Pay phone deal rings up
By Al Lewis, Business Columnist
Sunday, October 9, 2005
Pay phones are a dying business.
Not even Qwest wants to be in it.
In May 2004, Qwest sold its 14-state pay-phone business to FSH Communications, a company run by three former Qwest employees.
One of FSH's founders, Donald Goens, had run the pay-phone business at Qwest.
Goens also had worked under Qwest CEO Dick Notebaert at Chicago-based Ameritech. Qwest disclosed little about this transaction, including the price.
A FiSHy deal? Qwest says it's so small that the terms do not have to be disclosed. And perhaps the future for pay phones is so pitiful that nobody cares - except for Herman Malone.
Malone, who was once chairman of the National Black Chamber of Commerce, runs a small, Denver-based pay-phone company called RMES Communications. Malone partnered with Qwest predecessor US West a decade ago to provide pay-phone service at Denver International Airport. This has been a declining venture: Once there were 800 phones at DIA; now there are only 200, generating about $500,000 a year.
FSH inherited the venture with Malone when it bought Qwest's pay-phone business. Earlier this year, the airport contract came up for renewal with the city of Denver. Instead of sticking together, RMES and FSH made competing bids. Telecommunications giant Verizon also bid.
Verizon and FSH are larger, more stable companies than RMES. Also, FSH offered to give the city 30 percent of DIA pay-phone revenues, while RMES offered 16 percent and Verizon, 15 percent.
RMES won the contract anyway.
RMES is a certified disadvantaged business enterprise, a requirement of the contract. FSH, which is owned by three black businessmen, offered to take on a disadvantaged business as a partner. But the city decided FSH did not provide enough information on this plan in its bid.
FSH wants the contract rebid. Last month, it sued the city, claiming the selection process was flawed. Among FSH's complaints: Malone's longtime friend, Tamela Lee, director of Denver's small-business office, and her brother-in-law, Michael Hancock, a city councilman, sat on a panel that ranked the bids.
On Sept. 23, City Auditor Dennis Gallagher sent a letter to DIA officials saying he was withholding his signature from the RMES contract.
"I am concerned that this concessionaire has seriously underreported revenue to the Department of Aviation under a previous contract," Gallagher wrote.
Malone said this stemmed from a dispute over the definition of gross revenues. "There has never been an underreporting of anything," he said. But RMES paid the city $77,339 to end the matter.
"The auditor has not conducted himself as a responsible elected official," Malone said. "We as a business owner have had an impeccable reputation for 30 years."
Impeccable? What about RMES' 1998 bankruptcy filing?
Malone blamed his financial problems on US West, which did not renew a contract with him in the mid-1990s. This relationship soured when Malone headed the Black Chamber and some of its members sued US West claiming racial discrimination. Malone joined the case. US West settled with some plaintiffs, but Malone lost his case in 2001.
At that time, B. Lawrence Theis, a US West lawyer, said to a jury: "Mr. Malone comes before you to ask for one more bailout. ... It's always US West's fault. ... It's time for someone to tell him 'No'."
But the city and its airport have told Malone "yes". City Attorney Cole Finegan notes FSH is going to court after losing its arguments in an administrative hearing. And never mind the auditor.
"His signature is ministerial", said Finegan. "This will get resolved in court."
Larry Hudson, a Denver attorney representing FSH, says his client has raised legitimate questions about the process.
"This is their core business", he said. "The way this process was handled has not been fair."
All of this drama and legal expense is over who operates 200 pay phones.
But who uses a pay phone any more?
Al Lewis' column appears Sundays, Tuesdays and Fridays. Respond to Al at denverpostbloghouse.com/lewis, 303-820-1967, or firstname.lastname@example.org.