers relating to the installation of facilities pursuant
to section 129 of the Telecommunications Act 1991 were expressed to be exercisable
“for purposes connected with the supply of a telecommunications service” and
empowered a general carrier for those purposes to “construct a facility on, over or
under any land; or [to] attach a facility to any building or other structure”.




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Accordingly, Telstra would argue that it was empowered to establish a public
payphone as a structure or thing used, or intended for use, in or in connection with a
telecommunications network in connection with the supply of a public payphone
service.

The Telecommunications Act 1997 significantly limited carriers‟ powers to enter on
land and establish telecommunications facilities. However, Schedule 3 to the
Telecommunications Act 1997 expressly preserved the rights of carriers in relation to
pre-existing facilities in two significant ways:

      Clause 61 of Schedule 3 stated that the rule of common law that relates to
       trespass does not apply to the continued existence of a building, structure or
       facility that is owned or operated by a carrier, to the extent that the
       construction or alteration of the building, structure or facility was or is
       authorised by relevant provisions of the Telecommunications Act 1991 or a
       repealed law of the Commonwealth of Australia (such as earlier
       Telecommunications Acts).

      Carriers were given extensive powers to maintain facilities, including to
       maintain facilities that a carrier would not be empowered to establish as a new
       facility under the 1997 Act. The maintenance power is broadly expressed to
       include such things as the alteration, removal or repair of the original facility,
       ensuring the proper functioning of the original facility, and the replacement or
       the whole of the original facility in its original location provided that the
       volume of the replacement facility does not exceed the volume of the original
       facility.

In other words, if Telstra established a public payphone pursuant to exercise of
Telstra‟s statutory power under, for example, section 129 of the Telecommunications
Act 1991 (or an earlier comparable provision):

      Telstra continues to enjoy a statutory power to occupy and use land on which
       that facility is established without any ability for the landowner to now argue
       that this continued occupation and use constitutes trespass (by virtue of clause
       61 of Schedule 3 of the Telecommunications Act 1997).

      Telstra may “maintain” that facility under an extended definition of
       “maintain” which allows, among other things, replacement of the facility with
       a new facility which is not of greater dimensions to the original facility,
       pursuant to clause 7 of Schedule 3 of the Telecommunications Act 1997.



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It should however be noted that these statutory powers may be affected by contractual
arrangements between the parties. In other words, if Telstra established a public
payphone pursuant to a contractual arrangement, which was at variance with Telstra‟s
statutory rights, the party to that contract (ie the landowner) could assert the terms of
the contract to limit or otherwise affect Telstra‟s statutory rights. It would be a matter
for construction of a relevant contract as to whether the contract was intended to
reduce or limit (in legalese, „operate in derogation from‟) Telstra‟s statutory rights
and entitlements.

If it was disputed as to whether a public payphone was a “facility” in terms of the
above legislation, Telstra would no doubt point to the Telecommunications (Low
Impact Facilities) Determination 1997 (as made by the Minister for Communications
and the Arts), which lists public payphones as “facilities” in Part 5 of the Schedule to
that Determination. Although this inclusion is not decisive on the point (because a
subordinate instrument like a Determination cannot be used to read down the primary
instrument (the statute) under which it is made), it does point to the fact that the
Minister considered that a public payphone was a “facility” under the
Telecommunications Act 1997.

In relation to newly installed payphones – that is, payphones installed after the
Telecommunications Act 1997 entered into operation – Telstra continues to enjoy a
number of significant commercial advantages as a provider of public payphones that
derive from Telstra‟s status as a licensed telecommunications carrier.

Telstra may “for purposes connected with the supply of a carriage service” install a
facility that is a “low impact facility” as an exercise of its statutory powers as a
licensed carrier to enter on land and install low impact facilities: clause 6 of Schedule
3 to the Telecommunications Act 1997. Other payphone operators do not enjoy such
powers (unless they elect to become a licensed carrier).

Telstra is exempt from compliance with State town planning and restrictions as to use
of land in relation to low impact facilities: clause 37 of Schedule 3. Other payphone
operators do not enjoy such immunity even where they establish an identical public
payphone in an identical situation (unless they elect to become a licensed carrier).

Telstra is only obliged to compensate persons for financial loss or damage arising out
of exercise of such statutory rights, not to pay a rent or licence fee. In practice, this
might not be much of an advantage, as there are strong arguments that a landowner is
entitled to be compensated for loss of use or enjoyment of land calculated on a
reasonable commercial basis, as reflected in a use fee.



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As noted above, public payphones are expressly stated to be low impact facilities
pursuant to Part 5 of the Schedule to the Telecommunications (Low Impact Facilities)
Determination 1997, provided that they fall within the following description:

         Public payphone cabinet or booth:
         (a) used solely for carriage and content services; and
         (b) not designed for other uses (for example, as a vending machine); and
         (c) not fitted with devices or facilities for other uses; and
         (d) not used to display commercial advertising other than advertising
               related to the supply of standard telephone services.

         Public payphone instrument:
         (a) used solely for carriage and content services; and
         (b) not designed for other uses (for example, as a vending machine); and
         (c) not fitted with devices or facilities for other uses; and
         (d) not used to display commercial advertising other than advertising
               related to the supply of standard telephone services

The above has the effect of continuing the Telstra monopoly on payphones,
particularly in public street sites.

This so called „Grandfather‟ clause effectively means that an alternate payphone
operator cannot approach a Council to operate the payphones in their Municipality, as
Telstra can‟t be forced to remove their payphones. This makes a mockery of
competition in the telecommunications industry. It also denies the public the benefits
of competition and denies the Land Owner or Council a much needed revenue source.

It is the view of the PIA that a payphone should not be considered a „facility‟ and part
of the telecommunications infrastructure but rather a retail outlet for the sale of
telecommunication services. Unless Telstra‟s powers are reduced, there can be no
competition in this sector of the market. To allow the current situation to continue is
to accept a continuation of Telstra‟s monopoly.

Calling Cards

It is estimated that the Long Distance Calling Card business in Australia is worth
$500m per year, yet it remains totally unregulated. It has a major impact on the
payphone business because these cards often use payphones to access the network and
on most occasions that access is via a FTC call.

This industry is characterised by misleading advertising and fly by night operators. A
number of companies have gone into liquidation leaving customers with cards they
can‟t use. Often the same operators open up under a new name a short time later.

Call centres of payphone operators are often subject to abuse by customers who have
purchased a card they can‟t use or it doesn‟t work correctly. Once again the payphone
operator pays the cost of running the call centre to deal with a competitors product.




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This whole sector needs to be investigated and regulated. The PIA believes current
powers available to the ACCC under the Trade Practices Act should be sufficient to
bring some order to this industry segment.

Universal Service Obligation

Telstra carries the Universal Service Obligation (USO). Therefore it can be argued
that its application has no impact on PIA members. However we would like to make
comment on a number of USO related issues.

USO Levy Fund

Telstra access the USO levy fund in order to defray the cost of operating unprofitable
USO payphones. However in their calculations of payphone revenue they don‟t take
into account the revenue flowing to Telstra for FTC calls. Unless all revenue derived
from a payphones is properly accounted for, the USO levy fund can be used as a form
of cross subsidy for Telstra‟s Payphone division. The PIA believes there should be
more scrutiny in relation to USO payphones and access to USO Levy Funds.

USO for Payphones

Is the USO for payphones still appropriate in the current telecommunications
environment?

The PIA would argue that while we may still need some form of USO for payphones
it might no longer be appropriate in its current form. In many areas it may be more
desirable to spend recourses on improved Mobile coverage rather than on payphones
that sit on the side of the road and are used only as target practice for hoons. We
would therefore like to put forward some suggestions for consideration.

   1. At this stage only a Carrier can access the USO Levy Fund. This discourages
      any other operator from operating a USO payphone. As an example, there are
      many remote service stations, which have a Telstra payphone outside. The
      Service Station owner would be more appropriate to operate this service as a
      Customer Operated Payphone but at this stage they can‟t be compensated for a
      loss making service from the USO Levy Fund.

   2. Payphones in remote Aboriginal communities are extremely expensive to
      operate. The use of coins makes them unreliable, difficult to empty and
      account for the coins and difficult to ensure the population has sufficient coins
      to operate the phone.

       It would be more efficient to have a payless payphone in these sites. Local
       exchange calls could be provided free and all other calls could be provided by
       FTC services such as Calling Cards, Reverse Charge or Telecard. This
       solution would require an FTC compensation scheme and the USO Levy Fund
       subsidising the free local calls but it would deliver a better and more reliable
       service.




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3. Many USO payphones are left in place for a possible emergency call only. It
   would be cheaper and more reliable to replace these phones with emergency
   phones. As an added bonus these phones could be programmed to allow FTC
   calls also. Once again this solution would need an FTC compensation scheme.

In the USA the payphone industry is very competitive with literally hundreds of
payphone companies, many of whom operate in their local area only. If a non-
profitable payphone is required in say a park, the park owners will pay the local
payphone operator to provide the service. They don‟t have Retail Price
Maintenance like we do, so the payphone operator can negotiate with the park
owner to price the call to more closely reflect the cost of providing the service.

In Australia we need a more flexible approach to the provision of USO
payphones. We also need to be aware of the changes in the telecommunications
mix. What was appropriate ten years ago may no longer be appropriate today.

There is scope for companies other than Telstra to play a role in the provision of
USO payphones, but as long as the carriers alone can access the USO Levy Fund,
other companies won‟t offer their services to this segment of the market.

Disability Access

The Disability Discrimination Act provides all the powers required to ensure
people with a disability are catered for. Any further regulation would be an
unnecessary duplication. PIA members already exceed requirements by installing
every payphone at wheelchair accessible height. Every payphone has a long
handset cord, tactile mark on the #5, hearing aid coupler and volume control.

The provision of Payphone TTY‟s is also a contentious issue. Rigorous ACA
compliance means that only Telstra and TriTel Australia hold a compliance folder
for this product. Other operators can‟t even access the product in order to install
them. To require all operators to supply Payphone TTY‟s would certainly be a
barrier to entry into the market and would force some smaller operators out of
business, as they could not afford the considerable expense to gain compliance on
the product. The provision of the product itself would also represent an
unsustainable financial burden as these a payphone TTY is a very expensive
product, each installation costing approximately $ 4,500.

The approach taken by both Telstra and TriTel is to respond to the priorities set by
the deaf communities themselves. The PIA believes that this remains the right
approach. Many Payphone TTY‟s are installed and never used. They already
represent a heavy burden on an industry operating on very thin margins.


                                       END




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