PAYPHONE TASK FORCE
NINTH INTERIM REPORT

Summary
          The overall total of payphones in West Virginia decreased by 828 in 2006, a decline of 11.8% from the previous year. Since the deregulation of the payphone industry in 1998, West Virginia has lost 4,823 payphones, a 44% decline. There are now a total of 6,190 payphones in West Virginia. Competitors supply 995 of these payphones, 16.1% of the total. Incumbent phone companies supply the rest.

          The overall drop in the number of payphones in 2006 affected virtually all counties in West Virginia: only three counties experienced an increase in the number of payphones last year. Since 1998 almost every county in West Virginia has seen a dramatic decrease in the number of payphones. In that time span, twelve counties - Tyler, Doddridge, Lincoln, Marion, Brooke, Ohio, Taylor, Monongalia, Wood, Mason, Wayne and Ritchie - have lost over 50% of their payphones.

          The substantial decline in the number of payphones in West Virginia means that many areas - especially rural areas - remain on the edge of market failure. Even though cell phone service has become more widespread, there are many areas of the state without cell phone coverage and many households that cannot afford either a traditional landline phone or a cell phone. For these areas and these families, the declining availability of payphones can have a direct effect on the quality of life in West Virginia.

Background
          Following the deregulation of payphones by the Federal Communications Commission, the Public Service Commission instituted a general investigation of the payphone market in West Virginia in 1998 and created a payphone task force. In order to monitor the development of the payphone market and to provide the basis for determining whether public interest payphones may be needed in particular areas, annual reports have been presented to the Commission since 1998. The information in this Ninth Interim Report represents the situation during the fourth quarter of 2006 and provides comparative data by which to gauge changes in the payphone market in West Virginia. The Report breaks down payphones in West Virginia by county, by exchange and by company. The Ninth Interim Report consists of 8 summary pages and 3 tables as described below:

Summary page 1 - Company Summary, 2006 vs. 2005
Summary page 2 - Company Summary, 2006 vs. 1998
Summary page 3 - County by County Comparison, 1998 - 2006
Summary page 4 - County by County Comparison, 1998 vs. 2006, Ranked by Percentage Change
Summary page 5 - County by County Comparison, 1998 vs. 2006, Ranked by Change in Number of Payphones
Summary page 6 - Households Without Phones in Counties with Greater Than 20% Poverty Level
Summary page 7 - County by County Comparison, 2006 vs. 2005, Ranked by % Change
Summary page 8 - County by County Comparison, 2006 vs. 2005, Ranked by Change in Number of Payphones
Table 1 - Payphones in West Virginia sorted by county
Table 2 - Payphones in West Virginia sorted alphabetically by exchange
Table 3 - Payphones in WV sorted alphabetically by exchange by company

Changes in the Payphone Market in 2006
          The overall total of payphones in West Virginia decreased by 828 in 2006, a decline of 11.8%. (Summary page 1)). This follows a decline of 6.7% last year, and 8.9% the year before that.(1) Set forth below are summary data from each of the interim reports of the payphone task force:

WEST VIRGINIA
Year LEC(2) Payphones Non-LEC Payphones Total Payphones
1998 9,684 11,329 11,013
1999 9,176 1,918 11,094
2000 8,703 2,415 11,118
2001 8,206 1,988 10,194
2002 7,221 1,826 9,047
2003 6,501 1,753 8,254
2004 6,256 1,265 7,521
2005 5,833 1,185 7,018
2006 5,195 995 6,190
Change -4,489 -334 4,823
% Change -46.4% -25.1% -43.8%

          As can be seen, the overall number of payphones grew slowly from 1998 through 2000, before dropping in 2001. That decline has continued into 2006. The number of payphones supplied by competitors has followed the same trend: rising until 2001 and then declining. The drop in the number of competitor-supplied payphones accelerated in 2004, with the result that competitors now provide 25% fewer payphones than they did in 1998. At the same time, the number of payphones provided by incumbent phone companies has fallen by over 46%. As a result, competitors now provide approximately 17% of the payphones in West Virginia, down from a high of 21.7% in 2000.(3)

          The drop in the number of payphones in West Virginia is reflective of nationwide trends. Set forth below is data from the FCC concerning the payphone market in the United States since 1999:

UNITED STATES
Year LEC Payphones Non-LEC Payphones Total Payphones
1999 1,385,954 735,572 2,121,526
2000 1,308,343 755,375 2,063,718
2001 1,219,776 699,664 1,919,640
2002 1,060,638 650,423 1,711,061
2003 930,180 565,606 1,495,786
2004 815,788 529,211 1,344,999
Change -570,166 -206,361 -776,527740
% Change -41.1% -28.1% -36.6%(4)

          It is likely that this downward trend in payphone availability will continue. Several incumbent carriers have gotten out of the payphone business and the price of a payphone call has risen, generally to 50˘ per call. At the same time, competing technologies such as cell phones have declined in price and increased in popularity. Since 1999 the number of cell phones in the United States has more than doubled. While the number of payphones nationwide has dropped to approximately one million, there are now over 228 million cell phone subscribers.(5) Within West Virginia growth in cell phones has been even more dramatic, increasing fourfold since 1999. It is likely that cell phones now exceed landline phones in West Virginia.

Changes in Payphone Availability in Each County in West Virginia
          Although cell phones offer a convenient alternative to payphones for many customers, they provide little assistance to low-income citizens who may rely on payphones as a primary method of conducting business. Moreover, because of the topography of West Virginia, there are many areas where cellular phone service simply isn't available. The latest FCC subscribership data show that 6.6% of West Virginia households do not have any type of telephone service.(6) Census data also show that in three counties - McDowell, Lincoln and Clay - 10% or more of households do not have phone service.

          Summary Page 3 shows the changes in the number of payphones in each county in West Virginia since 1998, while Summary Page 4 and Summary Page 5 rank the counties by the percentage and total number change in payphones since 1998. Summary Page 6 shows the telephone subscribership in the 18 counties in West Virginia with 20% or more of households below the federal poverty level. These same 18 counties are highlighted in the listing of all counties in Summary Pages 4 and 5. As can be seen by reference to Summary Pages 4 and 5, high-poverty counties are distributed evenly in terms of percentage change in payphones since 1998. In other words, high-poverty counties do not appear to have been affected more or less dramatically by the change in payphones than other counties in West Virginia. Moreover, several counties with the greatest percentages of households without phones appear to have lost the fewest number of payphones since 1998.

          As previously discussed, the overall number of payphones in West Virginia declined by 11.8% in 2006. In order to investigate the changes in the availability of payphones in each county, Summary Page 7 and Summary Page 8 compare the number of payphones in each county in 2005 and 2006. As can be seen, the impact on particular counties varied widely. Three counties - Barbour, Grant and Marshall - actually gained payphones, and five counties saw no change. The remaining 47 counties all lost payphones. As shown on Summary Pages 7 and 8, Kanawha County saw the largest decrease in the number of payphones in the past year, while Tucker County saw the largest percentage decrease.

Counties with Low Levels of Subscribership or Substantial Loss of Payphones
          In the Order in Case No. 05-1763-T-PC the Commission directed that this Eighth Report "focus on counties with low levels of subscribership or that exhibit a substantial reduction in available payphones… ." From review of the data contained in this report, it appears that the two counties in this group with the largest drop in the number of payphones - Kanawha and Raleigh - are also among the counties with the largest remaining number of payphones. In addition, it is clear that the lion's share of payphone removals in these counties occurred in Charleston and Beckley, the largest urban areas in their respective counties. These urban areas generally have the greatest availability of wireless coverage.

          Among the counties with large percentage losses of payphones since 1998, Lincoln County also exhibits a high level of poverty and a substantial number of households without phones. It appears that most of the payphone loss in Lincoln County has occurred in the Hamlin exchange of Armstrong. As reported in the Fourth Report of the Payphone Task Force, the incumbent carrier, Armstrong, essentially exited the payphone business in 2000, selling all of its locations in the Hamlin exchange to competitors. Armstrong has maintained a single payphone outside its Hamlin office since that time. Beginning in 2001 the number of competitor supplied payphones in Hamlin has declined from 39 to the current level of 9. In spite of this, there are still 10 payphones in the Hamlin exchange, and no complaints about payphone availability have been received from local officials. (See below).

Reports from Local Officials and Requests for Restoration of Payphones
          Since West Virginia does not have a formal "public interest payphone" program, requests from consumers or local officials for placement of payphones have been handled informally on a case-by-case basis. Every two years letters are sent out to all county and city officials in West Virginia inquiring whether there were areas within their jurisdictions where payphones were needed, but were not available. The last mailing was in October 2006. A total of six local officials responded. The mayors of Marlinton, Cowen and the Marion County Commission indicated that the number of payphones was adequate. The mayors of Hurricane, Anawalt and Webster Springs indicated that there were areas where additional payphones were needed. Visits to Hurricane and Webster Springs showed that while payphones had been removed from certain locations, there were still numerous payphones in a variety of locations. Hurricane currently has 21 payphones while Webster Springs has 11 payphones. Anawalt in McDowell County only has a single payphone, and its location does not appear central to most activity in the town. Officials of Frontier have indicated that they will investigate the feasibility of moving the payphone in Anawalt to a more central location.

          In addition to reports from local officials, data submitted for this report showed that the Davy exchange of Frontier and the Bradshaw exchange of Verizon, both in McDowell County, currently have no payphones supplied either by the incumbent or a competitor. Frontier and Verizon were contacted and have indicated that they will install payphones in these exchanges in compliance with Commission Phone Rule 6.7.a. Verizon notified the CAD that a payphone was installed in the Bradshaw exchange on December 7, 2006.

Public Interest Payphones
          There have been no changes in FCC requirements for public interest payphones since the last interim report. Likewise, there have been no major changes in state public interest payphone programs since the last report. The recommendation on establishment of a public interest payphone program in West Virginia is the same as in last year's report: there is no compelling need for a formal PIP program in West Virginia at this time. The Commission has monitored changes in payphone availability since 1998. While the payphone removals of the last several years have not yet resulted in widespread payphone market failure in West Virginia, the continuing pace of payphone disappearance has placed many areas on the edge of market failure. It is indisputable that the majority of payphone removals over the past eight years have occurred in urban areas of West Virginia, such as Kanawha County (loss of 678 payphones), Cabell County (loss of 420 payphones), Monongalia County (loss of 336 payphones), and Wood County (loss of 304 payphones). The decline in payphones in these highly populated areas has increased inconvenience for phone users, but has not resulted in market failure. However, after the general decline in payphone availability, removal of even a single payphone can have a dramatic impact on rural areas.

          That being said, the informal process that has been used in West Virginia for the past several years appears to be effective. Requests by communities for placement of a payphone when there were no other options for public access to telecommunications have been honored, generally by incumbent local exchange carriers. As a result, it is the recommendation of the Payphone Taskforce that there is no compelling need for a formal PIP program in West Virginia at this time. Requests for placement of phones in specific locations should continue to be handled on an ad hoc basis. If this situation changes in the future, the Task Force will so inform the Commission.

Other Recommendations
          The Payphone Task Force also recommends the following:

         The Commission should require the filing of another interim report on payphone availability by December 14, 2007.

         The Commission should require the Task Force to continue to investigate reports of payphone market failure by local officials or consumers.









1. See, Seventh and Eighth Interim Reports of the Payphone Task Force.

2. "LEC: stands for incumbent "Local Exchange Carrier" and is used to indicate payphones owned or provided by the incumbent local phone company. "Non-LEC" indicates payphones owned or provided by anyone other than the incumbent local phone company. The data presented in this report is based on the service area of the incumbent LECs. Even if a line in Verizon's service territory is provided to a payphone provider by a competitive local exchange carrier, such as FiberNet, the phone will be shown in a Verizon exchange provided by a non-LEC provider.

3. Some companies act as both incumbents and competitors. For example, in addition to the 4,594 payphones Verizon provides in its own local service territory, Verizon provides over 50 payphones in local service territories of other LECs.

4. Trends in Telephone Service, FCC Industry Analysis Division (June 21, 2005), Table 7.6, http://www.fcc.gov/Bureaus/Common_Carrier/Reports/FCC-State_Link/IAD /trend605.pdf. Data for years subsequent to 2004 is not yet available. However, based on past trends it is likely that there are currently only one million payphones nationwide.

5. Cellular Telecommunications and Internet Association, Dec. 11, 2006, http://www.wow-com.com. See also, Local Telephone Competition: Status as of December 31, 2005, FCC Industry Analysis Division (July 2006), Table 14. Table 14 of this report also shows that as of December 2005, there were 858,599 cellular telephone subscribers in West Virginia, compared to 241,265 at the end of 1999. Since that time, the number of cellular phones in West Virginia has continued to increase, while the number of payphones continues to decline.

6. Telephone Subscribership in the United States, FCC Industry Analysis Division (Oct. 2006), Table 2, http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-268003A1.pdf. The FCC subscribership survey includes all types of phone service, wireless and wireline.