I’m still trying to figure out how this works, and by the time I do the service may be gone. Regardless, Iowa based AllFreeCalls is letting people make phone calls to many foreign countries for free. Or rather, for the cost of a call to Iowa. You call the AllFreeCalls phone number, which is 712-858-8094, and at the prompt dial 011, the country code you are calling and the number you wish to call. The call is made at no charge to the user. A list of supported countries and prefixes is here, and the company says they are adding ten more countries in the coming weeks.
Here’s my understanding of how this works: the founder created his own telephone company in Iowa. Iowa is apparently the only state taking advantage of an FCC kickback scheme that gives telco’s a portion of the fees generated from every inbound call to an Iowa number. So when you call the AllFreeCalls phone number, a portion of any long distance fees you are paying go to the company. The kickback is apparently authorized via the Universal Service Fund. These kickbacks are enough on average to more than cover the international outbound calling fees.
I expect to revise every sentence in the above paragraph as I work this out more completely (and then call my congressional representative), but that’s my current understanding after an email discussion with the founder.
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.
There used to be a service doing this in the UK. You call a 0870 (national rate number where the destination gets a % cut of the revenue) then the full international number.
Used this a lot back in 2000/2001 – don’t know if it is still going.
Fairly curious.I am surprised long distance call companies are not screaming already
Darn! Wish India were on that list.
Wish Ethiopia was on the list. Darn!
Just tried it from the UK (via Skype!) – it works! But only with UK landlines so far – no success with UK mobiles yet.
I have been useing a service called Telestunt for years and calls are charged at a local rate, only 3p per minute to South Africa.
very cheap
Mike
The payments you call “kickbacks” are not just in Iowa, but typical for small and mid-sized rural telcos. I’m a telecom reporter who’s been following this for years. The phone company in Iowa collects seven cents a minute from the incoming long distance carrier to “complete” the call. It’s called Intercarrier Compensation, and moves about $4B a year to rural telcos. Companies from Vermont to Montana collect this booty, a small fraction of which legitimately helps meet rural costs. So Skype, selling Skypeout for four cents, is paying 7 cents or so to the folks in Iowa via the wholesale carrier Skype uses. Skype can live with this because they pay much less, $0.0062 on most calls, and get an even better deal in some competitive cities.
Of the seven cents collected from the LD carrier to Iowa, about 1.5 cents will cover the wholesale rate of calls to 30 or so major countries. Distance really has disappeared: at wholesale, it costs me about the same to call Hong Kong, London, or Chicago. How much this service keeps and how much they share with the small Iowa telco who fronts for them I don’t know, but it’s a straightforward business ripping off the system.
The ICC and USF system is so complicated most reporters are scared to even try to explain it, much less identify where the rip-offs are. In D.C., rural Congressman protect the whole system because they see it as money coming to their districts. Everyone else, including FCC Commissioners I’ve discussed this with, knows how rotten the system is but is unwilling to fight to change things.
I’ve got to call it a night, but wanted to get you on track.
Dave Burstein
Editor, DSL Prime
I had seen this before somewhere. I found this in this blog. I think FreeDigits.com also makes use of this convenience (all Iowa numbers).
http://saunders...-712-area-code/
The reason India (land + mobile) and European Mobile is not included as those termination costs are higher and not profitable for these setups. So the savings you get are not that much (you can already call Germany for 2 or 3 cents). Unless you call all the time for business reasons etc. the savings will be minimal.
Great blog. Thanks.
My UK ADSL provider gives me free US phone calls, so I have been using a similar service bases in Iowa called Future Phone – http://www.futurephone.com. Used this serice for a few months and it works fine although line quality can be poor at times. They also pulled Japan off their system in the new year. I see that AllFreeCalls does not have Japan either so NTT must have got to them. Originally got on to FuturePhone via this New York Times story: http://www.nyti...9e9&ei=5070
Everybody loves a loop hool!
Right on. So get a Skype account pay the $15.00 a year for free long distance in Canada and the US. Then call the number above and you can make internaional long distance calls for just a little over a $1.00 per year. Brilliant.
This is a great example of exploiting a system set up for a different purpose.
From the comments above I read that the 7 cents are subsidized by the government, so in the end consumers pay the service themselves with their tax money, right?
Hmmm..
futurephone.com offers a similar service and Iowa based too!!
I’ve been using a similar service, http://www.futurephone.com for a while, and what a surprise, that’s in the 712 area code, too….
Actually, I was trying to use it more than really using … often there is a message stating “this line is full”, and when the call actually goes through, it’s rarely good quality. More often than not it’s like early internet calls:-(
So this also appears to be the same as ophone.net
Looks like Iowa’s the place to be…
Micheal:
You’ve got it essentially right. The terminating telco always gets access revenue for calls coming inio its territory and terminating on “its” (your) line; Iowa is just the most lucrative and universal access fund money DOES play into that. That’s why several such free services are located there.
More details for those want them:
http://blog.tom...internatio.html
http://blog.tom...rked_citiz.html
http://saunders...-712-area-code/
I understand most of this.
He’s got a CLEC in Iowa. So he makes a small amount per connection, but it’s not a lot. I also believe he needs to own a class 5 switch
He backhauls internationally via VoIP. But he’s still got to initiate the connection to the local foreign number. That’s not free. Unless he manages to get the foreign party to initiate their side of the call…
Please note: this is an Irish start-up by Pat Phelan with an Iowa dial-in number!
http://blog.roam4free.ie/ is Pat.
Too bad I dont need to make international phone calls.
Skype is still “free” to the user if it is skype to skype so until that changes, Im just going to stick with it.
I remember my accountent saying to me once that there are many loop holes in the law that you need to benefit from, but these will keep getting closed and as they do it opens new loop holes.
I can see the law changing soon and kickbacks stopping but then I am sure another loop hole will open to let another free phone call service start…its all fun.
I think this will probably be short-lived, thanks to generalization of DSL connections:
Here in France, most ISPs provide free international phone calls included in the basic internet / phone / TV DSL package (that’s about $38 a month).
It’s free to about 30 countries, and very cheap to others.
Even calls to cell phones to US and Canada are free
You don’t even have to dial a number before the one you want to reach, just plug your regular telephone on your DSL box…
As long as you are home, it’s pretty convenient, what do you think ?
This general business model is old news in the telco business. I have a friend in Israel with a Vonage phone with a US area code. It is cheaper for him to call his next-door neighbor via Vonage via this service, than to use his regular phone from Bezek, the local carrier.
It’s these kinds of silly legal complications that will help VoIP kill traditional telephony.
David Pogue wrote about this in the New York Times about 6 weeks ago. Your understanding of the system is correct–it is essential arbitrage on a system of phone regulations which David Burstein with DSL Prime has explained in greater detail in the comments above.
It works quite well in combination with Skype-out for very inexpensive calls to some countries. It is huge with the Taiwanese/Chinese expat community here in the US. You will find several of these Iowa free call services/websites are pitched almost exclusively to the Chinese community in North America.
Mike,
Dave has it about correct, including the part about a small rural ILEC being the actual source of their right to collect that revenue. However, I think there is less inbound revenue left to work with these days than Dave does (though those numbers were definitely right a few years ago).
I’m former CEO now chairman of a small NYC CLEC, and am fairly familiar with the math. I had initially drafted a much longer comment including wholesale cost examples, but it was lost (user error) and I’m too frustrated to re-create it in full, at least for now.
Based on what LD carriers charge my company wholesale for calls to that number I estimate freecalls.net is working with revenue of only $.01-$.015/minute. However, freecalls.net does offer a few international destinations which wholesale for slightly more than the top of that range, so I could be forgetting to include some aspect of the underlying arbitrage they are working with. It could be that they are simply hoping to build traffic to the edge case destinations and use that to shop for lower wholesale costs.
Also, Although their website doen’t make this clear, it should be said that they will not complete calls to most cell phone numbers internationally, because in may countries those rates are much higher, in some cases up to $.20/minute. Exceptions where the rates are not higher than landline rates include US, Canada, China, HK, Singapore.
I tried about 10 calls last night, all unsuccessful. Maybe they’re still setting up, or maybe they want callers trying more than one time, since they get cost free-revenue for answering any call which doesn’t result in an outbound connection.
Any comparision of this service with Skype is useless. Freedcalls.com is something that is set up to be a low overhead bootstrap model profitable from nearly day one but not all that scalable. Skype’s motivation for offering rates that do not fully recover their costs (Neither $15 nor $30/yr for US & Canada will for most users), is marketing related. They are trying to be disruptive and are desperate to build market share.
Last point. I’m aware of and admire you and Tech Crunch because of being a long-time Gillmor Gang listener. I’m sorry not to be hearing you and the others there anymore and hope something as worthwhile comes along to replace it.
This site has a fascinating overview of ICC:
http://www.nrri...tation.ppt/view
(Well, fascinating to those who are reading this thread and want to know how it works.)
The chart on slide 7 shows rates for ICC compensation. If you happen to be calling from Iowa, this can get really expensive for your phone company.
Really interesting and to echoing Steve G’s last paragraph –
I’m aware of and admire you and Tech Crunch because of being a long-time Gillmor Gang listener. I’m sorry not to be hearing you and the others there anymore and hope something as worthwhile comes along to replace it.
I do miss hearing you on the Gillmor Gang
There’s loads and loads of places that have been doing this for many years in the UK and it all works due to the high local call charges over here.
http://www.telediscount.co.uk/ is the service i’ve used for around 5 years. It can often work out cheaper for me to call family 10,000m than to call friends long distance – 50m away – in the UK. Yay!
Just to say that the service can be reached from outside the USA. I am in germany and I can use it. The fun of it, for some destinations it even makes sense!!
Step 1: Create an Iowa CLEC
Step 2: Give people a reason to call an Iowa phone number
Step 3: Count the pennies
How much could this business model really make? There has to be a better way to monetize the phone traffic… than a penny per minute.
Still very neat! I wonder how he built it…
Pat the founder of this must be a kool guy! I read this new on OkDork.com first!
Here’s Pat’s blog if you want to congratulate him
Complicated Laws are great for Prosumers / Consumers / US
“I expect to revise every sentence in the above paragraph”
That made me laugh. Thanks!
So…what does it take to start up one of these in IOWA? Or can u find a rural part of California and do the same thing?
Steve G
We have had tens of thousands of successful calls in the past 18 hours, can send you ACD/ASR reports if you wish
We have 640 T1 available right now. Thats capacity for 160 million minutes so scalable is not an issue.
We have been in the business quite a while and I will take margin of 1c per minute all day long, I wish
I am CEO of the company and should you have any further connections issue do not hesitate to contact me
The world is moving toward ‘free for individuals’ in many ways. I love it. I hope they make a killing. It’s coming down to what you know, not who you know or how much money you have. It could lead to massive patterns of emerging global equity.
Oh great, it was good while it lasted.
I used to use futurephone.com to make calls to Japan about 2 months ago, but recently Japan is no longer on the free country call list. It was good while it lasted.
Does anyone know of services like this that allows calling to Japan (landline or mobile)? I would appreciate it.
If thats how it really works , it sounds like an awesome way to make money
This has been going on for a lot longer than people realize.
My first paying job out of college was with a chat/phone sex company. During my stint as a “phone sex repairman” in 1993-1994, I built and installed systems in the US and overseas, including luxury hotspots like Guyana. Whether the system was at a rural telco or overseas, the idea was to capture part of the termination fee. It’s easiest to understand this system if you think of a call as two phone calls, one outgoing call from your phone company (be it SBC, Cingular, etc) and one incoming call to the callee’s destination. The system is complicated and outdated, and may seem like a rip off, but its important to remember that these settlement charges usually balance out on most routes (I call you for ten minutes on Cingular, you call me back some other time, and it zeroes out). Situations like AllFreeCalls are statistically insignificant relative to overall use.
What I like most about this is that it creates an easy no-hassle way for telecom entrepreneurs to make money of services like this, conference calling, etc. Without them, you have to bill by credit card or premium SMS (and give 50% away up front), and that severely impacts usage.
From the perspective of a telecom entrepreneur, this system is very much like Google Ads, and an easy way to convert usage into revenue that would otherwise be very hard to accomplish.
They need to add more Russia (outside Moscow and St Petersburg), otherwise it is useless for me. Please, if the “freecalls” guys are reading the feedback on this blog, add Vladivostok and Yuzhno.
Damn, wish I cared.
Isn’t bureaucracy great?
sounds similiar to the loophole that Freeserve discovered here in the UK some years ago. albeit around data access. BT was big enough to get the parasite squashed. this whole freecall thing used to be interesting as businesses all racing to the bottom of the well. both on wireline calls and wireless. but as someone pointed out you need a reason to call iowa. nuff said.
See this http://saunders...-712-area-code/ for a good description of why this works.
These payments are not new, When Internet access started changing phone line use patterns from short calls to 24 hour calls, some independent local telcos (some set up just to support BBS/ISP) were making a fortune.
The theory was that inbound and outbound between companies would balance and if they didn’t the payment would compensate for the imbalance. Needless to say the ISP calls were all one way.
Is there anyway to co-lo a voip server in rural Iowa and get some of this revenue without becoming a clec?
Contrary to what Brian McConnell states, these termination fees do not even out. These fees are not normal termination fees, but higher termination fees paid to rural telcos under the universal service fund (USF), which is funded by a tax that is put on the phone bill of every household in America with a POTS line. This is a massive redistribution of wealth from phone users in urban areas to those in those in rural areas. The USF was set up in the early days of the phone system to promote universal connectivity when it was feared that low density rural areas would be prohibitively expensive to wire for service. In the interim, technology has made that concern moot, but the rural telcos have fought tooth and nail to protect this taxpayer funded gravy train. Allfreecalls has cleverly figured out how to use a portion of this stream of taxpayer largess to subsidize overseas calls (and of course put some of the revenue stream in its own pocket). Hopefully they will be fabulously successful so that the USF
In the report I cited above there’s a chart that shows that 30% of rural ILEC revenue comes from USF. That’s obscene.
Now if you’re upset with your wireless carrier, here’s a way to exact revenge. Call the Allfreecalls number at 9:00 p.m. on Friday night and leave the phone off the hook until 6 a.m. Monday morning.
Hey,
Complain about it all you want, but the only companies that take a hit on this are large telcos, and relative to overall phone usage, calls to these exchanges are not a signficant percentage of their traffic. That’s my point. If the call is originating from a cell phone, the termination fee, even to a rural CLEC, is probably 1/5th to 1/10th what they’re pocketing from the cellular call.
It may not be the intended use of USF, but it’s doing two things that benefit consumers:
1) it makes it possible for telecom entrepreneurs to build products without having to build complicated billing and fraud control systems. They can build the product, and if it’s popular, they make money. Without this, the cost of building a product goes up substantially because of the billing, fraud and customer support headaches.
2) it does redistribute wealth, to tiny companies in a place known as “Flyover Country” to the snobs here in Silicon Valley. good for them for figuring out a way to work the system.
This only works if the termination charge to the country you are calling is less than the call to Iowa. Of course, this is not true for a number of countries. So for example, calling to Iowa from any other state is cheaper than calling from Iowa to India. Hence, they don’t include India.
Another solution to this is to do it the VoIP way, many many providers already do this. They setup shop in a locale. They buy local access lines in each country the want presence and string the entire thing with VoIP. So calls to those cities/countries that have local access lines do not incur IDD charges. If they are based in Iowa then they can even get the FCC kickback.
This way they can support more countries!