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It's MORNING EDITION from NPR News. I'm Steve Inskeep.
RENEE MONTAGNE, host:
And I'm Renee Montagne.
On top of everything else it does, Google has gone into the phone business. Google Voice is a way for you to make phone calls. That has raised the question of whether Google is a phone company, and that question is not just semantic. The answer determines if Google has to be regulated in the same way as a company like AT&T. The dispute is now before the Federal Communications Commission. The issue is a controversial practice that enriches some rural phone companies in a few Midwestern states.
NPR's Howard Berkes explains.
HOWARD BERKES: First, a warning.
Mr. SCOTT CLELAND (Telecommunications Consultant, Precursor LLC): That stuff about the rural carriers and whatever, it doesn't get more complex than that stuff. I mean, if you really study this stuff you go blind.
(Soundbite of laughter)
BERKES: That's Scott Cleland, a consultant and analyst for telephone companies like AT&T. But not to worry, the story will not blind you or send you screaming from your radio - I promise. I hope. Let's start with a simple phone call.
(Soundbite of touch tones)
BERKES: This is something millions of people do every month using one of those free teleconferencing services. A lot of those calls like this one go to phone numbers in Iowa.
Unidentified Woman: Welcome to the conference center. Please enter your conference ID followed by the pound key.
BERKES: Now, these calls are routed through certain rural phone companies, because they're allowed to charge higher fees for the calls they process. This stems from federal policy fostering competition and rural phone service. Long distance providers pay the higher fees and the rural phone companies and teleconferencing services split the profits.
In Spencer, Iowa, for example, one phone company with just 800 potential local customers handles 2.5 million calls a month.
Mr. JOSH NELSON (President, Great Lakes Communication): We host and cater to many large conference-calling companies, companies that vary from 24 channels to capacities of 7,000 and 8,000 channels on a single call.
BERKES: Josh Nelson runs Spencer's Great Lakes Communication, which doesn't actually serve any local customers. Long distance providers say they pay millions of dollars a month more when calls are routed through these small towns. It's all perfectly legal, but critics say the practice also involved sex-oriented chat rooms and it games the system. This is where Google Voice comes in. the company's Rick Whitt says the scheme burdens Google's new and free computer-based phone service.
Mr. RICK WHITT (Lawyer, Google): There were a very small number of exchanges primarily in rural areas, where there were an inordinately high number of calls, the volume was way off the charts, and the costs were way off the charts.
BERKES: So Google Voice began blocking those calls and Josh Nelson at Great Lakes Communication noticed.
Mr. NELSON: They were blatantly blocking probably tens and tens of thousands of numbers.
BERKES: Google Voice won't connect to that teleconferencing service I called earlier. It now blocks about 100 selected phone numbers to such services, says Google's Rick Whitt.
Mr. WHITT: We realized quickly that if we allowed this to continue the free nature of the service to consumers will be threatened, because something like 26 percent of our costs overall were just going to these few exchanges in these areas.
BERKES: Members of Congress with rural districts howled in protest, as did AT&T, because blocking calls with high fees gives Google Voice a competitive advantage. In fact, phone companies can't block any calls. Google considers itself a computer company providing a phone application.
Mr. WHITT: In a sense it piggybacks on top of your existing phone connections. And it's also - it's a Web-based application. It's all out there. It's software on the Web, and so it's not using the traditional phone lines, the traditional phone networks the way the legacy carriers do.
BERKES: But Scott Cleland, the consultant for phone companies, looks at the service provided, not the way it's provided.
Mr. CLELAND: Clearly, Google Voice does things like a telecommunications provider does. It enters the game by creating an application. But on the back end it has to connect people, much like a telecommunications company does. So which is it?
BERKES: The Federal Communications Commission is considering whether Google's call blocking is permissible. And it's tackling that fundamental question: as phone and computer technologies converge, who will provide which services under what rules? Stay tuned.
Howard Berkes, NPR News.