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

Wed, Feb 7th 2007 3:25pm — Mike Masnick

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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21 Comments

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Anonymous Coward, 7 Feb 2007 @ 4:17pm

So, it is ok for ATT to game the system and gouge customers for mystery fees and lobbyist-supported handouts, but when someone games the system on them, they immediately cry foul.

Hey, ATT, you can stop paying FuturePhone when I get fiber to my doorstep or you refund the hundreds of millions of dollars you got to build out that service but never did...
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Joe Smith, 7 Feb 2007 @ 4:35pm

gaming the system
If you design a stupid set of rules you should expect people to game the system and you should have no basis for complaints, law suits or criminal action.
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Tom Evslin, 7 Feb 2007 @ 5:40pm

monopoly rents
As you said, at&t onky objects to monopoly rents when it is paying them, not when it is collecting them. As the country's largest local carrier the new at&t collects billions in access charges because of obsolete regulation (although not at the high per minute rate that Iowa Ilecs get). SBC once sued the old AT&T claiming it was disguising long distance calls as local. Now it is claiming that international is being disguised as domestic LD. Nice irony. More thoughts on this at POTS calls the Kettle Black.
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William Leake, 7 Feb 2007 @ 8:19pm

FreeConferenceCall.com
This is not as uncommon as one might think. I believe this is also how FreeConferenceCall (website the same as the name) makes all their money, though in their case I believe they route everything to a rural part of Nevada.

Sounds like less regulation of the industry, rather than more, is strongly in order!
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d.l., 8 Feb 2007 @ 7:15am

less regulation
The problem here really is too much regulation. Long distance providers like AT&T are required by law to charge "averaged" and "integrated" rates for interstate long distance calls. This means, among other things, that they can't charge more for calls that cost them more in termination fees than they charge for calls that cost them less. If long distance carriers were less regulated and were allowed to charge end users deaveraged rates, the market itself would quickly put an end to scams like this.
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The Original Just Me, 8 Feb 2007 @ 7:20am

Who still doesn't have phone service??
And why are the rest of us paying for it?

Seriously, how far out in BFE do you have to be that you haven't seen the telephone installer in the last 70+ years?

This whole 'rural telegramaphoneification' thing sounds like a telco scam to me.
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James Wanless, 8 Feb 2007 @ 9:21am

Will Free Calls be strong-armed out of business?
With the closure of FuturePhone it seems like the end is near for the so called FREE calling companies.

Inevitably, AT&T's challenge will take time, but likely will stop these FREE calling companies as the payments are withheld until everyone has their day in court. That's not to mention the (prohibitive) legal cost of defending against such lawsuites which the LECs and the free calling providers are not prepared to do.

This however is not a new situation. Back in the early 1990s AT&T were themselves enabling a similar type of business model. It was called International Settlement and was a means for AT&T to balance out the payments they paid to telcos (often monopolies) in countries like Italy against fees which Italy paid to them. There was a huge imbalance which meant that AT&T paid out much larger amounts to these foreign telcos on a monthly basis and these same foreign telcos had no incentive to renegotiate the rates which AT&T were pushing down at home.

What AT&T quietly did was to let some service providers have numbers in the US which they would on which they would share revenue. Starting to sound familiar? You would pay the equivalent of $1 in Italy to call the US number to listen to your horoscope, football scores, chat etc. etc. AT&T would get their portion of the revenue and share it with the service provider. Now the traffic from Italy started to flow back to the US in much larger numbers and it meant that AT&T was paying out less to the foreign telcos. Italy was just one example.

This practice happened in scores of countries. In some cases, the foreign telco would actually have to pay money to AT&T instead, in effect forcing them back to the negotiating table to talk about reducing rates. Once that happened, the rates were reduced to a point that the shared revenue model would no longer be attractive to the service providers and this flow of "other traffic" for entertainment would disappear.

It was a VERY smart move by AT&T and ultimately a great business. It drove down international calling costs, provided incentive to bring everyone to the table for bi-lateral rate negotiations and ultimately benefited AT&Ts subscribers. I wonder if the LECs in Iowa and Nevada have a similar plan to use this as a bargaining chip for something else they want? It will be interesting to watch it play out.

As I have said before, someone has to pay for phone calls. It�s not free to provide the service and it seems in this case AT&T was the one to pay.

(My blog post on this topic: http://talkster.wordpress.com/2007/02/07/will-free-calls-be-strong-armed-out-of-business/ )
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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, FreeConferenceCall.com'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. FreeConferenceCall.com, based out of Long Beach, CA, is actually responsible for all these sites: StartMeeting.com, helloconferencecall.com, juntagratis.com, freephoneconference.com, freeconferenceanytime.com, freeconferencecallrecording.com, thepacketcenter.com, freeconferencecallnetwork.com, 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:

** futurephone.com - Site "labeled" as offline; actual number 712-945-1xxx, VENTURE COMMUNICATION TECHNOLOGY L.L.C, switched out
of Salix, Iowa, population 389.
** fonpods.com - Site offline (just noticed); actual number 712-432-3xxx, GREAT LAKES COMMUNICATION CORP., switched out of Lake Park, Iowa, population 993.
** freedigits.com / talkdigits.com - service alive; Assigned a number of 641-321-8xxx, COMMUNICATIONS 1 NETWORK, INC., switched out of Klemme, Iowa, population 558.
** allfreecalls.net - "service offline"; actual number of 712-858-8xxx, SUPERIOR TELEPHONE COOPERATIVE, switched out of Superior, Iowa, population 129.
** radiohandi.com - Service active; actual number 712-432-7xxx, GREAT LAKES COMMUNICATION CORP., switched out of Lake Park, Iowa, population 993.
** freephonecallz.com - Service offline
** partylineconnect.com - Service active; actual number 218-486-3xxx, TEKSTAR COMMUNICATIONS, INC, switched out of Hawley,
Minnesota, population 1,892.
** freeconference.com - 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
** gizmoproject.com - Service active; using area code 775 numbers
** ipkall.com - Service active; switches out of Washington state via INTERNATIONAL TELCOM, LTD.
** ophone.net - Service active
** freecalltheworld.com - 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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Parminder, 3 Apr 2007 @ 11:15am

I am sure this cannot be classed as fraud.. This is something which was done lawfully and all they did was get into the loop at a place where it left them with some profits.
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B Letz, 17 Apr 2007 @ 10:37pm

Free Conference Calling
I signed up for a free account from one of the websites listed above: www.freeconferencecallrecording.com

My team calls in to our conference line on our Cingular cell phones and AT&T unlimited home phone plans. We have been doing this for over a year and never had one problem.
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Jim, 23 Apr 2007 @ 10:27pm

Re: Tekstar Communications to be sued next?
Tekstar has not been sued, but all the other companies met with the FCC last week, demanding that the telco giants "pay up" the money they owe and unblock all calls to them.

Both sides in the dispute expect the FCC to issue an informal ruling this week on the matter. (Superior Telephone et al)

Last Tuesday an FCC spokesman made clear that blocking calls was forbidden, (calls are now flowing again) so it now comes down to recip comp money.

Will the local carriers be paid by ATT (et al) for monies owed and will they continued to be paid for future calls?

It seems the Iowa companies have made a pretty strong case for getting paid for calls made to, and terminating in Iowa. (Conference Calling)

The made a weaker case when calls are routed thru the Iowa companies and then sent elsewhere (ie) free international calling.

If the Iowa telcos win at the FCC, they will press for immediate payment, plus fines, plus interest, plus attorney fees. If they lose, they probably will not appeal.

If ATT (et al) lose at the FCC they have an interesting decision to make.

IF, they appeal the decision to the Federal Court —and they lose there— (likely since the Federal Courts usually defer to the govt.) ATT (et al) would be stuck paying high recip comp rates permanently.

If so, look for hundreds of the services to sprout. A true nightmare for the major carriers.

Right now neither side is ready to blink, which is dangerous for both sides.

Both sides made offers to each other to settle the issue, but they were not even in the same “state” never mind the same “ball park”

Possible Solutions:
IF, the local telcos were to accept payment ONLY for calls that terminated in Iowa, and were not routed overseas, perhaps ATT (et al) would ante up the money they owe.

But if the local telcos insists on every last dime, ATT (et al) may just sit tight and try to wait them out.

Either way, the local telcos did nothing illegal.
They read the tariff and went about their business.

ATT (et al) never, in their wildest dreams thought a few local telcos in Iowa would beat the giant carriers.

And with first quarter profits collectively over several-BILLION dollars, its hard to feel empathy for the giant telcos.
The amount of money they owe the local telcos is probably the amount of money they spend on “entertainment expenses” every year.

Perhaps the BEST solution would be for the giant carriers to point out to their customers, that in their TOS, the giant carriers CAN BLOCK calls due to excessive use. (in unlimited plans only)

When a customer exceeds 6,000 minutes per month to a certain number, the carrier can block access to the number and/or cancel the account.

Of course it is far more expensive to block individual customers than to prevent ALL customers from dialing a specific phone number.

I would bet the FCC will choose this route as an interim solution, with an eye toward examining the entire recip comp structure at a future date.

The FCC chairman has made it clear reexamining this issue is a priority.

So for the Iowa telcos, “let the good times roll, while they last!”
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Paul Butler, 8 Jun 2007 @ 8:51am

ATT vs. Iowa
So the little guys should use 800 Toll Free so AT&T charges access to mostly everybody and its more expensive? They just don't like the pennies going the other way! They want all the paying traffic, they collect most of it when its toll free.
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wonterwarmer, 10 Jul 2007 @ 6:27am

One bites the dust and another rises
Hi Guys,

Well Futurephone is no more at least till this court case is over. This could take a long time. The longer the better for AT&T.

Reading through the court case between AT&t and defendants this certainly is an interesting case.

It begs other new VoIP companies to watch their step. It is one thing to be competitive but any using the methods in question could have a short future. They will certainly be watched and could easily be included in this case.

It may be tempting to offer access numbers for free or cheap international calling, but it could be short lived if they are using these methods.

If you want to ‘play safe’ and use a company offering good featured services at very low cost try Global1touch.

I am using this very successfully to call internationally.

Have a look here: http://www.global1touch.com/world

Look around at the facilities and watch the video.

It is rapidly growing in features and has an expanding membership worldwide.

Winterwarmer
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feven, 27 Jun 2008 @ 1:40am

having prblem with calls
hi i been using ur free confrence call 218-339-2502 and am very happy to talk to people from my country all over us. but there are people who distrube the line by joining same access code and distrube the people. how can we fix this or how can we kicked them out so that we can talk peacefully?
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heheh, 3 Nov 2008 @ 1:37pm

Re: having prblem with calls
Call Bush he will kick them out for you, He even kicked Iraqis from their land:)
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tom peters, 5 Nov 2008 @ 1:17pm

hacking on chattline run by tekstar
hi my name is tom iam reporting the fowlling numbers to the fcc and the law like the fbi 218 936 1420 1414 1417 1412 1415 all the number frome this party line needs to be shut down there is under age phone sex on there and hackers who get your info and if you dont do any thing about it i will see you in court ty tom peters aka jr mafia
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Laser Haas, 1 Mar 2009 @ 8:50am

Iowa v AT&T
All these companies are still in business

Where is the story on why?
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Anonymous Coward, 4 Sep 2009 @ 11:41pm

Re: FreeConferenceCall.com
It sounds like *even* regulation is needed. No necessarily more or less.

Any time you have a discontinuity, you have a problem. Happens in control systems all the time. Need a smooth function, otherwise you collect crap at the discontinuity.
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Imran, 10 Jan 2010 @ 12:00am

is Call Arbitrage legal in india ??
Hello Sir,

I just have a question that is call conference arbitrage is legal in india?

if legal then how any telecom company protect from loss and how they cover it??

thanks n regards,
Imran
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Spencer Iowa : Home of Clay County Fair, 27 Aug 2010 @ 5:38am

Spencer is home to one of the nations’ largest county fairs . More than 310,000 visitors attend this week long event every September. The fair showcases agricultural products as well as vendors from all around the country offering products of all kinds. There are also year round events at the fair grounds that include concerts, and car races of all kinds.
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abe o, 9 Feb 2012 @ 9:40am

lost my number
I used to use the Iowa number but now when I call it says to enter the number I wish to call and it keeps repeating over and over even tho I put the number in. Are there any active numbers that I can use to call Mexico??

I don't think they will shut these companies down. There are loopholes in policies and this is one of them. I think companies like att who charges a bunch of money on hidden fees that they can't even explain should be the ones who should be regulated more they truly are monopolizing communications and charging unknown fees
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