Iowa Telco Pretends Ripping Off Telcos Via Bad Regulations Is Protecting The Little Guy

from the spare-us dept

Last month, we were surprised that certain telcos were blocking calls to services like — since it certainly seems questionable that a telco can suddenly decide for itself that customers aren’t allowed to call a certain number. That doesn’t mean we didn’t understand why the telcos did this — it was due to bad regulations that allowed local telecom operators to charge ridiculously high termination fees to other telcos for terminating calls on their network. The local telcos would then team up with a company offering some compelling free phone service (free conference calls! free international calls!) which would drive a lot of people to call those numbers. As long as the cost of providing the conferencing and the international calls remained cheaper than the termination fees (which was easy thanks to VoIP), the telco and the free phone service company could split the bounty. This absolutely costs the big telcos plenty of money — but they shouldn’t be blocking the phone calls, they should be complaining about the regulations that allowed such exorbitant termination fees in the first place. So while it’s highly questionable for the telcos to block these calls (and it will be worth watching the resulting lawsuit, that doesn’t mean that the companies involved look particularly clean. They’re basically exploiting bad regulations to scam telcos out of money.

That’s why it’s pretty disgusting that one of the telcos involved is trying to play itself up as “protecting the little guy.” Yes. Telcos blocking calls is a bad thing — and it’s great that this telco wants to set up a “grassroots effort” (wait, is it really grassroots if a company is backing it for its own benefit?). But the idea that it’s doing this to protect the little guy, rather than to scam millions through bad regulations is just silly. While it tries to play up the “David vs. Goliath” aspect by naming all the non-profits and charities that use the free phone services these regulatory messes allow, it seems unlikely that the FCC is going to buy the claim that the telco is really doing this out of the goodness of its heart, rather than the opportunity to fill its bank account. If it doesn’t watch out, it seems much more likely that the FCC will start looking much more closely at those bogus regulations that created this situation in the first place.

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Comments on “Iowa Telco Pretends Ripping Off Telcos Via Bad Regulations Is Protecting The Little Guy”

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ac says:

Alternative business models?

Hey, aren’t you the guy who’s always promoting “alternative business models” and “competing with free”? These companies have found a way to offer a useful service at zero cost to the consumer. They didn’t create the law, they’re just utilizing it to full advantage as any competitive company should. Good for them.

Rick says:

Re: Alternative business models?

Mike is right, altho he could have gone into more detail.

The ‘free’ calls companiesx are setting up and making deals with small telcos. They get people to call them and then forward the call over their cheap VOIP system. Sounds fair to the consumer – it’s very cheap or free for the consumer.

The problem is the telco charges a high termination fee – by the minute – for connecting the call to the free provider. The consumer doesn’t pay that as it’s averaged into their normal bill.

For example, if you have AT&T and call the ‘free’ call number, AT&T pays 20-30cents to connect the call plus 10-20cents a minute while you are connected. The ‘free’ provider routes the call across something like Skype for 3 cents a minute to call Europe. A 30 minute call could cost AT&T $6, but the free provider only paid 90 cents. The ‘free’ companies telco makes $5.10 and gives half of that to the ‘free’ call company who rakes in enormous profits.

So, next year your AT$T bill and everyone elses goes up $5 a month.

Is that free?

I hate the major telcos as much as the next guy, but I do not want to pay for someone else sticking it to the man.

I’d rather see the US system change to a free call termination system supported by flat fees at the most – not per minute fees that just drive prices up. At this point in history the systems are already built out pretty much nationwide and the USF fund is already overpaying for connections in low profit areas. Why are we still paying termination fees, which unfairly drive rates up and keep them high.

AT&T doesn’t deserve a termination fee any more than the small IOWA telco when the USF is paying out billions a year to justify the smaller telcos and AT&T is making billions off the billions of calls terminating on their networks.

Cut the USF or cut the termination fees altogether – no more double corporate welfare.

Alex Cory says:

Re: Re: Alternative business models?

Can you please think through what you are saying before you write more disinformation? First, conference calls are not forwarded over cheap VOIP lines. The quality is crap. Anyone who has tried to use Skype for conferencing knows this. All conference calls terminate at the end location and the entire journey is on the voice network using PSTN lines.

Second, AT&T doesn’t pay 20-30 cents to connect the call. Conferencing termination fees average about 4 cents. The toll call made to connect to the conference bridge creates about 8 cents per minute in revenues for the major carriers on average.

There is no free lunch here, just a more efficient service than the major carrier is willing to offer at a lower cost to the consumer. The consumer pays for long distance. AT&T gets more demand (what they make from this additional demand depends on their choices on how they price–Cingular is making a lot more money as use of conferencing services pushes customers to buy plans with more allotted minutes so they don’t trigger the punitive rates for overages).

No one’s prices are going up. Conferencing is free if you pay a toll charge to get there. You can also connect at low costs (I have seen prices down to about a nickel a minute) for 800 services.

If I build a network, should I be forced to let you use it for free? Absolutely not. The rate you pay is based on total costs and projected volume. If these are done correctly, this should work for everyone. Everyone pays termination and origination fees for connecting through someone else’s network or else you couldn’t call whoever you wanted whenever you wanted. The rural guys are paying to connect their outbound calls as well. This is fine with AT&T, but when the rural guys figure out how to create inbound calls, it isn’t fine. Hmmmm.

Is investment in rural telecommunications done? Absolutely not. Switches are being upgraded with better reliability. Wireless systems are being extended. Broadband access is being expanded. And more. We have regulations based on universal service being core to the system. Do you want to limit telecom to the large population zones? Or would you rather drive up the USF taxes?

Allow this entreprenuerial behavior to continue (with continuing FCC oversight) or pay more USF. Those are your real choices.

Anonymous Coward says:

Re: Reply to Anonymous Coward

Note that Iowa Telecom and the actual telco in Iowa in the article (Great Lakes Communications) are two different companies. When the original article says “Iowa Telecom ‘David’ battles…”, it really means, “Iowa Telecommunications Company Great Lakes Communications”.

Yes, you are right, the article is hard to follow. And Iowa Telecom is probably a greedy company–everybody wants to maximize profit. But the article’s not about them.

Phil says:

Telcos Eat Own Dirt

The reciprocal compensation idea is a pure legacy big telco idea and practice. When I was with a CLEC that was negotiating interconnects with SBC (now AT&T) they demanded reciprocal comp thinking that they would gain more and damage us. We asked for “bill and keep” which was a policy of not actually exchanging money but just tracking who terminated what on each other’s network. SBC said no – that we were just like a long-distance phone company and that we had to pay. We reluctantly agreed. And then along came dial-up ISPs which we really pursued due to their calls terminating on our network causing SBC to pay us. Of course, SBC refused to pay up claiming that their demanded agreement was discriminatory. (Huh?) It took a long court battle to get them to pay. Situations like these are not the result of bad regulations but of self interested greed and unfair attempts by the old Bell operating companies to kill off CLECs. Don’t feel sorry for the big guys on this one – it’s their soup, and they should be made to eat it.

Phil says:

More Dirt

Reciprocal compensation was an invention of the 1984 break-up of AT&T (the old one) through which long distance companies (IXCs) paid for access to the local loop (RBOCs) to terminate their calls. It became unfair to the ISCs over time as long distance became cheaper – in some cases 4¢ of a 5¢ per minute call went to the RBOC for the last two mines. The RBOCs, of course, went to the state PUCs and the FCC to be sure that the IXCs got no relief. Good comeuppance to the RBOCs.

kelly says:

reciprocol compensation

technically, reciprocal compensation is about the exchange of Exchange Service traffic (local and EAS), not originating and terminating access fees. this is about terminating and originating access fees. reciprocal compensation agreements to exchange local/EAS traffic are typically fractions of a penny.

Rick, in this particular instance by the way, the local telco is not taking the terminating LD call and transporting it across a VoIP network… the conference calling company will actually set up conferencing servers collocated at the telco itself (at least, they have followed this model quite a few times and I’m assuming it’s the same here). To the letter of the regulations, it’s perfectly acceptable. A few of the Iowa companies had been doing a VoIP conversion and routing calls internationally, but that was a different take on the regulatory arbitrage scheme.

oh, and cutting USF or terminating fees? you would basically drive iLECs serving communities smaller than 15k people out of business. this is just an excessive example of access fee manipulation. these companies are starting to see more competition from wireless and non-standard voice providers (other competing small telcos, cable operators, etc), they are slowly being forced to compete with more competitive rates on their own.

Christian says:

AT$T's proft margin

Don’t you think this really boils down to AT$T’s profit margin. I believe Alex’s arguement that this business model is actually generating AT$T profit, just not the profit that they want.

They want you to use their conference service for$0.25 per minute per caller. I would rather have the non-profit organizations use the money I give them for their worthy cause and not use it for expensive conference calling.

Let’s examine the pricing structure of a conference call placed on one of the carrier’s partner’s conference lines. For simplicity’s sake the call is 60 minutes at $0.25 per minute per caller. We will assume that the cost to the carrier is $0.01 origination fee and $0.04 termination fee yielding a net profit of $0.20. I have one call monthly with 10 people. The total is $120 per month. However, If I were required to have a large call say 100 people my bill will now be $1200.00 per month. Biweekly yields $2400.00 per month. Multiply that by the number of business and organizations who find it necessary to use conference call services and the dollar amount is in the billions.

So “grassroots” on behalf of the non-profit organizations, small businesses, religious organizations, and small LECs seems appropriate. Particullarly when referring to the instituion of the monopoly of AT$T. Hence “David vs. Goliath”.

kelly says:

well, alex, your $.04/mou is pretty far off the mark… some Iowa iLECs charge as much as $.17/mou terminating fees. your basic argument is correct however.

AT&T LD rates are based off of traditional usage patterns. They know for LD that originates or terminates in high cost areas they take a beating, but the overall majority of their minutes (where the population is, low cost football cities and other RBOC rate centers) results in nice margins. someone figured out a business model (however questionable) that could use varying access charges to their advantage, to AT&Ts chagrin. as far as I can tell, nothing wrong with what they did from a regulatory perspective (regardless of the merit of the business case itself)

the david and goliath part is, good luck fighting the AT&T legal machine. they’ll fight it to the end of the earth regardless of merit knowing the little guy won’t have the resources to compete (seen it happen), much less compete in NY federal court.

christian, if a company uses AT&T for LD and conferencing, there would be no terminating costs as AT&T is the terminating carrier (unless you want to count intra-company compensation). and if you’re unfortunate enough to pay $.25/mou for conferencing, it would at least include 800 access.

a charity should check out their options as well. a decent IT resource can setup their own conferencing service with an asterisk solution, or find other conferencing solutions at cost from service providers that are interested in their cause (might take some work, but not an impossible task)

MrWizarddude says:

I"m so disappointed..

I can’t count how many articles you have written supporting competition and better business models.
Now here is a company who has done just that. They’ve created a profitable business, operating completely within the rulles and competing with the “big boys”. And yet you say they are “exploiting bad regulations to scam telcos out of money”.
A scam infers dishonesty. These people are playing by the telco’s own rules. Who do you think wrote the rules of the game?

Christian says:



I would argue that your $0.17 cents is off the mark. Most CLECs actually do get around $0.04. If you wouldn’t mind naming your source maybe someone could put a free conference bridge there 🙂

Your agruement about a non-profit installing an asterisk solution still requires a large investment by most standards, not to mention your IT and maintenance. It is beyond me why all small business, non profit organizations, and religious groups don’t buy their own server?

My research of conferencing solutions for my small business has yielded Sprint $0.22 cents per min & AT&T at the stated $0.25 cents per min. Then I was turned on to free conference business. Those pay for services at that rate did not offer me the features of the free conference. For that I would have to pay more. While these might have been toll-free there are other toll free solutions out there at less than $0.05 per min.

Again, this is about AT&T not losing money, but rather not making as much profit as they would like.

calvoiper says:

The irony of it all....

Kelly basically has the facts straight, though I disagree on what “support” the little telcos should receive.

The irony here is that the Baby Bells were the ones arguing for years for high and unregulated access charges, which they used to weaken the long-distance carriers to the point where they bought them up. Now that the Baby Bells ARE the long-distance carriers, they are whining about the situation they largely created themselves. Lie in that bed you made, whining Baby Bell!

On USF & access charge “support” to rural telcos–I’m tired of the sob stories. These are areas where housing is cheap, parking is free, taxes are low, and schools are safe. I don’t have a problem with telephone service there being more expensive than the big city, because it costs more to run & maintain 4 miles of distribution for each customer. Some things cost more in the boonies–but do we have “universal fuel funds” for farmers that have to drive 13 miles to buy milk and cereal? Heck no! We shouldn’t be artificially supporting their phone service, either.

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