fi If
the private pay-phone business is approached
professiona lly by an established operator, he will have
a tremendous advantage over the people .. . that will
start out with a half a dozen phones and try to pay for
them. ~
1111111111111111111111111111111111111111111111111111111111111111111111
111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111
some are in locations in which none of us has games,
music, or cigarettes. We are setting up phone routes, but
they are based on where we already go to collect our own
coin-machine accounts. We do it by geography. It
doesn't take a lot of time to collect a pay phone and take
meter readings. The individual operating companies are
compensated for participating in Phonetel service and
collecting."
Fifteen months ago you began researching the pay-
phone marke t . Now y ou have started a c ompany
and are operating phones_ How did y ou begin?
George: "One of the advantages of starting Phone-
tel the way we did was our automatic customer base of
over 4,500 accounts among us . That was our primary
market since we considered pay phones an extension of
other vending services. It is a coin machine, it takes
coins, it needs to be serviced and collected. So we
approached it on a commission basis, much like we do a
cigarette machine. That's how we determined our initial
market. Obviously there's a big offshoot of that market,
but we felt comfortable with our existing accounts.
"We felt there were three things necessary to get
this pay-phone business off on the right foot. One was a
proforma, our goals for the business, which indicates
that we will be operating about 1,400 pay phones at the
end of 18 months in business. Originally we thought we
only wanted to go into the business by putting pay
phones out on a vending basis. Shortly thereafter, we
found there is a market for the marginal accounts that
we don't really want to vend, but we could sell or lease
the phones and provide service contracts. We then
incorporated that into the program. We had to be com-
petitive."
Once you established y our goals, then what?
George: "We had to find a phone that worked, and
you are really talking research. To find a decent phone
we went from coast to coast testing about 25 pay phones.
And in a 12-month period we didn't find even one to be
satisfactory. That was frustrating. We have since found
two pay phones that work, but we looked at all of them.
"We also needed someone to run our new pay-
phone company since all of us are extremely busy
running our own companies. We knew it would have
been impractical to try and run a new company with a
board of directors and no chief executive officer. So we
hired Norm Barkan, who was originally invited to partici-
pate in the company. However, realistically we didn't
have much to offer in the beginning- no cash flow and
we hadn't even found a phone that worked.
"Then, fortunately for us, Norm became available in
October, just when we found the pay phones that
worked after months of frustration.
"The third ingredient was financing. To approach
this business on a volume basis we needed bank financ -
ing. It took quite a bit of time working on a realistic busi-
ness plan to present to a bank. It took months and
months of work. In fact, the proforma we're working on
now is our seventh or eighth revision. But we did finally
obtain our financing several months ago. Finally, having
a CEO with years of experience in the coin-machine busi-
ness, financing, and pay phones that work , we were
ready to start placing phones."
You mentioned the months of researc h. Where did
y ou go to find informat ion?
George: "Excellent question. We went anywhere
and everywhere we could to find information. We were in
California, Texas, Chicago, Florida, [and] Washington,
D.C., looking at product more than anything else. We
talked with representatives of the [Ohio] Public Utilities
Commission and still have an ongoing dialogue with the
PUC and Ohio Bell. We spent $100,000 before we had
even put a phone on the wall."
What is the profitability of operating pay phones?
George: 'Tm going to answer that kind of indi-
rectly. We were looking for a larger share of the market
than just one of us could have done alone. That's why we
pooled our resources to form our company. But if an
individual coin-machine operator is not going to operate
100 phones, the major start-up expenses will be too
much to justify his time. The process of getting a pay-
phone business off the ground is cumbersome and
expensive. If he says yes, he will make a commitment to
operate 100 phones or more. The first suggestion we
would make is to do a proforma. He has to have a busi-
ness plan. It is not like operating a cigarette machine or a
jukebox, because you are dealing with local agencies [a
state public utilities commission] and you're dealing with
federal agencies [the Federal Communicatio ns Commis-
sion] . It's just not the kind of thing we do on a day-to-day
basis in the games, music , and cigarette business."
A re pay phones a nat ural extension of an amuse-
ment rout e or a tot ally diffe re nt business ?
George: "I think the coin-machine operator has a
significant advantage when entering into the private pay-
phone business. There are so many things that are com-
parable. There is the location base. Certainly if the cus-
tomer has worked with and trusted the operator to
provide games and cigarette equipment and service, he
certainly should not be reluctant to give the operator the
11111111111111111111111111111111111111111111111111111111111111 HI I
111111111111111111111Ill111111111111 UI Ill Ill Ill Ill I Ill II Ill Ill 11111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111
PLAY METER, Jonua ry 15, 1986
15
. ~