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.