Phone Call Arbitrage Is All Fun And Games (And Profit) Until AT&T Hits You With A $2 Million Lawsuit

from the so-much-for-that-plan dept

Late last year, the NY Times' David Pogue wrote a blog post describing a service called FuturePhone, which offered free international calls. You just had to call a domestic line (with an Iowa area code) and then could dial out to a long list of countries. This kicked off a lot of speculation about whether or not it was a scam or if you'd have to listen to ads or what. Tom Evslin and Alec Saunders filled in the details. Basically, as part of the efforts by government to help pay for telecom services in rural areas regulations were put in place so that long distance phone calls that are made to numbers controlled by certain rural carriers can charge a very high "termination fee," that the other telcos (such as AT&T) would have to pay. You usually don't see the cost of the termination fees, because they're included in the cost of your phone calls.

It turns out that some of the regulations allow for excessively high termination fees for rural carriers in Iowa. So, all FuturePhone needed to do was either own or partner with one of these carriers to get all or a piece of the termination fee money -- and then route the calls over much cheaper VoIP lines to international destinations. That way, the users get a "free" (or just long distance) call, FuturePhone provides a service lots of people use at a relatively low cost... and AT&T foots the bill by paying the huge termination fees which were supposed to help develop more telco services in Iowa. For every phone call that went over FuturePhone's lines, they made much more money in termination fees than they spent in the costs to send the call overseas. Except, of course, AT&T didn't like that so much -- and is crying foul. Apparently, the bill they needed to pay the telco that FuturePhone was using jumped from about $2,000 a month to about $2 million a month -- and they're suing, claiming that it's fraud, noting that since the calls didn't really terminate in Iowa, they shouldn't be billed for the fees. FuturePhone has already discontinued the service and, if it received any money at all, is probably spending it on lawyers.

No matter what happens, this demonstrates the continued problems with these attempts to build up the Universal Service Fee, or other taxes designed to provide more telco services to rural places. They're almost always misused in a way that ends up in some telco's pocket -- rather than actually being invested in telco service improvements. Of course, AT&T has been the beneficiary of many of these regulations in the past -- but it brings out the legal guns when such a plan takes money out of its pocket instead of putting it in.

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  1. identicon
    sandman, 28 Feb 2007 @ 10:48am

    Tekstar Communications to be sued next?

    Will Tekstar Communications be sued next? Because it will be a long time before these leeching "free" services are stopped.

    In a recent update email,'s Simple Voice Box service is using exchange 641-985-5xxx, which belongs to FARMERS TELEPHONE CO., and the number is located in RICEVILLE, Iowa, population 834. As I have been tracking these "free" services as of late, I recently re-registered for a new free conference call account and was assigned a 712-580-0xxx number, which belongs to SPENCER MUNICIPAL COMMUNICATIONS UTILITY and services Spencer, Iowa, where there's actually a whopping 11,117 residents. The first number I was assigned last year was with (402-756-9xxx) GLENWOOD TELEPHONE MEMBERSHIP CORP. out of a rate center in Bladen, Nebraska, which is a "village" in Webster County, population 275.

    I've seen numbers for these services pop up in rural Michigan and Nevada as well. I do believe that these loopholes should be closed, but even mighty AT&T is going to have to get help from the FCC to make it happen, as there are too many rural states in which to bury these services.

    Some of these loophole leeches are one in the same, too., based out of Long Beach, CA, is actually responsible for all these sites:,,,,,,,, and many more, I'm sure. David Erickson, founder and CEO, makes millions off these services so don't expect to see him just go out of business because AT&T files one lawsuit.

    Here's some of the other potential players:

    ** - Site "labeled" as offline; actual number 712-945-1xxx, VENTURE COMMUNICATION TECHNOLOGY L.L.C, switched out
    of Salix, Iowa, population 389.
    ** - Site offline (just noticed); actual number 712-432-3xxx, GREAT LAKES COMMUNICATION CORP., switched out of Lake Park, Iowa, population 993.
    ** / - service alive; Assigned a number of 641-321-8xxx, COMMUNICATIONS 1 NETWORK, INC., switched out of Klemme, Iowa, population 558.
    ** - "service offline"; actual number of 712-858-8xxx, SUPERIOR TELEPHONE COOPERATIVE, switched out of Superior, Iowa, population 129.
    ** - Service active; actual number 712-432-7xxx, GREAT LAKES COMMUNICATION CORP., switched out of Lake Park, Iowa, population 993.
    ** - Service offline
    ** - Service active; actual number 218-486-3xxx, TEKSTAR COMMUNICATIONS, INC, switched out of Hawley,
    Minnesota, population 1,892.
    ** - Service active; actual numbers:
    218-936-6xxx, TEKSTAR COMMUNICATIONS, INC., switched out of Mahnomen, Minnesota, population 1,176
    218-862-6xxx, TEKSTAR COMMUNICATIONS, INC., switched out of Battle Lake, Minnesota, population 778
    641-297-5xxx, INTERSTATE 35 TELEPHONE CO., switched out of Saint Marys, Iowa, population 128
    ** - Service active; using area code 775 numbers
    ** - Service active; switches out of Washington state via INTERNATIONAL TELCOM, LTD.
    ** - Service active
    ** - Service active but recently "moved" to a provider that probably isn't being sued; actual number 218-936-6452, TEKSTAR COMMUNICATIONS, INC., switched out of Mahnomen, Minnesota, population 1,176. Old number was 712-338-8849, GREAT LAKES COMMUNICATION CORP, switched out of Milford, Iowa, population 2,441.

    You can believe that there are many more.

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