Free International Calls! NOT Too Good to be True

Update:  As you will see if you go to the Future Phone website, Future Phone has been at least temporarily prevented from providing its service by the major carriers who are upset by the access charges they pay the local telco for these calls (which is what makes the “free” calling service possible). However, there is at least one free international calling service operating at this time: www.yak4ever.com. More about that service in this post.

NY Times technology blogger David Pogue posted about a company called Future Phone which offer free international calls to landlines in 54 countries around the world.  I think I understand the arbitrage play which makes this profitable for Future Phone.

You don’t use a computer to call, don’t need special equipment, don’t listen to ads, don’t even register with them.  You just call their number in Iowa (which may be a toll call for you), then dial the international number you want to reach. You can do this from your home or cellular phone (or from Skype or Vonage if you want).

David’s readers are skeptical saying this sounds too good to be true.  Many have tried it and most report that they did get through as advertised. None report being solicited for anything else.

Future Phone says it plans to make money by selling future services.  They say that they’ll be offering these free calls until 2010.  What they don’t say is why this service doesn’t bankrupt them in the meantime.  But I think I know.

The cost side is straightforward.  Calls to landlines in these companies are dirt cheap at the wholesale level because last mile service has been deregulated.  I suspect that VoIP is being used for lots of these calls but even traditional wholesalers of international calls have had to lower their rates for calling landlines in places like the UK to the penny/minute range. 

Because mobile phone operators have a monopoly on reaching their own subscribers and, outside of North America, charge the CALLING party for reaching one of their numbers, the cost to a carrier to reach a mobile phone is high.  That’s why Future Phone doesn’t offer calls to cell phones outside the US and Canada and why Vonage excludes calls to European mobile phones from its unlimited free calls to the US, UK and some other European countries option.

OK, losing even a penny/minute on something which will get widely used still isn’t a very good business.  How does Future Phone do it?

Here’s my guess; it’s how I would run this arbitrage business. When you make a domestic long distance call in the US, you indirectly pay a terminating “access charge” to the carrier who owns the last mile connection to whomever you are calling.  For the vast majority of the US, these terminating access charges are much less than a penny/minute (and still exorbitant at that price and very profitable for the local phone company).

However, some rural carriers have been allowed by the local regulators to charge much higher terminating access charges.  When I was last running ITXC in 2004, some areas still cost $.08/minute for termination.  The stated reason is that the rural carriers need this indirect subsidy.  The politics of this is that all politics are local and the extra cost is born by the callers, not the locals.  In fact, since almost all carriers offer a fixed or flat rate for calling the US, the cost of reaching these rural areas is spread over all callers even though the wholesale carrier does have to pay it per actual minute to the rural carrier who has the lucrative franchise.

The number given on the Future Phone website is in Superior, Iowa and belongs to something called the Superior Telephone Cooperative according to www.411.com. A footnote says that ownership of some of these numbers has been transferred due to local number portability.  It’s a very good guess (but I don’t know that it’s true) that Superior, IA is one of the places with very high termination rates.  I’d further guess that Future Phone either is the carrier receiving the calls or that it has a deal to get a good share of the terminating access charge revenue.

Net it out:  If Future Phone gets even four cents for each minute inbound to them and pays one or two cents for each outbound minute to the international destinations, they have a very good arbitrage business going indeed. In fact, they’ll get paid for the dial time and ring time on the outbound leg and’ll get paid for the inbound leg even when the outbound leg is busy, doesn’t answer, or is “call can’t be completed”.

What’s this mean to you?  I’d say use Future Phone if you want to save money calling these countries.  It’s NOT to good to be true.

What’s the global lesson?  Stupid, uneconomic structures like artificially high terminating access charges invite arbitrage.  Someone’ll always figure it out.

Previously posted more on access charges and who I think should collect them in the future.

Comments

[Ruchi]

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[adem]

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[Jbraggs]

Here is another resource that may be helpful to someone, they allow you to make Unlimited International calls from your Cellular and Landline, all calls are free within the network (for countries that are not included in the unlimited plan) see link Unlimited Cellular and Landine Intl

[international cheap calls]

Thanks for the info, now i know how some telecom companies are able to provide cheap international calls.
I was under the assumption there might be some hidden charges, now it is clear to me. Thanks again!

[cheap international call]

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[Pam Lewis]

Tom and Mary,
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[sunil]

Another option till you setup
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[Pradeep]

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[Pradeep]

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[Marcus Aurelius]

Yes that is pretty much what is going on.

Wiring up for phone service is much more profitable downtown Chicago than in corn country Iowa. There is a national "alliance" (if you will) setup for the rural telcos and generally they charge a more expensive connection fee, but not an abusive one. However, individual telcos who belong to this association may at their option withdraw & set their own connection fees and the like.

So, what is happening is some rural telcos are setting up free services such as teleconferencing, international dialing, or what-have-you and make their money off of the connection fees they set (which the bigs claim is abusive & in fact some of the rural telcos do take the same view the racket is abusive of the system set up to help small telcos and will ruin it for all).

The bigs when they catch on attempt to block calls to the small telco offering the free service and the small ones file a complaint with the FCC saying the bigs are in violation of the rules. They are.

When and how will the rules change? Hmmm, this comment is almost a year since the last comment on this post and Future Phone is still shut down.

My wife and I do a lot of international dialing, I hope future phone opens its doors soon and allows calls to our most common phone destinations.

[Winterwarmer]

Hi Guys,
Reading through all the above discussion regarding Futurephone and methods used sure is interesting reading.
Now that it is no longer available and AT&T are taking legal action with their big gun lawyers it seems that it will be a long time in settling.

Many people have misconceptions about ‘free’ minutes many have. Nothing is free. You buy your ‘free’ minutes in your call plan. All these companies like Futurephone means that you do eat up those so called ‘free’ minutes.

Now I am going to tell you about a new patent pending VoIP by Global1touch. Their call back DOES NOT USE YOUR FREE MINUTES. Hey! I hear you say - “That’s great”. You can actually REDUCE your call plan cost this way - saving money.

Global1touch launched only a couple of months ago and is expanding it’s services rapidly. It is very low cost and has the availability to give you free calls, or very low cost calls.

The quality of service is excellent in clarity with no ‘packet’ lags. I recommend everyone to give it a try. The service package is free. You just pre- pay $10.00 for the call minutes.

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[kalis]

International calling cards!!!!!. I'm not interested in these calling cards!!!!!. I have been using skype for a long period of time.Skype is quick,easily reliable,pretty cheap.I like skype!!!! If you want to know more about skype visit www.skype.com.

[eliza]

Oh these is the first time that I m hearing about something called"automated data system for termination of a call"..I have been using skype for making calls to my brother in california.and while on phone v have never come arcross such automated termination or disconnection of call...so i think people can try out skype and see the difference in the services provided by them..website(www.skype.com)

[anada]

Oh these is the first time that I m hearing about something called"automated data system for termination of a call"..I have been using skype for making calls to my brother in california.and while on phone v have never come arcross such automated termination or disconnection of call...so i think people can try out skype and see the difference in the services provided by them..website(www.skype.com)

[Brouhaha]

Tom, fyi, they took this service offline yesterday... the site is still there, but with a big red banner on it saying "THIS SERVICE IS NO LONGER AVAILABLE." Any idea why?

[hmatura]

Interesting…Worth mentioning for those not so keen in new technologies that "10-10" long distance services are also a very popular an easy alternative to enjoy cheap long distance calls. How it works? You simply dial the "10-10" plan's 7-digit access code, and then the area code and number you wish to call - and receive the discounted rates offered by the "10-10" company. This is an easy way to take advantage of lower rates - without having to sign-up, internet or switching your long distance company. The Internet is a great resource for finding the rates and numbers of "10-10" companies in your area.

For example, you can now call Australia, Canada and most European countries for only 1¢ per minute by simply calling 1010228 before each call (e.g. 1010228 + 011 + country code + number you wish to call). http://www.1010228.com is one of the leading discount "10-10" numbers in the US for interstate and international calls.

[jane]

I used Future Phone for about a month but now when you call their free access number callers are being told that the number is false and that they should call a different number. After that you here a solicitation for using a website for free conferencing. I don't know if the new number is also free but when I dialed there was no ring. Just silence. And there is no info on www.futurephone.com about this new access number. So what is the truth?

[Dudemeister]

Very informative. We've got a similar thing over here in the UK.
There are a few websites like action telecom (www.actiontelecom.co.uk) that offer free international calls from UK mobiles (like O2).

The way it works is that the calls are made to non-geographic numbers that would cost up to 30p (about 60 cents) from landlines but are counted as free from some mobile contract packages as part of the bundled minutes.

I wouldn't be surprised if you guys in the US had something similar.

Cheers
Dudemeister (David to his friends!)

[International Long Distance]

International Long Distance Calling Did you know that the number of international long distance calls from the United State very high also the international long distance telephone service are going lower and lower in price.
Many companies offer Cheap International Calling Card - Long Distance unique prepaid international long distance service offers cheap calling card rates that you can use from any phone even your cell phone

[Tom Evslin]

Vin:

Both failure and success stories on David Pogue's blog: http://pogue.blogs.nytimes.com/2006/10/09/09pogues-posts-4/ For Canada, skip the 011 and start with 1. It's part of the North American Numbering scheme.

[Vin]

Has anyone successfully made a call using Futurephone?

http://futurephone.com/

You dial 712-858-8883, then 011, then the country code and number. If the country is Canada, you just dial 011, 1, the area code, and the number.

Every time I try it, I get a message that either 1) the area I called isn't serviced or 2) the number can't go thru as dialed. I've tried different numbers in different countries, all without succees.

Any success stories?

[Pavel]

They have a some additional sites: freecallstocanada.com and on main page you can find 8 others. I like their slogan "stop paying for phone cards" :)

[Rob Frieden]

The real scam/arbitrage play lies in the Universal Service Fund. The Superior telco not only receives 3-8 cents per minute and pays out less than 3 cents, but it also receives a subsidy from all U.S. wireless and wireline telephone subscribers! We pay a 10.5% surcharge (some would call this a tax) on our wireline long distance calls and a lower surcharge on our cellular bills to support telephone companies operating in rural and high cost areas. The more traffic Superior handles the more costs it incurs and the larger share of Iowa's $86.5 million subsidy it can claim. In other words Superior generates more than 3 cents per minute, so its profit margin is higher than the 0.875 cents estimate. The Universal Service Fund seeks to promote infrastructure investment and telco operations in high cost areas. It was not designed to subsidize a bridge to low international calling opportunities.

Regards,

Rob Frieden

[Sim]

i get most of the explanation, but at risk of seeming really stupid, i don't understand why the conclusion is that futurephone is still a viable (read: free) option. doesn't the [exorbitant] termination rate/charge/fee apply PER CALL? so that you THINK it's free, but then you eventually get charged a bomb on your monthly long distance carrier bill? or does the freeness have something to do with what you mentioned about the cost getting "spread"? any explanations would be much appreciated.

(i use vonage, if that makes any difference.)