≡ Menu

MagicJack trips on tariff ruling

Remember MagicJack, the USB dongle for your PC that let you make unlimited calls for life?  All you had to do was plug it into a PC, then plug a phone into the dongle, and presto… never pay for phone calls again. Not bad for a measly $39.95.

Unfortunately, maybe the promise of unlimited calls for life was a bit overblown.  You see, it turns out that MagicJack’s business was dependent on charging access termination and origination charges to AT&T for calls that terminated on the device, or calls made to toll free numbers that originated on the device – a pretty similar model to the free conference calling model.  Over the weekend, Andy Abramson spotted a piece on Telecom Law Monitor which reports that the FCC has said that MagicJack’s sister company and the access fee collecting entity, a CLEC named YMAX, had improperly charged AT&T.  The YMAX tariff didn’t provide for the types of charges that they were levying on AT&T, which is a strict no-no.

Outcome:  YMAX will have to file a new tariff, and AT&T doesn’t have to pay the outstanding bill.

The longer term issue, however, is the future of this business model.  The incumbents are all fighting hard to put the free conference callers, and companies like MagicJack, which rely on access termination and origination charges out of business.   And it’s working.  So how long before the FCC simply decides to move to a bill and keep regime?  And how long before MagicJack’s customers launch the inevitable class action suit?

{ 5 comments… add one }

  • Brad Templeton April 13, 2011, 2:06 pm

    Well, in general I disapprove of playing forced tariff games and I would not want to base a long term business model on it. I know you did this for a while with Calliflower but you've switched to more of a paid subscription model so you may have come to this way of thinking. Any time you're using a legal trick to make people pay you more than they want to, it's not going to be sustainable.

    On the other hand, it's silly that phone service costs per minute. And that, in turn, is thanks to related tariffs. I suppose one might support the tricks by saying it's one bad tariff against another, but I would rather have a world of completely unregulated prices, and no termination or origination fees paid by anybody but the owner of the endpoint in question, who gets to negotiate them.

    That turns out to be the big flaw in European mobile pricing. They argue that making the caller pay is good because they decided to call you. But the caller has no power to negotiate the price with your mobile carrier, and so the cost is now one of the most expensive calls in the world. I hate calling Europeans on their mobiles. The US/Canada model, the airtime is paid for by the person who negotiated the cellular contract, send or receive, turns out to be vastly superior.

    So it should be in landlines. I should pay for my end, you pay for yours, and if there is particularly expensive transit, then you can talk about having the caller pay (competitive rates) or the receiver deciding to offer to pay those, 800 style.

  • Aswath Rao April 13, 2011, 4:35 pm

    I think this story needs further analysis. For example the CEO of Vocaltec has refuted (http://blogs.forbes.com/ericsavitz/2011/04/12/update-magicjack-responds-to-fcc-ruling-in-att-case/) the commonly held belief on the impact FCC decision will have on his company. I am not saying that I believe him; but contrarians have to refute him. If access charges constitute a large portion of their revenue, then it reasons that they will try to increase incoming calls. But their architecture favors call originations. Also, recently they announced some incentive programs for those carriers who will agree to Bill and Keep tariff. This could be a cynical ploy. But at least it should be noted and responded to. Their charges are not too far off compared to other players like Skype and Nettalk.

    Ultimateley, they are a public company. So they can not hide the financial performance for too long. Can they?

    On the other hand, I seem to be in the minority on how very many commentators, including you are able to conclude that their business plan is highly dependent on access charge revenue. Is that the reason Skype can charge such a low amount? I seem to be totally disconnected with the mainstream.

    • Rosa November 4, 2011, 2:38 pm

      Unparalleled accuracy, unequivocal clarity, and uendinbale importance!

  • Brad Templeton April 13, 2011, 8:34 pm

    The thing that keeps the access charge business alive is that most carriers are keen on charging flat rates for long distance, because customers like the simplicity. And the rate customers like the most is "zero" which is the norm on almost all mobile phones and many other phone plans that have a fixed monthly plan with unlimited long distance.

    The issue is that when you call rural Iowa, the rates were set up so that the charge to terminate there was much higher than in the urban US. The idea was that long distance callers calling in would subsidize the high cost of putting in telcos in small rural places. Instead, people put in conference bridges at low cost that didn't need subsidy to exist, but did like getting subsidy for bridging. There is no technical or normal business reason the conference bridge or other numbers would go there.

    If you pay non-flat-rate for your LD, as SIP wholesalers charge, you quickly find out the free conference call bridges are far from free. While you might pay half a cent a minute to call most people, you can be paying 2 to 6 cents/minute to call these "free" bridges. If you have a mobile you pay the same no matter who you call, and your carrier gets stuck with the bill. In the old system they just figured they could handle it because only a tiny fraction of calls are to rural Iowa. Suddenly people were making 3 hour calls there on flat rate plans. No wonder they got upset.

  • Madhur March 26, 2012, 1:02 pm

    Just to let you know, MagicJack Plus has been released. It is extension of magicjack however it does not require any computer attached to it.

Leave a Comment