Exploiting Telco Regulations For Free Calls And For Profit (Lots And Lots Of Profit)

from the so-easy,-it's-almost-criminal... dept

Earlier this year, we wrote about how suddenly a bunch of “free” calling services were popping up that all seemed to use phone numbers in Iowa. This included a service that would let you call an Iowa number and from there call anywhere in the world for free as well as a variety of “free conference calling” services. All of these systems were actually exploiting some legacy telco regulations, that were officially designed to help rural telcos get extra money to build out more rural service. Basically, the government allowed rural telcos to charge high termination fees to other telcos when calls from their lines terminated on one of the rural telco’s lines. So, if you had AT&T and called your cousin in Iowa who had some small rural telco, AT&T would actually have to pay that telco some charge per minute, with the idea being that the telcos would use that money to invest in infrastructure. Of course, the infrastructure they invested in wasn’t exactly building more lines to wire up others in the town, but in VoIP systems so they could reroute calls in to anywhere else, and then team up with various online sites to get as many calls as possible routed through those systems. Then they could just sit back and collect the millions of dollars rolling in from telcos. Broadband Reports points us to an article at the Wall Street Journal going into more details about how this happened — and how the FCC is now scrambling a bit to see if there’s a way they can stop it. In the meantime, the WSJ piece notes that while the telcos have been told by the FCC that they have to keep connecting these calls, they’ve simply stopped paying any of the termination fees as they await the results of the various lawsuits. Of course, all that’s done for now is made the various free conference call services switch to other rural telcos in other states. Eventually, though, they’ll run out of other states to go to (or the regulators will finally realize how their regulations are being exploited) and the little regulatory exploit will go away.

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Companies: at&t, fcc, freeconference.com, qwest, sprint, verizon

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Comments on “Exploiting Telco Regulations For Free Calls And For Profit (Lots And Lots Of Profit)”

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fishbane says:

Are we really defending ATT now? Their point seems to be that regulations are great, so long as they win. If someone outthinks them, that’s bad.

I’d love to see an equal footing for telecom, telecom startups, and alternatives, but somehow I think my interests and ATT diverge just… perhaps a little.

Protecting rights is important, but protecting already well protected semi-nationalised firms, not so much. I know we can’t practically rollback what has happened, but taking an adversarial role to what they’ve become is reasonable.

Ryan Johnson says:

Re: Phone Biz.

Hello, my name is Ryan. I saw your comments about AT&T and thought i’d just drop a line letting you know that I completely agree with you. That’s why I got started in a deregulation company that also offers VoIP and Video Phones. If you might be interested in getting on the other side of the communications industry “The recieving side” send me back an e-mail and I would be happy to send you some information.

Thanks for your time,
Ryan J.

Meoip says:


The whole industry is backward. Tax subsidies and my taxes pay for ATT to put new lines in. Then I pay again to get that line run an extra 10 feet to my house, then I pay a monthly fee just to have access to that line. Then I pay a higher monthly fee just to make out going calls.
I laughed at ATT when I started using a free voip service that let me punch in my phone number then the number I want to speak with. The internet calls my land line then calls the person I want to speak with. I recieve an incoming call and sine incoming calls are free I subscribe to the ATT $4.25 plan and get $60 worth of service for it.

dualboot says:

Not defending big companies

Okay, I’m not defending any big phone company, but do you really think that those of us paying for service would be paying as much if the big companies didn’t have to pay the little companies that were using exploits? I’m all for them paying to help build up the infrastructure, but perhaps there needs to be a regulation that they actually HAVE to use that money, or at least a portion of it (50% is more than reasonable) to do what it was intended to do… improve the infrastructure of the little guys. It seems like in the long run that would work out better for the little companies anyway… a better network = higher capacity of paying customers = higher revenues = more able to compete with big companies.

I think it’s less about the big companies and more about the fly-by-night companies setting up for the specific purpose of exploiting the system. Anyone who got shut down by a certain VOIP provider this year without prior notice and the inability to now port out their existing number of 15 years knows what I’m saying here.

Arochone says:

Re: Not defending big companies

Yes, actually, I do think you would be paying just as much without those little companies doing that. The difference is the big companies would be making bigger profits. Supply and demand. They amount they charge is based on the price that the most people will buy it at. The price that gets them the most profits. If they know you’ll pay $60 for it, why would they charge less? You think they’d just charge you less to be nice?

Alex says:

Re: Re: Not defending big companies

Note that conference calls used to cost 50 cents a minute (once you were approved for credit). Because of the free conferencing companies, it now is essentially the same cost as long distance (LD revenues average about 6.5 cents per minute and conferencing costs average about 7 cents per minute). Competition is good for consumers, even if it is through what seem to be bizarre regulatory systems that end up balancing the power in the telecom industry.

Alex says:

Re: Not defending big companies

FreeConference.com has been around for 6 years. Why is AT&T getting the FCC to do its bidding now? Because of all the new fly-by-night companies and chat companies who were running to the most extreme abusers of this regulatory system. In the free conferencing industry case, this is a reasonable balancing act. AT&T is making 5 to 10 cents a minute on the new long distance business FreeConference generates and only paying 1 to 4 cents to rural telcos for access (that is why they never prompted FCC action previously–they are making a very large profit on this business). “Exploiting the system” is something AT&T, Sprint, Verizon, and Qwest are masters at and you can find dozens of examples of them playing the regulatory game for fun and profit at the user’s expense. In this case, everyone benefits. Users pay for long distance service to consume services they want. Carriers earn incremental profit. Rural telcos profit and can compete across the spectrum of services in their areas without needing to pull as hard from the Universal Service Fund. Free Conferencing companies profit and continue to innovate to drive down conferencing costs with more and better features–another win for consumers.

The Joe says:

AT&T stoped paying term fees a while ago.

In 2000 and 2001 I worked at the helpdesk for the Dial-up ISP side of a small telco in Iowa. Sometime during that period AT&T stopped paying some of the Iowa telcos the term fees just because they didn’t want to. Blatently breaking the law without thinking twice must be AT&T’s policy. AT&T figured the telcos wouldn’t be able to affored to sue them. I left the company before finding out what the outcome of that was.
Bottom line…..screw AT&T and if they are getting ripped off by this loophole…well, karma’s unfogiving.

clearly not all there says:

BELLS are the Illegal ones

Can’t people see the writing on the wall? AT&T wants to be a monopoly again. Think your rates are high now, wait until that happens. AT&T did chat forever when the rules went there way. Now they scream foul when they done. Look at this power point.

AT&T hosts their conference call gear at a clec called teleport. Why? the same rules that allow others to get this money. Don’t ever think you can belive one thing that comes out of a bells mouth. just as well be http://www.att.gov.

Read Theorder says:

Read the Order

“We find that Farmers’ payment of marketing fees to the conference calling companies does not affect their status as customers, and thus end users, for purposes of Farmers’ tariff. Qwest offers scant support for its assertion that one cannot subscribe to a service without making a net payment to the service provider….Qwest has failed to prove that the conference calling company-bound calls do not terminate in Farmers’ exchange, and has failed to prove that Farmers’ imposition of terminating access charges is inconsistent with its tariff. We therefore deny Counts II and III of the Complaint.” FCC’s Farmer’s Order.

In addition the FCC order stated that Farmer’s tariff’s were valid and that Farmers could collect the withheld access fees from the carriers in “federal court.” The WSJ reporter clearly did not read the FCC’s order.

The FCC Notice of Proposed Rulemaking which merely opened the docket and asks for comments, states: “We believe that traffic may be stimulated through a variety of means, including conference bridges, chat line facilities, call center operations, and help desk provisioning. We invite
interested persons to comment on the prevalence of these types of operations and to describe in detail how
each type of service is provisioned. We understand that carriers complaining about the access stimulation
arrangements also offer conferencing and other services that may result in increased traffic. We ask such
carriers to explain how they provide each of the above mentioned services, including what charges they
assess on the provider, whether access charges are assessed on such calls, and what compensation, if any,
is paid to such provider.”

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