The Concept Behind the Phone Card Business

Phone card business was there for quite some time. However, the idea of cheap rate phone card was realized only after VoIP was available. It is easy to understand. Traditional PSTN (packet switched telephone network) is expensive. It requires physical telephone lines to setup a call. If part of the PSTN networks can be replaced by VoIP, those cost can be reduced and turned into profit. The interfacing equipment between a PSTN network and VoIP is a VoIP gateway. There are many kinds of VoIP gateways. But essentially they are doing the same thing: convert the PSTN traffic to VoIP and back.

The simplest VoIP gateway is a FXO gateway. FXO stands for foreign exchange office. The opposite interface of FXO is FXS, the foreign exchange subscriber. These terms themselves are hard to understand. But the FXS interface is actually seen in almost every house. Yes, it is the phone jack on the wall which connected to the telephone provider such as AT&T. FXS powers the phone. When there is an incoming call a high voltage (typically +48V) is applied to the FXS to ring the phone. The FXO gateway is a device which connects to a FXS port. The hooking on/ off of the FXO port works the same way as a traditional phone. When a FXO port is hooked off, the FXS detects it and provides the dialtone to the FXO port. When a FXO port is hooked on, the FXS detects it and disconnects the call, as if a phone is hooked up. On the other side of the FXO gateway is the IP network. When an IP phone dials a PSTN number (for example, Skype out), the call is routed to a FXO gateway, and the gateway hooks off the FXO port which gets the dialtone. The PSTN digits are thus dialed by the FXO gateway to make the PSTN call to the destination.

Before VoIP is available, if a person wants to dial an international call from US to China, the most expensive cost is on the cross country under sea cable. For a phone card vendor who sells phone cards for US to China calls then needs to replace this part with the VoIP network. Even though the IP network between US and China also runs through the under sea cable, the packet oriented nature makes the cost much lower. For the phone card vendors this part is actually free because they do not need to pay for the "cabling" fee since the IP service between US and China is on and running. They can simply deploy one FXO gateway on each side of the IP network between US and China and start to run the business.

Here is how it works: When a person from US wants to make a call to China, he dials some service number which the vendor provides. Typically it can be some local number or 1800 number. When this number is dialed, the connection between the person's phone to the US FXO gateway is created. Of course there will be some authentication such as asking the user to punch in the pin numbers from the back of the phone card. After that, a voice prompt is given to ask for the destination of China number. When the number is dialed, a VoIP call is created from US FXO gateway to China FXO gateway. As described above, this seciton is free of cost to the vendor. When the call reaches China FXO gateway, it then dials the digits on China PSTN and makes the local call.

The cost from the vendor is those two FXO gateways (about $50-$100 each) and some Internet service fee they pay for the ISP each month. And they can actually make unlimited VoIP call between these two gateways, which means unlimited international calls for the cost of two FXO gateways. However, in reality FXO gateway is not chosen to deploy this kind of service. One FXO port can only carry one call at one time. If multiple people dials the phone card service number at the same time, only one person can get through and the rest of people will get the busy tones if an one-port FXO gateway is used for this service. The most common device used is the multi-T1/E1 gateway. (US uses T1 and Europe uses E1). Each T1 can carry 24 calls at the same time (E1 carries 30 calls). In this way multiple people can dial into the T1/E1 gateway at the same time to make the phone card calls.

After understanding the concept, it is very easy for a person to setup her/ his free international call service. What she/ he needs is a FXO gateway deployed in the country she/ he needs to call to, and an IP phone at the country where he will be dialing from. For example, a Chinese student who goes to the graduate school in US may want to make unlimited calls to her/ his friends and relatives in China. She/ he can connect a FXO gateway at her/ his home in China and use an IP phone in US to make the call. The call leg between the IP phone to the FXO gateway is free since it runs on IP. And the call leg from China FXO to some China destination number will be local. Simple and low cost!