What’s With the 712 Area Code?
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.Â
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!Â
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.
October 13th, 2006 at 11:40 am
“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.”
This is a wrong assumption. The use of unlimited calling plans is increasing witht he advent of VOIP phone services. This means, if I call from my landline, I am not paying anything extra to my monthly phone bill for the long distance call to 712. And cell phone services provide free air time. Thus, the end user really gets free calls!
October 13th, 2006 at 6:53 pm
Alec - that’s a very neat argument but it doesn’t quite hold water. Many of my family are in the UK. If I wait until near the end of the month and have say 80 extra minutes to use on my cell plan, then I can call futurephone and catch up with my family for free - really for free.
Instead, where this scheme is costing me is in the continued existence of the USF fee on all my other telephony accounts - I still get a deal because everybody else is subsidising my calls but I am in fact paying that way.
But it is a bit disingenuous to argue that the call actually costs me. I don’t pay LD on any call any more. In fact I don’t pay for calls to the UK either - but now I can call the UK from my cell for free too.
October 13th, 2006 at 7:29 pm
[...] Next, VoIP guru and ioutum CEO, Alec Saunders, has a very interesting post about why so many free VoIP services are using the 712 area code. I’m not sure I agree with his analysis but the conclusion is sound. [...]
October 13th, 2006 at 8:10 pm
Toney and Owen — you’ve been seduced by really good marketing.
Example: I used to have a Vonage account. But I cancelled it, in favour of Asterisk and NuFone. I rarely spend more than $10 per month on calls. It’s a rare person that will use enough minutes on one of the very inexpensive calling plans to exceed the inflated prices charged on an unlimited bucket.
Similarly, even one of the big bucket plans on a cell phone is really just a prepaid account with a whack of minutes. Owen, your argument is “I am paying for them anyway, so I might as well use them up.”
In no way are the minutes free, though.
October 13th, 2006 at 8:58 pm
Are there any more states apart from Iowa where this is applicable ? how about North Dakota, Alaska ?? all these should be under the neca umbrella too ?
October 13th, 2006 at 9:11 pm
Tyco - certainly there are other states doing this. FreeConference.com, for instance, uses 605 and 218 numbers as well. Michael Robertson’s free DID program, AreaCode 775, uses the 775 area code in Nevada.
I am speculating, but Iowa may be the preferred choice because it has a very advanced fibre network that connects all of the independent telcos.
October 14th, 2006 at 12:42 pm
I can’t get futurephone to work properly, but others have, and if it worked the way it should, It would save me a lot of money. I use cingular, and have XXX amount of minutes a month, and then the rollover minutes. My girlfriend uses cingular, as does my family, so none of those calls detract from my minutes. I’m going to pay $60/month regardless to cingular. Anyways, my girlfriend is now studying abroad in spain, and has a mobile phone there. Using JaJah it costs $.18 to call her.. Jajah offering the cheapest rates I’ve found. If Futurephone were to work properly for me, I’d essentially be calling her for free.
I know my cingular minutes aren’t ‘free’, per say.. they’re paid for monthly and are just accumulating.. futurephone and the like simply allow me to utilize more of my minutes at no increase in cost to me.
I think futurephone might be experiencing some problems or something; I tried placing a domestic call to my own cell phone with it (via skype out), and it couldn’t complete the call, nor could it complete calls to any of my friends in Europe today.
oh well
October 14th, 2006 at 1:24 pm
Hi Paul, I think you’ll find that the futurephone service can’t terminate on cell phones in a lot of countries. Cell phone terminations are very costly, as you’ve found out via your experience with Jajah. Terminate the call on a landline, though, and it can be very inexpensive.
October 16th, 2006 at 8:24 am
i get most of the explanation, but at risk of seeming really stupid, i don’t understand why the conclusion is that futurephone is still a viable (read: free) option. doesn’t the [exorbitant] termination rate/charge/fee apply PER CALL? so that you THINK it’s free, but then you eventually get charged a bomb on your monthly long distance carrier bill? or do the freeness and still-good-ness of the offer rely on the fact that you pay a standard termination tax/fee/rate per month and your carrier picks up the difference because it’s all averaged out?
any explanations would be much appreciated.
(i’d be using vonage to call iowa, if that makes any difference.)
October 16th, 2006 at 8:48 am
The reason it works, Sim, is that you are paying for a bucket of minutes, but your carrier is still paying by the minute.
October 16th, 2006 at 8:52 am
To the people that think the calls are free, think again. You may not pay any extra on your particular plan, but everyone is helping you make that call by paying thier respective long distance charges, whatever they may be. See, access charges are like telephone socialism. Futurephone is just taking a little off the top.
October 19th, 2006 at 12:29 pm
Forgive my denseness but I seek some clarification. In your blog example, where does FuturePhone get its revenue –assumed at $.03/min? Is that what the originating call carrier must pay? To the next carrier the call is routed through? Please explain for this more dense reader EXACTLY how the tarrif/payment charge system works in regard to these “free” calls. Thanks.
October 19th, 2006 at 2:13 pm
You can use FuturePhone for free without paying for long distance call. Use Skype if you are from US\Canada or Jajah if you are from Zone 1 or 2 to call FuturePhone access number. This call will be free!
The process described at:
http://ilikeitfree.blogspot.com/
October 19th, 2006 at 5:58 pm
P Stein, it’s a little arcane, but here’s how it works. When you buy a bucket of minutes from your cellular carrier, or for that matter from a land line carrier on a nationwide LD plan, the carrier is assuming that the average price they will pay for terminations is some amount –> say 0.6 cents per minute. It’s pretty low in most jurisdictions, but in a few places it’s higher. So, on average, they can offer a plan with unlimited calling to anywhere in the country, knowing that they’ll pay around 0.6 cents per minute, including all of the high tarrif areas, and maybe a few that are even cheaper.
Superior Iowa, hypothetically, is a place that charges 3 cents per minute (actually, it may be more than 10!). To terminate calls in Superior, the carrier is actually losing a little money. If the budget is 0.6 cents, then they’re losing 2.4 cents. But that’s OK, on average, they’re paying 0.6 cents per minute, and there aren’t that many calls to Superior anyway. There are only about 4,000 lines there, out of 150 million nationwide.
The call comes in to Superior, and then gets routed to some other destination. In the old days, those calls went out on Qwest, the same provider they came in on. And the origination charges were high, just as were the termination charges. HOWEVER, in recent years Iowa Network Services has been replacing QWest. INS is a fiber network among all 152 Iowa phone companies that operates as a coop. They can get calls out of iowa for almost nothing. So, the same math as before applies again. The Superior Telco forwards the call on to London UK for probably under a penny per minute, and keeps the difference between the 2.4 cents and the termination charge as profit, which they split according to some business agreement with FuturePhone.
Clear as mud?
October 19th, 2006 at 7:45 pm
Hello All:
The real scam/arbitrage play lies in the Universal Service Fund as Alec mentioned in passing. The Superior telco not only receives 3 cents per minute and pays out less than 3 cents, but it also receives a subsidy from all U.S. wireless and wireline telephone subscribers! We pay a 10.5% surcharge (some would call this a tax) on our wireline long distance calls and a lower surcharge on our cellular bills to support telephone companies operating in rural and high cost areas. The more traffic Superior handles the more costs it incurs and the larger share of Iowa’s $86.5 million subsidy it can claim. In other words Superior generates more than 3 cents per minute, so its profit margin is higher than the 0.875 cents Alec estimates!
Regards,
Rob Frieden
October 19th, 2006 at 11:49 pm
[...] I’ve been wondering where the heck all the traffic has been coming from today… well, David Pogue’s tech column in the NY Times cites the research I did on the Futurephone story. To be clear, I don’t think there’s anything sneaky or underhanded about what Futurephone is doing. It’s an old old telecom game. How do you think all those naughty chat rooms with numbers terminating on Carribean islands fund their businesses? Same method. Rather, my objection is to calling the service “free”. Just because you’re already paying for a bucket of minutes, and Futurephone doesn’t require an additional fee doesn’t mean that it’s “free”. [...]
October 23rd, 2006 at 2:50 am
Alec, thanks for your insight in to this age old practice.
I was reading your reply to Paul above and it made sense, because I have made numerous calls to mobile phones in various countries in Europe but none have terminated. Yet, all landline based calls connected right away. But, is this something that is necessarily reflected with the added cost of connecting mobile calls? Or is it more because Futurephone’s system seems to be increasingly flooded due to the publicity they’re receiving? Because no where on their site do they mention the inability to make landline-to-mobile calls. I’ve made inquiries to Futurephone but haven’t heard back from them.
I know people who have certain MTS plans in Canada whose plans include dialing numbers within North America - meaning they can readily utilize this service which is great! But, they’ll be charged still, but the plan caps out at $15.95/month. Is there a cheaper alternative?
October 23rd, 2006 at 6:48 am
B.. the wholesale cost of connecting calls to European cell phones is quite high — sometimes 25 cents / minute. That cost has to get passed on to the user. It’s not something that a service like FuturePhone could just absorb.
October 23rd, 2006 at 8:12 pm
Alec:
1. Hypothetically, if FuturePhone and others like FuturePhone become WILDLY popular, then my LD carrier (Vonage) may start loosing money!
2. A bit unrelated to the topic, I have wondered for a long time that cell carriers of Europe are a big racket.
In general, as we know, termination to less developed countries costs more becuase the governments in those countries impose higher tariffs. For example, I have watched rates for land lines to India (from US) plummet from almost $1.00 per minute to under 10 cents/minute. And, termination to mobile phones to India have have also dropped to about 16 cents. I guess, over the years, India became less of “less developed countries”. But what about the European countries??? They are among the “developed” countries and rates to landlines have been low (2 cents or less) for quite some time. So, in this case, it is the mobile carrier - and not the local government - that is pocketing all the money!!!
In case you argue that the callers (all of us) are paying for the high rates of European mobiles phones becuase most mobile phones have free incoming, I woud argue that the same is true India.
I am looking forward to your comments. Thanks.
October 23rd, 2006 at 8:55 pm
Thanks again Alec.
I know what you mean, because even when using a calling card to call mobile phones in Europe my minutes drastically decrease. However, when I recieve calls on my mobile (cell) phone from Europe they’re charged just the same - whether they call my cell or call at a landline number. Do you know whether the discrepancy here has to do with specific tariffs or other regulations? The system in the States seems to be that the cost of terminating calls to cells in the States is interchangeable with terminating calls to landline numbers w/in the States. I wonder if the same could be said of European, and other countries in the near forseeable future.
And anyone have any insight as to a cheaper method (than the MTS one I mentioned above) to calling to the States from Canada?
October 23rd, 2006 at 10:43 pm
Kanti and B.,
The high cost of terminations in Europe is as a result of the model. In Europe, the caller pays for the cost of the termination of the call on a cellular phone. Incoming calls are free. Effectively, this transfer the cost of making that call to the incumbent telco monopoly, or to another cellular carrier’s network. In addition, in order to lock customers in, many European cell carriers offer discount calling plans amongst members. For instance, it might cost less to call another orange subscriber if you are also an orange subscriber.
There is no economic incentive for the recipient of the call to seek out a cheaper carrier, since they don’t pay to receive the call.
In North America, because the cellular owner pays to both make and receive calls, the termination charges for the cell phone network have approximated those of the fixed line network.
More information here:
http://blogs.nmss.com/communications/2006/04/eu_roaming_regu.html#comment-16621731
Kanti — the reason calls to India have plummetted so steeply is that the Indian market is only recently deregulated. I remember seeing a press release less than 5 years ago about the first competitive carriers being launched in India. Apparently competition is having an effect!
October 24th, 2006 at 11:48 pm
[...] Best part is that the service is free if you call using Skype. Else all you need to pay for is the long distance call to the 712 area code conference call number, in case you are calling from regular telephone(for more details about companies using 712 area code, checkout Alec Saunders post). If you are looking for additional features like recording your calls, Q&A mode (hand-raising) you can get the High Speed Conferencing Premium for just $4.95/month/room, payable through PayPal. [...]
October 25th, 2006 at 10:46 pm
Alec, you’re giving a Canadian approach where there still is such thing as “domestic long distance calls”.
If you ask any American they will answer, There is no “domestic long distance calls” anymore and they’re local calling area is 48 United States and Canada.
October 26th, 2006 at 10:53 am
From reading the above comments and test it myself, many calls don’t get thru. That could be the key of making money.
October 28th, 2006 at 12:00 am
was pleased to hear about futurephone, when i tried it to call our london uk office it went thru’ almost immediately but later that day ( about a week ago ) i could not get thru’ . perhaps the level of traffic made the call drop out !
October 29th, 2006 at 9:10 pm
I had luck calling a landline in the UK - but no mobile phones and the cennection was terrible (i don’t think they use premium lines). Have you checked out a small start-up called Switch-Mobile? They have this Globe Dialer Java VoIP product in the USA and Canada which is very inexpensive for international calls and you can add your contacts to your phone for added ease. I also tried Jahja - but I don’t like the call back feature.
November 1st, 2006 at 4:09 am
Nice article…
BUT
I don’t want to but stocks of Futurecals.com or Futurephones.oorg or whatever.
I want to call home from my national plan cell phone during the night (using my 4000night/weekend minutes) and talk with my family at the other side of the Earth for FREE. And thats what I get!!!!!
I don’t care how often it works. If it doesn’t connect I use my standard phone card but if it works,
its PURE profit for Me!
November 1st, 2006 at 6:25 am
[...] Take a look at Alec Saunder’s VOIP blog: http://saunderslog.com/2006/10/11/whats-with-the-712-area-code/ [...]
November 1st, 2006 at 7:21 am
Granted, Alekos, and I think that’s the point a lot of people have been making. My interest was primarily in understanding how they can offer ‘free’ calls.
November 13th, 2006 at 11:44 pm
All thsi is academic. The sound quality is terrible on the 712 numbers.
All VOIP providers provide much better quality.
December 27th, 2006 at 8:46 pm
[...] I got a pitch-mail today from Thomas W. Scriven for a new free VoIP calling service (another 712 plan) from the W-Group. Y’all know I like free services, and I’ve spent a bunch of time figuring out the 712 model, so this one oughta be a lay-up, right? [...]
December 31st, 2006 at 1:04 am
Alec, Thanks for all your explanation on the business model of futurephone.com. I am from China, here I am little confused about the word ‘termination’ in your post “As best anyone can determine, there must be some quirk in Iowa telecommunications law that allows them to charge higher than normal termination charges on connected calls”.
is it refered to “receiving party”, ‘receiving service’ or ‘cancellation of an account’ ?
would appreciate your time for this matter.
January 10th, 2007 at 12:29 am
Jack
termination charge = access charge
odd, isn’t it?
January 12th, 2007 at 3:38 pm
[...] I don’t know if calls originating outside of the U.S. will work, although I assume they will. I’m not sure if that would save the caller much in fees, though, v. calling directly to their destination. Update: Lots of good insights in the comments, and I recommend reading this post as well. If anyone has read Catch 22 - this makes about as much sense as Milo, who bought eggs for 7 cents and sold them at a profit for 5 cents. AllFreeCalls Sphere It [...]
January 12th, 2007 at 4:45 pm
[...] More details on area code “712″ [...]
January 13th, 2007 at 9:05 am
[...] Other sites/companies that offer something similar are Future Phone, which I have not yet tried but others have said they have mixed results with them. It was also discussed about in a New York Times blog in October, 2006. There is also Ophone, which, again, appears to be marketing heavily towards the Chinese. Phone quality with them was similar to my experience with AllFreeCalls.net. There is also others that all utilize the 712 Area Code. You just have to do a little searching to find them. [...]
January 13th, 2007 at 4:48 pm
so there may be termination charges etc…taxes..even rip-offs
if you use any softphone software (www.internetcalls.com), then call the
712 number, follow instructions, who gains?looses?
for thousands of people who use the 712 system, it is time that thay
come out ahead. and if the developer/owner of the 712 system makes
some money, great also. we have been subsidizing the big tele companies
for years, and yet been getting ripped off.
i use the 712 system, and i like it
January 13th, 2007 at 6:06 pm
I believe Google will connect a long distance call at no charge to the user, thus circumventing the long distance charge. Does FuturePhone show up in business listings?
http://www.google.com/help/faq_clicktocall.html
Might be an interesting experiment…
January 13th, 2007 at 9:43 pm
Jaxtr (http://www.jaxtr.com) is another phone service that uses 712 numbers for the same reasons mentioned here probably. How sustainable is all of this?
January 14th, 2007 at 4:01 pm
Poltically, it’s not very sustainable at all. I just imagine the headlines on FOX News:
* “Illegal aliens calling home on your dime”
or
“Illegal aliens calling home using taxpayer money”
January 14th, 2007 at 8:03 pm
calling a 712 # for an illegal is no easy feat my friend!
January 14th, 2007 at 9:34 pm
[...] I don’t know if calls originating outside of the U.S. will work, although I assume they will. I’m not sure if that would save the caller much in fees, though, v. calling directly to their destination. Update: Lots of good insights in the comments, and I recommend reading this post as well. If anyone has read Catch 22 - this makes about as much sense as Milo’s scheme where he bought eggs for 7 cents and sold them at a profit for 5 cents. [...]
January 15th, 2007 at 12:20 am
[...] Does it sound too good to be true? Read this article for a further explanation on how this works. [...]
January 15th, 2007 at 5:36 pm
[...] Being just a bit scepticcal I decided to find out a little more about this service so just to add to this this post, read this: http://saunderslog.com/2006/10/11/whats-with-the-712-area-code/ Posted by Elisabeth Bertrand - Subscribe to Innovation for creativity by TWESTC by Email [...]
January 17th, 2007 at 3:00 pm
[...] I was impressed with the level of detail in What’s With the 712 Area Code? — Alec Saunders .LOG where he talks about why “free” international long distance services are based in Iowa and how they’re able to make money offering “free” service. [...]
January 18th, 2007 at 4:47 am
Add yet another gateway to the free internation phone calls business model.
http://www.freephonecallz.com
Must be new as I tried it a few times with no busy signal. I think their model will be to upsell other services.
January 18th, 2007 at 1:24 pm
[...] Some of the bloggers writing about this service call it “free”, but that’s a bit misleading. Because AllFreeCalls is taking advantage of certain government subsidies, you as a taxpayer are really paying for this call. Posted by David Teten () in Miscellaneous [...]
January 20th, 2007 at 10:30 am
[...] I don’t know if calls originating outside of the U.S. will work, although I assume they will. I’m not sure if that would save the caller much in fees, though, v. calling directly to their destination. Update: Lots of good insights in the comments, and I recommend reading this post as well. If anyone has read Catch 22 - this makes about as much sense as Milo’s scheme where he bought eggs for 7 cents and sold them at a profit for 5 cents. [...]
January 22nd, 2007 at 4:24 pm
[...] permalink Also, a little explination of how this works via Alec Saunders: 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 [COLOR=blue ! important][FONT=Verdana,Arial,Sans-Serif][COLOR=blue ! important][FONT=Verdana,Arial,Sans-Serif]local telephone[/FONT][/FONT][/color][/color] 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 [COLOR=blue ! important][FONT=Verdana,Arial,Sans-Serif][COLOR=blue ! important][FONT=Verdana,Arial,Sans-Serif]local [/FONT][COLOR=blue ! important][FONT=Verdana,Arial,Sans-Serif]phone [/FONT][/color][COLOR=blue ! important][FONT=Verdana,Arial,Sans-Serif]companies[/FONT][/color][/FONT][/color].[/color] 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 [COLOR=blue ! important][FONT=Verdana,Arial,Sans-Serif][COLOR=blue ! important][FONT=Verdana,Arial,Sans-Serif]long [/FONT][COLOR=blue ! important][FONT=Verdana,Arial,Sans-Serif]distance [/FONT][/color][COLOR=blue ! important][FONT=Verdana,Arial,Sans-Serif]calling[/FONT][/color][/FONT][/color][/color] 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 [COLOR=blue ! important][FONT=Verdana,Arial,Sans-Serif][COLOR=blue ! important][FONT=Verdana,Arial,Sans-Serif]international [/FONT][COLOR=blue ! important][FONT=Verdana,Arial,Sans-Serif]call[/FONT][/color][/FONT][/color][/color] 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. Read Entire Story on Alec Saunders Blog [...]
January 23rd, 2007 at 6:06 pm
[...] For more check out TechCrunch and Alec Saunders’ Log. [...]
January 30th, 2007 at 3:53 am
I dunno about anywhere else, but Qwest offers an unlimited long distance landline package.
January 31st, 2007 at 11:15 pm
Looks like Futurephone.com’s service is no longer available. Check it out — http://www.futurephone.com
So much for their 3 year gurantee LOL
http://www.Freecalltheworld.com still works great, though.
February 2nd, 2007 at 11:37 am
They had to many busy signals, I use this one from a FREE call website the number is 218-339-1986 simple quick and no busy
February 3rd, 2007 at 10:14 pm
Thanks for the really good discussion about telecom arbitrage. And it is sort of like a ‘900 number line’ in terms of how it works. There is also a fellow in Washington State who gives free ‘incoming only’ lines to anyone who wants one for whatever use. He also gives you voicemail on your account if desired. Absolutely no charge. He makes all his money from arbitrage, or call termination fees. And there is another service on the web called ‘Personal Call’ which provides free numbers to voice mail systems. You use these to give the impression to aquaintences that you are located somewhere (where you are not). Someone asks for your phone number but you do not wish to give it out, at the same time you do not wish to be rude. So you give the person this number (in various cities) to reach you, but the catch is, they never actually reach _you_, they only reach voicemail. Two ways of collecting your messages: you can either call the number yourself and insert a passcode, or you can look at your (also free) account on his web site.
Likewise, he makes his money from arbitrage; he says to telco “you receive X cents per minute in termination fees from other telcos; I agree to take Z number of lines for incoming calls to stir up inbound traffic for you a little if you will give me half of X cents for each line.” Or words to that effect.
The smart players install conference bridge circuits for specialized audiences, then encourage everyone and his brother to call in. For example, a business man in Los Vegas (a/c 702) where termination rates are a good price cut a deal with AT&T that all calls to his number would be routed instead through T-1 circuits; a type of telephone line. Then the business person advertises far and wide, “if you are gay and want a really hot phone call, dial 702-xxx-xxxx and chat with other guys”. And the best part of all, “this is a FREE call; no premium charges; all you pay is toll … ” so to guys who are quite accustomed to getting ripped off at four or five dollars per minute on gay chat lines, now they suddenly have a new hero; this guy is offering them free chat if they pay the cost of a toll call … what is that, ten cents per minute these days. or less? So everyone wins … or do they?
People call this hypothetical Nevada gay chat line; when they dial 702-whatever, their telco switches the call out to somewhere in that area, but when it reaches 702’s main point of entry, AT&T plucks off the call and funnels it into a T-1 line. Mr. Business Man could be sitting in Chicago or New York for all they care, wherever tne T-1 line terminates is his business. In the 1980’s, AT&T was doing the same thing, i.e. selling sex phone calls to gay guys in the USA who wished to ‘Reach Out and Touch a New Friend’ but could not afford to do so 900-number style. And AT&T was always quick to point out, “NO PREMIUM CHARGE FOR THESE CALLS. YOU ONLY PAY INTERNATIONAL TOLL RATES”, to Guyana, South America, Brazil, or Africa or wherever the balance of payments on telephone arbitrage was the most out of whack (in AT&T’s favor). Everyone wins except the American rate payer who has to pay several dollars per month on his phone bill for ‘access and network fees’. But then, you never really expected telco to lose anything in the deal, did you?
PAT
February 3rd, 2007 at 10:25 pm
I should have added … AT&T in those days (1980s) at least knew there would be some objections from guys who were smart enough to know that ‘ONLY PAY INTERNATIONAL TOLL’ still could get to be sort of expensive, so AT&T clouded the issue a little by deliberatly parsing the phone number in the ads to look something like “area code 011″ (really the international code and NOT an area code) and the remaining digits in the foreign phone number to make them look more ‘American like’.
The objective behind these games is simply to stir up more telephone traffic, where little none existed previously, and in directions favorable to the person who thinks up these schemes. It is a way, presently legal, to get the rate payers to pay for phone calls you may or may not have made to start with.
PAT
February 4th, 2007 at 1:24 am
if you have voip (e.g. with sunrocket or vonage, you will not be charged to call the 712 area code or anywhere else in the us or canada {or italy, spain or france with vonage}) as you pay only a flat fee monthly or annually and are not charged for individual calls regardless of where they are made in the aforesaid areas and regardless of how long the call is.
February 4th, 2007 at 1:33 am
consequently, with voip, you can call the 712 area for free (except for your basic fee which you will be paying anyway) and then connect to many other countries through , e.g., allfreecalls.net for free. thus, you can call, e.g., estonia using voip and allfreecalls.net without paying anything. your cost as a taxpayer, incurred as a result of the govt. subsidy to the iowa companies is surely de minimis.
February 4th, 2007 at 10:58 pm
Here are two more numbers that work:
712-338-8868
712-338-7005
February 7th, 2007 at 5:01 am
here is another 712-858-8021
February 8th, 2007 at 12:01 am
[...] Late last year, the NY Times’ David Pogue wrote a blog post describing a service called FuturePhone, which offered free international calls. You just had to call a domestic line (with an Iowa area code) and then could dial out to a long list of countries. This kicked off a lot of speculation about whether or not it was a scam or if you’d have to listen to ads or what. Tom Evslin and Alec Saunders filled in the details. Basically, as part of the efforts by government to help pay for telecom services in rural areas regulations were put in place so that long distance phone calls that are made to numbers controlled by certain rural carriers can charge a very high “termination fee,” that the other telcos (such as AT&T) would have to pay. You usually don’t see the cost of the termination fees, because they’re included in the cost of your phone calls. [...]
February 10th, 2007 at 8:37 am
[...] Alex Saunders goes into a little more detail how these services get paid. “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.” [...]
February 15th, 2007 at 11:24 am
[...] Further readings on free international calls can be found at GigaOm and SaundersLog. [...]
February 16th, 2007 at 2:26 pm
[...] 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. [...]
February 17th, 2007 at 4:49 am
[...] To find more about why it worked when it did read this detailed investigation from Alec Saunders: “What’s With the 712 Area Code?” [...]
February 19th, 2007 at 12:25 pm
Don’t feel sorry for AT&T. There is a natural check and balance here that AT&T doesn’t discuss. As a rural LEC’s revenues increase (from ENTREPRENUERIAL effort), their state regulators will eventually lower their approved tarrifs and their portion of the universal fee.
Let the free enterprise system work. Better rural LEC support themselves via entrepreneurial effort (like AT&T is attacking) rather than continued subsidies. How else will our rural phones be supported? Next time you travel in the countryside, count the number of telephone poles to some of those farms. Those didn’t magically sprout!
Also, VoIP calls haven’t even begun to be regulated yet. AT&T is simply using its monopolistic muscle to kill competition. It is the nature of the beast.
February 19th, 2007 at 1:00 pm
Further, we all pay for the universal phone service access we all enjoy, one way or another; through access fees and taxes. One way or another, the costs must be paid in order for us to pick up the phone and know that our calls to the mountains of Wyoming will be connected. The whole point of giving the rural companies a rate advantage is to help them support the rural environment which is, per capita, much more expensive to support. We will need to continue to support that infrastructure, either from fees the carriers pay, or from funds given to those rural companies by government subsidies. I don’t know about you, but I would much prefer to see the the market cover these than bureaucrats. In this case, the market will be more efficient, and the market will reward the rural innovators. We, the people, created AT&T. Now it is time for AT&T to stop inhibiting market creativity with bullying tactics.
February 23rd, 2007 at 4:45 pm
[...] about whether or not it was a scam or if you’d have to listen to ads or what. Tom Evslin and Alec Saunders filled in the details. Basically, as part of the efforts by government to help pay for telecom [...]
February 26th, 2007 at 8:03 pm
[...] Well my girlfriend is abroad again and I went to Futurephone’s website, and a huge red banner slaps me in the face: “THIS SERVICE IS NO LONGER AVAILABLE.” Ah, crap. No such thing as a free lunch. A little googling and it turns out Futurephone, and other phone companies base these types of services out of Iowa due to the low population and some phone tax loopholes described here. [...]
February 28th, 2007 at 12:10 am
[...] well as their rural Iowa telco infrastructure partners from continuing with the operations that use regulatory-fee arbitrage and VoIP to provide international or higher-service calls (such as conference calls or chat) for [...]
March 2nd, 2007 at 11:09 am
Re: VOIP. Interesting. I have friend who started using TOIP. He thinks he’s saving about
$30 a month on phone calls. I said that I also was going to do it.
I called Sunrocket, went through the process, and was told, when it
was time to pay, that if you want to keep your existing phone # you might
have to wait one month. One month w.o. a phone! Impossible; dropped it.
Went Verizon. Could keep my existing phone # (my carrier). Received a router which didn’t work. Went to
a Manhattan store to exchange it (J&R Music World-great store!). On the subway I thought: “How much
does a router and adapter cost electrically ea. hour?”
Went to ConEd’s website (http://www.coned.com/customercentral/applianceguide.asp). Home entertainment system: $0.1 -$0.2 per hr. Customer service. Saw a picture of diff. electrical
Live and learn!
Have a great one! Love you all!
G-d bless!
items. CD player was about $0.1 min. Result: probably costs about $0.1 per min (or more)= (about) $0.45 per day (2 items must be kept running)=$13-$16 per mo? Plus the chance of one of these 2 gadgets burning
out=no phone service (In a busy house, it hurts!). Should buy a back up.
Told my friend that he’s not saving $30 per mo. (he’s got a lot of expenses, a few kids, tuition in religious school) “You’re saving, maybe $15 per mo.” I said.
Almost not worth it bec. of poss. breakdown: the more things (man-made) you have
the greater the chances of failure. The human body (made by G-d) can work fine for
100 years (sometimes more: recently a Black lady passed away in NY State 114 years old.)
Show me a mechanical device that will function, trouble free, for that long!
March 2nd, 2007 at 11:13 am
Hello, seems the paragraphs got transposed should read:
Re: VOIP. Interesting. I have friend who started using TOIP. He thinks he’s saving about $30 a month on one calls. I said that I also was going to do it.
I called Sunrocket, went through the process, and was told, when it was time to pay, that if you want to keep your existing phone # you might have to wait one month. One month w.o. a phone! Impossible; dropped it.
Went Verizon. Could keep my existing phone # (my carrier). Received a router which didn’t work. Went to a Manhattan store to exchange it (J&R Music World-great store!). On the subway I thought: “How much does a outer and adapter cost electrically ea. hour?â€
Went to ConEd’s website (http://www.coned.com/customercentral/applianceguide.asp). Home entertainment system: $0.1 -$0.2 per hr. Customer service. Saw a picture of diff. electrical items. CD player was about $0.1 min. Result: probably costs about $0.1 per min (or more)= (about) $0.45 per day (2 items must be kept running)=$13-$16 per mo? Plus the chance of one of these 2 gadgets burning
out=no phone service (In a busy house, it hurts!). Should buy a back up.
Told my friend that he’s not saving $30 per mo. (he’s got a lot of expenses, a few kids, tuition in religious school) “You’re saving, maybe $15 per mo.†I said.
Almost not worth it bec. of poss. breakdown: the more things (man-made) you have
the greater the chances of failure. The human body (made by G-d) can work fine for
100 years (sometimes more: recently a Black lady passed away in NY State 114 years old.)
Show me a mechanical device that will function, trouble free, for that long!
Live and learn! Have a great one! Love you all! G-d bless!
March 20th, 2007 at 12:52 am
[...] calling various ‘free’ calling services, like FuturePhone and PartyLine Connect, in the 712 area code. Cingular representative Mark Siegel said, “We have to pay terminating access for every minute [...]
March 21st, 2007 at 12:08 pm
[...] calls to certain numbers in the 712 area code. The 712 free calling scheme, which is described by Alec Saunders, has cost carriers like AT&T millions of [...]
March 27th, 2007 at 2:15 pm
I live in California and I recieve many calls from a recorded (712) telemarketer. It is very annoying, wouldn’t you agree.
March 31st, 2007 at 11:06 pm
I think there have been a lot of posts that were mistaken about the source of the profits of the free phone services using the 712 termination scheme. Alec, either you are mistaken too or I don’t understand your original reasoning.
The Universal Service Fund does indeed subsidize the high cost rural companies such as the ones in Iowa discussed here. However, that subsidy has nothing to do with the high terminating access charges that are split with the free phone services. (The USF subsidy is paid directly to the phone companies based on their cost characteristics — it has nothing to do with the State of Iowa as a whole, as someone mistakenly suggested).
The interstate access charges, on the other hand, are set by the Federal Communications Commission via their approval of the NECA pool tariffs. Large Bell companies have much lower access charges than small rurals like the ones in Iowa. This is true on a national level. Access charges are just a part of intercarrier compensation, which is in bad need of national reform — and this arbitrage gimmick is one symptom of that. It may be that Iowa is a prime target because for this only because it has great capacity as a result of modern fiber optic infrastructure.
So, the common assumption on these posts — that the USF is somehow being used to fund these 712 free call service schemes, is simply wrong. The small rural companies are subsidized by the USF because of their cost structure and size - not on the basis of enhanced terminating traffic caused by these schemes. The profits for these schemes come from the willingness of the small telcos to share their high access charges with the call service providers who are funneling many extra minutes to them and greatly enhancing their access revenues. This gimmick may enrich these small phone companies but that does not add to their USF subsidy at all. Perhaps your real argument is that the USF helped these small rural companies build their high capacity network, which is now being exploited — that may be true, but the use of these free call service schemes does not affect the USF.
If anyone wants to know how the USF is really being wasted to the tune of billions, I can tell you. And by the way, it is not a taxpayer issue either - the USF is completely funded by telephone, wireless, and VOIP ratepayers.
The only party being hurt by these schemes are the landline and wireless companies who terminate calls there. This has nothing to do with unlimited plans versus regular plans - each minute of termination is charged to the carrier regardless of whether the caller had an unlimited plan or traditional long-distance service. The carrier needs to build this wholesale expense into its long-distance rates.
Anyone disagree with me? Any questions about the USF?
Wayne
April 1st, 2007 at 7:23 am
I agree Wayne, and thanks for articulating it so clearly. My, perhaps convoluted, argument in the initial post was that without the USF the plants and infrastructure to deliver these services wouldn’t exist.
April 2nd, 2007 at 9:31 am
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
April 9th, 2007 at 7:30 pm
So its been a couple months… do any of these free calling sites still exist?
April 9th, 2007 at 7:39 pm
All shut down, Jake. AT&T pulled the plug on the iowa rural telcos, causing a NASTY battle.
April 12th, 2007 at 6:32 pm
But the free conference call sites are still operating via the 712 mechanism. I don’t see any change on those web sites.
April 12th, 2007 at 11:30 pm
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.
April 27th, 2007 at 2:29 pm
[...] and FuturePhone—work by routing their calls through a local call exchange in Iowa. The 712 area code used by these services allow the local carriers to charge a number of subsidies to those carrying [...]
July 10th, 2007 at 4:30 am
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
August 17th, 2007 at 9:53 am
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?
August 18th, 2007 at 8:24 am
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