So Much for the CLEC Loophole Biz Model

Quest is suing a bunch of Voice 2.0 companies that have been terminating in Iowa and relying on the CLEC termination fees for revenue. There are a bunch of free long distance companies involved as well as a few of our direct competitors.

From GigaOm:

In a lawsuit filed Feb. 20, Qwest joined the list of long-distance carriers who are bringing legal heat on the Iowa-based “free calling” schemes. In its case the Denver-based Qwest alleges that the “fraudulent, unfair and illegal” free-dialing schemes had resulted in “millions” of dollars of increased expenses for Qwest, including monthly bills that were as high as $500,000 from one rural Iowa telco.

Like AT&T’s earlier suit, Qwest’s was filed in the U.S. District Court for the Southern District of Iowa, Central Division. It seeks to stop free-calling concerns as well as their rural Iowa telco infrastructure partners from continuing with the operations that use regulatory-fee arbitrage and VoIP to provide international or higher-service calls (such as conference calls or chat) for only the price of a long-distance call to Iowa.

Unlike AT&T’s suit, however, the Qwest pressure has not yet shut down operations of some of the named defendants, a list that includes Fonpods (dial-up podcasts), and HotLiveSexChat (please feel free to find that link yourself), whose websites all seem operational. The free international calling service advertised by FuturePhone, an AT&T as well as a Qwest defendant, remains offline.

Foneshow considered going this way, but eventually decided not to. We were concerned by our main revenue stream being dependent on the whims of congress. We were concerned that the people paying the bills were not the people who were getting value from our product offering. It did seem like easy money, but we had a bad gut feeling about it.