Posted on 03/14/2005 8:26:05 AM PST by Bobalu
March 11, 2005 VoIP to Fuel Plague of 'Dialing for Dollars' By Michael Singer
Voice over IP (VoIP) promises to radically change the way companies do business, but one side effect of less expensive communications threatens to give the whole ecosystem a black eye.
Overseas telemarketers are quickly learning that they can use IP voice calls to "dial for dollars," getting around both traditional long-distance cost constraints and U.S. Do-Not-Call regulations to flood Internet traffic with phone calls that would make even the most egregious spammer blush.
"If you thought spam was bad, you ain't seen nothing yet," Burton Group analyst Fred Cohen told internetnews.com. "The average enterprise or household could see as much as 150 calls a day from these telemarketers. It has to happen, because it is a market force that takes the market feedback and makes it into a profitable approach."
Cohen is best known as the inventor of computer virus defense techniques and the principal investigator on the use of deception for information protection. In addition to contributing to Burton Group research reports, Cohen also works as an information protection consultant.
He said that the influx of unwanted calls over VoIP (define) comes from a combination of two things: a cheap labor force working in countries like India and China, and the price of Internet telephony, which has cut costs down by a factor of 100.
A recent report by Jupiter Research predicts the number of U.S. households using VoIP will increase from approximately 400,000 at the end of 2004 to 12.1 million in 2009. Outside the United States, VoIP is expected to become even more popular. (Jupiter Research and internetnews.com both are owned by Jupitermedia.)
According to the U.S. Department of Commerce, China plans to inject $500 billion between 2001 and 2005 into its telecom infrastructure. The market would be worth an estimated $20 billion, with ample room for expansion. Likewise, the government of India has set a minimum goal of 20 million broadband subscribers and 40 million Internet subscribers by 2010. Russia's market for IP telephony could reach $200 million in 2004, with mobile penetration almost twice that of fixed-line telephony, and growing at 104 percent annually.
Cohen said these factors create a huge addressable audience for VoIP-wielding telemarketers.
"Whenever you make something cost-efficient, people are going to use it for things you like and things you don't like, and VoIP is going to suffer from this relatively soon," Cohen said.
Not SPIT
To make a distinction, Cohen's scenario is not necessarily spam over Internet telephony, or SPIT, which he defines as an automated process. ISPs and carriers are tackling SPIT with the help of cryptology algorithms that overtax CPU cycles on a server and make it costly for voice spammers. Other companies are offering automated software that filters out cold calls or asks the caller to answer a question that only a human could respond to, such as, "If I have one orange and one apple, how many oranges and apples do I have?"
Cohen says the inescapable trouble comes from real people using inexpensive PCs to make the calls. That makes it harder for Internet service providers (ISPs) to prevent blocks of calls coming from a specific block of IP addresses. The telemarketers are also able to skirt opt-out policies such as the U.S. government's "Do-Not-Call" list because those rules do not apply to overseas markets.
Establishing buddy lists wouldn't solve the problem, Cohen said, because they're designed for individuals or blocks of trusted partners, not for every call.
"Even at a penny per call, these telemarketers don't have to do that much to make their money," Cohen said. "You figure that at least 90 percent of the calls drop off in the first minute. That leaves 10 percent willing to engage in a conversation, and half of that will buy something. If it takes five minutes to close a sale and a penny per minute, you have to make 50 cents on a sale to break even."
Cohen says those sales calls are then transferred to local shipping and receiving companies that are not concerned whether the sale came is in the form of SPIT, telephone solicitation or e-mail. And the sales don't even have to be for high-ticket items. Most, according to Cohen would be around $5.
"If all I wanted to sell is customized envelopes for the same price as what you buy in the store, I can sell those in a box of 20 and make a profit with this scenario," Cohen said. "I can sell anything: Hot Wheels cars, garden hoses, hula-hoops, floor mats... anything that costs $5. It will be more efficient than going to the store or through mail order catalogues."
Common Carrier Loopholes Remain
In addition to some of the technical shortfalls, Cohen points out that ISPs and VoIP providers could find "Common Carrier" laws a double-edged sword when it comes to telephony.
While the law protects providers from being responsible for the content of the call, that rule is enforceable in the U.S. but not in India, China or elsewhere. If a provider selectively blocks calls based on content, it loses its Common Carrier status and then becomes responsible for every call.
"So if some company overseas decides to call everyone in the United States, they could do it cheaply and easily using VoIP," Cohen said. "Add in the ability of any of these companies to find out your personal data, and telemarketers can sell to you right after you get a new credit card or as you are looking for a specific product over the Internet."
"Unless you eliminate Common Carrier rules, this won't get fixed. But if you do, that will create a bigger problem," he said.
Cohen said this is also a problem for VoIP providers like Vonage and Skype, which do not own any of the infrastructures their services run on.
"If you make them not a common carrier, then the laws are unfair against people that own infrastructure," he said.
There can be customer complaints against the service providers, but Cohen doubts that AT&T(Quote, Chart), SBC (Quote, Chart), Verizon (Quote, Chart) or others would cut off VoIP because of the scams. Even if a particular company or individual is identified, Cohen said, the telemarketers could run off to another provider and start the process all over again.
According to Cohen, the solution is to educate people not to buy things over the phone, a process that's harder than it sounds.
"Technically, there is nothing you can do about it," Cohen said. "Pornography, gaming and spam are the biggest moneymakers on the Internet, and people who do marketing to reach customers and encourage them to spend money know this. So I don't see any way out."
(Denny Crane: "Sometimes you can only look for answers from God and failing that... and Fox News".)
It's ok. It's the free market. I'm sure most around here will eagerly welcome the enterprising foreign telemarketers!
Looks like the telephone will be the next great wasteland. If I have to deal with dozens of telemarketing calls a day I'll just unplug the damn thing and go back to writing letters.
"According to Cohen, the solution is to educate people not to buy things over the phone, a process that's harder than it sounds."
That, and leave the caller on hold, to raise his costs.
I need a drink...
I've been saying this for years - DONT ENCOURAGE THEM !
If nobody buys the stuff they're selling, they'll stop selling it this way.
Did I understand this article correctly? Are only people who use VoIP potentially affected, or is he saying that telemarketers will use VoIP to spam even those with traditional phone lines?
They would use VoIP to make the calls for next to nothing. Instead of using an overseas circuit, the VoIP firms use the internet to transmit the call to the local exchange and the traditional phone network for the "last mile". So yes, even traditional phone lines will be targeted.
The good news is that even though the call rates are cheap (or free), they still have to pay for the connection to the local phone system and they also have to pay the people making the call.
But the sound of a whistle blown loudly into the phone will still apply to overseas markets.
Unless the buyer initiates the call.
Cripes. Pour me one too, while you're up. Make it a double.
Outsourcing is the big evil at FR, but as a small business person, the cost reductions in terms of production, marketing and sales makes it all possible.
Be careful about the economics of this.
Remember, it costs virtually nothing to bother people and make them hate you. Making them pay attention and buy is the tricky part. And while you might be able to engage 10% in conversation, I think closer to 5% of those will buy -- not 50%.
One problem with this is that the Indians and others I've talked to speak barely comprehensible English.
From a strict business point of view, people will ask "Are you from India?" and slam down the phone.
If you can find people who can speak genuinely good English, it would probably work. Otherwise it will be a disaster, even though you won't lose all that much money because salaries are so low.
I read an article in The Economist the other day about Europeans who wound up working in India for Indian telemarketing firms. Maybe you can find some good English speakers among them ...
D
Ah, we have met the enemy and he is us! In the words of that famous philosopher Pogo
"Oh great! We finally get a break from all the solicitation calls and now VoiP is going to bring them back with a vengance :-("
Not to worry. The VoIP spammers still need to connect to the PSTN at the last mile to get to you. As such, if you have subscribed to (As I have on all my lines) the Nat'l do not call list, you are covered and should not be subject to these un-solicited phone calls.
In addition to the horrible personal implications of this, it might have military applications.
Any way you look at this, it ain't good.
You'd be surprised how many IT guys who have been displaced by outsourcing are looking into utilizing these very same overseas resources as they consider starting their own businesses.
That's the key - it's bad enough for inbound calls, but for outbound calls, it has to be perfect. Still, the cost differential (especially from somebody doing business in Calif) is so great that it's not really an option. If India doesn't work out, then I just won't do it.
Imagine the risk of hiring/apying someone even for a few months stateside. Before you know it, you could be in for $10K vs a few hundred overseas.
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