AT&T Says Goodbye to Pay Phones

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When I was a kid, pay phones were known to be a very profitable business -- simply checking the coin return on a dozen pay phones within a few blocks would support most kids' spending habits. Times have changed, however, and even AT&T (NYSE: T) is admitting that the pay-phone business has seen better days. By the end of 2008, the company plans to be out of the business altogether.

AT&T will be divesting or disposing of some 65,000 pay phones that it operates throughout 13 states, assets that were part of SBC Communications before the merger between the two in 2005. The move follows a few other major operators, such as BellSouth and Qwest (NYSE: Q), that have already moved out of the dying business.

With an estimated 250 million U.S. residents now sporting cellular phones from carriers such as AT&T, Sprint Nextel (NYSE: S), and Verizon Wireless -- a joint venture between Verizon Communications (NYSE: VZ) and Vodafone (NYSE: VOD) -- pay phones have seen rapid declines in usage in the past decade. As evidence of the trend toward alternative forms of communications, AT&T noted that there were approximately 2.6 million pay phones in the U.S. in 1998, compared with around 1 million now.

To balance out the declining usage in pay phones, AT&T and other carriers have not only been reducing the number of pay phones, but also jacking up the price of calls to cover costs. AT&T's latest price increases occurred in 2001, when the charge for local calls went up to $0.50.

In 2003, Verizon Wireless embarked on a brief and ill-fated attempt to revitalize its pay-phone assets in New York by installing Wi-Fi radios in the booths. The plan to make each phone into a wireless hotspot fell flat, however, as use of the booths for high-speed data access was never in demand from consumers. Even putting high-speed wireless hotspots in busy retail areas such as McDonald's (NYSE: MCD) and Starbucks (Nasdaq: SBUX) is now considered a questionable business model, as EarthLink has already confirmed.

I'm sure most kids today won't be shedding any tears when all those phone booths disappear. After all, digging for change today wouldn't even come close to paying for their cell-phone bills. And AT&T might just convert a few diehard pay phone users to its wireless plans in the process.

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