Update#2 Now Verizon has chimed in with their statement:

The NYT article regarding conversations between Google and Verizon is mistaken. It fundamentally misunderstands our purpose. As we said in our earlier FCC filing, 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.

The New York Times and Bloomberg are reporting that Google, once a champion of Net Neutrality, might be caving into Verizon (VZ) in order to obtain special status for its services.

Such an agreement could overthrow a once-sacred tenet of Internet policy known as net neutrality, in which no form of content is favored over another. In its place, consumers could soon see a new, tiered system, which, like cable television, imposes higher costs for premium levels of service.

As the story broke last night, Google (GOOG) CEO Eric Schmidt told reporters,

We have been talking to Verizon for a long time about trying to get an agreement on the definition of what net neutrality is. We’re trying to find solutions that bridge between the hardcore net neutrality view and the telecom view. I want to be clear what we mean by net neutrality. What we mean is if you have one data type like video, you don’t discriminate against one person’s video in favor of another. But it’s OK to discriminate across different types, so you could prioritize voice over video, and there is general agreement with Verizon and Google on that issue. The issues of wireless vs. wireline get very messy because of the issue of Type I vs Type II regulation and that is an FCC issue not a Google issue.

So there seems to be some misconceptions here.  The Google-Verizon Deal would prioritize certain types of packets (packets are the little data bits that flow through routers – a Voice Packet can be differentiated against a Image or video packet in what Network administrators call Quality of service or QoS), not where packets are coming from.  To give the example that Eric Schmidt gave above, VoIP packets would be given the priority over video packets.  Seems fair right?  Voice is a very small but important bandwidth user that you don’t want degrading while someone else in your house is watching a HD Movie streaming from Netflix?

So is it healthy that where the packets come from wouldn’t be discriminated against?  For instance, if I have a video server serving up Flash video at an ISP, it should get the same data throughput as YouTube videos being streamed to TVs.

HEre’s where that gets messy: If Google or any other company invents and patents a certain type of protocol and others can’t use it, Verizon could decide to prioritize that over another similar – but different protocol.

For instance: If Verizon invented a new type of video protocol which others didn’t use for whatever reason, they could decide that that was important and give priority to that service, which would give Verizon and its partners an unfair advantage.

It reminds me a bit of segregation in the US.  Separate is never equal.

As a consumer, I wonder why the telcos can’t pour more of their energy into giving us such high speed and low latency networks that packet priority doesn’t matter.  All packets, whether they are for huge movies or VoIP conversations arrive in time for them to become useful.  QoS/Packet prioritization is only necessary when there is a shortage of bandwidth.

Perhaps we should be attacking the other end of the equation.

Three years ago in France, consumers could buy 100Mb Upload/download Fiber to the home (including TV and Phone for €50/month).  And with that, three different companies (both telephone and cable) are competing to give it to you.  Ironically, I could watch videos from servers based in America better in France than I can in the US.

In the US, my Optimum Online $50/month price for stand alone cable Internet speeds (which haven’t gotten much faster over the past decade) can’t handle streaming Hulu or YouTube videos without often having hiccups.

Google has tried to shame the telcos with its 1Gb Fiber to the home campaign but today’s news seems to indicate that they’ve taken a different tact.

So, hearing that Google may be in bed with Verizon to charge consumers even more for a tiered version of a lousy, underperforming service rubs us all the wrong way.  Hopefully Google will get the message and get back on track.