“I always thought the way to go with cable TV/high speed internet was to have every town own their own fiber optic lines and then charge providers to access them to pay for installation and upkeep.”

Portland, OR had an interesting run at something slightly different, a few years ago. They lost a lawsuit against AT&T Broadband [now Comcast] to force Comcast to open its network to competitors [some of the local, dial-up ISPs who were eventually forced out of business because they couldn't afford to build their own broadband networks].

Portland then looked at building their own fiber-optic network, and then had a city-owned wireless network established – with wifi nodes installed on a lot of downtown traffic lights – which failed when the company contracted to run it couldn’t make enough money off of online ads].

Now, with Comcast & Quest competing for hard-wired connections in Portland, Comcast & Verizon competing for hard-wired connections in the towns to the East & West of Portland, and Clear providing WiMax service in the Portland metro area – the city isn’t too worried about a single provider having a monopoly on access.

The thing I see as ironic is that Clear is having a tough time as the new kid on the block, so it has agreed to allow Comcast & Quest to sell its WiMax service re-branded as if they were actually Comast & Quest networks.

So, while Comcast fought tooth & nail – several years ago – to prevent dial-up ISPs from being able to pay Comcast for the ability to migrate their customers to cable-based broadband, Comcast is now happily paying to use Clear’s network to transition their Comcast customers to WiMax. :)

“Why is expensive for Google Voice to connect to rural telcos? What exactly is the expense to Google?”

Welcome to the world of regulated-monopolies, where communications travel between service-areas of regional and local telecommunications companies.

And in the US, where regulations [laws?] require that people in suburban and urban areas have an extra charge on their phone bills to subsidize the phone service for people in rural areas – who would otherwise have to pay exorbitant rates to maintain phone service to their sparsely-populated areas.

Each phone call has an origination and a destination – which are often on the networks of two separate companies. The US model has the originator charge the person making the call, and the originating company is then billed by the destination company for the use of the destination company’s network.

Common Carrier rules [laws?] require the originating company to pay whatever the destination company is allowed to charge – because they are both regulated monopolies – so the destination charges do have a limit to how high they can go.

When we were charged for each individual call, any outrageous fees would just be added to your bill for that call. And you would know plan accordingly if you called that number on a regular basis.

But the move to a flat-rate model has made calls to these exorbitant destination-fee areas an unexpected hit on the profits the flat-rate or “free” [ad supported] phone companies – since they model there expenses based on the standard destination-fees most carriers charge each other.

It appears that Google is willing to subsidize the cost of normal destination fees in order to keep their Google Voice service free, but they are refusing to pay the much-higher fees some rural companies are allowed to charge for completing a call on their network.

“Don’t we have to acknowledge a basic inequity here wherein AT&T and similar build the physical backbone that companies like Google exploit…”

And that is the heart of the Net Neutrality debate.

Comcast wants to sell me internet, phone, and TV/Movie services over their system – while Verizon wants to sell me internet, phone, and TV/Movie services over their system. And neither company likes the idea that Vonage, Google, or Magic Jack are getting a free “piggy-back ride” on infrastructure the online-only companies didn’t build.

Comcast, Verizon, et. al. don’t want to be “utility” providers – just charging us a flat fee for a given connection speed, or pay-as-you-go metered usage of the internet. They want to get the middleman’s cut in delivering content, especially if they can get their own branding placed on the content.

But those hardware-based companies exist as regulated-monopolies, who are allowed to maintain uncontested service areas in exchange for being regulated as to how much they can charge and how fast their rates can go up.

To my mind, the fairest way to run things would also be the least popular: have the internet service providers be relegated to utility status by limiting them to providing metered or flat-rate internet service, and then let consumers decide which free, ad-supported, or fee-based online services they want to use.

But, of course, that will never happen.

“And if you sell a phone service, I want to be able to use it to call any phone number. ”

Who said Google is “selling” a phone service?

When I check Google’s page for Google Voice – it states the service is free.

Google doesn’t have to connect to every phone in the world because they aren’t a part of the POTS [plain old telephone system] monopoly-system which allows allows one phone company to provide exclusive service to a geographical area.

Since they aren’t charging you for the service, they are under no obligation to pay above-standard connection fees to the destination carrier.

Having said that, there is a huge paradigm-shift going on that seems to confuse all parties. Communication is moving from a business with specific hardware for specific services to a business of generic digital lines connecting general purpose devices. 15 years ago when I got my first internet connection it was a modem connecting over a voice phone line. Today it is then other way around, my voice phone is using a voip protocol over my all day on DSL internet line. Behind the scenes the technology has completely changed, it is all digital.

But the markets and the regulation didn’t change. I am paying my cable company for TV channels and my telecom provider for phone minutes and that’s how they are marketing their services.

The obvious change would be that I choose my telecom provider upon bandwith, reliability, latency and price while choosing separately service providers that can get me the dedicated services and content I desire. Both telecom and service providers would be able to optimize and innovate within their own profession.
Telecom would be about leveling peak loads, arranging radio frequencies, knowing how to accommodate high urban demand or long distances in rural areas, distinguishing data streams that require high reliability / low latency from bandwidth sipping bulk that can wait a few seconds. Services would be about all the nice things we like to get on our devices without bothering about the technology that is accommodating it.
Problem is: this kind of telecom is not in big demand because consumers have never learned to ask for it. They have no idea what bandwidth or latency would mean for them. And they keep asking for voice minutes and TV channels.

The way to leverage the new technology in the old markets is offering old value for free. That is basically what Apple and Google are doing. Apple gives “free” data subscription once you buy an iPhone. Google gives free voice minutes on Google Voice. That is how they are able to break down the old market forces.
But it is only half the story, the “old” value has gone, the “new” value has still to be discovered. What is the value of “free” data on your iPhone if the network gets overloaded when you really need it? So if it is valuable you might be willing to pay for that and when you are willing to pay there might be companies that are able to transform that payment into a valuable investment.

In this whole story I would have expected Apple to be more on the innovation bandwagon. The iPhone is inherently flexible with data connection: you can use WiFi on your own private internet connection, WiFi hotspots, a MiFi interface to any 3G network, there is an interchangeable SIM card that allows you to choose your own provider for the built in 3G capabilities. On the services side it is extremely flexible as well with the modern Safari browser and the App Store.
The “phone” on the iPhone is *not* a hardware facility, it is just one of the apps. 3rd party apps for voip, for Skype, for watching TV, for listening radio are *not* theoretical possibilities but reality. I would have expected Apple to be more on the Google side…