Whoops, freeconference.com's pants fall off

Apparently freeconference.com is now sending notes to its customers (one of whom forwarded an example to me) because Sprint, Cingular, Qwest and some others finally got around to blocking calls to their numbers. They pitch it as the big companies trying to block their free service so the giants can sell expensive services, and are trying to whip up support by suggesting this is akin to a network neutrality violation.

In fact, it’s an example of the big guys actually doing something right, and fixing a loophole caused by bizarre legacy telco regulation. The number you called for freeconference, and many other services, were served by telcos in rural areas such as Iowa. The phone regulations are set up so that when you make a long distance call on the PSTN, the long distance company pays the remote local phone company to complete the call. Usually that fee is about half a cent per minute in cities, and even free for cell phones. (Frankly, it should always be zero, and this should be paid for as part of my local phone fee, but that’s another story.) In Iowa, however, in order to, in theory, help pay the costs of being a phone company that has to send the call out to a lonely Iowa farmhouse, the rural telcos get to charge as much as 6 cents or more per minute to complete the call.

As you know, your LD company probably offers you nationwide long distance for well under 6 cents, and all the big cell companies offer free LD with your airtime minutes. Freeconference’s address in in Los Angeles, though they do say their conference bridges are in phone company facilities in Iowa. However, when you called them, your LD company paid the rural fee, and the rural CLEC kicked back that money to freeconference. As you probably guessed, there is not actually a free lunch.

When the phone company set their price, they knew from statistics that only a small number of customers would be calling farms in Iowa. Since customers demand simple pricing, they set a flat or unlimited rate where they lose money on these rare calls. Of course if customers spend all their time calling virtual rural Iowa, that breaks down. I don’t have flat rate LD. I pay about half a cent to 1 cent per minute for most urban calls, local or long distance, all around the world. But if I want to call rural Iowa including freeconference or similar numbers, I get billed the actual price, between 3 and 6 cents/minute. So freeconference’s non-free nature was quite apparent to me. Now 3 cents/minute is a decently competitive rate in the conferencing market, but the problem was it was artificial.

You ended up with a conference call between people in New York, Boston and Washington deliberately being dialed through Iowa simply to skim off inflated rates regulations allow for rural phone companies, at the expense of the long distance companies, and eventually all their customers.

I’m not against loopholes in general when they can be used to break monopolies and bypass regulations. But this is an example of the same curse that European cell phones have with their “free” incoming calls — really calls paid for by the caller. The problem is the price is not negotiated by the party paying it. When you lose that, you lose a proper market.

The internet model is much better — I pay for my connection to the middle, you pay for yours. I negotiate my price and you negotiate yours. US/Canada cell phones are the same. The person buying the cell service pays for airtime, both directions. Don’t confuse this issue, however, with the neutral network issue. Unlike the net, bits are not bits, because regulations make some calls cost more than others based on where they are going.

If we want to subsidize farms so they can have local loops the same price as those in cities, we can do that — though I think it’s a terrible idea which has crushed innovation and must just transferred money within big telcos at customer expense — but it’s silly to do it with a hidden charge the payer can’t negotiate.

I’m surprised it took this long for the telcos to shut this down.

Now there is an interesting question as to whether cell companies should actually refuse to place a call to a given number. A different response might have been to change their LD plans and tell customers they are now “mostly” flat rate or unlimited, but there are certain exception numbers. (Indeed, many plans already charge extra for Alaska/Hawai`i) Rewriting everybody’s plans would be a huge administrative expense with no real value to the customer but whose cost would be passed on to the customer, so I’m not thrilled with this approach. Update: I’ve since learned that FCC regulations forbid such differential pricing within the US market, and probably forbid this blocking, so this is going to get interesting.

I’m not nearly as bothered by companies like Rebtel who are trying to bypass the ridiculous overseas LD charges that cell carriers have. They are doing it by having the user call an ordinary local number, not a special number with a magic price. That’s a good way to find a trick to bypass a monopoly.

The phone system should, of course, work like the internet. Everybody pays for their end of the connection into the cloud and bits is bits. And we’re getting there. More slowly than we would without all this regulation, but it’s happening. If we want to subsidize rural customer’s more expensive connections into the cloud, we should do that directly. Or more simply, open up more wireless spectrum so that the rural hookups don’t cost appreciably more than the urban ones most of the time.

the mobile stealth tax

your post on the ridiculous charges that the networks levy on each other (or their customers) for the privilege of completing the call is something that has gone on for too long. the trouble is that it's an invisible tax that few people see, but everyone pays.

it's been perpetuated by the "distance = cost" refrain of the last 50 years, something rebtel is gleefully laying into. i find it odd that it's cheaper for a mobile user in the UK who is a rebtel customer to call a friend in china (2 US cents per minute), than to ring someone on a rival UK network (from about 30 US cents per minute.) that can't be right! (see for yourself at http://www.rebtel.com/en/Rates/Rates/ if you don't believe me)

we're found a way of getting round the interconnect rates, and giving people ten free calls a month. it's something that's growing really fast, and i think will be the reason in years to come, that the industry reforms its obnoxious pricing policy. hope you will come and join us at www.rebtel.com

will

This business model is sound

We have been doing this for six years. It is a common feature of the telecom system--one that allows networks to connect to each other and still earn a reasonable return on investment in their own equipment. In this case, the long distance company is earning an average of 7 to 8 cents per minute and often more (particularly for wireless companies who sell blocks of minutes that you get financially punished for exceeding). The rural telco exchange rate set by the FCC is typically less than 4 cents (AT&T singled out parties charging 4 to 7 cents in its lawsuit). This is simply new business that creates opportunities for profits for everyone in the chain. This is not a hidden tax.

We will be doing this six years from now. The rate our partners charge and what commission that allows them to pay is the only question, but there will always be free conferencing based on paid long distance, just as there will always be free calling based on paid access to the internet (the business model for VOIP).

Regardless of how you might feel about anyone's business model, it is simply unacceptable to unilaterally exercise market power to block calls.

I have to disagree

What you really have is conferencing using a very cheap equivalent of a 900 number -- a number where the user pays by the minute and some of that money is paid to the recipient of the call. Except it's an invisible 900 number, an artifact of the rural telco rates, one which, because of its invisibility has been callable on unlimited and flat rate LD plans.

But you would not expect any LD company to include free calling to 900 numbers -- mostly because they are usually quite expensive, thanks in large part to the receiving telcos. Why does the fact that these numbers are 6 cents/minute make a difference?

I'm not fond of the carriers blocking numbers. It isn't a great precedent. But these receiver-tolls (both the cheap ones in cities and the expensive ones in rural areas) are what's sitting in the way of making telephony free (as in not charged by the minute.)

The right way is the internet way. The receiver, which is to say the customer, should pay to receive calls from the network. Since this cost is in fact very low, almost every phone customer would actually get this for a flat rate, simply as part of the cost of having a phone number/line. (Though note that I, and many other VoIP customers, actually elect to pay by the minute. That's because our cost is around $1/month per number and 1 cent/minute of use, which usually works out to quite a bit less than the flat rates offered on the PSTN. Though right now I don't know why we pay at all since the CLECs that sell us these numbers are getting paid on incoming LD calls, thus making money both ways. Some, like ipkall, don't do this.)

Likewise, the maker of calls should pay for their connection to the network, again probably a flat fee but they can of course negotiate per-minute rates from their providers that get them to the handoff to the target.

If this were in place, you would have a real freeconference, rather than the fake one we're talking about here.

Don't throw the baby out with the bath water

While I agree that it's silly to charge for long distance in the 21st century, using the IXC as a billing system for micropayments has its advantages. Why not let me pay for conference calls via my phone bill instead of requiring me to set up a separate credit arrangement with a conferencing company? The European caller-pays scheme for mobile calls is widely criticized now that mobile minutes are cheap, but in the early days it was instrumental in encouraging Europeans to give out their mobile numbers while Americans were still afraid of getting calls. This worked because the mobile numbers had dedicated city codes so the caller knew there would be an extra charge, thus placing the decision in the hands of the person paying. I wouldn't mind abandoning the flat-rate scheme as long as I had some way to disable calls to high-cost NPA-NXXs, similar to what's possible with 900 numbers.

The AT&T Complaint makes interesting reading. It seems they noticed something was amiss when their bill for termination charges went from $2,000 to $2,000,000 per month in a community of only 57 households. They also took objection to the Iowa LEC moving the interconnection point to increase the mileage used to calculate the access charge.

Micropayments

What's vital in any payment system is that the people paying the price get to negotiate the price. There are lots of places
where phone companies act as your billing entity. It used to be common for your long distance company to bill you through your local phone bill (especially after the break-up, to simulate what people had before.) The local companies got greedy and charged too much so many LD companies do their own billing, even though credit card companies charge plenty.

What you really want is a simpler, cheaper 900 service with efficient billing. One where you can charge 2 cents/minute and not have the telco take too much of it. But it would still involve telling the caller the price if it's above a threshold they set.

The issue here is not the value of telco billing. It's that the price is set by regulators, hidden from the user and billed to the carrier who can't negotiate it up or down. Real markets and innovation require either true flat rates (like the internet) or a means to negotiate.

Maybe start doing away with rate arbitrage locally, first

I can understand why distance-based billing makes sense in the circuit-switched world where a guaranteed end-to-end slice of bandwidth is allocated between endpoints, on-demand.

But that is essentially gone now that packet-switched statistically multiplexed best-effort networks are quickly becoming the norm. Sadly, regulatory frameworks are unable to keep pace with such change, mainly due to politics and backward-looking greed (as opposed to the good forward-looking greed :)

Maybe a good first place to start eliminating the outdated arbitrage model is within each LATA. I'm sure that many of us can attest that IntraLATA tolls are often far more ridiculous than their InterLATA counterparts. Neighbors straddling a rate step boundary being charged tens of cents per minute to talk to each other, depending on how relations between carriers in the same LATA are going. Their dispute resolution techniques are roughly akin to a showdown with assault weapons in a school cafeteria. The only ones really hurt are their customers.

I think we should do away with the IntraLATA minutiae first - no more local area arbitrage, no more rate steps, no more RecipComp. I realize that this generally only applies to metropolitan areas where multiple carriers reside in the same LATA, but makes sense when viewed as a rough microcosm of the entire country, and may serve as an example of how to implement the conversion of traditional telecom facilities towards neutrality. The worst part, to me, is the mapping/GIS wizards currently employed by carriers and Telcordia losing their jobs. I sure wouldn't mind seeing the LERG be obsoleted, however.

Unfortunately, I don't think it's realistic to place the honus of maintaining something like a least-cost routing table or something that otherwise influences the switching network's behavior based on NPA-NXX on the end users. I guess a web-editable list of blocked NPA-NXX wouldn't be too bad, but I'd rather just see the point be made moot and have the "caveat emptor, should've checked the true destination of the call before dialing" model be laid to rest, especially in a day and age where numbers can be ported every-which-way and callers can't necessarily resolve where the call it going just by looking at the area code and exchange.

Having been out of telecom for a few years now, I could be way off in my reasoning, but I seem to recall things working that way.

American or European?

I can see your reasons for complaining about the European pricing
scheme. However, there are some advantages, some of which others
have already pointed out:

I don't have to worry about giving someone my number.

It is obvious from the area code whether it is a mobile
number, so the caller can decide if he wants to call it.

It is more difficult to change one's mobile-phone contract
than to change one's method of calling mobile phones. The
European scheme has created a huge market in Europe for
so-called "call-by-call" operators, who offer better rates
than the telcos (mostly to mobile phones and for foreign-country
calls, but in some cases for domestic calls as well). This has
brought down the prices by an enormous amount, due to the
competition, which probably would not have been possible as
quickly due to competition between mobile-phone contracts.

The traditional telco prices are no longer competitive. For
domestic calls (whether long-distance or not), the going rate
is 1 cent per minute or even included in the monthly internet fee,
this is VOIP of course. For calls to mobile phones, call-by-call
operators offer rates around 10 cents per minute. For foreign
calls, it varies between less than 1 cent per minute to 20 cents
per minute or so, depending on country. (Technically, there might
be VOIP behind the scenes here, but it is not VOIP to the end-user,
but rather "call by call" (i.e.. dialing an additional number before
the actual telephone number, which might be done transparently to
the user via some black box).

Giving out your number

Nobody in the USA worries much about the cost of incoming calls either. Truth is, all phone calls are to the benefit of both parties or one will hang up quickly enough. There really is no grand asymmetry. What really matters about who you give your number to is who you want to let interrupt you when mobile.

I would like to learn more about these call-by-call operators and how they bypass the fees. Using VoIP terminators, I still have to pay 20 to 25 cents/minute USD to call most Euro cell phones. They are the only calls left in the developed world that cost an amount of money you would care about.

Resource to Inform Consumers About Call Blocking

In response to the outpouring of support from bloggers like you, industry thought leaders, consumer interest groups and the media, Free Conferencing Corp (creators of FreeConferenceCall.com) has set up a special web site --http://blog.freeconferencecall.com/Default.aspx -- to set the record straight on the call blocking and law suits being leveraged by the major carriers including Cingular/AT&T Wireless and Sprint/Nextel. This site includes links to current blog postings, blocking FAQs, forum for visitors to blog, and, most importantly, a "Know your Rights" section directing people to the Federal Communications Commission (FCC) web site so customers fully understand how their rights are being violated. The Know your Rights section includes links to learning about current FCC regulations, filing a complaint with the FCC, contacting your state attorney general and reading about historic cases that refute the claims of the telecommunications carrier "Goliaths." FreeConferenceCall.com is also encouraging site visitors to subscribe to a list to join the fight in a class action suit.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.

Post new comment

His name is Brad Templeton. You figure it out.
Please make up a name if you do not wish to give your real one.
The content of this field is kept private and will not be shown publicly.
Personal home pages only. Posts with biz home pages get deleted and search engines ignore all links
  • Allowed HTML tags: <a> <em> <strong> <cite> <code> <ul> <ol> <li> <dl> <dt> <dd>
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.

More information about formatting options