Why Google and Verizon's Net neutrality deal affects you

NEW YORK (CNNMoney.com) -- Who controls the Internet and how you access it is the subject of an increasingly heated debate -- and a turning point is nearing.

The argument is about a standard known as "Net neutrality," which is being fiercely fought out by two groups: content creators -- like Google, Yahoo, Amazon.com and eBay -- and Internet providers, including Verizon, Comcast, AT&T and Time Warner Cable.

If enforced by government regulators, Net neutrality rules would require Internet providers like phone and cable companies to treat all Web content equally. They would prevent providers from restricting access to certain sites or applications, or collecting fees to deliver some sites faster than others.

Content providers largely support Net neutrality, while Internet providers mostly argue against it. The Federal Communications Commission -- which tried to implement Net neutrality rules but got smacked down in April by a court ruling saying it did not have the authority to do so -- has held a series of meetings with industry representatives over the past few months as it prepares a proposal asking Congress to give it new authority to regulate broadband.

But two key players in those talks -- Google and Verizon -- are on the verge of announcing their own deal mapping out what they think the playing field should look like.

Verizon and Google are reportedly close to an agreement that meets somewhere in the middle: Verizon would not favor certain types of content over others on its FiOS wireline broadband network. However, those restrictions would not apply to its Verizon Wireless mobile network, which has more significant bandwidth constraints.

Neither company would comment officially on their talks, but Google CEO Eric Schmidt hinted Wednesday at what the agreement would likely entail at the Techonomy conference in Tahoe, Calif.

"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," Schmidt said. "But it's okay to discriminate across different types, so you could prioritize voice over video, and there is general agreement with Verizon and Google on that issue."

A spokeswoman from Google (GOOG, Fortune 500) declined to comment further on the company's talks with Verizon (VZ, Fortune 500). But she said a New York Times report on Thursday that said Google would support content providers paying Verizon to give users faster access to their products was "quite simply wrong." Verizon also denied the report, saying it "fundamentally misunderstands our purpose."

"Our goal is an Internet policy framework that ensures openness and accountability, and incorporates specific FCC authority, while maintaining investment and innovation," said David Fish, a spokesman for Verizon, in a company blog post. "To suggest this is a business arrangement between our companies is entirely incorrect."

An agreement between Google and Verizon could gain support from both sides, pushing forward compromise legislation that gives the FCC some of the authority it desires.

Otherwise, without the support of the strong telecom lobbies, the legislation faces an uphill battle in Congress.

The kind of compromise Google and Verizon are eying draws a distinction between "wired" data networks -- like FiOS, DSL and cable -- and the wireless networks users tap through smartphones and other mobile devices. Wireless companies are spending billions of dollars each year just to keep up with the bandwidth demands of their customers, and current speeds are snail-like compared to most wired broadband offerings.

There's another key difference between the two kinds of networks: Choice. Most consumers have only one or two wired broadband options for their homes. But there are a profusion of wireless Internet providers, including Verizon, AT&T (T, Fortune 500), Sprint (S, Fortune 500), T-Mobile and an assortment of other carriers. That gives consumers options if their carrier restricts Internet access in ways they don't like.

As a result, a distinction between the two services may be the compromise that's required to push Net neutrality forward.

But any regulatory deal reached now that treats wireless networks differently may need rethinking in just a few years. Mobile device use is skyrocketing, and the technology to support that data demand is moving quickly. Today's 3G networks get clogged -- just ask AT&T's legion of cranky iPhone customers -- but carriers are moving toward "4G-LTE" (Long-Term Evolution) networks with radically improved data support.

That would blur the distinction between wireline and wireless speeds -- and once again put a fight over who controls the Internet front and center.