Why Aren’t Phone Calls Free?

Reader and good friend Suze pointed me to a David Pogue article in today’s New York Times which discusses various Internet calling plans and concludes, correctly, that “free” doesn’t include most of the numbers in the world and usually involves some degree of hassle or nerdishness like sitting at your computer wearing earphones. This post is about why calling isn’t at least as free as email.

In case you hadn’t guessed, it’s all about historical monopoly. The problem is that the only way to reach your landline phone or your mobile phone is through the phone company which is selling you service. And, even though you’re paying that self-same phone company monthly rent for access over that landline or through that cellphone, the phone company still gets to charge someone for every minute that you’re being accessed over the facility that you’re already renting. Phone companies love these access charges because they don’t appear directly on anyone’s bill and are usually off the radar of regulators; they are charged to the phone company which is carrying the call that wants to connect to you.

Now let’s go through some of David Pogue’s examples and see how this all works out. Skype to Skype calls are free, he points out, but you have to sit at a computer wearing a headset and so does the person you’re calling (actually, there are beginning to be some Skype phones but not significant penetration yet). These calls can be free because they never pass the toll booths of the phone companies; they stay on the Internet from end-to-end. No access charges.

VoIP companies like Vonage charge a flat rate – usually around $25 – for unlimited calls to any number in the US and often a few other companies. They need to charge this $25 because they have to pay access charges on your behalf every time you call someone who is not also a Vonage user. If you do a huge amount of calling, they lose. Hopefully, they make a small profit on the average user’s volume.

Jajah.com, according to David, lets you make free calls to anyone else with a Jajah account so long as they are either in the US or Canada or on a landline phone in one of 35 countries. These restrictions all have to do with access charges. Access charges for landlines in the 35 countries plus the US and Canada are relatively low; Jajah is apparently willing to absorb these in return for the revenue it earns on offnetwork calls. In the US and Canada, as you know if you live here, it doesn’t cost any more to call a cellphone than a landline phone. This is because the access charges are the same for both. (Technically, the called party pays a premium to be reached on a cellphone here but domestic inbound calls are now usually bundled into calling plans so you don’t see them). However, in the 35 other countries the carriers which rent cell phone access charge very high per minute access charges to anyone who calls their subscribers. That’s why Jajah can’t let you call these phones free.

David says:

“When you’re not calling a Jajah member, overseas calls can be very cheap: how’s 3 cents a minute to England or China?

“Calls to some other countries can still hurt, though. Afghanistan is 26 cents a minute. Greenland, 50 cents. Cuba — gulp — 86 cents.”

You guessed it. The monopoly landline companies charge a fortune for calling people in these three countries and there’s no way to bypass them. It’s all about the access charges.

Clever PhoneGnome combines the free capabilities of Jajah and Skype and the unlimited calling (to some places) of Vonage for a somewhat lower fee. For nerds, PhoneGnomes openness and flexibility make it a delight; the knock on it is that it may be too flexible for non-nerds. But notice, since there are access charges to be paid, PhoneGnome has to charge for calling non-members.

David writes at length about Ooma’s plan to allow really free domestic calling if you buy a $400 box from them. The trick to this plan is that Ooma plans an endrun on access charges by having boxes around the country dial local retail calls (which are usually free) in whatever area a call is terminating. Look for screams from telcos on this.

If we all start using our Internet access lines instead of our phone lines for our voice communication, the access charge issue should disappear. But… two big buts:

Currently, the only way that calls get from one VoIP provider’s network to another (with some exceptions) is through the telephone network and after some access charges are paid. The VoIP industry’s gotta solve that one.

The telcos won’t go quietly into the night. They would dearly like to get those who access you over your Internet connection to pay them even though you are renting the connection. That’s the way things have always been and they like it. Maybe email shouldn’t be “free” either. Just one more reason why it’s critically important that the teloc/cableco duopoly on Internet access in the US be disrupted.

Related posts:

Price – Splitting the Pie – Access Charges

VoIP, Spam, and Access Charges: A Radical Proposal

Free International Calls! NOT Too Good to be True (about arbitraging access charges)

Comments

[Bill Seitz]

The key problem with VoIP interop is that Skype doesn't use SIP.

SIP-based networks are setting up peering arrangements.
http://www.sipphone.com/numbers/

A number of plans, like sipphone (gizmo) offer variable-price plans. Historically, I think people prefer the simplicity of fixed-price. For medium-to-heavy talkers, the cable-modem route (when available) might be the simplest choice.

Like your recent issues with your alarm service, I'm semi-stuck with keeping wired local service for the sake of the doorman being able to call me on the phone-based intercom.

http://webseitz.fluxent.com/wiki/MyFamilyPhoneMix

[Bill]

answer: path dependence.

[Paul N]

Tom, I'm sure you know this better than me, but I think worth mentioning VoIP peering in the context of this post. The inconvenience of having to make calls using two devices, one (the telephone) to callers that can only be reached through the PSTN and one (a PC) to Skype / IM users is an obstacle for free calls given the competitive landscape. VoIP peering is the key to the PSTN / VoIP hybrid environment. Your 'landline' VoIP provider being a member of a peering fabric means that through an ENUM registry your dialled party's number is queried as a registered peer and whether they can be reached for 'free'. If not, then the call is placed over the PSTN at a charge. This means very little unless the ENUM registries gain real scale domestically and internationally.