Back story: Austria is one of the most competitive countries as far as mobile phone plans go. There were three big companies, A1 (previously state-owned, a bit similar to AT&T), One (now Orange, owned by French Telecom) and Max (now T-Mobile, owned by German Telecom). In 2003 a new company, Hutchinson 3 (branded as "Drei") emerged. Backed by (for a small country like Austria) seemingly unlimited money from Hutchison Whampoa they built a completely new network (again: Austria is pretty small). They only cared about getting customers and started a price dumping war with the other three players.
In 2007 Hutchison 3G introduced a new kind of mobile plan called Sixback. Because of the - in their opinion - high termination fees they offered 6 (Euro-)cents per minute on incoming calls from the three other providers. In Europe you don't pay for incoming calls like you do in America, but getting paid for incoming calls was new. The plan became quite popular, there have been reports of peoply having over two dozen SIM cards from other providers just so they could "load" their Sixback plan using the free minutes from the other plans and then transferring the money via a 0900 number. (0900 is the area code for phone sex and similar numbers where you pay a lot of money per minute and the receiver of the call receives most of that money).
Of course the other providers hated Hutchison 3 for that plan, but that quickly turned around when the regulation body lowered the termination fee, so that every Sixback call now loses money for Hutchison 3. They don't offer that plan anymore, but there are lots of customers who still have that plan and obviously refuse to be switched to a newer plan.
I had an interesting experience with ATT. I was into the 6 month of a 2year contract back in 2007. I wasn't using my phone much (non-iphone). But then I went on a road trip to Yellowstone, which included driving through ND, SD, MT and WY. During this 7 day trip, I was using my phone a lot (work + personal). The total amount of minutes I spent in those 7 days were way more than my usual monthly usage (in fact it ate into my rollover minutes as well).
After a few days from returning, I received a letter from ATT telling me that they could not afford me on their network for using so many minutes, as they had to pay their partner n/w in those states (not just major cities in those states). They wanted me to leave their network, in return they would let me have the phone (under contract for free).
I was happy to oblige as I wanted an iphone. I switched to Tmobile for a week and then went back to ATT again (iphone plan).
However, they let us out of our contract, gave us the phones, and paid us for the phones (since we had just renewed with them) at around $200 each.
It was quite a pleasant surprise.
Edit: And then they bought a tower in town when the iPhone came out. Go figure.
I was in MN back then (when I took the trip). ATT was expanding then in north mid-west. Even in MN, their coverage improved between 2007-2010.
I was driving through I-90 which cuts across SD and even stayed overnight in Rapid City. I think I had good signal, which I must admit was surprising on ATT, though, I wasn't aware it was from their partner n/w backs then.
I found this incident funny, 'cos this business had the sense to know how telecoms worked, knew the law and exploited the loophole to make money :-). Sometimes, I think its just connecting the dots as Jobs said.
Verizon purchased Alltel, but was required by the FCC to sell off 105 of the markets, which is where ATT stepped in and bought a bunch of those markets.
FWIW, my Alltel account was switched over to Verizon in 2009.
I used to work in rural northwest Iowa. We had a "programmer" (to use it loosely) quit to work for a company who's sole purpose was to abuse this system.
They ran a "phone company" in a small town and then connected a big asterisk box at their local exchange to accept free conference calls. They then installed smaller asterisk boxes in other businesses that were a long-distance call away with for the sole purpose of keeping the lines coming into their conference box 95% full 24x7 with bogus calls from 5-45 minutes long.
There will be complaints that revision will kill jobs in rural areas. Thus does the regulatory state accumulate, and willfully retain, misallocations and distortions.
This sort of rent-seeking and regulatory arbitrage is an inevitable outcome of regulation. Notice that while the stated goal is support for the little people, it's insiders and sharpies and incumbents who benefit most. Remote phone service seems a worthwhile goal, and I'm not sure I see a clearly better way of doing it, but let's just keep our eyes open to the costs.
If the call is not ultimately terminated at an actual human resident of the area then no termination fee shall be paid.
On the other hand, there are plenty of local CLECs in rural areas that make money from these fees, and they continue to lobby hard to keep the tarriffs and fees as they are.
So it's both, really.
In any event, do cell phones make this whole model pointless (or are there similar ways to encourage building towers in the middle of nowhere)?
Remember too that there are maintenance and replenishment costs. Over the long run, all costs are marginal.
Consider: why do termination fees exist? Clearly, as America was being wired with telephone service, the cost to run lines to rural areas was prohibitively expensive. So what's the capitalist/Randian thing to do? Well, charge more for phone service out there. If people can't afford it, then they'll move to where it is cheaper to have a phone line, right?
Except you have to consider why people would live in these rural areas to begin with. For a large number of individuals, they are probably farmers (or involved in food production). If they have to pay higher rates for phone lines, then they would have to raise the price of food to make living in rural areas viable. But there's obviously a really big incentive to the government and everyone that's not living in rural areas to not have the cost of food increase. So what does America do?
To remain somewhat loyal to pristine capitalist ideas, America decides that it's going to let competition and corporate interests resolve the issue, but to make things "fair", the government will put its finger on the scales, just a bit. Unfortunately, when you forget to take your finger off the scales, then you end up with AT&T spending $250mil unnecessarily!
Efficiency of the market, eh?
Of course, a more socialist-leaning country would've just had the government pay to install rural phone lines.
All starting from the unwarranted assumption that telephone access was necessary to farmers and food prices would have risen dramatically.
Yeah, that initial assumption really is weird.
How much could a phone line like that possibly cost for a company who does phone lines? I have no idea, maybe 10 million for all I know.
But that's a one-time cost that will be spread out over all the crops that farm produces for the next however many years that telephone line lasts. With some (admittedly ~10 years out of date) idea of some of the other costs involved in farming, I have a hard time seeing the bump to food prices being anything to get your undies in a twist about.
On the other hand, if you have one guy on a farm two miles away from the next nearest neighbor, well, adding a phone line costs as much as building a second house.
The interesting question for society is, should these people have phone lines? And if they should, how much of the cost should they bear themselves? And how far should we be willing to go to run phone out to increasingly remote areas?
Phone lines, or roads, or fire brigades, or police. Or tax collectors…
I suspect most farmers would choose to fund their own telecommunication, if it meant they didn't have to pay tax.
I'm not quite sure where the line gets drawn about what's reasonable to "expect" the government to provide in return for your tax dollars, and quite how to ensure "fairness" or equality between city-dwellers and rural taxpayers. But deep down I'm a bit of a socialist - I think phones should probably be owned by "the government", or at least regulated so heavily that the decisions about who does and doesn't get phone service is largely driven by ethics and "the greater good" than by "increasing shareholder value".
> would've just had the government pay to install rural phone lines
you didn't decrease the price of food. you may have decreased the cost paid out of pocket by the consumer, but you haven't changed the actual cost of producing food. if the cost of those phone lines was $100MM, then either a) the government installs those phone lines for $100MM, or b) the farmers bear the cost of those phone lines and raise prices to make up $100MM. either way, someone has to pay that $100MM. you can pay for it either with your taxes or by paying more for food.
this socialist scheme never really changed anything, except it distorted the visible prices so that they do not match real costs. now all you've done is made it harder for the market to optimally allocate limited resources.
Unfortunately, "the market" is only going to optimize for the metrics used to evaluate it. When those metrics are almost exclusively "profit" and "shareholder value", the market optimizations aren't always going to align with "societies expectations". Without external pressure, "the market" will optimize for Haliburton being in control of military budgets, investment banking being in control of police departments, and farmers having no phone access.
Its not just phone lines but also streets, post offices, etc. The overall efficiency of city living is much higher but due to policies like this we don't end up getting lower phone bills or pay less for our roads.
I don't believe that telecom companies should be completely unregulated but policies like this are an example of socialist policies that can decrease overall efficiency.
Not only is government money not free, it happens to be some of the most expensive and inefficient money available.
It should however be the last resort. Its an extremely blunt instrument. Private sector vs government; To quote my favorite author: "Its the difference between using a feather and using a chicken."
To a worm in horseradish, the world is horseradish.
Of course broadband made the whole thing obsolete.
Isn't it? I can make calls from my laptop microphone. What else do you need to be VOIP?
It's not quite spam -- the story is interesting, if not exactly breaking news -- but I'm pretty sure the main goal is to get inbound links to feefighters.com
Given that so many links on HN follow this pattern, however, I don't think this subthread is very useful.
Do not downvote for mere disagreement. /grrrr
But I think it's worthwhile to note that this post was almost surely written with the primary intent of boosting page rank as a sort of guerilla SEO.
It's a par for the course for a startup blog.
My solution would be to figure out what it costs annually to maintain this and limit the fees imposed on other companies to this fee. At the end of the year you calculate the percentage of calls your company terminated to the area and pay that percentage of the fixed fee.
Thanks. I always wondered about this, but not enough to dig into the details. Interesting.
Why wouldn't they use their combined legal power to abolish the fees together, instead of fighting each other?
Because sure, at some point, Google may easily be forced to pay them too.
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