FORM 10-Q

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


              [X] Quarterly Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934


               For the Quarterly Period Ended: September 30, 1997

                                       or

              [ ] Transition Report Pursuant to Section 13 or 15(d)
                     Of the Securities Exchange Act of 1934

                         Commission File Number: 001-12443
       

                         PEOPLES TELEPHONE COMPANY, INC.
             (Exact Name of registrant as specified in its charter)


                        NEW YORK                       13-2626435 
              -------------------------------          ------------
              (State or other jurisdiction of        (I.R.S. Employer
               incorporation or organization)        Identification No.) 

                 2300 NORTHWEST 89TH PLACE, MIAMI, FLORIDA 33172
               (Address of principal executive offices) (Zip Code)
 
                                 (305) 593-9667
              (Registrant's telephone number, including area code)

  
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. Yes X No

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest  practicable  date. Common Stock, $.01 Par Value,
outstanding  at  November  12,  1997:  16,202,434  shares.  

<PAGE>
<TABLE>
<CAPTION>

Part  I.  FINANCIAL INFORMATION 
Item 1. FINANCIAL STATEMENTS

                         PEOPLES TELEPHONE COMPANY, INC.
                           CONSOLIDATED BALANCE SHEETS
                      (in thousands, except per share data)


                                                   September 30,   December 31,
        Assets                                         1997            1996
                                                   -------------  -------------
                                                    (Unaudited)
<S>                                               <C>              <C>
Current assets
  Cash and cash equivalents .....................   $   7,330      $  12,556
  Accounts receivable, net of allowance for 
    doubtful accounts of $4,164 and $4,361 ......      15,735         11,598
  Inventory .....................................       2,340          2,412
  Prepaid expenses  and other current assets ....       2,832          2,665
                                                    ----------      ---------
      Total current assets ......................      28,237         29,231
Property and equipment, net .....................      55,353         65,067
Location contracts, net .........................      25,906         27,465
Goodwill, net ...................................       4,371          5,660
Intangible assets, net ..........................       1,135          1,768
Other assets, net ...............................       4,215          6,610
Deferred income taxes ...........................       3,407          3,407
Investments .....................................       1,376          1,662
                                                    ----------      ---------
     Total assets ...............................   $ 124,000       $140,870
                                                    ==========      =========
        Liabilities and Shareholders' Equity

Current liabilities
  Notes payable and current maturities of long-
    term debt ...................................   $     599       $    548
  Current portion of obligations under capital 
    leases ......................................         606            952
  Accounts payable and accrued expenses .........      18,259         19,240
  Accrued interest payable ......................       2,614          5,697
  Taxes payable .................................       2,753          2,418
                                                    ----------      ---------
     Total current liabilities ..................      24,831         28,855
Notes payable and long-term debt ................     100,180        100,657
Obligations under capital leases ................         196            573
                                                    ----------      ---------
     Total liabilities ..........................     125,207        130,085
Commitments and contingencies ...................        --            --   
Preferred Stock
  Cumulative convertible preferred stock, Series 
     C, $.01 par value, 160 shares authorized; 
     150 shares issued and outstanding ..........      13,672         13,556
  Preferred stock dividends payable .............       2,310          1,523
                                                    ----------      ---------
      Total preferred stock .....................      15,982         15,079
Shareholders' equity
  Preferred stock; $.01 par value; 4,240 shares 
    authorized; none issued and outstanding .....        --            --   
  Convertible preferred stock; Series B, $.01 par
    value; 600 shares authorized; none issued and 
    outstanding .................................        --            --   
  Common stock; $.01 par value; 75,000 shares 
    authorized; 16,195 shares issued and 
    outstanding .................................         162            162
  Capital in excess of par value ................      59,551         60,453
  Accumulated deficit ...........................     (75,197)       (63,438)
  Unrealized loss on investments ................      (1,705)        (1,471)
                                                    ----------      ---------
     Total shareholders' deficit ................     (17,189)        (4,294)
                                                    ----------      ---------
     Total liabilities and shareholders' equity .   $ 124,000      $ 140,870
                                                    ==========      =========
</TABLE>

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.
                                       2

<PAGE>
<TABLE>
<CAPTION>
                         PEOPLES TELEPHONE COMPANY, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                (unaudited, in thousands, except per share data)


                                                    For the three months ended
                                                           September  30,
                                                    ---------------------------
                                                        1997           1996 
                                                    -----------     -----------
<S>                                                <C>             <C>
Revenues:
  Coin calls ..................................     $   19,796      $  20,093
  Non-coin calls ..............................         12,225         10,901
                                                    -----------     -----------
      Total revenues ..........................         32,021         30,994

Costs and expenses:
  Telephone charges ...........................          8,734         10,038
  Commissions .................................          7,630          8,317
  Field service and collection ................          5,214          5,155
  Selling, general and administrative .........          3,752          3,089
  Depreciation and amortization ...............          6,293          6,042
  Provision for dial-around compensation 
   adjustment .................................          2,116           --   
Other (income) expense ........................           --           (1,500)
                                                    -----------     -----------
     Total costs and expenses .................         33,739         31,141
                                                    -----------     -----------
Operating loss ................................         (1,718)          (147)

Interest expense, net .........................          3,192          3,257
                                                    -----------     -----------
Loss before income taxes ......................         (4,910)        (3,404)
Benefit from income taxes .....................           --             --   
                                                    -----------     -----------
Net loss ......................................     $   (4,910)     $  (3,404)
                                                    ===========     ===========
Loss per common share both primary and
  fully diluted ...............................     $     (.32)     $    (.23)
                                                    ===========     ===========
Weighted average common and common equivalent 
 shares outstanding ...........................         16,195         16,195
                                                    ===========     ===========
</TABLE>
The  accompanying  notes are an integral  part of these  consolidated  financial
statements.
                                       3


<PAGE>
<TABLE>
<CAPTION>
                         PEOPLES TELEPHONE COMPANY, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                (unaudited, in thousands, except per share data)

                                                     For the nine months ended
                                                            September 30,
                                                     --------------------------
                                                         1997           1996
                                                     -----------    -----------
<S>                                                 <C>             <C>
Revenues:
  Coin calls ..................................      $   57,029     $  58,229
  Non-coin calls ..............................          39,595        35,220
                                                     -----------    -----------
     Total revenues ...........................          96,624        93,449

Costs and expenses:
  Telephone charges ...........................          26,882        29,784
  Commissions .................................          25,550        25,430
  Field service and collection ................          15,414        14,965
  Selling, general and administrative .........           9,896         9,885
  Depreciation and amortization ...............          18,705        17,846
  Provision for dial-around compensation 
   adjustment .................................           2,116          --   
   Other (income) expense .....................            --          (1,500)
                                                     -----------    -----------
      Total costs and expenses ................          98,563        96,410
                                                     -----------    -----------
Operating loss ................................          (1,939)       (2,961)

Other (income) and expenses:
  Interest expense, net .......................           9,820         9,667
  Gain on disposal of prepaid calling card and
    international telephone centers ...........            --            (545)
                                                     -----------    -----------
       Total other (income) and expenses, net .           9,820         9,122
                                                     -----------    -----------
Loss before income taxes ......................         (11,759)      (12,083)
Benefit from income taxes .....................            --            --   
                                                     -----------    -----------
Net loss ......................................      $  (11,759)    $ (12,083)
                                                     ===========    =========== 

Loss per common share both primary and
  fully diluted ...............................      $     (.77)    $    (.79)
                                                     ===========    =========== 
Weighted average common and common equivalent 
 shares outstanding ...........................          16,195        16,185
                                                     ===========    ===========
</TABLE>
The  accompanying  notes are an integral  part of these  consolidated  financial
statements.
                                       4
<PAGE>
<TABLE>
<CAPTION>

                         PEOPLES TELEPHONE COMPANY, INC.
                      STATEMENTS OF CONSOLIDATED CASH FLOWS
                            (Unaudited, in thousands)

                                                    For the nine months ended,
                                                           September 30,
                                                    ---------------------------
                                                       1997            1996
                                                    ----------      -----------
<S>                                                <C>              <C>
Cash flow from operating activities:
  Net loss .......................................  $ (11,759)      $ (12,083)
  Adjustments to reconcile net loss to net cash
     provided  by operating activities:
     Depreciation and amortization ...............     18,705          17,846
     Amortization of deferred financing costs ....        667             657
     Gain on sale of assets ......................      --               (545)
     Change in operating assets and liabilities:
         Accounts receivable .....................     (4,680)         (1,354)
         Inventory ...............................         72             (12)
         Prepaid expenses and other current assets       (167)           (376)
         Other assets ............................        566             203
         Accounts payable and accrued
              expenses ...........................        900             887
         Accrued  interest payable ...............     (3,083)         (2,966)
         Taxes payable ...........................        (46)            182
                                                    ----------      -----------
Net cash provided by operating activities ........      1,175           2,439

Cash flow from investing activities:
    Payments for acquisitions and certain contracts    (3,192)         (3,045)
    Property and equipment additions ..............    (2,282)         (1,895)
    Proceeds from sale of assets ..................     1,373           1,746
    Change in investments .........................      (898)             31
                                                    ----------      -----------
Net cash used in investing activities .............    (4,999)         (3,163)

Cash flow from financing activities:
    Net payments under note payable to bank .......      (426)           (426)
    Principal payments under capital lease 
      obligations .................................      (758)           (862)
    Debt issuance costs ...........................      (218)           --
                                                    ----------      -----------          
Net cash used in  financing activities ............    (1,402)         (1,288)

Net decrease in cash and cash equivalents .........    (5,226)         (2,012)
Cash and cash equivalents at beginning of period ..    12,556          12,366
                                                    ----------      -----------
Cash and cash equivalents at end of period ........ $   7,330        $ 10,354
                                                    ==========      ===========
</TABLE>

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.
                                       5
<PAGE>

                         PEOPLES TELEPHONE COMPANY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
                                   (unaudited)


NOTE 1 - UNAUDITED INTERIM INFORMATION
 
The  accompanying  interim  consolidated  financial  data for Peoples  Telephone
Company, Inc. (the "Company") and subsidiaries,  are unaudited;  however, in the
opinion of management,  the interim data include all adjustments necessary for a
fair  presentation  of the results for the interim  periods.  The preparation of
financial statements in conformity with generally accepted accounting principles
requires  management to make estimates and assumptions  that affect the reported
amounts of assets and  liabilities  at the date of the financial  statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.

The results of operations  for the three months and nine months ended  September
30, 1997 are not  necessarily  indicative  of the results to be expected for the
year ending December 31, 1997.

The  interim  unaudited  consolidated  financial  statements  should  be read in
conjunction with the audited consolidated financial statements and notes thereto
for the year ended  December 31, 1996 as set forth in the Company's  1996 Annual
Report on Form 10-K.  Certain amounts for 1996 have been reclassified to conform
with the current year presentation.

NOTE 2 - INVESTMENTS

Investments in debt and equity  securities are accounted for in accordance  with
Statement of Financial Accounting Standards No. 115 ("SFAS 115"), Accounting for
Certain Investments in Debt and Equity Securities.  The Company's  investment in
Global  Telecommunications  Solutions,  Inc. ("GTS") is classified as "available
for sale," and reported at fair value with  unrealized  gains or losses,  net of
tax,  recorded as a separate  component of Shareholders'  Equity.  The Company's
investment  in GTS common stock at  September  30, 1997 was  approximately  $0.5
million, net of approximately $1.7 million of unrealized losses.

At  September  30,  1997,  the Company  had a $0.9  million  investment  in debt
securities classified as "held-to-maturity".

NOTE 3 - EARNINGS PER SHARE

For 1997 and 1996,  common stock equivalents were excluded since their effect is
anti-dilutive.  See primary and fully dilutive loss per common share calculation
as summarized on page 9.

NOTE 4 - LONG-TERM DEBT
 
During March 1997,  the Company  executed an amendment to the Fourth Amended and
Restated Loan and Security Agreement (the "Credit Facility") which increased the
Credit  Facility  from $10.0  million to $20.0  million.  The  interest  rate on
balances  outstanding  under the Credit  Facility varies based upon the leverage
ratio maintained by the Company.  Outstanding principal balances are due in full
in the year 2000.  Interest is payable monthly for loans based on the prime rate
and quarterly  for loans based on the LIBOR rate. A commitment  fee of 1/2 of 1%
is charged on the aggregate daily

                                       6
<PAGE>

available  balance of the Credit  Facility.  The Credit  Facility  is secured by
substantially  all of the Company assets and contains  certain  covenants which,
among other things, require the Company to maintain certain cash flow levels and
interest  coverage  ratios and places  certain  restrictions  on the  payment of
dividends.

At September 30, 1997, the Company was in compliance  with the covenants and had
no amounts borrowed under the Credit Facility.

NOTE 5 - SHAREHOLDERS' EQUITY

In March 1997, the Company's  shareholders approved an increase in the number of
authorized shares of the Company's Preferred Stock and Common Stock to 5 million
and 75 million shares, respectively.

NOTE 6 - INCOME TAXES

For the three and nine months ended  September  30, 1997,  the Company  recorded
deferred tax assets and deferred tax asset valuation allowances of approximately
$1.9 million and $4.5 million, respectively.  Valuation allowances were provided
to reduce the deferred tax assets to a level which,  more likely than not,  will
be realized.

NOTE 7 -OTHER INCOME

Other income of $1.5 million in the quarter ended  September 30, 1996 relates to
the resolution of then outstanding litigation.

NOTE 8 - PROVISION FOR DIAL-AROUND COMPENSATION ADJUSTMENT

On September 20, 1996, the Federal  Communications  Commission  ("FCC")  adopted
rules in a docket entitled In the Matter of  Implementation of the Pay Telephone
Reclassification and Compensation  Provisions of the  Telecommunications  Act of
1996,  FCC  96-388  (the  "1996  Payphone  Order"),  implementing  the  payphone
provisions of Section 276 of the Telecommunications Act of 1996 ("Telecom Act").
The 1996 Payphone  Order,  which became  effective  November 7, 1996,  initially
mandated dial-around  compensation for both access code calls and 800 subscriber
calls at a flat rate of $45.85 per payphone per month (131 calls  multiplied  by
$0.35 per  call).  Commencing  October  7, 1997 and  ending  October 6, 1998 the
$45.85 per payphone per month rate was to transition to a per-call system at the
rate of $0.35 per call.  Several parties filed petitions for judicial review of
certain of the FCC regulations  including the dial-around  compensation rate. On
July 1, 1997,  the U.S.  Court of Appeals for the  District of Columbia  Circuit
(the  "Court")  responded  to  appeals  related  to the 1996  Payphone  Order by
remanding certain issues to the FCC for reconsideration.  These issues included,
among other  things,  the manner in which the FCC  established  the  dial-around
compensation  for 800 subscriber and access code calls,  the manner in which the
FCC established  the interim  dial-around  compensation  plan and the basis upon
which  interexchange  carriers ("IXCs") would be required to compensate payphone
service providers ("PSPs"). The Court remanded the issues to the FCC for further
consideration,  and clarified on September 16, 1997 that it had vacated  certain
portions  of  the  FCC's  1996  Payphone   Order,   including  the   dial-around
compensation  rate.  Specifically,  the  Court  determined  that the FCC did not
adequately  justify (i) the per-call  compensation  rate for  subscriber 800 and
access code calls at the  deregulated  local coin rate of $0.35,  because it did
not  sufficiently  justify its conclusion that the costs of local coin calls are
similar  to  those  of  subscriber  800 and  access  code  calls;  and  (ii) the
allocation of the payment obligation among the IXCs for the period from November
7, 1996 through October 6, 1997.

                                       7
<PAGE>

In accordance with the Court's mandate,  on October 9, 1997, the FCC adopted and
released its Second  Report and Order in the same docket,  FCC 97-371 (the "1997
Payphone  Order").  This order  addressed  the  per-call  compensation  rate for
subscriber  800 and access code calls that  originate from payphones in light of
the  decision of the Court which  vacated and remanded  certain  portions of the
FCC's  1996  Payphone  Order.  The FCC  concluded  that the  rate  for  per-call
compensation  for  subscriber  800 and access code calls from  payphones  is the
deregulated local coin rate adjusted for certain cost differences.  Accordingly,
the FCC established a rate of $0.284  ($0.35-$0.066)  per call for the first two
years of per-call  compensation  (October 7, 1997 through October 6, 1999).  The
IXCs are required to pay this  per-call  amount to PSPs,  including the Company,
beginning  October 7, 1997. After the first two years of per-call  compensation,
the market-based local coin rate,  adjusted for certain costs defined by the FCC
as $0.066 per call, is the surrogate  for the per-call rate for  subscriber  800
and access code  calls.  These new rule  provisions  were made  effective  as of
October 7, 1997.

In addition,  the 1997 Payphone Order tentatively concluded that the same $0.284
per call rate adopted on a going-forward  basis should also govern  compensation
obligations during the period from November 7, 1996 through October 6, 1997, and
that PSPs are entitled to  compensation  for all access code and  subscriber 800
calls  during this  period.  The FCC stated that the manner in which the payment
obligation of the IXCs for the period from  November 7, 1996 through  October 6,
1997 will be allocated among the IXCs will be addressed in a subsequent order.

Based on the FCC's tentative  conclusion in the 1997 Payphone Order, the Company
has adjusted the amounts of dial-around compensation previously recorded related
to the period  from  November  7, 1996  through  June 30,  1997 from the initial
$45.85 rate to $37.20 ($0.284 per call multiplied by 131 calls).  As a result of
this adjustment,  the provision, net of applicable commissions,  recorded in the
third quarter for reduced dial-around compensation is approximately $2.1 million
($0.13 per share). For the period from July 1, 1997 through October 6, 1997, the
Company has recorded (and will record)  dial-around  compensation at the rate of
$37.20 per payphone per month. The amount of dial-around  revenue  recognized in
the  period  from July 1, 1997  through  October 6, 1997 is  approximately  $4.7
million and such amount will be billed after final  resolution of the allocation
obligations of the IXCs as determined by the FCC.

The Company's counsel,  Latham & Watkins,  is of the opinion that the Company is
legally  entitled to fair  compensation  under the  Telecom Act for  dial-around
calls the Company  delivered to any carrier  during the period from  November 7,
1996 through October 6, 1997.  Based on the information  available,  the Company
believes that the minimum  amount it is entitled to as fair  compensation  under
the Telecom Act for the period from November 7, 1996 through  October 6, 1997 is
$37.20  per  payphone  per  month  and the  Company,  based  on the  information
available to it, does not believe that it is reasonably possible that the amount
will be materially less than $37.20 per payphone per month.  While the amount of
$0.284 per call constitutes the Company's  position of the appropriate  level of
fair compensation, certain IXCs have asserted in the past, are asserting and are
expected to assert in the future that the appropriate level of fair compensation
should be lower than  $0.284 per call.  In a letter to the FCC dated  August 15,
1997,  AT&T stated its intention to make  dial-around  payments to PSPs based on
its imputed rate of $0.12 per call until the FCC issues a new order  setting the
level of fair compensation.

                                       8
<PAGE>
<TABLE>
<CAPTION>

                         PEOPLES TELEPHONE COMPANY, INC.
                  COMPUTATION OF PRIMARY AND FULLY-DILUTED LOSS
                                PER COMMON SHARE
                (unaudited, in thousands, except per share data)

                                                               For The
                                                          Three Months Ended
                                                             September 30,
                                                          ------------------
                                                            1997      1996
                                                          --------   -------
<S>                                                       <C>       <C>      
Net loss .............................................    $ (4,910) $ (3,404)

Less:
  Cumulative preferred stock dividends ...............        (262)     (262)
                                                          ---------  --------
Net loss for per share computations ..................    $ (5,172) $ (3,666)
                                                          ========= ========= 
Number of shares:
  Weighted average shares used in the per share 
    computation ......................................      16,195    16,195
                                                          ========= ========= 
Primary and fully diluted loss per common and common 
  equivalent share ...................................    $   (.32) $   (.23)
                                                          ========= ========= 
</TABLE>

<TABLE>
<CAPTION>
                                                              For The
                                                          Nine Months Ended
                                                            September 30,
                                                          -----------------
                                                            1997      1996
                                                          --------   -------
<S>                                                       <C>       <C>      
Net loss .............................................    $(11,759) $(12,083)

Less:
   Cumulative preferred stock dividends ..............        (788)     (788)
                                                          ---------  --------
Net loss for per share computations ..................    $(12,547) $(12,871)
                                                          ========= ========= 
Number of shares:
   Weighted average shares used in the per share 
    computation ......................................      16,195    16,185
                                                          ========= ========= 
Primary and fully diluted  loss per common and common 
  equivalent share ...................................    $   (.77) $   (.79)
                                                          ========= ========= 
</TABLE>

                                       9
<PAGE>

ITEM 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS


     The following  discussion and analysis compares the quarter and nine months
ended September 30, 1997 to the quarter and nine months ended September 30, 1996
and should be read in conjunction with the consolidated financial statements and
notes  thereto  appearing  elsewhere in this Form 10-Q and in  conjunction  with
Management's  Discussion  and Analysis  appearing in the Company's Form 10-K for
the year ended December 31, 1996.
   
     Statements in Management's Discussion and Analysis relating to matters that
are not historical facts are forward-looking  statements.  Such  forward-looking
statements  involve known and unknown  risks,  uncertainties  and other factors,
which may cause the  actual  results,  performance  or  achievements  of Peoples
Telephone  Company,  Inc. (the  "Company") to be materially  different  from any
future  results,  performance  or  achievements  expressed  or  implied  by such
forward-looking  statements.  Such known and unknown  risks,  uncertainties  and
other  factors  include,  but are not limited to, the  following:  the impact of
competition,  especially in a deregulated  environment (including the ability of
the  Company to  implement  higher  market-based  rates for local  coin  calls),
uncertainties   with   respect   to  the   implementation   and  effect  of  the
Telecommunications  Act of 1996,  including  any new rule  making by the Federal
Communications  Commission  ("FCC")  or  litigation  which may seek to modify or
overturn the FCC's orders implementing such act or portions thereof, the ongoing
ability of the  Company to deploy its  phones in  favorable  locations,  and the
Company's  ability to  continue  to  implement  operational  improvements.  Such
factors and others are set forth more fully in the Company's  1996 Annual Report
on Form 10-K,  Quarterly  Reports on Form 10-Q,  Current Reports on Form 8-K and
the consolidated  financial  statements and notes thereto appearing elsewhere in
this report.
    
Revenues
 
     The Company  primarily  derives its revenues from coin and non-coin  calls.
Coin revenue is generated exclusively from calls made by depositing coins in the
Company's public pay telephones.  Coin revenue  represented  approximately 61.8%
and 64.8% of total revenues for the quarters  ended  September 30, 1997 and 1996
and 59.0% and 62.3% of total  revenues for the nine months ended  September  30,
1997 and 1996, respectively. Coin revenue decreased 1.5% to $19.8 million during
the quarter ended September 30, 1997 and decreased  approximately  2.1% to $57.0
million for the nine  months  ended  September  30,  1997,  compared to the same
periods in 1996. The Company's  average  installed public pay telephone base was
approximately  39,000  phones and 38,400  phones for the nine month period ended
September  30, 1997 and 1996,  respectively.  Coin  revenue on a per phone basis
decreased by 4.7% and 3.6% for the quarter and nine months ended  September  30,
1997,  respectively,  as  compared  to the same  periods  in 1996.  The  Company
believes  that  this  decrease  can  be  attributed  to a  shift  in  call  mix,
particularly  away from coin and  operator  assisted  long  distance  traffic to
access code and 1-800  calls.  Also,  the decline was  magnified  by a temporary
increase in the number of coin local and long distance  calls in 1996  resulting
from the  implementation  and promotion of new coin calling  programs during the
spring and summer months of 1996.

     The Company  believes  that the number of coin calls made at its public pay
telephones  may remain flat or decrease over time.  The Company  believes  that,
among other things, the decreases will primarily result from the increased usage
of  alternative  methods of calling such as prepaid  calling  cards and wireless
technologies  and from higher  expected  local coin calling  rates.  The Company
anticipates  that coin revenue will begin increasing as a result of the recently
commenced phase in of higher  market-based  local coin calling rates  nationwide
following the deregulation of those rates on October 7, 1997. The Company cannot
predict  whether or to what extent the  increased  local coin calling rates will
impact the number of calls made.

                                       10
<PAGE>


     Non-coin  revenue is derived from  calling  card calls,  credit card calls,
collect calls and  third-party  billed calls placed through  primary  designated
operator  service  providers from the Company's public pay telephones and inmate
telephones,  as well as from  dial-around  compensation as described  below. The
Company  currently uses AT&T and Sprint to act as its primary national  operator
service  providers.  When calls are  completed  through the  primary  designated
operator service provider, the Company records as revenue the amount it receives
from the provider which  represents a negotiated  percentage of the total amount
the caller pays for the call.  In May 1996,  AT&T began  paying a specified  per
call  amount  for  certain  calls as  opposed  to a  percentage  of the  revenue
generated  by those  calls.  The Company  estimates  that the impact on non-coin
revenue of the change in the  compensation  structure  under this  earlier  AT&T
contract was a decrease of approximately  $1.9 million for the nine months ended
September 30, 1997. During the third quarter,  the Company negotiated a new AT&T
contact under terms which the Company considers more favorable and complementary
to the Company's strategy of market  differentiation by maintaining dual carrier
capability.

     In addition to the change in  compensation  under the former AT&T contract,
the Company is  continuing  to  experience a shift in call traffic from operator
assisted  calls,  for which the  Company  receives a  percentage  of the revenue
generated by those calls, to access code calls for which the Company  receives a
flat  rate  per  phone  or per  call  compensation  amount.  Due  to  aggressive
advertising  campaigns by  long-distance  companies  promoting the use of access
code calls,  the Company  believes that the decrease in non-coin  revenue due to
the changes in call  traffic  patterns  is likely to  continue.  However,  these
decreases in non-coin revenue are currently being more than offset by changes in
the amount of compensation received by the Company for access code calls as well
as (800)  subscriber  calls  ("dial-around  compensation").  See  "Provision for
Dial-around Compensation Adjustment" below for further discussion of dial-around
compensation revenue recognition.

     Non-coin  revenue  represented  approximately  38.2 % and  35.2%  of  total
revenues for the quarters ended September 30, 1997 and 1996,  respectively.  For
the quarter ended  September 30, 1997,  revenues from non-coin  calls  increased
12.1% to  approximately  $12.2 million,  compared to the quarter ended September
30,  1996.  For the nine months  ended  September  30,  1997,  non-coin  revenue
increased  approximately $4.4 million,  or 12.4%, to approximately $39.6 million
as compared to the same period of the prior year.  This  increase was  primarily
attributable to the increased dial-around compensation,  offset by the change in
the Company's compensation structure under the former AT&T contract, the decline
in operator assisted calls, and the decrease in revenues in the inmate division.
During the nine month period ended  September 30, 1997, the Company  operated an
average of 1,564 inmate telephone lines compared to 2,035 during the same period
of 1996.

Operating Expenses
 
     Operating  expenses include telephone charges,  commissions,  field service
and  collection  expenses  and  selling,  general and  administrative  expenses.
Telephone  charges  consist of local line and  ancillary  charges  paid to Local
Exchange  Carriers  which  include costs of basic service and transport of local
coin calls,  long-distance  transmission  charges and network costs and billing,
collection  and validation  costs.  Commissions  represent  payments to property
owners and  correctional  facilities  for revenues  generated  by the  Company's


                                       11
<PAGE>

telephones  located on their properties.  Field service and collection  expenses
represent the costs of servicing and  maintaining  the  telephones on an ongoing
basis,   costs  of  collecting  coin  from  the  telephones  and  other  related
operational  costs.  Selling,  general  and  administrative  expenses  primarily
consist  of  payroll  and  related  costs,  legal and other  professional  fees,
promotion and advertising expenses,  property,  gross receipts and certain other
taxes,  corporate  travel and  entertainment  and various other expenses.  Total
operating expenses were approximately  79.1% and 85.8% of total revenues for the
quarters ended  September 30, 1997 and 1996,  respectively.  For the nine months
ended September 30, 1997 total  operating  expenses were 80.5% of total revenues
as compared to 85.7 % for the same period in 1996.

     Telephone  charges decreased as a percentage of total revenues to 27.3% for
the quarter ended  September 30, 1997,  compared to 32.4% for the same period in
1996. The Company has  experienced  decreased  telephone  charges as a result of
regulatory changes and emerging  competition within the local/intraLATA  service
markets. For the nine months ended September 30, 1997 and 1996 telephone charges
were 27.8% and 31.9% of total revenues,  respectively. In addition, the decrease
in  telephone  charges  for the nine  months  ended  September  30,  1997 can be
partially  attributed  to a decline in the number of calls  placed  through  the
Company's  private label operator  service  program.  The Company pays the costs
incurred  to  transmit,  bill,  collect and  validate  the call when the call is
completed through its private label operator services. In contrast,  the Company
incurs no such costs when a third-party  operator  service provider such as AT&T
or Sprint completes the call.

     Commissions  as a percentage  of total  revenues for the three months ended
September 30, 1997 decreased to 23.8% as compared to 26.8% in the same period of
the prior year.  The decrease in commissions as a percentage of revenues for the
three months was primarily  attributable to an adjustment for the  renegotiation
of a lower commission  percentage during the contract term under a joint venture
with AT&T for providing pay  telephones  at Atlanta's  Hartsfield  International
Airport and other adjustments totaling  approximately $2.0 million. For the nine
month periods ended  September  30, 1997 and 1996,  commissions  were 26.4 % and
27.2% of revenues, respectively,  reflecting the same adjustment noted above for
the three month period.
 
     Field service and  collection  expenses as a percentage  of total  revenues
were 16.3% and 16.6% for the third quarter of 1997 and 1996,  respectively.  For
the nine months ended  September 30, 1997 field service and collection  expenses
were 15.9%  compared  with 16.0% for the same period in 1996.  Field service and
collection  expenses increased  approximately 1.1% to approximately $5.2 million
for the third  quarter of 1997 and  approximately  3.0% to $15.4 million for the
nine months ended  September  30, 1997,  as compared to the same period in 1996,
reflecting  the  growth  in  average  pay  telephones.   Selling,   general  and
administrative  expenses  increased  approximately  $0.7  million  for the third
quarter of 1997 to approximately  $3.8 million as compared to the same period in
1996. This increase was primarily  attributable to additional  costs  associated
with legal and regulatory  work performed  pertaining to the 1997 Payphone Order
and the settlement of an employment  contract with a former  executive.  For the
nine  months  ended   September  30,  1997  and  1996,   selling,   general  and
administrative expenses were unchanged at approximately $9.9 million.

Depreciation and Amortization
 
     Depreciation is based on the cost of the telephones,  booths, pedestals and
other enclosures,  related installation costs and line  interconnection  charges
and is calculated  on a  straight-line  method using a ten-year  useful life for
public  pay  telephones  and a  five-year  useful  life for  inmate  telephones.
Amortization  is  primarily  based  on  acquisition  costs  including   location
contracts,  goodwill  and  non-competition  provisions  and is  calculated  on a
straight-line  method using  estimated  useful lives ranging from five to twenty
years.  Depreciation and amortization  increased to $6.3 million for the quarter
ended September 30, 1997,  compared to $6.0 million for the same period in 1996.

                                       12
<PAGE>

For the nine  months  ended  September  30,  1997  and  1996,  depreciation  and
amortization   expense  was  approximately  $18.7  million  and  $17.8  million,
respectively. These increases are primarily attributable to amortization expense
related to costs of acquiring and renewing location contracts.

Provision for Dial-Around Compensation Adjustment

     On  September  20,  1996,  the Federal  Communications  Commission  ("FCC")
adopted rules in a docket  entitled In the Matter of  Implementation  of the Pay
Telephone Reclassification and Compensation Provisions of the Telecommunications
Act of 1996, FCC 96-388 (the "1996 Payphone  Order"),  implementing the payphone
provisions of Section 276 of the Telecommunications Act of 1996 ("Telecom Act").
The 1996 Payphone  Order,  which became  effective  November 7, 1996,  initially
mandated dial-around  compensation for both access code calls and 800 subscriber
calls at a flat rate of $45.85 per payphone per month (131 calls  multiplied  by
$0.35 per  call).  Commencing  October  7, 1997 and  ending  October 6, 1998 the
$45.85 per payphone per month rate was to transition to a per-call system at the
rate of $0.35 per call.  Several parties filed petitions for judicial review of
certain of the FCC regulations  including the dial-around  compensation rate. On
July 1, 1997,  the U.S.  Court of Appeals for the  District of Columbia  Circuit
(the  "Court")  responded  to  appeals  related  to the 1996  Payphone  Order by
remanding certain issues to the FCC for reconsideration.  These issues included,
among other  things,  the manner in which the FCC  established  the  dial-around
compensation  for 800 subscriber and access code calls,  the manner in which the
FCC established  the interim  dial-around  compensation  plan and the basis upon
which  interexchange  carriers ("IXCs") would be required to compensate payphone
service providers ("PSPs"). The Court remanded the issues to the FCC for further
consideration,  and clarified on September 16, 1997 that it had vacated  certain
portions  of  the  FCC's  1996  Payphone   Order,   including  the   dial-around
compensation  rate.  Specifically,  the  Court  determined  that the FCC did not
adequately  justify (i) the per-call  compensation  rate for  subscriber 800 and
access code calls at the  deregulated  local coin rate of $0.35,  because it did
not  sufficiently  justify its conclusion that the costs of local coin calls are
similar  to  those  of  subscriber  800 and  access  code  calls;  and  (ii) the
allocation of the payment obligation among the IXCs for the period from November
7, 1996 through October 6, 1997.

     In accordance with the Court's mandate, on October 9, 1997, the FCC adopted
and  released its Second  Report and Order in the same  docket,  FCC 97-371 (the
"1997 Payphone Order").  This order addressed the per-call compensation rate for
subscriber  800 and access code calls that  originate from payphones in light of
the  decision of the Court which  vacated and remanded  certain  portions of the
FCC's  1996  Payphone  Order.  The FCC  concluded  that the  rate  for  per-call
compensation  for  subscriber  800 and access code calls from  payphones  is the
deregulated local coin rate adjusted for certain cost differences.  Accordingly,
the FCC established a rate of $0.284  ($0.35-$0.066)  per call for the first two
years of per-call  compensation  (October 7, 1997 through October 6, 1999).  The
IXCs are required to pay this  per-call  amount to PSPs,  including the Company,
beginning  October 7, 1997. After the first two years of per-call  compensation,
the market-based local coin rate,  adjusted for certain costs defined by the FCC
as $0.066 per call, is the surrogate  for the per-call rate for  subscriber  800
and access code  calls.  These new rule  provisions  were made  effective  as of
October 7, 1997.

     In addition,  the 1997 Payphone Order  tentatively  concluded that the same
$0.284  per call rate  adopted  on a  going-forward  basis  should  also  govern
compensation obligations during the period from November 7, 1996 through October
6, 1997,  and that PSPs are  entitled  to  compensation  for all access code and
subscriber 800 calls during this period. The FCC stated that the manner in which
the payment  obligation of the IXCs for the period from November 7, 1996 through
October  6,  1997  will be  allocated  among  the IXCs  will be  addressed  in a
subsequent order.

                                       13
<PAGE>

     Based on the FCC's  tentative  conclusion in the 1997 Payphone  Order,  the
Company has adjusted the amounts of dial-around compensation previously recorded
related to the period  from  November  7, 1996  through  June 30,  1997 from the
initial  $45.85 rate to $37.20 ($0.284 per call  multiplied by 131 calls).  As a
result  of  this  adjustment,  the  provision,  net of  applicable  commissions,
recorded  in  the  third  quarter  for  reduced   dial-around   compensation  is
approximately  $2.1 million ($0.13 per share).  For the period from July 1, 1997
through October 6, 1997, the Company has recorded (and will record)  dial-around
compensation  at the rate of  $37.20  per  payphone  per  month.  The  amount of
dial-around  revenue  recognized in the period from July 1, 1997 through October
6, 1997 is approximately $4.7 million and such amount will be billed after final
resolution of the allocation obligations of the IXCs as determined by the FCC.

     The Company's counsel, Latham & Watkins, is of the opinion that the Company
is legally entitled to fair  compensation  under the Telecom Act for dial-around
calls the Company  delivered to any carrier  during the period from  November 7,
1996 through October 6, 1997.  Based on the information  available,  the Company
believes that the minimum  amount it is entitled to as fair  compensation  under
the Telecom Act for the period from November 7, 1996 through  October 6, 1997 is
$37.20  per  payphone  per  month  and the  Company,  based  on the  information
available to it, does not believe that it is reasonably possible that the amount
will be  materially  less than  $37.20 per  payphone  per month.  The  foregoing
sentence  constitutes a forward-looking  statement within the meaning of Section
21E of the Securities and Exchange Act of 1934, as amended.  While the amount of
$0.284 per call constitutes the Company's  position of the appropriate  level of
fair compensation, certain IXCs have asserted in the past, are asserting and are
expected to assert in the future that the appropriate level of fair compensation
should be lower than  $0.284 per call.  In a letter to the FCC dated  August 15,
1997,  AT&T stated its intention to make  dial-around  payments to PSPs based on
its imputed rate of $0.12 per call until the FCC issues a new order  setting the
level of fair compensation.

Other  Income

     Other income of $1.5 million  during the three months ended  September  30,
1996 resulted from the favorable resolution of then outstanding litigation.

Operating Loss

     The  operating  loss for the three  months  ended  September  30,  1997 was
approximately  $1.7 million as compared to $0.1 million for the third quarter of
1996.  For the nine months  ended  September  30, 1997 and 1996,  the  operating
losses were approximately $1.9 million and $3.0 million, respectively.

Interest Expense
 
     For the third  quarter of 1997,  interest  expense was  approximately  $3.2
million  which was nearly the same as the third quarter in 1996 of $3.3 million.
Interest expense increased  approximately 1.6% to approximately $9.8 million for
the nine months ended  September 30, 1997, as compared to the same period of the
prior year.

Gain on Disposal of Prepaid Calling Card and International Telephone Centers

     The nine months  ended  September  30, 1996  includes a gain on disposal of
prepaid calling card and international  telephone centers of approximately  $0.3
million  received in  connection  with the sale of the  Company's  international
telephone  center  operations  and  approximately  $0.3  million  recognized  in
connection  with the  merger  of  Global  Link  Teleco  Corporation  and  Global
Telecommunications Solutions, Inc.
                                       14
<PAGE>

Benefit from Income Taxes
 
     The Company  recorded  valuation  allowances  for 100% of the  deferred tax
assets  generated  from  operating  losses for the three  months and nine months
ended September 30, 1997. The Company recorded  deferred tax assets and deferred
tax asset valuation  allowances of  approximately  $1.9 million and $4.5 million
for the three months and nine months ended September 30, 1997, respectively.

Net Loss 
 
     The Company had a net loss of approximately  $4.9 million and $11.8 million
for the three months and nine months  ended  September  30, 1997,  respectively,
compared to a net loss of  approximately  $3.4 million and $12.1 million for the
same periods in 1996, respectively.

Earnings Before Interest, Income Taxes, Depreciation and Amortization

     EBITDA is not presented as an alternative to operating results or cash flow
from  operations  as  determined  by Generally  Accepted  Accounting  Principles
("GAAP"), but rather to provide additional information related to the ability of
the Company to meet current  trade  obligations  and debt service  requirements.
EBITDA  should not be  considered  in  isolation  from,  or  construed as having
greater  importance than, GAAP operating income or cash flows from operations as
a measure of an entity's performance.
 
     EBITDA was  approximately  $4.6 million for the quarter ended September 30,
1997,  compared to $5.9 million for the same period in 1996. EBITDA for the nine
months ended  September  30, 1997 and 1996 was  approximately  $16.8 million and
$15.4 million,  respectively.  The decrease in EBITDA for the three month period
is primarily attributable to the provision for dial-around  compensation in 1997
and other  operating  income  in 1996,  partially  offset by higher  dial-around
revenue and lower telephone charges in 1997.

Liquidity  and  Capital Resources
 
     During the third  quarter of 1997,  the  Company  continued  to finance its
operations  from operating  cash flow.  For the nine months ended  September 30,
1997,  the  Company's  operating  cash flow was $1.2  million  compared  to $2.4
million for the same period in 1996.
 
     The Company's net working capital was  approximately  $3.4 million,  with a
current  ratio of 1.1 to 1, at  September  30,  1997.  This is  compared  to net
working  capital of $0.4 million and a current ratio of 1.0 to 1 at December 31,
1996.

     During March 1997, the Company  executed an amendment to the Fourth Amended
and Restated Loan and Security Agreement (the "Credit Facililty") increasing the
Credit  Facility  from $10.0  million to $20.0  million.  The  interest  rate on
balances  outstanding  under the credit  facility varies based upon the leverage
ratio maintained by the Company.  All outstanding  principal balances are due in
full in the year 2000.  Interest is payable monthly for loans based on the prime
rate and quarterly for loans based on the LIBOR rate. A commitment fee of 1/2 of
1% is charged on the aggregate daily unused balance of the Credit Facility.  The
Credit  Facility  is  secured by  substantially  all of the  Company  assets and
contains  certain  covenants which,  among other things,  require the Company to
maintain  certain  cash flow  levels  and  interest  coverage  ratios and places
certain  restrictions  on the payment of dividends.  At September 30, 1997,  the
Company was in compliance  with the covenants and had no amounts  borrowed under
the Credit Facility.
                                       15
<PAGE>

     Based upon current  expectations of the Company's operations and resolution
of  certain  regulatory  issues,  the  Company  believes  that  cash  flow  from
operations,  together  with  amounts  which may be  borrowed  under  the  Credit
Facility,  will be  adequate  for it to meet its working  capital  requirements,
pursue its business  strategy and service its obligations with respect to its 12
1/2% Senior Notes, although there can be no assurance that it will be able to do
so.

     The  preceding  forward  looking  information  is  subject  to a variety of
factors and uncertainties,  including the impact of competition on the Company's
operations, the ultimate implementation and effect of the Telecommunications Act
of 1996,  and the  ongoing  ability  of the  Company  to  deploy  its  phones in
favorable  locations,  implement higher deregulated local coin calling rates and
to continue to implement operational improvements.

                                       16
<PAGE>


Part II OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K
  
(a)    Exhibits:

Exhibits       Description
--------       ------------
27             Financial Data Schedule

(b) Reports on Form 8-K:

(i) A current  report on Form 8-K dated July 10, 1997  related to Item 5 - Other
Information.

(ii) A current  report on Form 8-K dated July 17, 1997 related to Item 5 - Other
Information. 

(iii) A current report on Form 8-K dated  September 24, 1997 related to Item 5 -
Other Information.
                                       17
<PAGE>
                                    SIGNATURE

     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.


                                        PEOPLES TELEPHONE COMPANY, INC.
                                        Registrant


Date:    November 14, 1997              /s/ William A. Baum         
                                        William A. Baum
                                        On behalf of the Registrant and as
                                        Chief Financial Officer


                                       18