Telecom Arbitrage

In a broad sense, arbitrage works by stepping between two markets where the same good or service has different prices.

You notice that you can buy hot dogs in Ohio for $5 a dozen and sell them in Indiana for $6 a dozen. As long as you don't spend the equivalent of $1 a dozen on transportation, you make a profit on the deal.

With that general definition in mind, long-distance international calling should seem like an area ripe with arbitrage opportunities. Lots of different markets and jurisdictions. A product that doesn't really need to be "transported."

Here's how it works: telecom providers give access numbers to their customers, allowing "free" international calling. They then allow their customers to tap into international long-distance networks. However, the calls still burn through the customers' own minutes restrictions. You get 500 minutes a month under your cell deal. You call your sister in Honduras for 100 minutes, using those "free" international minutes. Now you only have 400 minutes for other calls.

As it turns out, for some of these international calls the cost per minute is less than in many domestic markets. So the telecom company makes more by giving these cheap minutes "free" and letting their customers eat up the (actually more expensive) domestic minutes on their call plans. They can then sell the customers re-up minutes for additional dollars. ("Hey! You've reached your minutes limit for this month. But for an extra fee, you can buy 500 additional minutes...")