Over the weekend the Telecom Law Monitor, a blog from the telecom practice group of Washington D.C. based Kelly Drye caught my eye when I spied that MagicJack's sister/parent company, YMAX and AT&T were embroiled in a battle over, you guessed it. MONEY. For a long time many observers were trying to figure out just how MagicJack made money. Well, this FCC decision really helps make things clearer.
What you have to realize here is that what MagicJack was basically doing was taking the approach of a loss leader on their sale of the device, and free calls offer, and hoping to make money on the "access" charges, much the same way the "free" conference calling telcos in the midwest make their money. Well, it seems AT&T challeneged YMax's approach and the FCC agreed.
Basically YMAX, the CLEC, was planning to make money on access charge compensation. AT&T said, we're not paying the rates you want to charge. Well it seems the FCC agreed. That means that MagicJack's model of cheap no longer means, almost free or at breakeven to them, and brings to light the fact that they may now see the possiblity of losing money on every call without their sister company making a profit on the access charges which subsidized what they have been doing.
YMax was counting on users to generate enough traffic to make the virtually free outbound calling worthwhile, which meant keep MagicJack as the money loser and make the profit at YMax.
Here's how---- YMax is counting on people making thier long distance to the numbers using MJ and while not part of this particular FCC action, calling local numbers too. They are also counting on MagicJack customers to place toll-free calls. With each call YMax generated revenue each time one was was placed, but the FCC decision means it will no longer be able to do so.
So what does this mean? YMax probably will have to modify its tariff to describe the service in a way that allows it to charge for these calls. If it is unable to accomplish that, the lowering of revenues from MagicJack customers as a result of the FCC order will present a real problem to the overall concept and profitability.