By now, you might be sick of hearing about Futurephone, the company I recently profiled in my blogbecause it offers totally
free international phone calls to over 50countries. No signup, no fees, no surrendering your name or address.Man, we’re a cynical bunch these days. Very few of you werepersuaded that Futurephone’s business plan is what its chief executivesays it is: “to build up the company’s brand-name recognition. Our planis to offer additional
services in the future.”Last week, I attempted to shoot down some of the sillierexplanations of Futurephone’s real game — the ones where readersspeculated that the company is going to harvest its customers’ phonenumbers (why? — isn’t the phone book much more convenient?) or listenin to the calls (wayyyy too boring to be plausible).This week, several of you suggested that Futurephone’s actualbusiness plan is far more complicated — and far more plausible. If it’strue, it’s incredibly clever. In his blog for example, Alec Saunders explains this game of telecom arbitrage like this: “Ever wonder why it is that FuturePhone, Radio Handi,FreeConferenceCall, and PartyLine Connect all have access numbers inthe 712 area code? These services all provide ‘free’ services to you.There’s ‘no catch.’ You just have to make a long distance call to getthem. “So how do these services get paid, and why are the access numbers all in Iowa? The short answer is tax subsidies.”He goes on to explain that our government gives the states money tohelp them with maintenance and improvements to local
telephone plants.There’s also an invisible tariff involved, amounting to three cents perminute collected by the *terminating* phone company.Alec speculates that Futurephone is performing a sort of tariff arbitrage.“Let’s take FuturePhone as an example…All you have to do is call 712858 8883 (a number provided by the tiny Superior Telephone Coop inEstherville, Iowa), and then enter the international call you want tomake using the standard 011 prefix.“So how do they make money? … Say that FuturePhone’s cost toterminate the call is 1.25 cents. That leaves 1.75 cents per minute tosplit with the folks at Superior Telephone Coop. Give them half, whichleaves you 0.875 cents per minute, and you’ve got a pretty attractiveproposition … Everybody wins! The good citizens of Iowa win (they’venow got a fiber network joining up 150 of their independently ownedtelcos), FuturePhone has a seemingly profitable business model, and youwin by getting cheap overseas calls.”