AT&T’s ‘Free Call’ Bill: $2 Million

Guess
who got stuck with a big bill for all those “free” international calls
touted by outfits like FuturePhone? None other than AT&T, which has
filed a lawsuit in Iowa claiming that “deceitful and unlawful schemes”
like FuturePhone’s caused a jump from $2,000 per month to $2 million per month in the fees billed AT&T by an Iowa rural telco.

Filed in the U.S. District Court for the
Southern District of Iowa, Central Division, AT&T’s lawsuit seeks
to stop FuturePhone as well as the telcos who provide local
infrastructure from continuing with their operations that use regulatory-fee arbitrage¹
and VoIP to provide international calls for only the price of a
long-distance call to Iowa. Though the case was just filed on Jan. 29,
it has already apparently caused FuturePhone to shutter its service², and has produced nothing but “no comment” replies from the Iowa LECs we contacted who were also named in the suit.

“This is just the latest in a long line of get-rich-quick schemes
that bilk others to make a profit,” said an AT&T spokesperson. The
lawsuit claims that operations like FuturePhone’s are in violation of
several statutes, including Iowa state laws as well as previous FCC
decisions.

Some background, for those not familiar with how intricate
cross-network billing can get: When a long-distance call is
“terminated,” if a long-distance provider like AT&T doesn’t own the
local lines where that call is going to, it must pay a fee to the
company that does. Even though such termination fees are typically
higher in rural areas, since there are usually relatively few customers
in the sticks big long-distance providers can easily balance the cost
with their other businesses.

In Iowa, higher than average termination fees (as much as 13 cents
per minute, according to AT&T) have been lately combined with fiber-based Internet access³ to provide a pretty good place for a VoIP-based gateway, which can then provide a way to cheaply reach foreign PSTNs. The loophole comes⁴
from some method of subtracting the money paid for foreign terminations
from the amount gained by terminating calls in Iowa. While the margins
are pennies-or-less per call, the lure of avoiding the high cost of
international calls apparently caught on quickly, to the tune of
hundreds of thousands of minutes a month, according to AT&T.

And when AT&T’s average monthly bill to one such Iowa telco, the
Superior Telephone Cooperative, went from $2,000 to $2,000,000, it was
time for Ma Bell to call the fine-suited folks at Sidley Austin LLP⁵ to try to close the loophole down.

Boiled down, AT&T’s main argument is that because the calls are
not actually “terminated” in Iowa — AT&T says Iowa is just a
midpoint in what is really an international call — AT&T shouldn’t
have to pay the LECs the termination fees. Telco legal sources we
talked to said that while the suit’s merit can certainly be contested,
what it does immediately is give AT&T a legal reason to stall
payments of such monthly bills, which could effectively strong-arm the
startups out of business.

In FuturePhone’s case it seemed to have done the trick, since
FuturePhone’s website still carries a big red “this service is
discontinued” banner, and contact numbers for the company have all
apparently been disconnected. The person who answered the phone at
Superior Coop referred us to another Iowa LEC, Great Lakes
Communications, which was also named in AT&T’s suit. There, we
talked by phone to someone who would only identify himself as “Josh,”
who said when asked about FuturePhone, “I’m not going to tell you that
stuff.”

While some free-call operations (including Free Call Planet⁶,
also named in AT&T’s suit) still seem to be operating in Iowa,
AT&T did leave room for yet-unnamed firms at both the website and
telco level to be added to the suit. The bottom line, for firms seeking
to make a buck by using regulatory loopholes: Good luck in court,
because the legal equivalent of the Yankees just showed up in Mudville.