Clients with bad ideas? Say it ain't so! :)
I have learned that a client's "bad idea" will on occasion actually be a good idea. It could be that the idea is actually good, but the client just didn't/couldn't articulate his vision well. In most cases, though, it really is a bad idea and you just need to convince the client. somehow.
In my opinion, one way to go about it is to logically analyze it with your client. Walk though the basic broad questions with him:
WHY do you want to do it?
WHAT is the basic purpose of what you are trying to do?
WHAT are you trying to accomplish (WHAT are the major goals)?
HOW is your idea/implementation different/better than what's already out there?
HOW are you going to meet those goals?
WHO is going to use this idea?
WHAT are their benefits from using it?
WHAT metrics are you going to look at to see if those goals are being met?
And three of the biggest:
HOW much money (or other resources) are you planning to spend to build it?
WHAT resources do you need to continue to maintain it?
HOW is it going to make any money (and how much- will it ever be profitable)?
There are other good questions also, depending on the actual project. Other people can probably chime in with additional suggestions.
For each answer, probe further to really flesh out the answers. For example-
You: What about maintenence costs?
Client: Oh, after the initial database purchase, there's nothing to pay.
Y: Really? You get free updates forever?
C: Oh, I don't need updates.
Y: Why not? People constantly move and change their phone numbers.
C: Oh, hadn't thought about that... Well, that's not important.
Y: No? Then why will people use your site that gets more and more out-of-date every day, while other sites always have correct data?
C: Hmm, I hadn't considered that...
In your case, I would focus on how it's going to be different from what's already out there and how is it going to make any money. Does he already have a database of phone numbers? If not, has he actually done any price comparison (including costs of monthly updates)?