When Bureaucrats Ruin Businesses

In the US prior to 1889, before there were cellphones, before there were payphones, if you needed to call someone or some business you went to call centers, or pay stations, manned by attendants who would collect money from you for placing a call. The first public coin telephone was shortly thereafter installed at a bank in Hartford, Connecticut.

Uganda pay phoneInterestingly, manned pay stations are still the norm in many parts of the world.

Everything was fine for American operators of payphones for more than a century until prepaid calling cards arrived in the U.S. two decades ago. Unfortunately for payphone owners most users of prepaid cards (mostly immigrants) utilizing their equipment were not putting any quarters in, instead they were accessing the servers of Calling Card Providers by dialing a toll free access number for which the payphone owners received no compensation.

Citing poverty, they asked the FCC in October of 1997 to allow a surcharge to be imposed for anyone accessing an 800 number to offset the loss of revenue. Sadly, the morons at the FCC mandated that the owner of the 800 number pay the surcharge instead of the person dialing (about 25 cents).

The immediate effect was the quick demise of the 800 pager business in this country because business owners were unable to recoup the cost of anyone calling them.

As for pre-paid card sellers, technically they were liable for the 25 cent surcharge. But since they often sold these cards at a steep discount, they would have to charge their customers 35 cents or more per call in order to get back 25 cents.

Of course, many operators did not pay, or they denied that the calls went through. The end result was that the pay phone owners went back to the FCC and asked for even more of a surcharge to cover the shortfall. If you have had occasion to use a calling card from a payphone you probably know that you are now being charged from 89 cents to a dollar or more to cover that surcharge.

Well, here I have to blame both the payphone operators and the FCC. Had the owners asked for 10 cents for any 800 call, they would have ended up with more money than asking for 50 cents from calling card operators many of whom barely pay 20% of what is truly due the payphone owners and send the money in many months after the initial call and after the payphone operators pay a third-party to collect the money for them.

Now with increased use of cellphones, payphone usage has declined drastically. The majority of people who could be using payphones are immigrants because cellphone calls are too expensive for international calling. However, the payphone surcharges of 89 cents or more has caused many of these callers to wait until they get home to their land-lines from which 800 numbers are not surcharged or to wait for night rates on their cellphones to kick-in to use their calling cards.

The FCC which should have been smart enough to protect payphone owners instead insured their eventual demise. Really stupid business decision.

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