|People Are Hanging Up on Pay Phones For Good|
|Subject||Assumptions, comparative statics, and shut down condition|
|Key Words||Consumers, prices, revenue|
People are discovering that the pay phones they are accustomed to using are disappearing. Over the last three years more than 300,000 pay phones have been removed, leaving approximately 1.9 million. Usage is down from 700 calls a month to 500 on average as wireless phone use has skyrocketed. In 1990, 4 million cell phones were in use; 28 million in 1995; and 110 million today. Little surprise that BellSouth has announced that it will take out its 143,000 pay phones over the next two years.
The reasons for these trends are several. For consumers, cell phones are much more convenient. They can be used anywhere and do not require coins or credit cards. Pay phone prices have climbed at the same time. In addition, some neighborhoods are calling for pay phones to be removed because they are magnets for crime.
For the 2,000 companies providing pay-phone service, the reason is economics. To justify a pay phone, daily revenue needs to be at least $7. However, not only is usage down, but also the pay-phone operators collect only two-thirds of what they are due from non-coin calls made using calling cards, prepaid cards and credit cards. They are also charged heavily for local line access.
While there will always be a need for pay phones in some areas where cell phone use is difficult or people do not have cell phones, the heyday of the pay phone is over. Some companies are now trying to reinvent pay phones to provide Internet access.
(Updated March 1, 2001)
|Source||Rick Hampson, "Pay phones vanishing as cellphones take over," USA Today, February 8, 2001.|
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