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February 17, 2007

AT&T shuts down Iowa free international phone call services


Back in October, I mentioned a phone service called Futurephone that used a loophole in the heavily regulated US long distance telephone rate structure plus cheap Internet bandwidth to provide “free” ad-supported phone calls to numerous foreign countries via a rural telephone company in Iowa. Soon other entrepreneurs jumped on board and there were a number of “712″ (the rural Iowa area code) calling services, but it all came crashing to halt this month when AT&T got a phone bill for $2 million dollars and sued:

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 arbitrage 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 service, and has produced nothing but “no comment” replies from the Iowa LECs we contacted who were also named in the suit.

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.

While it’s certainly satisfying to see AT&T get a big phone bill, it’s now clear that beyond advertising revenues, an essential element of the business model was the receipt of cash subsidy payments from AT&T. The lawsuit will delay those indefinitely while litigation proceeds and this effectively shuts down the “free call” companies. Futurephone has now closed and it’s likely just a matter of time until the others follow, although Pat Phelan, the founder of allfreecalls.net, claims on his weblog that he plans a workaround. He surely gets points for trying, but I suspect that the ultimate conclusion is that it was fun while it lasted.


Posted at 10:56 am. Filed under AllFreeCalls, Bargains, Brands, Cheap calling, Companies, Futurephone, Telephone

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