Ever wonder why it is that FuturePhone, Radio Handi, FreeConferenceCall, and PartyLine Connect all have access numbers in the 712 area code? These services all provide “free” services to you. There’s “no catch”. You just have to make a long distance call to get them.
So how do these services get paid, and why are the access numbers all in Iowa?
The short answer is tax subsidies. The 712 model, as I refer to it, is really a variation on the 900 number model, but financed by taxpayers. Take a low cost call, terminate on a high cost carrier, and pocket the difference.
The first of these subsidies is the Universal Service Fund. Tiny Iowa, with just under 3 million residents last year, was the recipient of $86.5 million from the USF. The USF pays for maintenance and improvements to those local telephone plants, in addition to subsidizing user fees for local residents. The cost basis to provide service in those communities is dramatically lowered.
The second subsidy is the tarrif itself. Most Iowa telephone companies (and there are a lot!) participate in the NECA Access Fee Pool. The NECA publishes a tarrif, which each company participating agrees to use, and then they split the revenues. The termination charges for those tarrifs are a significant source of revenue for the local phone companies. And, because they’re rural, the charges are often steeply higher than to terminate in an urban setting. In the “NFL” cities, you might expect to pay 6 to 8 tenths of a cent per minute for termination. The NECA tarrif is closer to 3 whole cents. Arbitrage the subsidized rural rate against your costs and, presto, you’ve got a winner!
Let’s take FuturePhone as an example. Yesterday they announced free long distance calling to some 50 odd countries world wide. All you have to do is call 712 858 8883 (a number provided by the tiny Superior Telephone Coop in Estherville, Iowa), and then enter the international call you want to make using the standard 011 prefix. Easy peasy!
So how do they make money? Since we don’t know know what FuturePhone’s actual termination costs are, let’s make an estimate. We do know that Jajah provides services to the same 50 odd countries for a retail rate of 2.5 cents per minute. So, let’s assume a 50% cost, and say that FuturePhone’s cost to terminate the call is 1.25 cents. That leaves 1.75 cents per minute to split with the folks at Superior Telephone Coop. Give them half, which leaves you 0.875 cents per minute, and you’ve got a pretty attractive proposition! It’s certainly a lot more profitable than SipPhone, charging 1 cent per minute, and probably about as profitable as Skype at 2 cents per minute. It’ll definitely keep bread on the table.
Sounds great doesn’t it? Everybody wins! The good citizens of Iowa win (they’ve now got a fibre network joining up 150 of their independently owned telco’s), FuturePhone has a seemingly profitable business model, and you win by getting to make cheap overseas calls.
Or do you?
Well, you’re not really getting that call for free, are you… You’re still paying long distance charges, which are at minimum going to be the 1 or 2 cents per minute that Gizmo or Skype are charging. And, should you choose to make the call from a landline, you may be paying up to 10 cents per minute, depending on where you’re calling from, and what LD plan you have with your carrier. Or, you’re burning air time on your cellular phone. No matter how you cut it, it’s costing you.
Makes you wonder what FuturePhone’s real value is, doesn’t it? After all, if calls are free using Skype, or Jajah, and you don’t have to make a long distance call to do it, then why bother with FuturePhone?
The 712 model is a creative way to run a business, no doubt. FreeConference is a very successful example of a business using it. Today’s lesson, kids, is that even with a model as creative as the 712 model, you still have to provide real value to the customer. FuturePhone’s cheap long distance call may not be enough.
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Thanks, I do see your point. I thank you because yours was the only web site that answered my initial question about how these free services make money.
You are correct about the impact of the USF but that would have happened with or without these 712 services.
One underlying problem is that the USF gives out lots of money irrespective of the actual earnings of the phone companies that are being subsidized. Congress will be looking to reform the USF this year but I’m not holding my breath.
Wayne
So its been a couple months… do any of these free calling sites still exist?
All shut down, Jake. AT&T pulled the plug on the iowa rural telcos, causing a NASTY battle.
But the free conference call sites are still operating via the 712 mechanism. I don’t see any change on those web sites.
Wayne, they’re back as of April 4th. I got my dates wrong. They were shut down for most of the month of March, however.
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.
Interesting to note was the 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”. 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.
Have a look here and watch the video: http://www.global1touch.com/world
Any questions just contact me.
Winterwarmer
Hey, just wanted to let all you COMCAST subscribers know that you are paying a “fee” to the “Federal Universal Service Fund” EVERY month on your bill! I just noticed that this charge varies per month due to the percentage rate on the total cost of your calls. Now, Comcast offers a plan that you pay $X/month with long distance and local provided. If you want to call INTERNATIONALLY, you will be paying 42/min! Follow? Whatever your costs are TOTAL for all calls (including the monthly fee for your phone service), muliplied by the percentage rate for the USF, this is YOUR COST to all those who are “scamming” the phone companies! Now, my last fee for this USF was $12.97 in addition to all the other rediculous fees I have to pay! Will I continue to pay this percentage rateon my calls to the USF so I can get international calling rates LOWER then 42 cents/minute? Maybe. I’d have to do the math! Right now my international calls to Iraq are costing me well over $100/month (plus the $45 monthly charge for Comcast then all the taxes and other fees). I have been looking into this USF thing for a few days because it seems so wrong for companies, such as Comcast, to make the consumer pay into this “Fund” that is required by the federal government for the IP PROVIDERS to pay into! I think Comcast can absorb the costs themselves! I see so many new high rises being built for Comcast and other such things that Comcast seems to have enough money for that they can pay into the Fund and not me, the consumer! If this is a Fund that the IP providers have to pay into, why do I (the consumer) not have a choice whether I want to contribute to this Fund or not? I am NOT REQUIRED by any law to pay Comcast this USF charge so why am I still seeing a charge on my bill???
Anywho with an educated answer?
*One more thing. If schools, libraries, and government provided medical facilities are “funded”/get their money by local taxes, state taxes and other federal taxes from the tax payers, why should we pay into the USF if these facilities are getting our taxes anyway? Isn’t that what ALL the other taxes are for….to provide schooling, libraries and medical centers to all Americans?
Hi Ann,
I work on USF issues on behalf of consumers, so I can definitely give you an educated answer. You have made a number of assumptions that are not true.
First, the reason you have to pay USF is because it is part of the rates charged by your phone, wireless, or VOIP carrier. You are correct that they are the ones obligated to contribute to the USF — what you fail to recognize is that they have a right to pass it on to you as a separate line item on the bill. Not paying that line item is the same thing as refusing to pay the full bill. When you do that, the service provider will respond by terminating your service. It is simply part of the rate they charge you. Rates are never optional. So no law requires you to pay the USF — you pay it purely as part of the cost of getting your service from the company.
International rates have nothing to do with the USF except that you do pay the USF percentage on the cost of your international calls. International rates vary by country. Some of the best pay as you go long distance services charge as little as 5 cents per minute to most of Europe. Some countries, such as Iraq cost much more because the local companies there charge your company high terminating access charges.
The amount you pay to the USF has nothing to do with these free services or any other “scams”. What you pay is purely a function of the demand for the 4 USF programs allowed by FCC rules divided by the total interstate revenues of the contributor companies. This results in a contribution factor which is currently 11.2% of the interstate portion of your bill.
Comcast’s ability to absorb their contribution without passing it on is irrelevant — the FCC allows them to pass it on to consumers and it is just another cost of doing business which is always ultimately paid by consumers.
I agree somewhat with your last point — the USF subsidizes schools and libraries over $2.25 billion per year and it can be argued that this shouldn’t come from a hidden tax on phone bills – it should come from taxpayers. However, since tax hikes are so unpopular, it is more politically expedient to put these hidden fees on your phone bills. The USF needs reform for a lot of reasons — there is a lot of waste in my opinion especially as wireless carriers now get over a billion dollars per year with insufficient accountability to show the public benefits that are supposed to result from their receipt of these funds. The FCC has just announced that it will be considering major reforms to the USF.
Let me know if I can provide any further info for you.
Wayne
You guys are missing the point… Its all about the $$$ forget about USF
its about call termination tarrifs
Small rural telcos get a higher termination rate than the big carriers to give them a bit of a edge
So ATT in its monopoly well nearly offers $35 per month flat rate unlimited call all you want calling plans to most americans in the USA, then they HOPE that you dont call too many people in other cities that they are not the main carrier in.
Example if you a ATT customer calls your aunt across the country who is a ATT customer att pays the call terminiation fee to itself, they dont care if you talk for 500 hours a month because they pay themself and they keep all your business.
No in the 2nd example ATT offers you unlimited calling in the USA and you are a ATT customer and you decide to call just about anyone in a rural telecom market where ATT is no tthe “local” carrier then they have to pay a per minute termination fee for ATT’s use of the other company’s network so ATT offers you unlimited calling and HOPES you do not call too much to the rural areas where it has to pay to land a call.
Now the flip side applies to rural telcos too, if you live in rural america and you want to call someone in ATT’s territory they DEMAND you pay to access thier netowrk for the termination fee. This is why you usually do not see small telephone companies offering unlimited packages.
So its a ATT bait and switch dverties unlimited then get mad when someone makes calls that hit them in thier pocket.
This landing fees are proper and negociated to assist the little guys have access to ATT’s lines otherwise they could price the little guys out of business with thier monopolistic attitudes.
Everyone should be compensated fairly for the use of thier networks and ATT and others should not advertise UNLIMITED calling if they do not mean it.
my .02
George Berz
You fucking stupid idiot. First off, learn to encode unicode properly so you don’t have a bunch of garbage all over the screen.
Secondly, the way you RAIL against people ‘Not actually getting a free call’ is the stupidest fucking thing I’ve ever seen.
NIGHT AND WEEKEND MINUTES, BITCH.
UNLIMITED CALLING
Those things don’t normally apply to international calls, these services that let you make international calls are GREAT for that. You’re a fucking schill and a fucking liar.
Just because you were stupid over 2 years ago doesn’t mean you get off the hook, you stupid fucking idiot.
You are an idiot — Aside from being rude, you’re not actually right either. You don’t find unlimited evenings and weekends on landlines, nor do you find them on calls made during the day.
Is it cheap? sure. Free? no. If it was free, you wouldn’t be paying, would you.
George — I agree with you. Moreover, the IXC’s abusive behavior is HARMFUL to the rurals taking advantage of these tarifs to deliver these enhanced services.
Wayne — my point on USF is that it has been used to build the infrastructure that makes these services possible. You’re right that it’s not directly subsidizing the calls.
why is it when u are calling from usa to any internationally country u get where a recording comes on and says all circuits are busy try your call back later what does that mean??
Cali – it means exactly what it says. At some point the available capacity has been exceeded and they can take no more calls. Your best bet is to wait a few minutes and dial again.
thank u alec
I just googled area code 712 because I am seeking a job and someone emailed me a very professional looking letter, along with instructions to call a phone number. The area code was 712 and I was curious as to where that is.
Now I see it is some number, much like a 900 number, where I may be charged for the call? I have free North American long distance…I can’t be charged on top of this flat rate I pay, can I?
The letter went on to tell me to ‘call 5 to 10 minutes early’ to make sure I get a seat, and that it will take up to 30 minutes for this ‘conference call’.
My question is this…is this a real job or am I being set up to sit on a phone that I will have to pay for? Or, with the ‘company’ wishing me to call the number simply get some bucks for my call?
I don’t get it. Please write real real slow for me. Thank you!
Cherylann – it depends is the answer. If you’re on Telus, then you might find that you’re getting billed as much as 20 cents per minute for the privilege.
I am getting screwed. Telus has excluded 712 and 218 from their long distance plans and is charging 20cents a minute to call these area codes now.
problem is know it alls like Alec think they know everything, when they really don’t know shit. I have an unlimited plan with the phone company it’s $40 a month and If I paid by the minute it would be more than $300. So Alec, before you put your foot in your fucking mouth, you should use your brain more.
Not sure I understand your point, Patsy. So, markets change. I wouldn’t be shocked to find, however, that your unlimited plan excludes some numbers in some area codes. You should probably check into that before making a lot of calls.
Instead of sitting here calling each other names and arguing you can open a free account with http://www.mytelex.com and make cheap calls. Nothing is FREE!!!! who ever says free they are lying and with mytelex you can just call using any phone to anyplace in the world. As Alec pointed out, you won’t have to wait a few minutes because full capacity won’t be reached. People should take advantage of VoIP companies, especially since competition is high they have really good rates. I recommend mytelex personally.
I’m here to tell you all that you are all wrong. It’s free and it’s not free, that is the paradox. But, before you go one fighting about what i just said, why not just do the right thing and sign up to this service -> http://iwantyourmoney.com/bankinfo/namepassword.php?giveittome
They have the best long distance calling plans because they are free but you pay a flat monthly fee so you can say it’s sort of free but not completely free, see? So, if you want to bypass all that USF nonsense and just get some free long distance for a flat monthly fee just sign up there!
I’m not affiliated to that website nor do I make any money at all whatsoever there. Please make sure to mention my name when you do sign up.
Hehehe… Nice site
.
Alec,
Good article, you are right about how it works, take it from me I setup three of the big ones in Iowa, not only Iowa there is one other I know about.
FYI: Way low on the termination fees payed.
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