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'Free' chat lines cost Qwest
Complaint to FCC alleges Iowa telco engaged in scam
By Jeff Smith
Rocky Mountain News
Friday, May 4, 2007

Some adult chat lines are "free" these days -- but they're costing Qwest Communications a bundle.  The Denver telco has filed a formal complaint with federal regulators against a rural Iowa telco that allegedly engaged in a billing scam in concert with free calling services.

Qwest and AT&T have made similar allegations in federal lawsuits filed against several other Iowa telcos, but this is believed to be the first time the issue has been taken to the Federal Communications Commission.

Qwest didn't disclose how much money it believes it was overbilled.  Company executives, however, indicated this year that "inappropriate" traffic on Qwest's network overall had cost the company $10 million to $15 million in the fourth quarter of 2006 alone.

In the FCC complaint, Qwest alleges Farmers and Merchants Mutual Telephone Co. of Wayland, Iowa, engaged in an "intentional scheme to collect unreasonably high" call-termination fees by inflating phone traffic.

Qwest alleges telephone traffic delivered to the Farmers switching center in southeastern Iowa steadily increased from 40,000 minutes in July 2005 to more than 10 million minutes in December 2006.

About 50 percent of the traffic went to four telephone numbers assigned to a free adult chat room called Studio 55 and another 45 percent to numbers assigned to free conference call or online meeting services, Qwest said.

Rex McGuire, general manager of Farmers and Merchants, didn't return several phone calls seeking comment.  In each instance, a receptionist went to get McGuire and came back to say he had stepped out of the office.

The FCC complaint comes as free calling services are proliferating.  Call-termination fees are set based on the assumption that a rural telco's calling volumes are low and the cost of service is high.  Qwest claims Farmers, because of its traffic-pumping scheme, is reaping a rate of return "vastly in excess" of the FCC maximum of 11.65 percent.

Robert Connelly Jr., Qwest deputy general counsel, said Qwest wants the FCC, which has five months to rule, to reduce the "unlawful" rates.

He said the company also is questioning whether Qwest owes termination fees on many of the calls at all, which appear to then be routed to the free calling services' computer servers in California and Nevada.

Connelly said Qwest picked Farmers as a "typical" case that could provide a broad precedent for stopping similar schemes.

He said the problem likely has surfaced in Iowa because of the large number of rural telcos and the presence of an entity that aggregates long-distance traffic. or 303-954-5155,2777,DRMN_23916_5519557,00.html