A legal fight involving two Southern California companies and AT&T Inc. is exposing an ominous reality: Phone companies say they can decide whom their customers can’t call.
The Kidney Cancer Assn., a small charity watching its nickels and dimes, found that out the hard way. The nonprofit had been using a free, Web-based conference-calling service from a Long Beach company to connect patients with medical experts.
But last month, the charity’s cellphone provider, Cingular, began blocking calls to the system run by FreeConferenceCall.com. The same thing happened to Richard Rezabek, a software consultant, when he tried to conduct free conference calls with his U.S. Navy clients.
“For two days, I had to pay to arrange long-distance calls, paying 30 to 40 cents a minute for each caller,” said Rezabek, of Mexico, Mo. “I couldn’t charge my customers — I had to swallow that cost.”
Swallowing the cost is exactly what Cingular parent AT&T, Sprint Nextel Corp. and Qwest Communications International Inc. are saying they’re forced to do when they pay the high fees smaller phone carriers charge on the back end to connect callers. The conferences may be free to the consumer, but they’re costing long-distance carriers millions of dollars.
The blocked calls exposed a long-brewing dispute over how much it really costs to complete calls over a nationwide public telephone system that connects separately owned networks.
It was believed to be the first time that the disagreement had spilled into the consumer’s consciousness. The fight also extends to free calls to sex-chat numbers and other call-in services.
AT&T said its service contracts allow it to block certain calls, but it recently allowed customers to start calling the free conferencing numbers again. Still, the nation’s largest phone company asked federal regulators in a letter Wednesday to halt the services, which it called “traffic-pumping schemes” and “scams.” The company also is refusing to pay some bills, which has prompted six Iowa carriers to sue it for $12 million.
The Federal Communications Commission, which said it had received more than 1,000 complaints from consumers about having their conference calls blocked, said that it would look into the matter. Meanwhile, all the major carriers have agreed not to block any calls for now, said FCC spokeswoman Tamara Lipper.
The FCC has been working for the last six years on ways to overhaul the complex system governing intercarrier compensation but has not yet come up with a formal proposal.
“This shows in a significant way how screwed up the system is and how unfixable it is,” said Jonathan Askin, general counsel for Pulver.com Inc., an Internet telephony and video company.
Free conferencing services like to use rural Iowa phone companies partly because the state deregulated pricing controls in the early 1990s, allowing carriers to charge as much as 13 cents a minute for each “free call” — then share some of that money with the conferencing services that steer calls to them.
AT&T saw its monthly bill from one of the Iowa companies, which serves a town of only 250, soar from $2,000 to $2 million as out-of-towners began calling in for conferences, AT&T Senior Vice President James W. Cicconi wrote to the FCC.
“If some people are receiving services for ‘free,’ someone else is paying for those services — and in this case, they are also funding the massive profit margins [of] this scheme,” he wrote.
Also in the letter, AT&T said the schemes also involved international call forwarding and a pornographic service that gets around any blocks parents have put on calls to 1-900 numbers.
David Erickson, head of FreeConferenceCall.com, said his company was working within the FCC’s rules. The company markets its free teleconferencing service as a loss leader to attract customers to such paid services as data conferencing. A dozen rural Iowa phone companies also pay him marketing fees — his piece of the access charges the big carriers pay the small ones for each of the 5 million call connections a month he sends their way.
In Los Angeles, a similar company called FreeConference.com has done the same thing.
“Essentially, we’re generating long-distance fees,” said Alex Cory, the company’s chief executive.
Meanwhile, the Iowa phone companies they use have filed tariffs with the FCC that raise the amount of access fees they receive from AT&T and others from about 2 cents a minute to as much as 13 cents a minute.
Josh Nelson, who operates Great Lakes Communication Corp. in Spencer, Iowa, likened the free services to calling cards bought at retail stores.
“They’re a carbon copy of 99% of the calling card platforms that operate today,” he said.
Jonathan L. Rubin, a Washington lawyer for FreeConference.com, which filed an antitrust lawsuit against AT&T, said the big carriers were upset “because their business model discounts long-distance steeply, so when call volumes go up, their revenue doesn’t go up as much.”
“Instead of adjusting and dealing with reality, they’ve got a monopolist’s mind-set and think that everything should conform to how much money they should be making.”
The big carriers, though, say the Iowa companies and the conferencing companies are essentially stealing money.
Qwest, which has filed legal actions in Iowa against the rural carriers and their conferencing partners, contends that the Iowa and California companies are abusing a system set up to help small-town carriers defray the high cost of delivering affordable phone service to rural customers.
Sprint said it would take appropriate action to stop “profiteering” by the Iowa companies.
“We do reserve the right to block these calls,” spokesman Travis Sowders said.