At FeeFighters, we’re constantly on conference calls with other companies. We’re a scrappy startup, so we use free services when we can. I’ve been using a free conference call line from freeeconferencecall.com for the past year, and wondering – how is it free?

I chose freeconferencecall because they were the first link on a google search (as it turns out, there are hundreds of these services out there). It works fine and I see no reason to upgrade, other than the intro that says “welcome to freeconferencecall.com,” which is sort of annoying. The nice thing is that I have a number I can use anytime and I don’t need to make a reservation to use it. So my first guess was that they offer this service for free by upselling to their premium version, but I haven’t once been upsold via email or anything to get the premium version of the account. So either they are terrible up-sellers or they are making money another way. It’s the latter here:

How it all works – Termination fees + Traffic pumping

Termination fees

The telecommunications act of 1996 allowed small rural phone companies to charge other larger phone companies a “termination fee” to access their lines. Basically, if you had a small phone company in Iowa or South Dakota, you could charge AT&T or Verizon when folks called into your area code. I have cell coverage via AT&T (unfortunately), so when I call a rural number in Iowa, AT&T has to pay a termination fee (which is actually billed per minute) to that provider in Iowa. The government allowed this to happen because small phone companies had high costs to throw up a line to that rural Iowa farmhouse, but they don’t make much money from it.

It used to be that you’d pay long distance rates depending on where you called, and you’d pay more to call those locations. In the past decade or so, with the onset of cellphones and flat-rate long distance plans, the phone companies just assumed that only a small percentage of people would actually call those numbers. The fees that AT&T and the larger companies pay the small companies are 10-20x more than the normal fees – termination rates range from .3 cents to 20 cents per minute. The rural companies get a great deal – the more calls that they take, the more money they make.

Traffic Pumping

More traffic = More $$$! So, they had a brilliant idea!

If they can get businesses with a lot of incoming calls, like conference calling companies, they could make a lot of money. So they started cutting deals with conference call companies, phonesex lines, etc. If the termination fee at a particular location was 8 cents, they could pay a conference bridge company 4 cents per minute and still make 4 cents on the call. Conference calling is relatively cheap to setup, so these companies are able to offer free service to customers like us and still make 4 cents per minute. It’s all about using more minutes… Freeconferencecall.com does ~20 million calls per month and it did $23million in revenues in 2010. So it’s a win-win-win right? Freeconferencecall wins, the conference callers win, the rural phone companies win, etc… Everyone, that is, except for the large phone companies. They are paying a ton of money to the small companies. AT&T estimated in 2007 that they were paying an additional $250 million to connect these calls.

My conference call yesterday betweenÂ people in Chicago, Raleigh, and California was deliberately dialed through Iowa just so freeconferencecall.com could make money off the inflated rates regulations to rural phone companies, at the expense of the long distance companies. Lets say it cost our providers 8 cents a minute… the one hour call cost our providers a total of $19.20 (4 participantsx8cents*60mins)!

No surprise then, that the large telcos have been lobbying hard to get rid of this provision. AT&T & Google Voice are facing off in court about this issue. Google Voice does NOT allow you to make calls to these numbers… Wanna try? Call our freeconferencecall number at (605) 475-4000 from Google Voice or a Vonage number. It won’t connect you. Google Voice, as a VOIP solution isn’t required to connect you to every phoneline, as the traditional carriers are.

It is likely that the time of free conference calls are coming to a close, as the FCC has been actively talking about eliminating the arbitrage, and frankly, this is an obvious loophole.

TL;DR – Free Conference Calls aren’t really free. The costs for them are embedded in your phone bill because they are connected through rural phone stations that get paid (up to 20 cents/minute) via an outdated regulation.

Image By Andres Rueda