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Foonz hangs up. Who’s next?

It caused a minor ripple in the VoIP blogging world today when free conference call provider Foonz threw in the towel.  It’s no surprise, however.  Free conference call services (including our own Calliflower) have been under enormous pressure from unhappy long distance carriers.

Background: The “free” business model works by arbitraging inter-carrier termination fees.  Locate your service with a higher cost carrier – such as a rural – and then collect a share of the fee that the long distance carrier pays to that rural carrier.  For many folks that model worked well.  Rural carriers were happy to receive the extra revenue, service providers could deliver services that piggy backed on the existing telecom billing infrastructure, and so long as traffic wasn’t too high to these services, the long distance carriers didn’t care.

That all changed as the VoIP marketing campaigns took hold.  As customers demanded flat rate billing models, inclusive of long distance, carriers started to examine termination fees much more closely.  They also began to take controversial, and in some cases illegal, steps to discourage customers from using these services.

First, carriers disrupted service.  Indeed, sometimes this still happens.  A user of a free service may call the number only to encounter the “all circuits are busy” signal.  It’s clear that their carrier is disrupting the service.  I’ve been on support calls late at night and able to reach Calliflower but an AT&T customer can’t.

Next, long distance carriers refused to pay the hosting rural carrier.  For well over a year now, major carriers have been refusing to pay termination charges, claiming that they are illegal and demanding a review.  Likely this is what has driven Foonz out of business.

The latest tactic I’m hearing from our customers is that some carriers – for example CenturyTel – are excluding conference calling, chat line, and other kinds of services from their unlimited callling plans.

It’s a pattern of harassment designed to starve and bully service providers such as ourselves out of business.  But rather than harass the service provider, why don’t carriers look to the root of why service providers choose a revenue model based on arbitrage?

  1. Arbitrage models don’t require the creation of an expensive billing system.  We simply rely on the carrier to bill the customer and receive a portion of the revenue.
  2. Arbitrage models are completely friction free – customers simply call the number and use the service.  There is no requirement for any sort of sign-up or service provisioning.

Rather than fight the service provider, why not provide an equivalent service as they have in parts of Europe?  For example, the national 0845 numbers in the UK are premium tariff numbers, as are the 09 numbers in France.  And yes, we have premium tariff numbers in North America – 900 numbers – but the UK and France premium tariff numbers only charge a small premium as opposed to the $1 or more per minute premium of a 900 number.  The carriers could solve the problem by providing a service provider friendly tariff allowing a revenue share.

In the meantime, at Calliflower we continue to provide our free service, and we remain hopeful that some portion of the outstanding bill owing to us will be paid.  However, our energy – development, marketing and sales – is going into building features for our premium calling service.

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{ 2 comments… add one }

  • Stephan Monette May 22, 2009, 12:52 am

    As a Canadian carrier, we have to pay huge per minute fees to terminate calls to RBOCs in the USA and/or Canadian Independent telcos (sometimes up to 12 cents/minute!).

    Why? Because those regional telcos needs the extra revenues to help pay for their infra-structure to offer the same level of phone services everywhere in the country regardless of distance to their local customers.

    I have no issues with this way of financing their network. I know how much it cost to build one. But I do disagree with any type of providers using the RBOCs or independent telcos to generate revenues on services that none or very few of the local customers are using anyway (RBOCs customers).

    I agree with the big carriers not to pay the bill, I wouldn’t either base on how the service is being used. In every telecom contract, there’s always a term about abusive conduct and this type of business is considered being abusive and this is how the big carriers will win this battle.

    So the service providers offering free services under the RBOCs network should be looking at another way to generate revenues within the next 3-6 months because this scam with the RBOCs is getting close to the end.

    Sorry!

    • Alec May 22, 2009, 12:10 am

      Understood, Stephan. It should be particularly galling that the termination fees aren't being received by the terminating carrier. That's theft!

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