— Pay telephones may be communications dinosaurs compared with cutting-edge smartphones, but for an East Bay company, pay phones are anything but extinct.
Jaroth Inc., whose primary unit is pay-phone operator PTS, sees a bright future in the market and has bought a large office building in San Ramon that it intends to use as its headquarters. Jaroth intends to move about 50 employees there and will vacate its current headquarters in Walnut Creek. The company says the underlying business of pay phones is a lot healthier than one might imagine, considering how ubiquitous wireless phones have become.
“We adopted the mantra that we would be the last people standing in the pay phone business,” said Thomas Keane, Jaroth’s chief executive officer. “The secret to our success is innate stubbornness.” In 2000, pay phones peaked at 2 million units. By this year, that number had shriveled to 700,000 units. From 2008 through 2009, the number of pay phones in use in the United States dwindled by 58 percent, the Federal Communications Commission has reported.
“Our continuing customer is typically someone who may be economically challenged,” said Michael Zumbo, president of Jaroth. “They might not be able to afford a phone at home. Or maybe they ran out of minutes early.” Despite the pay phone industry’s overall decline, Jaroth has managed to broaden its market share of a pie that shrank. The company has bought pay-phone assets from the former Bell System companies. In 1999, Jaroth owned 22,000 pay phones. At present, the company owns 50,000 pay phones. That’s paid off in a nicely sized company. In 2010, Jaroth is expected to generate $60 million in revenue, Keane estimated.
“A lot of quarters go into those pay phones,” he said. “It adds up.” Privately owned Jaroth has been adding pay phones in locations that are not the sites where the devices traditionally have been found. “We put pay phones in places where they should be most viable,” Keane said. Jaroth also chooses pay phone locations that can serve different kinds of customers than was the case in the past. If the phone is in a hotel, it might be to serve hotel workers who cannot afford a wireless phone. Pay phones also have sprouted in stores or office centers. Airports, convenience stores and Walmarts also are popular sites.
Pay-phone locations these days are also geared toward those who might have forgotten their wireless phone or whose phone is out of juice — a kind of emergency communications backup for today’s go-go customers. Some local examples of PTS pay phone locations: BART stations, hospitals such as John Muir’s campuses in Walnut Creek and Concord, UC Berkeley, and convenience stores such as 7-11. It has phones in some office buildings in the Bay Area.
Although PTS does not have pay telephones in Bay Area airports, the company does have them in airports in Los Angeles, Chicago, Houston, Detroit and Ohio.
To support its operations, Jaroth has been looking the past few years for a new headquarters. For the past year, the company has subleased space in Walnut Creek.
The company came across the San Ramon building a short distance from Interstate 680, Zumbo said. In September, an affiliate firm controlled by Jaroth bought the building in a deal arranged by Cornish & Carey, a commercial real estate firm.
The building purchase represents a propitious confluence of a healthy pay phone business for Jaroth and PTS, small business federal financing and a sluggish realty market. Those factors helped Jaroth buy the 40,000-square-foot building at 2001 Crow Canyon Road in September. The Jaroth-headed unit paid $4.5 million for the building. Zumbo said. That was the kind of good deal that buyers can command amid the current slump in commercial real estate values. The two-story building previously was valued at $7 million.
Jaroth expects to be in its new headquarters building by early December. The company will occupy half the building. The remaining half is leased to tenants. The San Ramon building deal also was bolstered by financing from the federal Small Business Administration. The SBA provided as much as 40 percent of the purchase price. That enabled the Jaroth affiliate to spend as little as 10 percent on deal. The SBA backing enticed banks to finance half the purchase. “SBA-backed funding is one of the few financing vehicles that are available right now,” said Sean Cooley, a Cornish & Carey broker.
Jaroth says the SBA cash was vital to the property deal. That way, the company didn’t have to tie up millions in the building.
“I don’t think we could have done the deal,” Zumbo said. “We would have had to put up 50 percent of the purchase money. With the SBA money, we found that the banks were pretty eager to finance this loan.”
Contact George Avalos at 925-977-8477.
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