Tech Companies, Google Sold You Out

Today’s compromise between Verizon (s vz) — one of the nation’s largest ISPs (and largest wireless provider) — and Google (s goog) on network neutrality is a big story, not necessarily because it’s going to change the policy discussion much, but because it marks Google selling out the tech and startup community so it can advance its own economic interests. If you weren’t aware of it by now, Google’s going to play the regulatory game for itself, not for the broader tech community.

Even if the Federal Communications Commission can muster up the political will to ignore this agreement — which is really just a highly amplified (and influential) comment in the net neutrality proceedings and probably won’t have any impact on policy unless the FCC or Congress decides its the optimal way to go — it’s worth looking at the implications were such an agreement to be made law. Why? Because this agreement is a perfect example of self-regulation, whereby those with the most to gain (and lose) present a proposal that’s not terrible in the present, but has huge implications when it comes to the future.

First, go read the seven principles of the proposal, then come back. The three biggest items that will affect technology firms and consumers are:

  • Taking wireless out of the equation for network neutrality regulations and inserting “transparency” as a salve
  • The proposal allowing for “advanced network services”
  • The utter emasculation of the FCC in the section headed “case-by-case enforcement”

I hit on the first two in my story earlier today, but the wireless compromise will likely have a huge impact on firms like Skype, Pandora and mobile video services that are relying on the growth of the mobile Internet to boost their businesses. The inability to enforce network neutrality on wireless devices opens the gateway for carrier blocking of certain applications delivered via the web to wireless handsets. Sure, the framework notes operators have to be transparent, but firms have been transparent about blocking VoIP services like Skype from their networks for years.

Another possibility is that operators could seek deals with certain service or app providers to get paid for delivering certain traffic on their handsets, but not others. If you’re Pandora and AT&T (s t) has a deal with Slacker, you may see your stunning growth slow. Consumers may or may not realize what’s going on depending on how many layers of legalese is wrapped around the transparency this framework requires.

This brings us to the issue of managed services, or as the framework labels it, advanced network services. This is a real issue for startups because it creates a dual-class system for the Internet. As I wrote earlier:

This is theoretical today, and is where the potential for big controversy lies. Google’s Eric Schmidt stressed that Google wouldn’t send its traffic over an additional online service, and suggested that if Verizon did end up degrading the “public internet” that competitors would arise to address the problem, something that’s pretty hard to believe given the costs associated with building a network. However, when Verizon’s Siedenberg said on the call, “Who knows what new services technology will bring in the future?” and suggested that 3-D content or any other service needing certain quality of service guarantees might be delivered over such a specialized service, it doesn’t take a lot to see Verizon angling to protect its ability to profit over its control over its pipes.

This is a big issue for startups. Google isn’t worried because it has both the brand and economic ability to ensure that it’s infrastructure is optimized to deliver its traffic via the public internet without resorting to becoming an advanced service. But what about a fledgling 3-D startup that wants to become a broadcaster of 3-D content online as Break Media does? Break, which nominally competes with YouTube’s 3-D efforts, might suddenly find consumers complaining about its service, with ISPs reluctant to help out because it’s not an advanced network service partner. Or maybe a company can’t establish itself as a provider of content because consumers have no way to see its content without paying extra for 3-D broadband.

This brings me to the final aspects of this framework worth exposing: it utterly strips the FCC of power to regulate violations of network neutrality or to even act as a watchdog for consumers. From the framework:

The FCC would enforce the consumer protection and nondiscrimination requirements through case-by-case adjudication, but would have no rulemaking authority with respect to those provisions. Parties would be encouraged to use non-governmental dispute resolution processes established by independent, widely-recognized Internet community governance initiatives, and the FCC would be directed to give appropriate deference to decisions or advisory opinions of such groups.

So the FCC has the power to fine violators up to $2 million, but anyone with a grievance is encouraged to go before a non-governmental dispute resolution process. IF the person or business with the complaint decides to ignore that encouragement, if the FCC sees a problem, it can fine, but it can’t actually take steps to ensure that it doesn’t happen again by making any rules.And by the way, those case-by-case hearings at the FCC take a long time and it’s possible the courts will find the FCC’s actions illegal, much as what happened when Comcast was blocking P2P files.

So Google sold the tech world out as it hopes to keep one of the largest pushers of its Android operating system happy. Even AT&T doesn’t seem to hate the deal, releasing a short statement that reads:

“We’re not a party to this agreement, but will examine it closely. We remain committed to achieving a consensus solution to the net neutrality issue, either with the FCC or with the Congress. In that sense, the Verizon-Google agreement demonstrates that it is possible to bridge differences on this issue.”

Google gives a little but wins, Verizon gives a little, but wins, and consumers and innovation ultimately lose. That’s usually how these compromises work.

Related GigaOM Pro Content (sub req’d): The New Net-Neutrality Debate: What’s the Best Way to Discriminate?