Big telecoms decry high costs of 'traffic-pumping'

— -- AT&T says schemes that route adult chat and other calls made by its customers to rural phone numbers are costing it hundreds of millions of dollars and may force it to raise the price of its $55 unlimited-calling plan.

With rural phone carriers able to charge high rates to connect calls to their networks, AT&T, the nation's largest phone company, says the ploys cost it $250 million last year.

Most large land-line and wireless companies, including AT&T t, Verizon vz, Qwest q and Sprint s, say they're being gouged by the practice — known as traffic-pumping — and they've asked the Federal Communications Commission to put a halt to it.

"If left unchecked, these scams will impact the ability of carriers to offer consumers affordable unlimited-calling plans," says AT&T spokesman Michael Balmoris.

The FCC did crack down on the rural phone companies last summer, but a new band of rural competitors is skirting the constraints.

The rural upstarts say they're doing nothing illegal and accuse the large carriers of not paying their bills.

Rural phone companies are allowed to charge about 2 cents to 8 cents a minute to connect long-distance and wireless calls to their networks. The fees, up to 100 times higher than rates charged by large local phone companies, offset the rural companies' high costs and low call volumes.

About two years ago, specialty calling services saw an opportunity in the high fees and teamed with some rural phone companies, largely in Iowa. About 10 rural carriers provided local numbers to the services. The companies advertised the numbers, luring customers with free conference calling, adult chat and other services. Then they split the call-connection revenue with the rural carriers.

Ron Laudner, CEO of Farmers Telephone of Riceville, Iowa, says the set-up was routing up to 40 million minutes of calls each month to his network, generating $2.2 million in monthly revenue.

Yet, since most customers of AT&T, Verizon and Qwest pay a flat fee for unlimited local and long-distance calls, the strategy saddles those companies with added costs but little new revenue.

Last summer, the FCC suspended the rural companies' rates and proposed rules to permanently ban traffic-pumping.

Since then, the practice has shifted to about a dozen competitive local exchange companies, or CLECs, many affiliated with the rural carriers, the long-distance carriers say. CLECs, which lease the networks of rural incumbents, play by different rules because their rates aren't based on call volumes. About 160 million minutes of calls by AT&T customers were routed to rural CLEC networks in March, surpassing the peak level of calls to rural incumbents — 153 million minutes — in January 2007, AT&T says. Sprint told the FCC that its bill from 11 CLECs soared 5,000% in 21 months.

The rural CLECs acknowledge they're striking deals with calling services but say they're playing by the rules. CLECs "are not doing anything the law does not allow," says A. Enrico Soriano, a lawyer for Tekstar Communications, a CLEC.

Laudner says he shifted calling-service traffic from Farmers to a CLEC he owns, OmniTel Communications, after the FCC crackdown. "What I'm trying to do is provide a free service," he says. "It's not pumping, it's not anything. This was a business opportunity."

Laudner, as have other rural CLECs, has sued the long-distance carriers, for not paying their bills.