This week, J. Paul's bar and restaurant could become your telephone company. New rules allowing businesses to own their own pay telephones went into effect Friday, and District businesses are thinking about keeping some of the $11.2 million in annual revenue Chesapeake & Potomac Telephone Co. collects from 9,700 phones.
"Number one, you own your own phone; you also have the ability to create income from long distance," said Richard Schertzer, general manager of J. Paul's, in Georgetown. In any case, it beats "basically a very small commission" the business gets from C&P on a monthly basis for having two C&P pay phones on its premises. J. Paul's is considering buying two pay phones and removing C&P's.
Even in Virginia, where private pay telephones have been permitted since last June, some businesses and institutions still are trying to measure their impact.
"I would say the potential is somewhere around $1 million in commissions a year, about three times what we're getting now," said Clyde Bingman, manager of business operations for Washington National and Washington-Dulles International airports. The airports have 460 pay phones and earn an 8 percent commission from C&P, or about $350,000 a year.
Bingman is considering allowing a company to bid for the installation and operation of business and coin telephones in exchange for a larger commission, but he is watching the industry evolve before making any decision.
"It's definitely a fluid situation. . . . We didn't want to step off the end of the pool until we were sure we were going to end up with equipment or a manufacturer that was going to be in business for a while."
Regulators in 39 states, including Virginia, have allowed coin phone vendors to sell, install and/or operate the phones since the Federal Communications Commission authorized such ownership in 1984.
Businesses are free to buy their coin- and credit-card-operated phones, or to lease the phones from another company that will install and operate them.
Chesapeake & Potomac Telephone Co. makes about $100 million a year from 82,000 coin phones it operates in the District, Maryland, Virginia and West Virginia. Since the Virginia State Corporation Commission authorized ownership of coin phones last year, 344 private coin phone customers have set up shop in the state, with roughly a third of them in Northern Virginia.
The Maryland Public Service Commission rejected private ownership, but is reconsidering the issue.
C&P spokesman Web Chamberlin is confident C&P will retain its customer base in the District, where businesses with C&P coin phones are paid a small monthly commission. "We are going to face the competition strongly," he said. C&P is increasing commissions in Virginia to retain profitable coin phone locations that might be lost to the competition.
Pay phone vendors and operators think businesses stand to make money on the phones.
"Any business owner that does more than $300 a month in total revenue should at least consider owning the phone," said George L. Wood, president of U.S. Pay Phone, a Washington-based coin phone marketing firm that sells, installs and operates the phones.
The company has signed about 187 contracts for Virginia and the District and expects to operate 3,500 coin phone locations in the next 24 months. About 13 local companies sell or operate the phones, and more than 80 companies nationwide sell dozens of varieties of coin phones, consultants say.
Wood cautioned against exaggerated claims about how much money can be earned from a typical pay telephone -- which is likely to be between $80 and $120. Businesses signing leasing contracts also should be aware of third-party arrangements, Wood said. "Some companies presign locations, then turn around and sell the contracts to an investor. . . . Someone unknowledgeable about telecommunications ultimately owns the phone -- it's muddy waters." The D.C. Public Service Commission will monitor quality of service but is not responsible for contractual arrangements.
Under the D.C. rules, coin telephones installed in the District must accommodate three different coin sizes, return coins for incomplete calls, and provide free access to 411 and 911 and access to an operator. For each call placed, C&P must be paid 6.9 cents, and a business owner must pay C&P a monthly fee of $12 per coin phone line. The coin phone operator may not charge more than 20 cents per local call.
The coin phones may not be installed in public places, such as Metro, train or bus stops, but the PSC might reconsider that rule.
Not all businesses are jumping on the coin-phone bandwagon. "We do not feel it will be profitable and don't see any marked improvement with customer service -- so we are going to take a wait-and-see attitude," said Barry Scher, director of public affairs for Giant Food Inc., the 137-store chain based in Landover.
"This thing was not the bonanza it originally started out to be," said Darryl Bryant, senior vice president for finance at Dart Drug Stores Inc., a 73-store chain based in Landover. "A lot of firms came in here offering supposedly tremendous commissions, but we went a year without anybody showing us a phone."
Dart has two proposals from vendors who want to install and operate phones for them, but is leaning toward C&P. "C&P is tripling what their initial commission had been -- they still have a better cost structure," Bryant said.
William Moorhead, a consultant with Partridge Group, based in Washington, said the industry has problems. "There are three fundamental problems: regulation, technology and the economics of the industry."
"Most phones out there don't work, and the economics of the industry are such that there are very few locations that are valuable," he said. And in some places, phone companies have monthly fees for phone lines that are too high to allow a profit on a coin telephone.
"When it comes to buying a coin phone, don't be first -- watch the guy next to you," he said.