Google Voice, AT&T, and the FCC: Fighting Over the Wrong Thing

What do Google Voice, AT&T, sex chat lines, and New Deal efforts to provide rural telephone service have do do with each other? Quite a bit, it turns out; the seemingly unrelated issues of sex chat and rural phone service lie at the heart of the dispute between Google and AT&T. The real problem is an antiquated system of telecom regulation that, alas, is not likely to get fixed anytime soon.

To recap the recent action, AT&T complained in a letter to the FCC that Google Voice, Google’s call management service, failed to complete calls to certain rural telephone exchanges. The complaint prompted a letter of inquiry from the FCC to Google. In the meantime, Richard Whit, Google’s top telecom lobbyist, admitted in a blog post that Google did block some calls, but pointed out that AT&T has sought permission to block calls to the same exchanges.

What's behind this mess is a program designed to subsidize phone service to rural areas. Certain rural phone companies are allowed to charge trunk carriers, such as AT&T, state-regulated fees to "terminate" long-distance calls into their systems. A few years ago, some clever business folk realized they could get into the rural phone business. They set up free or low-cost conferencing services and sex lines, routed the calls through their rural phone companies, and made money by collecting termination fees instead of charging their customers.

Federal law requires voice carriers to complete any call made on their systems and to pay the termination fees (all local phone companies charge termination fees, but those of the rural carriers are much higher.) Google maintains, almost certainly correctly as a point of law, that since it is not a telephone carrier, the common-carriage regulations do not apply and that it can decide which calls it chooses to carry. In effect, Google is saying that as the provider of one free service, Google Voice, it has no obligation to pay fees so that its customers can enjoy another free service.

Rural termination fees are only one of dozens of regulatory provisions that may have had a purpose in the past but make no sense today. The 1996 Telecommunications Act created a distinction between "voice services," which are highly regulated, and much more lightly regulated "data services," a distinction that looks more arbitrary every day. At least one large program, the Universal Service Fund, provides billions in unneeded subsidies for rural voice service at a time when rural broadband badly needs help.

Unfortunately, there appears to be no taste in Congress for a comprehensive overhaul of telecommunications law and even the fixing of obvious problems like universal service is proceeding at a glacial pace. Fortunately, there does seem to be at least a bit of progress on the state level. On Sept. 23, the Iowa Utilities Board ruled (PDF), in a case brought by Qwest Communications (with AT&T and Sprint as intervenors) that a group of rural exchange carriers had massively overcharged on termination fees.

In a sense, AT&T and Google are both victims of a ridiculous anachronism, as is the FCC, which must enforce it. They should all be working together to bring telecom regulation into the 21st century.

    Before it's here, it's on the Bloomberg Terminal. LEARN MORE