Monday, October 22, 2007

How 2 Guys' Iowa Connection Took Big TeleCom For A Ride

THE FOLLWING STORY IS REPRINTED FROM THE WALL STREET JOURNAL
This is a story about the origins of the free conference service industry. Free TeleConferencing is not associated with Free Conference Call or David Erickson

RICEVILLE, Iowa -- Two-and-a-half years ago Ron Laudner was the anxious owner of a rural phone company serving this tiny town, where Main Street was emptying out as restaurants and other businesses disconnected their phones and moved to busier commercial districts.
More than 1,800 miles away, David Erickson was running a Web-based conference-calling business in Long Beach, Calif., shopping around for phone companies to be his partners.
In mid-summer 2005 this unlikely duo struck a deal. They routed millions of minutes of Mr. Erickson's conference calls through the switches of Mr. Laudner's Farmers Telephone of Riceville. To do it, they used outdated federal regulations to charge telecom companies such as
AT&T Inc. and Verizon Communications Inc. steep rates and collected huge profits at their expense. Together, the two made hundreds of thousands of dollars. Soon, Mr. Laudner cut other deals to generate even more traffic. At the peak, his little telephone company was facilitating conversations among everybody from Mary Kay Cosmetics employees to customers of Male Box, an "all male all gay" chat line.
"I'm not going to argue I didn't think it was amazing," Mr. Laudner says.
But the big phone companies had another term for it. "Verizon is not going to stand by while irresponsible companies use this traffic-pumping scheme to overcharge our company," says Tom Tauke, vice president of public affairs, policy and communications for Verizon.
The deal between Messrs. Laudner and Erickson illustrates how tumult in the telecom industry has given rise to opportunities -- and headaches -- as entrepreneurs exploit outdated regulation. Their arrangement, and deals like it, spawned lawsuits, blocked phone calls and triggered an investigation by the U.S. Federal Communications Commission into the high fees some rural carriers charged to the Bells. Late Tuesday, the FCC proposed rules that, if approved, are likely to prevent such deals in the future.
"We got smacked and smacked hard," Mr. Laudner says.
The partnerships benefited from the confluence of hot demand for conference calling and a proliferation of cheap long-distance plans. But the key was federal rules drafted during the 1983 break-up of Ma Bell, which required big telecom companies to pay hefty fees to small carriers to compensate for the high cost of providing service across miles of sparse farmland. Today, because of new technology, hundreds of callers can be linked at very little cost, no matter their location.
The Iowa plan worked like this: Mr. Erickson's freeconferencecall.com assigned a local Iowa telephone number to a group offering a conference call. When customers dialed the number, they went through their own carriers -- say, AT&T -- to be routed to Farmers Telephone in Iowa. Farmers Telephone then linked the callers to each other. Farmers charged the Bells steep rates to transmit their customers' calls and split the proceeds with freeconferencecall.com.
Mr. Erickson is a 42-year-old high-school graduate from Long Beach who gave up a childhood dream of becoming an architect to instead run construction companies that built machines for designing curbs and gutters. He dabbled in running insurance companies briefly before getting interested in telecom by going to a trade show with a friend and being wowed by a device that allows videoconferencing between PCs.
Mr. Erickson formed freeconferencecall.com in October 2001 working with a Boston phone company. He handled the marketing to attract customers to the service while the phone company provided the phone numbers and transmitted the calls. Mr. Erickson's business plan was to give away free conference calling and sell businesses other things, like a service that would allow users in multiple locations to work on spreadsheets simultaneously.
To read the whole story go to the Wall Street Journal

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