Longform

Smooth Operator

Page 4 of 6

Yet people familiar with Kelley point out that pay phones are a cash business carrying all the temptations of easily available money. Once the funds began rolling in, they say, Kelley preferred spending it on himself to maintaining his young business. "Gene took money out of Peak to the detriment of the company," says one lawyer.

Kelley's former wife agrees that Gene spent freely with his pay-phone income, buying a snowmobile, Jet Skis and a motor home while also maintaining a house in Denver. His personal problems--particularly with alcohol--may have contributed to Peak's financial difficulties as well: "Overspending, overdrinking, overpartying," as Mary puts it.

Court documents and interviews with people familiar with Kelley suggest that, while he was enjoying the perks of owning his own phone company, Peak Phone was sliding into trouble almost from the beginning. "It grew too fast," says one person who knew the company well. "They were always ninety days late with their payments. Not thirty days--ninety days. And they had to rob Peter to pay Paul and then rob Paul to pay themselves."

The Kelleys also began neglecting their phones--the equivalent of a florist not watering his plants. "Pay phones are like cash cows," says one lawyer involved in Peak's subsequent bankruptcy. "But you have to feed the cow to keep it going."

Peak's phones would remain broken for weeks. At its height, the company employed only a single full-time service technician to maintain phones over the length and breadth of the state. That resulted in both lost revenue and the enmity of store owners who had to weather customers' wrath. The Kelleys further angered those owners by not paying the commissions they'd promised when the pay phones were installed.

"Peak Phone Service has not paid the Blanca RV Park quarterly since contract was entered into and the equipment and structure placed on the property," begins an August 1995 letter from Major Oringdulph, the park's owner, to Kelley. "Also, the phone has been out of order for almost half the time it has been on the property."

"This letter is to formally acknowledge your reluctant commission payment of $145.74, the balance of 1994 on the pay phone located at the E-Z Mart, 420 South Broadway, in Cortez," reads another letter to Kelley from J. Burton Black, owner of the store. "Integrity is of the utmost importance to me," Black continues. "Therefore, you are requested a second and final time to remove this pay phone immediately."

The unhappy job of collecting money from Peak's pay phones often fell to Tom Carpenter, who also maintained the machines. "My philosophy was always to collect, duck and run," he recalls. "It got so I could get into a store, empty the phone and get out again without them ever seeing me."

By 1995 many people with Peak pay phones in their stores had tired of the company's inattention and were trying to get out of their ten-year leases. "People were just getting frustrated," recalls Dan Corwin, owner of Pair A Dice Vending in Frisco. Seeing an opportunity, Corwin decided to get into the pay-phone business himself and began approaching Peak's Summit County customers about replacing Kelley's phones with his.

Peak was also being squeezed by changes within the industry. In early 1996 AT&T and MCI were heavily pushing their calling plans (1-800 Call ATT and 1-800-Collect). Although all pay-phone companies were affected, those such as Peak that were overextended were hit particularly hard. Michael Kelley says Peak's business dropped 70 percent during what was supposed to be its busiest time of the year.

When Kelley felt pressured for cash, according to court documents, he would approach his elderly investors and either encourage them to wait longer before they asked for their original money back or request an additional investment. Despite Kelley's skill at talking people out of their money, though, Peak was fast falling behind on its bills. One of the biggest creditors was US West.

Although new regulations may change its place in the pay-phone field, for now the giant telecommunications company is an indispensable player in the industry. Independent pay-phone operators have to go through US West for their phone lines, and the company collects money for every minute a caller spends in a phone booth.

Almost since its inception, says one insider, Peak Phone had been behind on its US West bills. But by mid-1996 the Denver-based corporation was running out of patience.

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Eric Dexheimer
Contact: Eric Dexheimer