Yesterday, A group of House members from rural districts called on the Federal Communications Commission to investigate Google’s practice of blocking calls to numbers that use rural exchanges to charge inflated prices–something regulation prevents traditional telecom carriers from doing.

In their letter to the FCC, the lawmakers–among them Reps. Steve Buyer (R., Ind.), Charlie Melancon (D., La.), Michele Bachmann (R., Minn.) and John Barrow (D., Ga.)–claim that rural consumers will be harmed if Google is allowed to “evade compliance with important principles of access and competition.”

“We understand Google has asserted Google Voice is not a ‘traditional’ telephone service–despite its use of 10-digit telephone numbers and its ability to connect calls between telephones through a local exchange carrier,” the lawmakers wrote in the letter. “Instead, Google maintains it ought to be allowed to block calls to rural telephone exchanges–a position we find ill conceived and unfair to our rural constituents.”

This, of course, is pretty much what AT&T (T) said in September when it slagged Google (GOOG) as “one of the most noisome trumpeters of so-called net-neutrality” and asked the FCC to order it to “play by the same rules as its competitors.” Google, however, insists those rules don’t apply in its case.

“The FCC’s open Internet principles apply only to the behavior of broadband carriers–not the creators of Web-based software applications,” Google telecom counsel Richard Whitt wrote in response to AT&T’s complaint. “Even though the FCC does not have jurisdiction over how software applications function, AT&T apparently wants to use the regulatory process to undermine Web-based competition and innovation.”

Interesting, given the recent flap over Google Voice for iPhone, which Apple (AAPL) hasn’t yet allowed into its iTunes App Store because it “appears to alter the iPhone’s distinctive user experience by replacing the iPhone’s core mobile telephone functionality and Apple user interface with its own user interface for telephone calls, text messaging and voice mail.”

How is Vonage’s (VG) app different? Its features and functionality are certainly very similar to those of Google Voice.

Apple won’t say, but the company did tell the Associated Press that Vonage’s app falls under the same category as other VoIP applications that have already been approved for the iPhone.

Seems AT&T (T) feels that Google’s Google Voice Internet call-forwarding service violates federal rules designed to ensure that phone companies connect all calls. From the company’s letter:

Numerous press reports indicate that Google is systematically blocking telephone calls from consumers that use Google Voice to call telephone numbers in certain rural communities. By blocking these calls, Google is able to reduce its access expenses. Other providers, including those with which Google Voice competes, are banned from call blocking because in June 2007, the Wireline Competition Bureau emphatically declared that all carriers are prohibited from pursuing “self help actions such as call blocking.” The Bureau expressed concern that call blocking “may degrade the reliability of the nation’s telecommunications network.” Google Voice thus has claimed for itself a significant advantage over providers offering competing services. Google casually dismisses the Bureau’s Order, claiming that Google Voice “isn’t a traditional phone service and shouldn’t be regulated like other common carriers.” But in reality, “Google Voice” appears to be nothing more than a creatively packaged assortment of services that are already quite familiar to the Commission….

[The FCC] cannot, through inaction or otherwise, give Google a special privilege to play by its own rules while the rest of the industry, including those who compete with Google, must instead adhere to [FCC] regulations.

AT&T’s letter comes just days after FCC Chairman Julius Genachowski proposed six Net neutrality regulations that will apply to both wireline and wireless platforms. Interestingly, it also follows an FCC investigation into the rejection/delay of Google Voice for the iPhone.

UPDATE:

Google’s responded to AT&T’s letter in a post to the company blog, pointing out the differences between Google Voice and traditional phone service and questioning AT&T’s motives for appealing to the FCC.

“AT&T is trying to make this about Google’s support for an open Internet, but the comparison just doesn’t fly,” Richard Whitt, the company’s Washington telecom and media counsel, wrote. “The FCC’s open Internet principles apply only to the behavior of broadband carriers–not the creators of Web-based software applications. Even though the FCC does not have jurisdiction over how software applications function, AT&T apparently wants to use the regulatory process to undermine Web-based competition and innovation.”

The reasons for the decline? Seasonality, the econalypse and the maturation of the market. “The second quarter has proven to be traditionally weak for broadband growth, but with the market becoming more mature, broadband adds further waned,” Bruce Leichtman, LRG’s president and principal analyst, said in a statement.

Poor broadband infrastructure and limited access to it in rural areas clearly also played a role. In rural America, just 31 percent of residents have a broadband connection, as opposed to more than two-thirds in the rest of the country, according to the Pew Internet and American Life Project. No wonder America now ranks 15th in the world on broadband access, according to the Organization for Economic Cooperation and Development.

So that $7.2 billion in broadband investments the Obama administration recently pledged stands to do a lot of good–assuming it’s put to use by the right folks. It’s not yet clear that will happen, however, because the large network operators best positioned to roll out access to underserved areas are afraid of taking stimulus money for fear of net-neutrality conditions that might be attached to it, as well as of unwanted government scrutiny.

And as Robert Atkinson, president of the Information Technology and Innovation Foundation, notes, that’s really too bad. “If you want to get broadband out, you have to do it with [those] who brought you to the dance in the first place, and in this case it is the incumbent cable and telephone carriers who have 85 percent of lines in the country,” he told the Washington Post. “This is not basket weaving. This is really complex and intensive technical stuff that takes a fair amount of sophistication and scale to be able to do right and to continue to upgrade.”

[Image Credit: Flickr/alan i am]

“As wireless network quality improves and unlimited calling becomes increasingly pervasive, we expect the trend toward wireless substitution to continue,” Alison LeBreton, vice president of client services for Nielsen Mobile, said in a news release. “In a tightening economy every dollar counts, and consumers are more and more comfortable with the idea of ditching their landline connection.”

An interesting trend and one that seems likely to continue as landlines become more of an extraneous expense. The average landline phone household spends $40 a month for that service–$480 a year. Cut the cord and you save yourself a few hundred dollars to spend on something else.

Like booze. Because according to another survey, this one from The National Center for Health Statistics, wireless-only adults enjoy getting liquored-up far more than their landline-loving brethren. From the survey:

The prevalence of binge drinking (i.e., having five or more alcoholic drinks in one day during the past year) among wireless-only adults (37.1 percent) was twice as high as the prevalence among adults living in landline households (16.9 percent).”

(Photo courtesy Justin Hancock)

Still, the Silicon Valley start-up, which officially opened its Web-based telephony platform to third party developers this morning, is generating a lot of buzz for its Flash/Flex-based telephones (see video below), and rightly so. The company has essentially built a software version of an operator-class telephone switch that connects Internet-based voice communication services with mobile and landline phones and other Web-based phone applications.

Using its Ribbit API, developers can write applications that support full telephone capabilities–voice mail, call-logging, text-to-speech transcription services, etc.–and because they’re Flash/Flex-based, they can be embedded into Web sites and integrated into Web-based services.

“What we have done is made voice an object that you embed into your workflow (or software),” said Ribbit CEO Ted Griggs. “We didn’t want to change how people did things, like communicate via Skype, and wanted to integrate the platform to work with any phone.”

Smart, eh? But how’s the company going to make money? Ribbit says it plans to charge for services like calls to traditional landlines, voice-mail transcriptions and billing. A reasonable plan, but as Ovum analyst Brett Azuma notes, an unproven one. “Unless there’s a foolproof way to get the products out there and make them successful,” Azuma told Wired. “I think the consumer applications are a little unclear for now. Being able to use text-to-speech transcription services and archive voice calls are many of the features that consumers have shown interest in over the years. However, whether or not they’re willing to pay for these features is going to be the big question.”

In a filing with the U.S. District Court for the Western District of Wisconsin, the telecom accuses Vonage of willfully infringing upon a single AT&T patent: No. 6,487,200, which describes, broadly, a system for routing telephone calls over data networks. From the abstract:

A packet telephone system which employs a packet network that provides virtual circuits. The packet telephone system employs short packets containing compressed speech. The use of the short packets makes possible compression and decompression times and bounded delays in the virtual circuits, which are together short enough to permit toll-quality telephone service. The packet telephone system employs an intelligent network interface unit to interface between the packet network and standard telephone devices. The network interface unit does the speech compression and decompression and also responds to control packets from the packet network. Consequently, many telephone system features can be implemented in the network interface unit instead of in the switches. The network interface unit may also be used to provide data connections to devices attached to it. The combination of virtual circuits, with bounded delays, short packets, rapid compression and decompression, and intelligent network interface units makes it possible to build a telephone system with fewer and cheaper switches and fewer links for a given volume of traffic than heretofore possible and also permits substantial savings in provisioning and maintaining the system.”

Seems a bit broad, but now that Sprint Nextel and Verizon have proved you can win a jury verdict on such claims, AT&T would have been foolish not to sue. And, to be fair, the company claims it sued only after it failed to negotiate a “reasonable licensing arrangement” with Vonage. “We were forced to file a lawsuit,” said an AT&T spokesman.

In a statement, Vonage vowed to continue negotiations. “It’s our preference to settle disputes through negotiation rather than litigation,” said Vonage chief legal officer Sharon O’Leary. “We will continue to work toward an amicable solution.”

These patents are invalid. We don’t owe them a dime.”
– Vonage lawyer Louis Jameson, Sept. 21

Vonage lawyer Louis Jameson was right. Vonage doesn’t owe Sprint Nextel a dime. It owes the company 800 million of them. Vonage settled its patent dispute with Sprint Nextel this morning for $80 million–$35 million for past use of Sprint’s patented technology and $40 million for future licensing, along with a $5 million prepayment.

Sprint, in turn, has agreed to license Vonage its VOIP portfolio, which includes more than 100 patents covering methods and components to connect voice calls between a traditional telephone network and an IP network. The settlement comes two weeks after a federal jury ruled that Vonage illegally used Sprint patents and awarded Sprint $69.5 million in damages.

In a statement today, Vonage General Counsel Sharon O’Leary said, “We believe this deal is good news for Vonage, our customers and our shareholders. It allows us to put this litigation behind us and continue to focus on our core business by removing the uncertainty of legal reviews and long-term court action.”

Presumably with the “uncertainty of legal reviews” removed, Vonage will have that much more time to focus on other uncertainties, like its financial viability. As of June 30, Vonage only had $344 million in cash. Of that, $66 million is restricted cash used as collateral for the Verizon bond. (Verizon also won its patent-infringement case against Vonage.) And it’s carrying $248.2 million in debt, with a put option that may mean it is due as soon as December 2008.

But why dwell on matters so bleak. There is, after all, good cause for celebration: Vonage stock soared as much as 80% this morning–if soaring is what you call reaching for $2 per share from a baseline of $1.56–on the news, giving the company its biggest single-day advance since going public last year.