MagicJack Loses Some of Its Money-Making Mojo

The company behind MagicJack, the $40 USB device that “makes monthly phone bills disappear” for consumers, is about see something else go up in smoke: Its own revenues.

Recently, the Federal Communications Commission ruled against the company in its dispute with AT&T. The telecom giant’s beef: MagicJack was using an affiliate company, YMax Communications, to collect charges from AT&T for calls placed to MagicJack customers and for calls made by MagicJack subscribers to toll-free numbers on AT&T.

Such charges are allowed to be collected by so-called competitive local exchange carriers (CLEC), phone companies that arose in the aftermath of Ma Bell’s breakup. And according to Forbes, these connectivity charges are how MagicJack is able to offer such cheapie phone services.

However, the FCC recently sided with AT&T, ruling that it didn’t have to pay MagicJack those fees. Why? The lawyers at the Telecom Law Monitor blog wrote:

…MagicJack customers do not purchase services from YMax, and YMax does not connect directly with the MagicJack customers. The precise manner in which YMax’s network is configured was a key to the [FCC’s] decision…

In other words, the FCC hasn’t judged against all CLECs or Voice-Over-IP services–just MagicJack and its legal structure. Said the Telecom Law Monitor:

The primary lesson of the case is that a VoIP provider must carefully consider the description of its services, and not necessarily use “cookie cutter” tariffs designed for traditional PSTN [telephone] traffic.

FCC Finds MagicJack Can’t Collect Access Charges From AT&T [Forbes Blog]
FCC Rules VoIP Provider May Not Collect Access Charges [Telecom Law Monitor]