Google and Verizon: Consumers control Internet

NEW YORK (CNNMoney.com) -- Google and Verizon unveiled a joint policy proposal for an open Internet standard known as "Net neutrality" on Monday.

The seven-part proposal -- in which the government would enforce a kind of Internet bill of rights of wireline broadband consumers -- would give the Federal Communications Commission authority to regulate wired broadband Internet providers to ensure consumers have access to all legal content and applications on the Internet.

Wireline Internet providers like Verizon, AT&T (T, Fortune 500) and Comcast (CMCSA, Fortune 500) would not be allowed to favor some content over others or accept payments to prioritize certain Internet traffic.

If a provider is found to be in violation of these laws, Google and Verizon propose that the FCC would be able to respond to complaints with a penalty of up to $2 million.

As expected, none of those proposals would apply to wireless services. Google and Verizon said they jointly agree that the proposals should not apply to the mobile market, since it is more competitive than wireline broadband service and is rapidly changing. A distinction between the two services may be the compromise that's required to push Net neutrality forward.

The policy proposal, however, does enforce transparency rules for both wireline and wireless services, requiring both mobile and wired providers to give consumers "clear, understandable information about the services they offer and their capabilities."

The joint proposal also would have broadband providers pay into the Federal Universal Service Fund, which was previously relegated to telephone companies, to ensure that rural Americans can receive Internet access.

On a conference call Monday, Google CEO Eric Schmidt said to his "pleasant surprise," Verizon and Google agreed on more than he would have thought on the issue.

Google has long been a staunch advocate of Net neutrality legislation, arguing that innovative sites like YouTube, Facebook and other "two people in a garage" projects are dependent on an open Internet.

But Internet providers have largely fought against Net neutrality, saying the regulation would raise costs and hinder their ability to spend money to upgrade their networks.

"Our basic goal was to set aside this very divisive debate and realize we're very dependent on each other," he said. "We think this is a next step in making this debate more profound and clearer."

The agreement follows about ten months of talks between the two companies. Somewhat controversially, those discussions have taken place outside of the FCC, which 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.

The agency 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.

Google and Verizon have reportedly been unhappy with the way the FCC's talks have proceeded, and Verizon's CEO Ivan Seidenberg hinted as much on Monday.

"The [Net neutrality] debate has been hijacked by certain debates and issues that are not reflective of what this company is doing," he said. "We agree with Google that the idea is to follow a consumer-driven orientation."

The deal was immediately lambasted by some prominent Net neutrality advocacy groups, however. The Free Press said "this arrangement will lead to toll booths on the information superhighway."

Still, the agreement between Google and Verizon could gain support from both political parties, and is a compromise that gives the FCC some of the authority it desires.

Both Google (GOOG, Fortune 500) and Verizon (VZ, Fortune 500) were quick to strike down any notion of a business arrangement between the two companies, saying that the agreement announced on Monday was simply a policy proposal and nothing more.

A New York Times report last week claimed Google would support content providers paying Verizon to give users faster access to their products.