January 11, 2010 5:24 PM

Pssst! Wanna Buy Some Minutes?

["None of us are going to deny what other people are doing. If saying bullshit is somebody's thing, then he says bullshit. If somebody is an ass-kicker, then that's what he's going to do on this trip, kick asses. He's going to do it right out front and nobody is going to have anything to get pissed off about. He can just say, 'I'm sorry I kicked you in the ass, but I'm not sorry I'm an ass-kicker. That's what I do, I kick people in the ass.' Everybody is going to be what they are, and whatever they are, there's not going to be anything to apologize about. What we are, we're going to wail with on this whole trip."]
-- Tom Wolfe (The Electric Kool-Aid Acid Test)

I kicked off with that quote, and I want you to read it--and understand this--I respect authentic, original, people in the telecom business.  They may not be the most likeable people in popular opinion polls, but they do want they do without regard to the opinions of others, and they almost always drive change (for better or for worse).  Dave Erickson of FreeConferenceCalls.com ("FCC.com") is such an individual.  And, as much as I might crack on "traffic pumpers", Dave has posted up on this blog--under his own name--without regard to what anyone thinks . . . and I like that.  I mean, as traffic-pumpers go, he's "doing it right out front and nobody is going to have anything to get pissed off about."  So, brother, if you're reading this, you need to know I've got nothing but mad respect for the way play your game--and that's no joke.  

But (and you just knew there was a "but" coming), this is a story--contained in a court case--that I've never seen reported, and it's an enduring testament to Dave Erickson's stone cold, "bad-ass"-ness, but it's a story that readers have got to hear to believe.  At this point, Dave will probably disagree with every characterization I make . . . but that's part of why I'm going to be what I am, and there's not going to be anything to apologize about.

OK, so on with the story.  Let's say you think there's a good way around the FCC's Farmers and Merchants Order, where the Commission found in favor of Qwest in a complaint against a local exchange carrier ("LEC") that specific revenue-sharing contracts between the LEC and conference calling companies, did not constitute the provision of switched access services, where calls are terminated to an end-user premise, consistent with the LEC's tariff on file with the Commission.  So, that order means nothing to you--maybe you've got some cool creative tariff attorney and some inventive new traffic pumping scheme.  Fair enough; so far, so good, but here's the big question: if you're a free conference calling company, looking to set up shop in a high cost area with a cool, new tariff, or traffic-pumping plan, have you ever thought about how you'd actually do it?

People just assume these things just happen--two parties have a chance to make a pretty sure profit on a somewhat shady scheme--done deal, right?  Well, not exactly.  I mean, it's kind of like, let's say you have some questionable cash--but you've got a really bright, bullet-proof plan to make that cash as clean as it was the day it was printed.  All you need is a sympathetic accountant to hear you out, recognize the brilliance of your plan, and you both make bank, right?  Easier said than done, though; the problem is that you have to find the right accountant and the right banker. You can't just go around to any KPMG office, stroll up to the first person you see and explain that you need a fake dry cleaning business.  Next thing you know, people are talking, no one wants your cash, and you might even get a visit from some government guy who wants to rain on your parade; bad times, indeed.  

So, you have to be selective when choosing a like-minded partner (most of the time, I'll talk about the exception in the next post); only how?  Well, it turns out that, in traffic-pumping, as in every other shady line of business, there's a dude who knows people that might be a little less discriminating--a Sherpa of minutes, if you will.  This is the dude who knows the dude.  I mean--like with the other example--you can't just go to any LEC, like a Verizon, with a cool plan to generate minutes and ask for them to pay you money for the minutes.  So this "dude" finds an accommodating, LEC with more flexible interpretations of the law, or their tariffs; in other words a "flex"-LEC.  Now this LEC, is maybe charging a 4-6 cent/minute transport/termination rate, but for . . . say a couple million more minutes a week, a this "flex"-LEC might be willing to give a big "terminator" (like a conference call company), a piece of the action; maybe a couple cents a minute.  Bottom line, though, YOU, as the minute generator, don't need to worry about it--that's why you've got a dude.  The dude-as-broker finds your partner, works out the revenue split, and then you just move in, set up, and start doing what you do and sharing access revenues.  This is normally the end of the story--until some spoiler like Qwest comes along . . . but, hey, it's not like your new partner is the only flex-LEC in America, and the dude can always find you another one.

But what happens when one of these "dudes" doesn't have a formal ethics code, and maybe you've agreed on a revenue sharing split--through your flex- LEC Sherpa--and you pay him a "finder's fee" (maybe a piece of the revenue split)--but, later, you--the conference calling company--find out he's getting a piece of the flex-LEC's split--from the flex-LEC, too--based on your minutes?  To be sure, the flex-LEC Sherpa has fulfilled his duties, at the rate you've arranged, but finding out that he's also getting a cut from the flex-LEC's piece of the pie?  Well, unless your "broker" has disclosed it, this seems downright unethical--a conflict of interest--the guy's working both sides of the fence.  So what do you do?

Well, if you're a bad-ass, ass-kicking, free conference calling company--like FCC.com--you don't stand for that aggression; you sue the bastard.  And this is exactly what Dave Erickson, and FCC.com did in this complaint against PowerHouse Communications (their "Sherpa" of flex-LECs).  Yep, he sued the guy he had hired to find flex-LECs, because the LECs were a little too "flexible."  This case is still winding its way through the Federal court in Utah, so we can't know the ultimate disposition of the matter.  One thing we can hope for, though, is that when an individual offers services to locate traffic-pumping LEC for guys that deliver buckets of minutes, that these brokers be held to the highest level of ethical standards.  

The telecom industry was built on arbitrage, and unless, or until, the FCC chooses to eliminate arbitrary termination prices, the regulatory arbitrageurs must be held to the highest level of ethics.  Because when trust breaks down among those seeking to pump or avoid termination charges, then so does innovation.  Free services, whether inbound (like FCC.com), or both (like Google Voice or Magic Jack), depend on cooperation between carriers and applications providers to exploit the system.  When this trust breaks down, cooperation breaks down, and, inevitably, innovation suffers.  Unless things change, it is not hard to imagine a day not too far off where the only people that pay network costs are cost-causers.  At this point, it is safe to say, the Telecom, as we know it, has calcified and will cease to evolve.  So far, the Commission has made sure that this day never comes.

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