Wed 2 Feb 2011
When you make a one-minute phone call, the long distance company that charges you a few cents a minute has to shell out a wee little bit to a few other entities. How little? Typically some tiny fraction of a cent. The local originating company gets a fraction of a cent for handing the call to the long distance company, a database service gets a bit to look up the called number to see if it has been ported, another gets paid for looking up your name for caller-ID, and so on. Finally, the local phone company at the other end gets a fraction of a cent for delivering the call to the phone at the other end of the call.
All of these charges add up, but they still make a coast-to-coast call a real bargain. Long distance companies can stay in business with rates under a nickel a minute even after all of these micro-payments.
This works out well for everyone unless you call one of the 772 residents of Battle Lake, Minnesota, area code 218, prefix 862. Your long distance company has to pay a lot more to terminate a call there, perhaps as much as 25 cents a minute instead of a fraction of a penny.
Back in 1996, the FCC changed the rules regarding telephone access charges charged to long distance companies for delivering calls to rural areas. This rule change helped to subsidize rural telephone companies serving sparsely-populated areas in order that they could modernize their equipment and deliver broadband access. Maintaining phone service to farms where ten miles of wiring and infrastructure is needed to serve a few dozen subscribers is more costly per subscriber than in New York City where ten miles of infrastructure serves tens of thousands of businesses with people on the phone all day.
The FCC’s reasoning was that the huge rate disparity would work out well for everyone. Battle Lake only has 772 people and New York City has millions. Long distance companies can afford to lose money on the miniscule number of calls that land in Battle Lake. The lost revenue for the few calls that terminate there would be trivial. Nobody calls Battle Lake. The few that do help the local phone company stay in business. Because the call volume is so small, you won’t see a surcharge for calling Battle Lake like you would for calling a 900-number. For every call to Battle Lake there are a million to other places without the surcharge.
This is a win-win for everyone until somebody gets greedy. The phone company in Battle Lake justified that hefty surcharge to the FCC based on the high cost of providing phone service to a rural farm town of 772 people. It has to maintain all those miles of pole line, operate the central office, pay for electricity, etc. If suddenly the population of Battle Lake all become overnight celebrities and receive millions of minutes of phone calls, then the rural telco in Battle Lake makes a hefty profit.
That’s called Traffic Pumping. It works out very well for the phone company in Battle Lake, not so well for everyone else. Many of the services previously offered on 900-numbers such as chat lines and conference services can now be offered at “Normal long distance rates” to drive profitable calls at the expense of everyone calling. Mild examples can be found here and here.
Sounds pretty annoying, but heck, how many people really call 900 numbers anyway, right? And the reality is that if the traffic was limited to late night calls from lonely, people to Battle Lake numbers no one would really care. But when mainstream companies start offering “free” conference services for business use, and it’s not just Battle Lake, but many other rural towns areas like the small towns of Ireton in Iowa, Minden in Nebraska, or Leitchfield in Kentucky the game starts to get serious. When one of the most popular web conferencing service providers in the country offers “free” conference calling with their web conferences, things really start to get ugly.
In our example, the phone company in Battle Lake splits the profit with the traffic pumper. They have gamed the system to make a lot of money based on the false premise that their rates are justified to support basic phone service to a small rural town. The rest of the carriers fighting over the ever-shrinking per minute charges for long distance calls are the losers, as eventually are their customers. Hardest hit are innovative telcos offering flat rate or bundled long distance whose customers view long distance as “free”.
When someone games the system, the system games back. There are numerous lawsuits over the practice of traffic pumping, including one from AT&T. Some long distance companies absorb it and pass the costs along to all of their customers. Some, such as this one, may simply refuse to deliver such calls at all. The legality of blocking is kind of a grey area.
Another way the system is gaming back is to allocate trunks based on the same metrics that were used to justify the subsidized rates in the first place. If there are only 772 people in a town, then there’s no imaginable need for every long distance company combined to provision more than 772 inbound trunk lines and in reality it would be much less than that based on normal usage patterns. If everyone in town is on the phone, just return a busy signal. When 800 people are calling a Battle Lake phone number for their company’s weekly web conference though, reliably connecting a normal call to Battle Lake approaches the odds of being the tenth caller to the radio station and winning the car.
The long story short, everyone loses other than the greedy terminating telco and the traffic pumpers. The rural farmers who were supposed to benefit can’t reliably receive phone calls, and when they do they’re either at exorbitant rates or will be soon. The other long distance companies have to raise rates overall. People trying to use the free services for business purposes are frustrated with dropped calls, inability to connect, and busy signals. Service representatives and technical people at other communications carriers have to deal with angry customers.
You get what you pay for. For business conference services, there are providers with high quality equipment, adequate capacity, and professional quality. Most of these use a toll-free number such as an 800 number and bill based on the duration of the call.