If there’s no such thing as a free lunch, how can there be a free conference call?
If you work in an office or perhaps spend your time telecommuting, you probably know about free conference calls. Years ago, conference calls were expensive and laborious to set up. Now, they’re free and easy. FreeConferencing.com is one, but there are many others as well. They all have a similar business model. Jump to a website, register, and you’re provided with a phone number and access code. From that point on, all you have to do is send colleagues a time for the call, share the number and code, and soon you’re connected. No credit card, no bills, and no ads.
How is this wonderful miracle possible?
The short answer is, the government screwed up.
It probably should be obvious that it is a lot cheaper, on a per customer basis, to provide phone service in urban areas than in spread-out rural areas. Stringing telephone lines miles between farmhouses costs far more than wiring a city apartment building, meaning rural consumers in theory should be paying far more for service than urban consumers.
But, because this is one country, the thought was that — just as it costs the same to mail a letter next door as it does across the country — we should make sure that everyone had equal access to phone service. The solution was to use subsidies to even things out. As a result, long-distance carriers and telephone customers elsewhere pay higher fees — by as much as 100 times more — to connect incoming calls to rural carriers. Those extra fees are supposed to help the rural carriers build and maintain their networks, keeping costs for rural customers pretty much the same as they are for everyone else.
Enter the free conference call services, as well as a number of others such as adult chat lines (where adults chat about the experience of being adult, I guess) and dial-to-win services. They cut a deal with the local carrier to share the revenue for every call they bring in. They then get as many people as they can to start dialing and, as the volume of calls increases, the profits mount as well. It’s called “traffic pumping” or, in the more anodyne language of the Federal Communications Commission, “access stimulation,” and it’s left much of the rest of the telecommunications industry steaming. A 2010 study estimated the annual cost of traffic pumping was over $150 million.
In 2011, the FCC responded, adopting rules that tried to address the problem by allowing it to reset the subsidies to a lower amount if too many outside calls were coming in. Carriers and the traffic pumpers have been battling back in court. Just this year, though, a carrier in South Dakota — the state has historically been a haven for traffic pumping — lost its lawsuit, and some predict the era of free conference calling may be nearing its end.
As it should.
What’s fascinating about this tale, however, is that problems such as these are hardly confined to the telecommunications industry. Good regulation, it turns out, is hard to do. Raising the legal drinking age is believed to have increased marijuana use among the young. Imposing tough environmental requirements on, say, new power plants makes it more likely that old — and dirtier — plants remain in use. Intricate tax rules drive businesses to set up operations off-shore.
Rules and regulations are adopted with the best of intentions. But the real world is so complex that even the most comprehensive schemes can leave us with perverse results and unintended consequences. Some might say this argues for no regulation at all, but in the case of rural folks, that would have essentially left them without phone service. The lesson, I suppose, is that regulation is needed but imperfect — and there’s always someone around to take advantage.
Tom Keane can be reached at email@example.com.