Google-Verizon Deal Could Spell the End of "Net Neutrality"

A proposed agreement between Google Inc. (Nasdaq: GOOG) and Verizon Communications Inc. (NYSE: VZ) could spell the end of "net neutrality," and have smartphone users seeing red instead of their favorite videos.

The arrangement, which has yet to be unveiled, would allow Verizon to charge content providers more to give their services priority on its network, the Financial Times reported, citing people familiar with the plan.

News of the agreement spread like a virus on Thursday, when the Federal Communications Commission (FCC) called off industry-wide talks, saying it had failed to reach an agreement on a "robust framework to preserve the openness and freedom of the Internet."

For example, Google, which owns the popular YouTube video service, could guarantee bandwidth is available for its service by paying Verizon more than other video services, giving it wider exposure.

Although it puts some restrictions on the U.S. carrier's ability to block or degrade specific internet services, it would also leave Verizon completely free to block services on its mobile network, though it would have to disclose any such moves, the FT reported.

The agreement came under immediate attack from backers of net neutrality - the concept that all online traffic should be treated equally - who fear it would spell the end of an open, low-cost internet and put a few big internet and telecom companies in position to dominate the web.

Letting network companies charge more for premium services in the way that the two companies are planning would eventually prompt them to allocate most of their bandwidth to these services, undermining the free web that remained, Gigi Sohn, president of Public Knowledge, a Washington-based advocacy group told the FT.

"If you allow them to cannibalize the 'best efforts' Internet, there will be very little left," she said.

For the past six weeks, a small group of lobbyists for web companies like Google, Amazon.com Inc. (Nasdaq: AMZN), and Skype.com have been meeting at the FCC with telecom and cable providers to resolve differences over network access.

The web companies want the FCC to prevent broadband providers from blocking websites, or selectively delaying access. Cable and phone companies want to avoid more regulations that could limit how they handle the growing demand put on their networks and dictate the prices they can charge businesses or consumers.

The meetings were designed to empower the FCC to act as an Internet traffic cop without the need to adopt controversial wholesale changes to the law.  When the Google-Verizon deal was announced it brought an abrupt end to the meetings and hopes for an industry-wide agreement. 

Although it's hard to predict the effects of the deal without having the full details, its broad outline was enough to cause an uproar in Washington because an alignment of interests between the two companies could become the de facto standard on how the web is run.

"The potential deal between two broadband behemoths underscores the need for the FCC to act quickly to protect the free and open Internet," Rep. Edward Markey D-MA, a member of the House Energy and Commerce Committee, told The Wall Street Journal.

"In the absence of such action, it's increasingly clear that cozy cooperation between communications colossi will reign on the Internet," he said.

But if the agreement becomes the standard, the FCC would be relegated to asserting its authority by imposing rules to keep the Internet open.  That would almost guarantee a protracted legal challenge that might lack political support in Washington.

The White House could be reluctant to spend political capital backing the FCC since communications companies and unions have opposed net neutrality on the grounds that it could threaten jobs.

The agreement appears to run counter to positions Google has taken in the past, when it advocated for open Internet access for all.  To some observers the plan looks like an about-face.  By advancing a plan that reflects its own corporate agenda the company risks disrupting some important relationships.

The close relationship between Google and Verizon has been forged through the carrier's successful backing of Google's Android mobile phone handset.  But the new agreement may raise the hackles of their competitors.

AT&T Inc. (NYSE: T), a fierce Google rival, may be one company that takes a different position, Rebecca Arbogast, an analyst at Stifel Nicolaus in Washington told the FT. Cable television companies might also see any future "premium" Google video service over the Internet as a threat.

But Google maintains the agreement is structured in a way that was designed to protect the open web.

"We remain as committed as we always have been to an open Internet," Google spokeswoman Mistique Cano told The Journal.

News & Related Story Links:

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• Money Morning:
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