Smooth Operator

Gene Kelley plugged into the lucrative pay-phone business--until someone dropped a dime on him.

In the mountain town of Frisco, Bobby Gene Kelley was known as a drinker of great persistence. Soon after receiving one too many citations for driving under the influence of alcohol, he purchased a Lincoln Towncar limousine. When he felt like having a drink, he would call his driver, who would then ferry him around to local watering holes where, recalls one local bartender, "Gene wasn't bashful with his money. Big tabs, always buying everyone drinks. Very generous."

If there was one thing that Kelley did better than partying, it was selling, which he also accomplished with great enthusiasm. "He could sell a refrigerator to an Eskimo," says Roberta Martin. "He could talk a leg off a table."

Martin experienced Kelley's sales techniques firsthand. In 1990, when he knocked on the Martins' door and suggested they get in on a new telephone company he was starting, it seemed like a fine investment; she wrote him a check for $4,000 from their retirement funds.

"He dressed neat and kept his hair cut nice," says Martin, who moved with her husband to Pueblo several years ago from Salida, where they had run a shoe-repair business for thirty years. "It sounded good."

Martin wasn't the only person writing Kelley big checks. During a two-year period, from 1989 through 1990, people all over Colorado--most of them elderly, many of them from rural towns--gave more than a half-million dollars to Kelley to finance his new phone company. He rounded up these investors in an unconventional way: Kelley, whose official job was selling supplemental Medicare insurance policies to retirees, peddled his own project at the same time. After he made his health-insurance pitch, he'd segue into a plug for his new telecommunications venture.

"We was wanting some insurance, hospital insurance, and so he came to our house," recalls Helen Peck, who still lives in Akron a decade after retiring from farming alfalfa there. "I don't know how we got to talking about phones, but what he said sounded good. He talked pretty nice and seemed pretty fair." Impressed, Peck gave Kelley $6,000.

In all, Kelley raised an estimated $590,000 from investors like Peck and Martin. His company, Peak Phone Service, Inc., founded in February 1990 in Frisco, seemed to take off quickly. By late last year Kelley owned or leased nearly 500 pay phones throughout the state, most of them in small mountain communities--from the Cliff Brice convenience store in Saguache to Downstairs at Eric's bar in Breckenridge, from the Hog's Breath Saloon in Pagosa Springs to Club Med at Copper Mountain, and a lot in between.

With his two sons joining him at Peak, Kelley enjoyed the lifestyle of a successful businessman, complete with limo and Jet Skis and other mountain toys.

But the success was short-lived. In July 1995 Kelley suddenly declared himself personally bankrupt. Then, this past April, Peak Phone filed for protection from its creditors under federal bankruptcy laws while the Kelleys tried to reorganize Peak's finances.

It didn't work: By fall the company had ceased to exist, leaving Helen Peck and Roberta Martin and dozens of other investors holding near-worthless IOUs from the Peak pay-phone empire. And the tumultuous pay-phone industry had spit out another company with big dreams of fast cash.

Sometimes Frank Semone's job is like running into a stiff head wind. As president of the thirty-member Colorado Payphone Association, one of his tasks is trying to supply legitimacy to the pay-phone industry. But even Semone admits pay phones can be a hustle and that the business attracts some wrong numbers. "Anytime you have an emerging industry, there are going to be people who don't play by the rules," he says.

To anyone who has slid a quarter into a pay phone, the idea that owning one could be part of a get-rich scheme seems far-fetched. But try thinking of pay phones as just another part of the multi-billion-dollar telecommunications business.

It has been only in the last decade that private parties could own pay phones. Today there are an estimated 1.9 million pay phones in the country; the vast majority of those, about 1.5 million, are still owned by what are known as local operating companies--corporations such as US West.

In Colorado, US West once controlled all the pay phones; today it still owns 27,000 of the state's estimated 34,000 pay phones. The remainder belong to approximately fifty private companies that jockey furiously for a small amount of new business and, more commonly, for the profitable locations that already exist. Recent deregulation rules, which could make it more difficult for US West to earn a profit on its pay phones, mean the number of private pay-phone operators will probably rise.

Semone, who has owned his own pay-phone business, Denver-based Western Paytel, for nearly a decade, says that the industry has become almost unrecognizable during that time. "When I started, all you had to do was put a computer chip into a phone, hang it on the wall and collect the money," he recalls.

"Today I'm speaking from our computer room. I can change the rate on any of our 700 phones in an instant. Every night our computers call every phone we own to collect information on how much money we took in and whether the phone is working. We usually know a phone is broken before the location owner does, and we can send a technician out immediately. We need to know these things, because a broken phone isn't earning any money."

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