Interesting article via GigaOm on FuturePhone, a service that was using regulatory fee arbitrage and VoIP service to let people make free international calls:

Guess who got stuck with a big bill for all those “free” international calls touted by outfits like FuturePhone? None other than AT&T, which has filed a lawsuit in Iowa claiming that “deceitful and unlawful schemes” like FuturePhone’s caused a jump from $2,000 per month to $2 million per month in the fees billed AT&T by an Iowa rural telco.

…When a long-distance call is “terminated,” if a long-distance provider like AT&T doesn’t own the local lines where that call is going to, it must pay a fee to the company that does. Even though such termination fees are typically higher in rural areas, since there are usually relatively few customers in the sticks big long-distance providers can easily balance the cost with their other businesses.

In Iowa, higher than average termination fees (as much as 13 cents per minute, according to AT&T) have been lately combined with fiber-based Internet access to provide a pretty good place for a VoIP-based gateway, which can then provide a way to cheaply reach foreign PSTNs. The loophole comes from some method of subtracting the money paid for foreign terminations from the amount gained by terminating calls in Iowa. While the margins are pennies-or-less per call, the lure of avoiding the high cost of international calls apparently caught on quickly, to the tune of hundreds of thousands of minutes a month, according to AT&T.

Looks like people are going to have to go back to using VoIP service directly, not through a "free" intermediary.