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How Iowa Took Big Telecom for a Ride
by Karl Bode 06:19PM Thursday Oct 04 2007 Tipped by hrobins See Profile
We've discussed over the past year how Iowa-based free conference call operations have been using regulatory loopholes to engage in "traffic pumping," or the routing of high call volume through rural ILEC exchanges in order to "pump up" the termination fees large telcos must pay to smaller rural companies. The Wall Street Journal has an interesting read on the history of these outfits.
quote:
Click for full size
In mid-summer 2005 this unlikely duo struck a deal. They routed millions of minutes of Mr. Erickson's conference calls through the switches of Mr. Laudner's Farmers Telephone of Riceville. To do it, they used outdated federal regulations to charge telecom companies such as AT&T Inc. and Verizon Communications Inc. steep rates and collected huge profits at their expense. Together, the two made hundreds of thousands of dollars. Soon, Mr. Laudner cut other deals to generate even more traffic. At the peak, his little telephone company was facilitating conversations among everybody from Mary Kay Cosmetics employees to customers of Male Box, an "all male all gay" chat line.
The irony being, if we're remembering correctly, that these rules were lobbied for by these telecom giants. Once AT&T and Verizon caught on, they started blocking their users from accessing the services, and got a wrist slap from the FCC for it. They've subsequently stopped paying the operators, and several telcos have filed lawsuits -- but a number of the services roll on.

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qworster

join:2001-11-25
Bryn Mawr, PA

Be carefull of what you wish for, AT&T!

You just might GET it!
SunnyFL
Premium
join:2001-02-08

Re: Be carefull of what you wish for, AT&T!

said by qworster:

You just might GET it!
This is very true

ninjatutle
Premium

join:2006-01-02
San Ramon, CA

1 edit

Ioway

is the next Nigeria.

JasonD

@comcast.net

Re: Ioway

what a ridiculous thing to say. farmers telephone found a way to grow their business and make money, legally. don't cry for the big guys, they'll make it up in tax breaks.
wtansill
Ncc1701

join:2000-10-10
Falls Church, VA

1 edit

1 recommendation

Let's see if I have this right...

A company (or companies) lobbies for a set of rules attempting to obtain favor on its/their behalf. The company's CongressCritter and others like him (her?), pass the bill that the company lobbied to get. The company now finds that, to its surprise and chagrin, someone other than it is making a nice profit by adhering to the letter of the law that the company lobbied for (and given the way Washington works, a law that company-funded lobbyists likely helped draft), and now the company says that this is a bad thing???

You'll pardon me, I trust, if I do not shed a tear for them...
--
"In every generation, there are those who want to rule well - but they mean to rule. They promise to be good masters - but they mean to be master."
--Daniel Webster

farmerstelco

@verizon.net

farmers telecom

the last Indian reservation phone system!
huh, go figure.
personally, I would force them into the 1-900 exchange,
anything above 5 cents per minute is a dial-a-fee service scam

Do we get the Iowa corn crop report with that?
stufried
Premium
join:2003-10-13

Re: farmers telecom

We need something like the UK's 0870 and 0845 numbers -- premium rate numbers where the calls are something like $0.10 and $0.25 a minute regardless of the number called on the service regardless of which service was called.

These numbers would be handiue for some automated services like GOOG-411, automated sport score lines, some tech support lines, some discount international call services, etc. People are scared of 900 numbers because the service provider sets the rates and you can have some teenager run up ten thousand dollar calling a sex hotline.

I recognize that these numbers don't work perfectly, In the UK, the numbers have been abused somewhat. I've seen movie theaters have 0870 numbers for their movie listings. On whole, however, I think they are valuable.

lolcats

@enta.net

Re: farmers telecom

stufried:

You REALLY do not want 0870/0845.

I don't particularly enjoy being able to call Paypal, for example, internationally to the US than it is to call Paypal UK. Same for other multinational companies who will have 800/877/888 in the US, and 0871 (worst of the lot for charges) here.

Why? Because a portion of the call cost can be shared to the company - why pay for people to call YOU about a fault YOU made, when people can pay themselves?

And they are not "premium rate", just the very blurry "local" and "national" rate - even though BT threw out distance based charging a few years ago for geographical numbers.

Premium rate numbers are 09xx, which are much more expensive and far more tightly regulated.

FFH
Premium
join:2002-03-03
Tavistock NJ
kudos:5

1 edit

FCC will be correcting this abuse of rural telecom subsidy

said by Karl Bode:


The irony being, if we're remembering correctly, that these rules were lobbied for by these telecom giants.
I think you may remember incorrectly. AT&T didn't lobby for those rules. They were forced down their throat by Judge Greene when Ma Bell was broken up because he didn't want rural carriers to go belly up. The future Baby Bells went along with it because they didn't have a choice. And there weren't telecom giants at that time. There was 1 giant - AT&T.

»online.wsj.com/article/SB1191460···imary_hs
But the key was federal rules drafted during the 1983 break-up of Ma Bell, which required big telecom companies to pay hefty fees to small carriers to compensate for the high cost of providing service across miles of sparse farmland.
And it looks like the FCC is going to modify these rules because they aren't being used to keep rural phone companies alive, but so that a few individuals can make their profits thru loopholes.

»online.wsj.com/article/SB1191460···imary_hs
an investigation by the U.S. Federal Communications Commission into the high fees some rural carriers charged to the Bells. Late Tuesday, the FCC proposed rules that, if approved, are likely to prevent such deals in the future.
Here is the FCC news release on this:
»fjallfoss.fcc.gov/edocs_public/a···75A1.pdf
The Notice of Proposed Rulemaking:
»fjallfoss.fcc.gov/edocs_public/a···76A1.pdf
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My Web Page
Answer Guy

join:2006-07-28
Grass Lake, MI

Re: FCC will be correcting this abuse of rural telecom subsidy

I also know of rule that most people are not aware of in most of these contracts. However, I don't know for sure if it applies to this company or not. When a rural company surpasses a threshold of traffic on a given interconnection agreement, the company can have its contract ended. They will then have to negotiate a new contract with more reasonalbe rates or get an interconnection agreement with a new company. The traffic is measured in years, so it can take some time for the problem to be corrected.

calvoiper

join:2003-03-31
Belvedere Tiburon, CA

Actually two stories behind this situation

There are actually two stories behind this situation.

First, yes, the '82 Divestiture Decree specified sharing of LD revenue with local companies. This was a legacy of the Bell System, which charged more for long distance (and, as well, business lines) in order to make basic residential local service cheaper and to encourage market penetration. This "promotional subsidy" aspect of cheap residential local service continued until it literally became an "entitlement" and was correspondingly formalized at divestiture. (LD revenue sharing agreement between the Bell System and the smaller "independent" companies, including GTE, were then also rolled into this system.) This system was called "access charges" for "access" to the local lines on each end of a LD phone call. It was actually an agreed part of the divestiture decree that originated with the parties--not some cockeyed scheme from Judge Greene.

Second, as a function of the (then) increasing competition for local service, over the last decade or so, the big local companies (as a part of their campaign to weaken the LD companies, which resulted in the LD companies being absorbed by the locals) pushed for, and received, much greater pricing freedom on their access charges.

(The local companies were desperate for this because the justification for access pricing--the true incremental cost of the local part of LD--was becoming so low as to be negligible, both because of technical advances and because of accounting and economic theory changes which allowed fewer "overhead" costs to be stuffed into access charges.)

In any event, the remaining independents benefited from the big local companies' (the Baby Bells') efforts to free access charge pricing and they also got access charge pricing freedom--in part because of economic theory, but in part because the FCC just didn't want to spend the time regulating the obscure charges of comparatively tiny companies. With very little control over the resulting prices, the perfect storm for pricing abuse was present--the person making the choice to use the service (the caller) had no financial stake in what the payer ultimately paid. (Same situation as traditional US health insurance, and we know where that went.)

The result was this Iowa abuse. (Yes, the "access charge system" was abused. In saying so, I fully recognize that it may have deserved to be abused, and the delicious irony of the result.)

What really blew the cork was when the LD campaign succeeded and SWB acquired ATT and VZ acquired MCI. Suddenly, the Baby Bells were paying access charges instead of just collecting them and NOW the FCC thought it was worth their attention.

I think we should take the lesson from this that cross-subsidies, no matter how well intentioned, will virtually always end up biting somebody in the behind. Using LD to subsidize basic local service as a promotional may have been a good idea--in 1927. It should have ended long ago, and the FCC is remiss (and supportive of the vertical re-monopolization of the telecom industry) by not ending it now.

calvoiper
--
VoIP--the death knell of remaining voice monopolies!

Stonehawk
Stay Low And Let It Blow
Premium
join:2001-05-17
Deerfield, WI
kudos:1
said by FFH:

said by Karl Bode:


The irony being, if we're remembering correctly, that these rules were lobbied for by these telecom giants.
I think you may remember incorrectly. AT&T didn't lobby for those rules. They were forced down their throat by Judge Greene when Ma Bell was broken up because he didn't want rural carriers to go belly up. The future Baby Bells went along with it because they didn't have a choice. And there weren't telecom giants at that time. There was 1 giant - AT&T.

»online.wsj.com/article/SB1191460···imary_hs
But the key was federal rules drafted during the 1983 break-up of Ma Bell, which required big telecom companies to pay hefty fees to small carriers to compensate for the high cost of providing service across miles of sparse farmland.
And it looks like the FCC is going to modify these rules because they aren't being used to keep rural phone companies alive, but so that a few individuals can make their profits thru loopholes.

»online.wsj.com/article/SB1191460···imary_hs
an investigation by the U.S. Federal Communications Commission into the high fees some rural carriers charged to the Bells. Late Tuesday, the FCC proposed rules that, if approved, are likely to prevent such deals in the future.
Here is the FCC news release on this:
»fjallfoss.fcc.gov/edocs_public/a···75A1.pdf
The Notice of Proposed Rulemaking:
»fjallfoss.fcc.gov/edocs_public/a···76A1.pdf
I don't usually post on the news items, but this was too much to pass up. I understand the history behind this rule that the local telephone exchanges are using to boost their profits. I also understand that the FCC is looking to modify these rules, so the few rural exchanges using this will be stopped.

My question, is when is the FCC going to modify the rules for the USF, so the few BIG telcos don't profit from it like they are now? Hmmm? How about some equality in the application of the rules for rural and big telcos?

Just a question

Jerry

AC in CA

@telephony.com
The original posting was correct. the major carriers pushed for this setup when they thought rural carriers had more outgoing calls (since origination fees are the same) than incoming calls. They thought they would make money.

The irony is that they do make money on even the incoming calls. Most of these calls are business calls from cell and business phones that generate new long distance revenues for the bunches of minutes used. The stories they tell about these being "free" minutes are nonsense. So the carriers win even if they lose here, since the CLEC rates in effect are typically 2.5 cents, while the carriers are earning on average 6.5 cents per minute.

this is actually about killing competition on two fronts--AT&T and Verizon and Sprint all have major investments in conferencing (AT&T just bought an Israeli company for $121 million for example) and they have been working for years (pretty successfully) to kill CLECs.

nsb

@knology.net

which services roll on?

The story references other services rolling on. What are they?
phrider

join:1999-12-17
Pasadena, CA

1 edit

Payback on conference calling

I love it.

For years, I paid nearly $.50 per minute per participant for business conference calls. The total call cost in some cases was as much as a cross-country airfare or two.

Then »www.freeconference.com comes along, does very convenient to arrange web-based reservations, and doesn't charge me a thing (except the LD modest or even fixed monthly charges to call that conference number in Iowa).

Payback!

N3OGH
Yo Soy Col. "Bat" Guano
Premium
join:2003-11-11
Philly burbs
kudos:2

Good read

The WSJ story was a good read about an entrepreneur who saw an opportunity and made the most of it.

While I have no love lost for the big telcos, I understand their point. The original regulations were put into place to help offset the cost of providing phone service in rural areas. Not to make a handful millions.

But, the rules are the rules. Four years ago AT&T screwed me out of $35 for ONE phone call a visiting relative made to check her voice mail in Maryland. I had to pay them. Their reasoning? The rules are the rules.

So AT&T, Sprint and Verizon, the rules are the rules.

Pay up, sucker...
--
Petty people are disproportionably corrupted by petty power…
moe300

join:2001-06-30
Iowa City, IA

I think its funny...

The big boys got their asses handed to them. They have been raping the public for years... These guys find a way to make money by following the LAW and the big boys cry foul. I hope he sues at&t for the money they own him and he gets it.

Manny89

@cox.net

Freeconferencecall says it doesnt use IOWA any more...

So, I went to their site and signed up for an account, and the area codes are both in Iowa. Did I miss something in that article or did the reporter not check up on the facts?