business phone and internetThree more questions to add to last month’s 7 Burning Telecom Questions:

Why is intrastate long distance more expensive than interstate?

Intrastate long distance originates and terminates in the same state, while interstate long distance originates in one state and terminates in another. When AT&T was the only game in town, long distance was priced by distance. A long distance call from Philadelphia to Phoenix was more expensive than a long distance call from Philadelphia to Washington, D.C., for instance. That sort of pricing stayed in effect even after there was competition in the industry because the longer distance a call traveled the more network it required. Then the internet came around and Voice over IP brought down the cost to transmit long distance calls.  But long distance calls need to start and end somewhere.

A portion of the cost of every long distance call goes to the origination and termination fees local phone companies charge. Most states have one local phone company. Most local phone companies sell long distance. So part of the reason intrastate long distance is more expensive is because the intrastate long distance marketplace is more monopolistic than the interstate version. The other reason is that some states enforce lower termination rates and a long distance company with millions of customers can count on a variety of places being called and can average out the cost of each long distance call.

This leads me to my next question:

How are free conferencing services free?

There are some pockets of the country that are serviced by small phone companies. These companies make a good portion of their revenue charging very high termination rates. The more calls that are terminated on their network the more money they make, so they make deals with “free” voice conferencing companies. Those companies locate their conference bridging equipment in areas serviced by the small phone companies. They advertise and setup affiliate marketing programs to drive calls to their service and then share a portion of the termination fees generated.

How are local phone companies able to offer unlimited long distance?

The same way a long distance provider averages out the cost of a minute of long distance. Local phone companies that provide unlimited long distance average out the calling habits of all their customers. Some people place a lot of long distance calls, some hardly ever make a long distance call. The people who don’t make many long distance calls help pay for all the “free” long distance heavy users are gobbling up; the more customers on the plan the better. That’s why many cable companies only offer unlimited long distance packages. Local phone companies are more regulated and are required to offer lines without unlimited long distance. So they incent their sales reps to sell unlimited long distance. As long as the majority of their customers are signed up for the plan, everything will even out and unlimited long distance will remain a profitable offering.

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