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How Can A Free Conference Call Be Free?

feefighters.com

338 pointsstartupstella77 comments

Reminds me of a very similar story from Austria.

Back story: Austria is one of the most competitive countries as far as mobile phone plans go. There were three big companies, A1 (previously state-owned, a bit similar to AT&T), One (now Orange, owned by French Telecom) and Max (now T-Mobile, owned by German Telecom). In 2003 a new company, Hutchinson 3 (branded as "Drei") emerged. Backed by (for a small country like Austria) seemingly unlimited money from Hutchison Whampoa they built a completely new network (again: Austria is pretty small). They only cared about getting customers and started a price dumping war with the other three players.

In 2007 Hutchison 3G introduced a new kind of mobile plan called Sixback. Because of the - in their opinion - high termination fees they offered 6 (Euro-)cents per minute on incoming calls from the three other providers. In Europe you don't pay for incoming calls like you do in America, but getting paid for incoming calls was new. The plan became quite popular, there have been reports of peoply having over two dozen SIM cards from other providers just so they could "load" their Sixback plan using the free minutes from the other plans and then transferring the money via a 0900 number. (0900 is the area code for phone sex and similar numbers where you pay a lot of money per minute and the receiver of the call receives most of that money).

Of course the other providers hated Hutchison 3 for that plan, but that quickly turned around when the regulation body lowered the termination fee, so that every Sixback call now loses money for Hutchison 3. They don't offer that plan anymore, but there are lots of customers who still have that plan and obviously refuse to be switched to a newer plan.

Interesting, I dint know that.

I had an interesting experience with ATT. I was into the 6 month of a 2year contract back in 2007. I wasn't using my phone much (non-iphone). But then I went on a road trip to Yellowstone, which included driving through ND, SD, MT and WY. During this 7 day trip, I was using my phone a lot (work + personal). The total amount of minutes I spent in those 7 days were way more than my usual monthly usage (in fact it ate into my rollover minutes as well).

After a few days from returning, I received a letter from ATT telling me that they could not afford me on their network for using so many minutes, as they had to pay their partner n/w in those states (not just major cities in those states). They wanted me to leave their network, in return they would let me have the phone (under contract for free).

I was happy to oblige as I wanted an iphone. I switched to Tmobile for a week and then went back to ATT again (iphone plan).

We were in a similar situation in 2005, when we moved from Kansas to NE Missouri. After a couple of months, an AT&T representative called an relayed much the same as above.

However, they let us out of our contract, gave us the phones, and paid us for the phones (since we had just renewed with them) at around $200 each.

It was quite a pleasant surprise.

Edit: And then they bought a tower in town when the iPhone came out. Go figure.

FWIW - AT&T is now in SD. (grew up there, and still have family in the state).

So, I am guessing, the ATT will not be leveraging their partner networks much now.

I was in MN back then (when I took the trip). ATT was expanding then in north mid-west. Even in MN, their coverage improved between 2007-2010.

I was driving through I-90 which cuts across SD and even stayed overnight in Rapid City. I think I had good signal, which I must admit was surprising on ATT, though, I wasn't aware it was from their partner n/w backs then.

I found this incident funny, 'cos this business had the sense to know how telecoms worked, knew the law and exploited the loophole to make money :-). Sometimes, I think its just connecting the dots as Jobs said.

And in Montana as well when they purchased Alltel in 2009.

I was getting ready to correct you, when I researched the Alltel acquistion.

Verizon purchased Alltel, but was required by the FCC to sell off 105 of the markets, which is where ATT stepped in and bought a bunch of those markets.

FWIW, my Alltel account was switched over to Verizon in 2009.

This type of scam is big business in rural Iowa (and I'm sure other areas).

I used to work in rural northwest Iowa. We had a "programmer" (to use it loosely) quit to work for a company who's sole purpose was to abuse this system.

They ran a "phone company" in a small town and then connected a big asterisk box at their local exchange to accept free conference calls. They then installed smaller asterisk boxes in other businesses that were a long-distance call away with for the sole purpose of keeping the lines coming into their conference box 95% full 24x7 with bogus calls from 5-45 minutes long.

phone line arbitrage. brilliant!

Bear with me here, but it seems to me like this is a good argument for socialism.

Consider: why do termination fees exist? Clearly, as America was being wired with telephone service, the cost to run lines to rural areas was prohibitively expensive. So what's the capitalist/Randian thing to do? Well, charge more for phone service out there. If people can't afford it, then they'll move to where it is cheaper to have a phone line, right?

Except you have to consider why people would live in these rural areas to begin with. For a large number of individuals, they are probably farmers (or involved in food production). If they have to pay higher rates for phone lines, then they would have to raise the price of food to make living in rural areas viable. But there's obviously a really big incentive to the government and everyone that's not living in rural areas to not have the cost of food increase. So what does America do?

To remain somewhat loyal to pristine capitalist ideas, America decides that it's going to let competition and corporate interests resolve the issue, but to make things "fair", the government will put its finger on the scales, just a bit. Unfortunately, when you forget to take your finger off the scales, then you end up with AT&T spending $250mil unnecessarily!

Efficiency of the market, eh?

Of course, a more socialist-leaning country would've just had the government pay to install rural phone lines.

So a government acts socialist, distorts the market, causes damage, and you think this is an argument for more socialism?

All starting from the unwarranted assumption that telephone access was necessary to farmers and food prices would have risen dramatically.

"All starting from the unwarranted assumption that telephone access was necessary to farmers and food prices would have risen dramatically."

Yeah, that initial assumption really is weird.

How much could a phone line like that possibly cost for a company who does phone lines? I have no idea, maybe 10 million for all I know.

But that's a one-time cost that will be spread out over all the crops that farm produces for the next however many years that telephone line lasts. With some (admittedly ~10 years out of date) idea of some of the other costs involved in farming, I have a hard time seeing the bump to food prices being anything to get your undies in a twist about.

Some googling around gets me a cost of $120,000/mile to install overhead telephone wire. So, for example, if you have a tiny town of 200 people that's 15 miles away from anywhere, running a phone line out to it will cost $9,000 per resident. Which sounds steep, but possible to self-fund.

On the other hand, if you have one guy on a farm two miles away from the next nearest neighbor, well, adding a phone line costs as much as building a second house.

The interesting question for society is, should these people have phone lines? And if they should, how much of the cost should they bear themselves? And how far should we be willing to go to run phone out to increasingly remote areas?

"The interesting question for society is, should these people have phone lines? And if they should, how much of the cost should they bear themselves? And how far should we be willing to go to run phone out to increasingly remote areas?"

Phone lines, or roads, or fire brigades, or police. Or tax collectors…

I suspect most farmers would choose to fund their own telecommunication, if it meant they didn't have to pay tax.

I'm not quite sure where the line gets drawn about what's reasonable to "expect" the government to provide in return for your tax dollars, and quite how to ensure "fairness" or equality between city-dwellers and rural taxpayers. But deep down I'm a bit of a socialist - I think phones should probably be owned by "the government", or at least regulated so heavily that the decisions about who does and doesn't get phone service is largely driven by ethics and "the greater good" than by "increasing shareholder value".

This conversation goes rather differently in the age of the mobile phone.

But rears it's head again as soon as you start talking about broadband internet access…

Mobile phone base stations aren't free either.

Certainly they are not. But you have more deployment options, and while 15 miles of phone line run to a single customer benefits only the customer (and, I suppose, everyone else who might want to reach them) a single cell tower has potential benefits to the entire subscriber base.

> there's obviously a really big incentive to the government and everyone that's not living in rural areas to not have the cost of food increase

> would've just had the government pay to install rural phone lines

you didn't decrease the price of food. you may have decreased the cost paid out of pocket by the consumer, but you haven't changed the actual cost of producing food. if the cost of those phone lines was $100MM, then either a) the government installs those phone lines for $100MM, or b) the farmers bear the cost of those phone lines and raise prices to make up $100MM. either way, someone has to pay that $100MM. you can pay for it either with your taxes or by paying more for food.

this socialist scheme never really changed anything, except it distorted the visible prices so that they do not match real costs. now all you've done is made it harder for the market to optimally allocate limited resources.

"this socialist scheme never really changed anything, except it distorted the visible prices so that they do not match real costs. now all you've done is made it harder for the market to optimally allocate limited resources."

Unfortunately, "the market" is only going to optimize for the metrics used to evaluate it. When those metrics are almost exclusively "profit" and "shareholder value", the market optimizations aren't always going to align with "societies expectations". Without external pressure, "the market" will optimize for Haliburton being in control of military budgets, investment banking being in control of police departments, and farmers having no phone access.

I think there has always been a good argument for infrastructural socialism. Infrastructure requires the tricky navigation of public and private property rights. America in it's infinite wisdom decided to go with protected monopolies for providing public utilities (aside from water and roads) and we're constantly exposing the problems inherent in that system.

This may have been a good idea back in the day but the problem with social policies like this is that they are very hard to change. Now that we have few farmers living out in rural areas and food prices are cheap, us city people are in fact subsidizing the living costs of those living in the country.

Its not just phone lines but also streets, post offices, etc. The overall efficiency of city living is much higher but due to policies like this we don't end up getting lower phone bills or pay less for our roads.

I don't believe that telecom companies should be completely unregulated but policies like this are an example of socialist policies that can decrease overall efficiency.

Unfortunately, the cost of the government putting in those lines plus the cost of the inefficiency and corruption attached to government action still need to be paid. Which means the people have less money to buy the cheaper food.

Not only is government money not free, it happens to be some of the most expensive and inefficient money available.

Is this a valid rebuttal of your point?

http://www.dailykos.com/story/2012/01/09/1053022/-Medicare-i...

Its not impossible that with even with all of the inefficiencies associated with government action that its still the best course of action. Things like hydroelectric dams and national interstate systems spring to mind.

It should however be the last resort. Its an extremely blunt instrument. Private sector vs government; To quote my favorite author: "Its the difference between using a feather and using a chicken."

not at all... medicare is cheaper than private insurance because hospitals that receive public funds are required to accept it. In that case, private industry (and you and I) are subsidizing medicare. That doesn't equate to well run

In both cases, American citizens end up paying the bill for those expensive phone lines. In one case, they pay for them through increased food prices and in the other case, through taxes. You still need to make a case as to why paying for the lines through taxes is somehow better then through price increases.

And a libertarian would count this as yet another instance where government intervention causes problems.

To a worm in horseradish, the world is horseradish.

i'm no libertarian, and i don't believe that every government intervention causes problems, but i don't understand why you think this is a case where government intervention did not cause problems.

I don't read his comment as actually stating his opinion on the matter, but if we assume he is a libertarian then it sounds like he certainly does think this is a case of government intervention causing problems.

A similar thing happened in New Zealand (and likely elsewhere) in the late 90's, before broadband became prevalent. There were a number of ISP's who provided free dial-up internet, because they made money from termination fees when the majority of people called from a large telco to their smaller one. Eventually the large telco reached a commercial agreement and the service was scrapped, but it was good while it lasted.

Same thing in Ireland, except that we paid for the calls. So we paid 2c per minute, of which the ISP maybe 1c got from the telco in termination fees, so there was a lot of "free" internet access at the time.

Same in Brazil, where free ISPs owned by small telcos in the then-recently deregulated market were incredibly important in making the Internet popular during the 90's. The free ISPs became so good that they started competing with for-pay ISP at every level, including speed.

Of course broadband made the whole thing obsolete.

AT&T and Google Voice had a dispute over this a few years ago because AT&T must terminate all calls and GV was blocking calls to the freeconferencecall.com numbers.

http://arstechnica.com/tech-policy/news/2009/10/att-accused-...

Getting rid of the regulation altogether seems like tossing out the baby with the bathwater. It seems like it would be possible to correct by removing the loophole of routing calls through a rural region that are not terminating at a resident of that actual region. I don't understand telephony enough to know whether that's a simple thing to detect or not, though.

It's not a simple thing to detect. Short of broad-scale wiretapping, if I bridge two calls on my office phone nobody will know except my in-house PBX. The telco sees two simultaneous calls into my PBX, but unless they are actively listening in on both lines, they can only guess whether these two callers are also talking to each other.

I suspected it might be something like that. Thanks for clarifying.

This is all true. One technicality though is that Google Voice is not a VOIP solution (yet) which is why the fight with ATT over terminating rural calls is interesting.

Google Voice is not a VOIP solution

Isn't it? I can make calls from my laptop microphone. What else do you need to be VOIP?

I think the clarification is that it is not just a VOIP service. If I call someone with my Android phone it is routed through normal voice call paths, not as a VOIP call.

Yes I almost included that caveat. "Google Voice" is really a collection of products. Those products have the common feature that they mainly deliver voice traffic to the PSTN. That is what I meant by "not a VOIP solution." But yes, the in-browser calling product within GMail should be considered a VOIP product. It is distinct though from something like Skype which is primarily VOIP with an option to terminate to the PSTN. The Google Voice set of products is primarily a way to connect to the PSTN.

I once read that this is how MagicJack makes most of their money as well.

It's interesting that you bring you MagicJack. I have always wondered how they made money. Now it is starting to make some sense. Can you share the link to that article?

This article (http://www.telecomlawmonitor.com/2011/04/articles/access-cha...) explains th FCC decision against the company for trying to exploit this model.

This seems like a good example of SEO-driven linkbait.

It's not quite spam -- the story is interesting, if not exactly breaking news -- but I'm pretty sure the main goal is to get inbound links to feefighters.com

It's an interesting blog post that happens to be on a company's blog -- how is that any different than the thousands of other blog posts on HN from company blogs?

Inbound links are the indirect goal of every blogger. I found the article to be very informative about the details of a business segment I wasn't familiar with. What makes this article different than others?

People blog for many different reasons. I would argue that posts written to generate linkbacks and boost page rank are actually relatively unusual. I think most blog posts are either written to directly promote something on-site or to bring in direct revenue through ad impressions or because, ya know, the person just has a story to tell or an ego to stroke.

There are already plenty of well-written articles on the Web about traffic pumping; why did FeeFighters choose to write yet another article (probably heavily cribbed from others without attribution) instead of just linking to an existing one? For the juice.

Given that so many links on HN follow this pattern, however, I don't think this subthread is very useful.

Who cares, as long as the story is interesting, and well written? I actually learned something that I wanted to know for a long time, but never bothered to look up.

I agree with the [current] 4 replies, but why-o-why is eli downvoted for this opinion? It's not spam/troll, it's not badly put, it's not a priori based on a falsehood.

Do not downvote for mere disagreement. /grrrr

Eli is not adding anything to the discussion. S/he is not disputing the content of the article; just the motive. Are we going to have an SEO discussion about every article that makes it to the frontpage?

I can respect not wanting to have constant meta-discussions about each submission, but I think SEO is an interesting topic in its own right. Especially the sneaky-but-still-white-hat type. I'm not even sure there's necessarily anything wrong with it; it's ultimately based on creating content that people want to read. (I didn't flag this article, for example. It's an interesting story.)

But I think it's worthwhile to note that this post was almost surely written with the primary intent of boosting page rank as a sort of guerilla SEO.

How do you know...?

I'm surprised you got downvoted so much. I thought that too.

How is that different than this http://blog.priceonomics.com/post/16013457968/the-fixie-bike... (for which your are credited BTW)?

It's a par for the course for a startup blog.

You could say that about every blog post on the internet.

Even though the high cost to setup the lines have been collected, it's still expensive to maintain these lines so some version of this needs to be in place.

My solution would be to figure out what it costs annually to maintain this and limit the fees imposed on other companies to this fee. At the end of the year you calculate the percentage of calls your company terminated to the area and pay that percentage of the fixed fee.

That explains why I can never connect using Vonage.

Thanks. I always wondered about this, but not enough to dig into the details. Interesting.

It bothers me that the VOIP providers don't, say, play a special message explaining the issue. If it's not illegal for them to block these numbers, then why not at least explain themselves? Perhaps they could offer at-cost connections? "Press 1 if you are willing to pay $0.08/minute for this call"

I agree that a message would be helpful. I've learned to blindly accept it as an isolated technical issue. I'm accustomed to grabbing my cell for conference calls now.

As VOIP becomes more common, I've found that some people consider it rude to use these free services. Things have shifted from a VOIP setup not being a proper phone because it can't connect with these numbers, to these numbers not being proper conferencing because VOIP users can't call them.

So... AT&T is suing Google to force them to pay these antiquated fees as well?

Why wouldn't they use their combined legal power to abolish the fees together, instead of fighting each other?

Because sure, at some point, Google may easily be forced to pay them too.

Pretty fascinating...the OP describes the regulation as "outdated"...but are there rural companies that depend on it? Or is it truly outdated and due for a change?

Might handle the problem by putting the termination fees on a sliding scale based on call volume. Telco lines are fixed assets, if one line is getting millions of calls then the cost of that line should be amortized faster than assumed in the region-wide termination fee.

There will be complaints that revision will kill jobs in rural areas. Thus does the regulatory state accumulate, and willfully retain, misallocations and distortions.

This sort of rent-seeking and regulatory arbitrage is an inevitable outcome of regulation. Notice that while the stated goal is support for the little people, it's insiders and sharpies and incumbents who benefit most. Remote phone service seems a worthwhile goal, and I'm not sure I see a clearly better way of doing it, but let's just keep our eyes open to the costs.

An even easier way to handle it is to simply make conference calls on rural lines not get paid.

If the call is not ultimately terminated at an actual human resident of the area then no termination fee shall be paid.

It's outdated in the sense that the original reason for the high fees was to make it economically viable to provide service to people in rural areas. But the original sunk costs of wiring every home and business have long been paid off, and the digital-ization of the phone network has drastically reduced the ongoing costs of providing service to those folks. So it's outdated.

On the other hand, there are plenty of local CLECs in rural areas that make money from these fees, and they continue to lobby hard to keep the tarriffs and fees as they are.

So it's both, really.

Further, the phone call itself does not have to physically terminate in the locality the rate center represents. For instance, a free conference calling service's VoIP servers may be hosted anywhere (e.g. AWS), not necessarily in Iowa. Thus, the reason the Telecommunications Act of 1996 provided for this type of compensation is non-existant in this type of VoIP scenario.

The maintenance of those (very long) lines is not free. However, if these local companies can do this, they are obviously receiving more than they need for that.

In any event, do cell phones make this whole model pointless (or are there similar ways to encourage building towers in the middle of nowhere)?

The sunk costs to those particular lines receiving this traffic have been recovered. Others, not so sure. See my comment above.

Remember too that there are maintenance and replenishment costs. Over the long run, all costs are marginal.

I think it's fascinating in and of itself that large telecommunication companies are inconvenienced in any fashion for the purpose of market diversity and fair competition. I would enjoy reading more about such laws.

Here's a 2007 article explaining this:

http://pcworld.about.net/od/webtelephonyconferencing/FCC-ref...

So, given all this, why wouldn't AT&T offer a competing free conference service where they keep the termination fee?

AT&T already has a conferencing business; why should they jeopardize it when they can just crush their "illegal" competitors? It's just like why Hollywood won't fight piracy by lowering prices.

Antitrust law.

Related: Cameras May Open Up the Board Room to Hackers — NYTimes

< http://www.nytimes.com/2012/01/23/technology/flaws-in-videoc... >

Unrelated?

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