Google-Verizon Pact May Herald End of Equal-Access Internet as FCC Stalls

Imagine an Internet where consumers paid a low price for basic service and more for add-ons such as 3-D video.

Or imagine if Comcast Corp., now seeking approval to acquire General Electric Co.’s NBC Universal, let its customers download Universal movies at superfast speeds, while relegating the latest Harry Potter film from rival Time Warner Inc. to the slow lane.

Open-Internet advocates say such cable television-like tiered services and virtual toll booths would violate “net neutrality,” the concept that all information coursing across the Web is equal, Bloomberg Businessweek reports in its Aug. 16 edition.

Like it or not, net neutrality may soon be ending. No one senses this more acutely than Julius Genachowski. Since a federal court ruling in April gutted his power to regulate Internet service providers, the Federal Communications Commission chairman has struggled to regain authority over carriers such as AT&T Inc., Verizon Communications Inc., and Comcast by proposing new rules and holding closed-door talks with industry players.

His predicament deepened on Aug. 9 when the chief executive officers of Google Inc. and Verizon, Eric Schmidt and Ivan G. Seidenberg, suggested that the industry embrace net neutrality -- up to a point. They would exempt from open-access rules wireless networks and any “managed services” delivered over wires, such as health-care monitoring, special entertainment events, and gambling.

Opera in 3-D

The CEOs offered as an example an opera performance streamed in 3-D over the Web. Verizon would be paid a premium to send the program to opera buffs more quickly and at higher quality.

Now, with Congress unable to agree on whether to stop companies from carving up the Internet, Genachowski is left with few choices. He wants to uphold President Barack Obama’s campaign pledge to protect the open Web, even as the industry gets set to impose restrictions.

The Google-Verizon plan hit like “a tidal wave” because Google had been “a very strong supporter of net neutrality,” Darrell West, vice-president of governance studies at the Brookings Institution in Washington, told Bloomberg Television.

Google seems to be laying the groundwork for tiered pricing, and “the Internet is going to become more like other parts of the economy,” West said.

The proposal is in keeping with Google’s longtime advocacy of an open Internet, Schmidt said in an interview.

Showing Leadership

“We’re trying to show some leadership,” he said. “I have no objection to other people trying to show some leadership, too, but something’s got to happen.”

Verizon’s willingness to agree to clear net-neutrality rules for its wired business was “pleasantly surprising,” Schmidt said. “They’re serious.”

The exemption for managed services merely recognizes what Verizon already offers through its paid FiOS broadband service providing TV, phone and Internet.

Public-interest organizations rejected the deal. Joel Kelsey, political adviser for Washington-based consumer advocacy group Free Press, said the pact “would give companies like Verizon, Comcast, and AT&T the right to decide which content will move fast and which should be slowed down.”

Others criticized Google for what they called its abandonment of the open Web. “Google has taken a big step back in people’s eyes,” said Craig Moffett, an analyst with New York- based Sanford C. Bernstein & Co. “The company that’s supposed to not be evil is suddenly being characterized by the net- neutrality crowd as the arch-villain.”

FCC Ends Talks

The FCC had tried to strike its own accord in talks with the industry that began in June. Unable to reach a consensus, Genachowski ended the discussions last week. “Any deal that doesn’t preserve the freedom and openness of the Internet for consumers and entrepreneurs will be unacceptable,” he said. He declined to comment on the Google-Verizon deal, spokeswoman Jen Howard said in an e-mail.

The chairman, an Obama appointee who leads a 3-2 Democratic majority, could argue that rules written for telephone service provide the authority he needs to require that Internet providers treat traffic equally. If he tries to apply the phone rules to broadband, carriers and congressional Republicans would protest. Cable and phone companies say phone-style rules could lead to rate regulation, and they say that prospect would delay investments to upgrade the Internet.

‘Going to Be Sued’

If Genachowski goes that route, “he’s going to be sued,” said Representative Cliff Stearns of Florida, the top Republican on the House subcommittee on communications, technology, and the Internet. “We’re not going to get innovation if the government steps in.”

Genachowski declines to say when he might put phone-style rules to a vote by the FCC. “He needs to act swiftly,” said Gigi Sohn, president of Public Knowledge, a Washington-based group that favors net neutrality. “The more he delays, the more he gives the opposition time.”

To contact the reporter on this story: Todd Shields in Washington at tshields3@bloomberg.net; Brad Stone in San Francisco at bstone12@bloomberg.net.

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