Summary
AT&T is using a modern day battle with Google to highlight to the FCC underlying problems with how telephone calls are routed today and that the 1950's model is not only no longer valid, but that gray market providers have emerged to take advantage and profit from the gaps created.
Analysis
As consumer, we've been offered unlimited long distance plans and flat rate plans no matter the domestic destination. But your telephone company doesn't have this luxury. They pay a different rate to 'terminate' your outbound telephony call depending upon where you called (if the call is going to another telephone company).
Cost for calls to most major metropolitan areas is measured in fractions of a cent. However, rural telephone companies successfully managed via political pressure to convince the gov't they needed more than this 'fraction of a cent'. These rural operators typically collect from $0.05 a minute to up to $0.12 per minute for inbound termination.
The large operators weren't happy with this rate, but since most of these rural operators were in extremely small little towns (< 500 people), they reasoned "how many minutes can they possibly use? They chalked this up to yet another 'cost of doing business'.
Unfortunately, a handful of these rural operators took advantage of this high termination rate by offering a portion of the termination rate they received to 3rd parties who would offer services to encourage inbound calls. The early services, primarily sex chat lines, were self limiting as most Americans did not have unlimited long distance plans.
The introduction of unlimited long distance has resulted in an explosion of minutes to these free services all various sorts. The most common is free conferencing calling and it's big business. In excess of $1.0 billion in annual termination charges!!!!
And it's popular as well, the Obama campaign touted how they were 'saving' money using free calling (almost 5 million minutes) www.reuters.com/article/pressRelease/idUS128967+11-Mar-2009+BW20090311
This $1.0 billion in termination charges has been paid by AT&T and Verizon who have quietly asking the FCC to take action. In fact, there are 16 lawsuits pending on this matter. Some telephone companies simply aren't paying the bill, others are partial paying and still others are seeking a legal remedy.
In the midst of this, Google (who has to pay for termination rates as well) has simply said they're not a telephone company and simply won't route calls to those locations.
SUMMARY
All this saber rattling is an argument that the current model for how telephone calls are rated and charged is in fact broken and in an era of IP telephony, time, distance and location simply are no longer appropriate metrics for how compensation should work.
This author consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
