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February 07, 2007

at&t and FuturePhone – POTS Calls the Kettle Black

Paul Kapustka at GigaOM describes how a lawsuit from at&t has apparently led to shutting down FuturePhone which used to provide “free” international calls for the price of a domestic call to Iowa.  Alec Saunders .LOG and Fractals of Change both have posted on how the arbitrage scheme worked that made this a profitable business for companies in rural Iowa.  It’s all based on the high access charges which rural telcos can charge in some cases for each minute of calls which come into their territory.

at&t, like Captain Renault in Casablanca, is “shocked, shocked” to find that there is arbitrage going on and somebody is collecting monopoly rents for the privilege of terminating calls.

at&t is now the biggest local phone company in the country. Every time somebody makes a “long distance” call to one of its subscribers, at&t collects something like a penny a minute (rates very state by state) for completing the call to the phone line which the subscriber is already paying at&t rent for the use of. Granted, this isn’t anything near the $.14/minute that the rural carriers in Iowa are reportedly getting.  But it isn’t only in Iowa.  And isn’t chump change. It’s billions of dollar per year.  The two million that at&t claims it was charged in Iowa would be lost in the rounding.

In a delicious piece of irony, back in 2004 SBC sued AT&T (which it now owns) for avoiding access charges by routing calls over its Internet backbone. The complaint alleges: “... AT&T orchestrated and implemented a fraudulent scheme to avoid tariffed ‘access charges’ by delivering its long-distance calls for termination over facilities that AT&T obtained under the express condition that they be used for local traffic, and thereby disguising its long-distance calls as local calls.”

Now at&t is alleging that FuturePhone calls are being described as domestic long distance when they’re really international.

Local?  Long distance?  International?  Why’s it important anyway? Not because of actual costs.  Costs on the Internet over which these calls are being routed isn’t sensitive to distance at all; and, truth to tell, other than international tariffs and other monopoly rents, switching costs and not distance are the main cost component on POTS (Plain Old Telephone Service).  Certainly the cost to terminate a call on a local network has nothing to do with where that call originated.

These distinctions matter because current regulations allow both Superior Telephone Cooperative in Iowa and at&t to charge monopoly rents. The right regulatory solution is simply to abolish access charges (they have been reduced some). But that’s not the relief at&t is asking for. They’re happy to collect; they just don’t wanna pay.

Techdirt puts it well:

“No matter what happens, this demonstrates the continued problems with these attempts to build up the Universal Service Fee, or other taxes designed to provide more telco services to rural places. They're almost always misused in a way that ends up in some telco's pocket -- rather than actually being invested in telco service improvements. Of course, AT&T has been the beneficiary of many of these regulations in the past -- but it brings out the legal guns when such a plan takes money out of its pocket instead of putting it in.”

BTW, if you still want to make “free” international calls by calling an Iowa number, try 712.858.8094. AllFreeCalls is still in operation; just be sure you realize that it answers first in Mandarin.  Don’t know if they’ll be able to withstand and at&t onslaught but you shouldn’t feel guilty about aritraging an arbitrager in the meantime.

Price – Splitting the Pie – Access Charges has more about how access charges work and the historical basis for them.

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