Public interest groups and the media were up in arms Thursday over news reports that Google (GOOG) and Verizon (VZ) have been discussing a tiered-service agreement, which would allow deep-pocketed content providers such as Google, to pay more to broadband providers such as Verizon to give their content priority and faster network speeds on Verizon's networks. But both tech giants are denying the reports.

If such a deal were to take place, Google could pay for one of its YouTube videos to take precedence over, say, a video from a Web start-up that's unable to pay the sort of fees Google can afford. The plan would be in direct opposition to the concept of "net neutrality," a policy supported by the Federal Communications Commission and consumer advocates, which calls for Internet service providers to treat all legal Web traffic equally and to not discriminate against content that originates with a provider's rivals.

Instant Outcry

The news of the talks, which was originally published in The New York Times and then reported in The Wall Street Journal and a litany of media outlets (including DailyFinance), sparked an outcry from supporters of net neutrality. Josh Silver, the president of nonprofit media reform organization Free Press, issued a statement that said, in part, "Such abuse of the open Internet would put to final rest the Google mandate to 'do no evil'."

Another public interest group called Public Knowledge expressed similar alarm. "The point of a network neutrality rule is to prevent big companies from dividing the Internet between them. We do not need rules to protect Google and Verizon, but we need a rule to protect the customers of Google and Verizon and the competitors of Google and Verizon."

Media industry guru Jeff Jarvis a writer for BuzzMachine and the author of What Would Google Do? says Google's deal is the "devil's pact with Verizon for tiered internet service."

What Such a Deal Would Mean

Everyone can calm down, at least for now. Google says that the talk is all bunk. On Twitter, it released a statement that the New York Times article was all wrong and that it remains committed to an open Internet. Verizon, too, now says on its policy blog that the Times article regarding conversations with Google is mistaken. "Our goal is an Internet policy framework that ensures openness and accountability, and incorporates specific FCC authority, while maintaining investment and innovation. To suggest this is a business arrangement between our companies is entirely incorrect."

To many, the retractions are a welcome relief, but the incident brings up some very important points. If such a deal were ever to take place, it would be a clear victory for broadband providers such as Verizon and AT&T (T). It would give them the power to slow down or speed up selected Web traffic. That flies in the face of the premise that the Internet should be free and open to all.

Such power to control the Web would have far-reaching consequences that could hinder economic growth. Net neutrality creates an even playing field that encourages new start-up companies and innovation. Thanks to a largely unregulated Internet, companies such as Google, Facebook and Amazon (AMZN) were able to carve out new businesses and compete against older, more established companies.

Why Not Charge What the Market Will Bear?

Stifle that, and you stifle capitalism. Forget about starting your own Web-based business. Regardless of how good your service is, your website could load more slowly and the transactions could take longer than for a partner of the broadband service provider who's paying more. Right off, your business would be at a distinct disadvantage.

The service providers, of course, would argue that they spend billions of dollars acquiring wireless spectrum and building fiber networks. Shouldn't they be able to charge whatever the market will pay for their service?

Google's and Verizon's net neutrality flip flop has surfaced these issues once again. And we'll be hearing more about net neutrality. The FCC has been recently conducting meetings with broadband providers on the topic. So far, no formal rules have been released. But even if Google and Verizon do come up with their own deal, an FCC ruling would aim to be broad enough to trump their decision.

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