Study: 'Free' conference calling, adult phone lines cost carriers $190 million annually

Some free conference calling and adult phone lines are actually costing wireless carriers about $190 million annually, according to a new report from Connectiv Solutions, a network efficiency company that specializes in telecom network usage and expenses.

The cost to carriers comes in the form of higher-than-average access charges to CLECs or other carriers that terminate calls on behalf of the companies operating the conference calling services and adult phone lines. Connectiv believes the CLEC then splits the access charge revenues with the operator of the conference calling service or adult phone line.

This practice is sometimes called “traffic pumping,” and not all conference calling and adult phone lines engage in it. According to Connectiv’s research, about 25 conference calling services and adult phone lines — the majority operating in Iowa and Minnesota — are responsible for the vast majority of the charges. Because of the high access charges involved, calls to those 25 companies combined represent nearly 11% of wireless carriers’ total monthly long-distance charges, the Connectiv study found.

“We believe you have to first gain visibility to understand and quantify the problem,” said Brian Silvestri, president of Connective Solutions.

Although Connectiv’s study did not look at calls from landline carriers, the impact is probably of a similar magnitude for any carrier that offers unlimited long-distance service. The “free” conference calling and adult phone line businesses have exploded since carriers went to unlimited plans — and that growth shows no signs of slowing, according to Connectiv. The company’s research noted a 50% increase in the dollars paid to the 25 conference calling services and adult phone lines over a six-month period ending in April 2010. If that trend continues, the annual cost to wireless carriers could rise to $285 million within 12 months, Connectiv said.

Connectiv’s study was based on an analysis of 14 billion wireless long-distance call detail records, representing about 50% of total long-distance wireless traffic. The company identified phone numbers it suspected were involved in traffic pumping schemes based on longer-than-average call duration, terminating numbers in areas with high access charges and other factors. Researchers then dialed the suspicious numbers to confirm they belonged to conference calling services and adult phone lines.

Connectiv’s findings come at a time when regulators are considering reforms to the access charge system. Currently these charges are higher in rural areas, where the higher access revenues are intended to help cover the costs of bringing phone service to those areas, which tend to be the most expensive to serve. Most of the CLECs involved in traffic pumping are located in rural areas where they can justify higher termination fees because the ILECs also have relatively high access charges, Silvestri said.

The FCC is aware of traffic pumping, Silvestri said. “Ultimately policy will have to review this,” he said. “Their ruling will likely change a lot of the impact of this.”

Previously, policy-makers have prevented carriers from blocking calls to certain phone numbers. But Connectiv consults with carriers to help them minimize the impact of traffic pumping through analysis of call detail records and recommendations involving traffic management, least cost routing and network engineering.

Based on an analysis of their traffic data, wireless carriers are in a better position to negotiate with the companies that carry their long-distance traffic, Silvestri said. “When carriers are going through negotiations with interexchange carriers, they tend to focus on where the volume of their traffic goes, not necessarily on cost per minute," he said. "They need to put the emphasis where their pain points are.”