Michael Singer, Internet News, (via Slashdot) writes:

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 only 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.”

March 11, 2005