Free International Calls Are Latest Threat to the Telcos

Amazingly, a company called Futurephone is offering free international calls. In David Pogue's words:

There’s no contract, fees, taxes, signup, registration or calling cards; you don’t even give them your name or e-mail address. You just pick up the phone—home phone, office phone, cellphone—and make a free call to Argentina, Australia, China, England, France, Iceland, Israel, Mexico, Venezuela or any of 40 other countries.

The possible catch: you reach Futurephone’s international dial tone by calling a number in Iowa, which is a domestic call that you have to pay for.

Of course, for a lot of people, that’s still free. Use your cellphone on a night or weekend, for example. Or sign up for a flat-rate unlimited calling plan at home. Or see if your office has an unlimited long-distance plan.

So here’s how it works: Call 712-858-8883.

At the prompt, press 1 for English. Then punch in 011, the country code and the phone number. That’s it. The call rings through immediately.

Truth is, I don’t know what Futurephone’s game is here. They say they’re giving away the calls in order to “build up the company’s brand-name recognition. Our plan is to offer additional services in the future.” And they promise that this freebie will be in place for at least three years, through 2010.

I tested out this service, and it’s exactly what it promises to be: free overseas phone calls. I chatted casually with my friend Guillaume in France and Albert in Spain (whom longtime Pogue’s Posts readers will remember as my Barcelona tour guide this summer).

The one disappointment: I couldn’t seem to reach cellphone numbers. The company says that it’s still working out agreements with the cell carriers in some countries.

Otherwise, the sound quality was about the same as any overseas call. The only difference: it was all free.

More bad news for the US telcos (BLS, T) and Vonage (VG). And eBay's (EBAY) acquisition of Skype now looks even more expensive...

Full disclosure: I own LEAP puts in BLS and T at the time of writing.

Comments

[Todd Corbett]

Wouldn't one need a phone service in order to dial the number in Iowa?

[DavidJackson]

Yes, you do. But once you've signed up for an unlimited local and long distance plan, you won't need to pay extra for international calls if you need to make them. It's just another incremental negative for telco revenue, not a sea-change.

[Tate]

Hi David, interesting company.. I'll check them out. I've been experimenting with Jajah.com which also allows you to make free international calls. Although I believe there are restrictions such as limited to one hour of talk time per day. It looks like it has an advantage over future phone because they allow you to call cell phones. Just sign up for an account, put in your number, their number and jajah does the rest. They use VOIP for most of the call and the telcos for the last mile if I'm not mistaken. I prefer it over skype because I'm not tethered to my computer. Just the other day, I clicked the call button on the Jajah.com site, I pick up my cell phone, it connects me to the destination and I'm out the door having a phone conversation with my friend in Paris from the US. The call quality isn't perfect which should be expected, but not poor either. A 45 min. call to Paris entirely free.. very cool!

[SeekingAlphaEditors]

I tried FuturePhone and found that the call quality was good; but the lack of access to cell phones is limiting.

[Alex Smith]

There have been similar services in the UK for some time now (see www.dialabroad.co.uk/m...) and these do not seem to have impacted the bottom line of the telcos or cellcos to the detriment of their share prices. Perhaps the telecos and cellcos have already realised that the next battleground is data and that voice margins have been eroded so far they are not concerned about more competition...

[StephanBeckert]

Futurephone, RIP. Their service has been shut down.

Futurephone was an arbitrage play that took advantage of high network access rates in rural Iowa. Access charges are the main cost factor in the voice business--internationa... transport, itself, is now dirt cheap. Access charges in some rural jurisdictions in the US are many times higher than the access rates charged by incumbent carriers in many OECD countries. Futurephone worked by having the user place a call to Iowa, and then "reoriginating&qu... the international call. Futurephone's business model banked on the assumption that most US callers now have some form of unmetered or flat-rate domestic long distance service, so they would, in effect, be making "free" international call. Futurephone wouldn't permit calls to mobile phones abroad because mobile network access charges, particularly in Europe, tend to be far higher than fixed-network access charges.

However, in any arbitrage play, somebody has to pay. In this case, it's the long-distance carriers used by Futurephone subscribers, who are forced to pay the high access rate charged by the rural carrier in Iowa. Also, arbitrage plays don't scale well, so I doubt they were ever a real threat to long-distance revenues (which is not to suggest that LD is a healthy business).

I'm not sure why Futurephone's service has been shut down. I assume that Futurephone had some sort of revenue sharing agreement with a rural phone company in Iowa, and that the rural telco ended this agreement due to regulatory pressure.