Verizon and Google have reached an agreement in principle to deal away Net Neutrality protections for American broadband users according to a late report in today’s Washington Post.

Cecilia King writes the agreement is days away from being revealed in public, but two sources verified Verizon and Google have agreed to a split the difference on Net Neutrality — abandoning the open Internet concept for wireless broadband, but protecting against service providers holding bidding auctions over the speed of web content delivery.

Verizon wouldn’t confirm that a deal was struck but said in an e-mail statement:

“We’ve been working with Google for 10 months to reach an agreement on broadband policy. We are currently engaged in and committed to the negotiation process led by the FCC. We are optimistic this process will reach a consensus that can maintain an open Internet and the investment and innovation required to sustain it.”

Specifically, Google and Verizon’s agreement would prevent Verizon from offering paid prioritization to the biggest bidders for capacity on its DSL and fiber networks, according to the sources. But any promises regarding open-Internet access wouldn’t apply to mobile phones, the sources said, speaking on the condition of anonymity because the companies have not officially made their announcement.

And Verizon could offer managed services — better quality to some Web sites such as those offering health care services, the sources said. But some analysts speculate that managed services could also include discounted YouTube and other services to FiOS customers at better quality.

Public interest groups, some occasionally accused of being in bed with Google, were outraged at the news.

“The fate of the Internet is too large a matter to be decided by negotiations involving two companies, even companies as big as Verizon and Google, or even the six companies and groups engaged in other discussions at the Federal Communications Commission (FCC) on similar topics,” said Gigi Sohn, president of public interest group Public Knowledge.

The clear distancing from Google’s settlement illustrates these pro-consumer groups are not simply shilling for Google’s public policy positions.

For Stop the Cap!, the implications are extremely disturbing.  As outlined, this compromise deal would relegate wireless broadband to usage caps, speed throttles, and content blockades indefinitely.  Should “improved quality” service on the wired side be an available option, it could allow the broadband industry to mount a devastating campaign to end would-be competitors, especially to their video businesses.  Cable and phone companies could pick winners and losers (with their products being the winners, and would-be competitors the losers) by prioritizing high quality video services, exempting their partners from Internet Overcharging schemes like usage caps, and subjecting would-be, “non-preferred” content providers to usage and speed-restricted broadband lines.

Offering preferred content producers discounted rates would also completely change the business models of content distribution and discourage investment in would-be challengers that could provide consumers with other video options.

More importantly, it provides an example of an Obama Administration ruthlessly willing to cut consumers out of the debate about Net Neutrality, while forcing them to live with the results.  King notes the priorities of Google and Verizon don’t exactly include consumers:

According to the sources, Verizon and Google have met separately to reach an agreement they will tout as an example of successful self-regulation. Once bitter opponents in the so-called net neutrality debate, the firms have grown closer on the issue as their business ties have also strengthened. Verizon partners with Google on their Android wireless phones.

Their actions could set a course for the FCC meetings and what ultimately the parties could present to lawmakers, analysts said.

Voluntary self-regulation worked so well with Wall Street banks and the housing market that a disconnected crowd inside the beltway is willing to give it another try with a broadband industry that is already a duopoly for most consumers.  Psychic abilities are not required to guess at the eventual outcome.

Update 12:30pm — The denials are flying over a NY Times piece that claims Google has agreed to pay Verizon’s asking price for prioritized traffic:

Google: “The New York Times is quite simply wrong. We have not had any conversations with Verizon about paying for carriage of Google traffic. We remain as committed as we always have been to an open internet.”

Verizon: “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.”

Knology, a West Point, Georgia-based cable overbuilder, has acquired Sunflower Broadband in Lawrence (Douglas County), Kansas for $165 million cash.

Knology has been buying small, independent cable operators across the south and midwest to build its footprint and become a larger player in the heavily integrated cable television and broadband marketplace.

The company expects to acquire Sunflower partly from its own cash reserves and the balance from low interest loans.

Knology praised Sunflower Broadband’s advanced infrastructure — it has already deployed DOCSIS 3 broadband upgrades and uses a modernized hybrid fiber-coaxial cable network.  Sunflower spends between $8-9 million annually in capital expansion, a level comparable to Knology.

The purchase of Sunflower opens additional potential purchasing opportunities for Knology in the region to add other cable companies to its portfolio.

Lawrence residents were treated to gushing, emotional coverage of the sale in the pages of the Lawrence Journal-World this morning.  A sample:

In the beginning there was the vision. Forty-five years later, it was a spectacular reality. Today, the baton is being passed to a new owner.

One reader said the newspaper had a Messiah Complex.

Employees were informed this morning, but most will not know what impact, if any, will come from the sale until it closes in the fourth quarter of 2010.

The impact of the sale is drawing mixed reviews from Lawrence residents, some concerned about the loss of another locally-owned and operated business to an out-of-state “conglomerate,” while others believe the sale offers the potential for better service without irritating usage limits.

A Lawrence computer repair expert, “Dr. Dave” recognized the impact of Internet Overcharging schemes on Lawrence residents in a thorough analysis of the then-potential sale:

Sunflower stands apart from most Internet Service providers with its bandwidth caps. Knology and other suitors of Sunflower do not have these artificial limits. We’ll be free to use the internet at whatever speed we choose to pay for without fear of limits and overages. Online backups, security updates, and videos will be accessible without the worry of nasty additional fees.

Additionally, because our newspaper and television providers will be separated, the Journal World will be able to more accurately and fairly report news in Lawrence. No longer will they be limited by their vested interest in the cable company. Media consolidation is generally against FCC rules, but the loophole is that Sunflower is not seen as a “media” company. The loophole will be closed and growth of both companies will be natural and organic and both companies will be made stronger. We as citizens will trust the newspaper to accurately report the news and the Journal World will be restored to its role as watchdog for the citizens it serves. If the cable company isn’t acting in our best interest, I would trust the Journal World to report on it. Knology won’t be able to slack off and reduce the quality we’ve come to expect from Sunflower–the newspaper will see to that.

Knology claims it will get $5 million in “synergies” from the merger, much coming from volume discount programming purchases, a switch to Knology’s billing systems, and potential layoffs.  However, since Sunflower Broadband’s operating area does not overlap existing Knology service areas, the impact on jobs may prove limited.

One impact subscribers may not miss is the end of Sunflower’s Internet Overcharging schemes.  Sunflower is one of a handful of cable operators placing arbitrary limits on their customers’ broadband usage.  Usage caps, speed throttles, and overlimit fees are all imposed on Sunflower’s customers.

Knology has never imposed similar schemes on their customers.  Now may be a good time for Sunflower customers to let Knology management know they want an end to Sunflower’s profit-padding usage limits, especially considering AT&T U-verse, increasing competition in Lawrence, does not limit usage either.

The Internet video revolution will increasingly be blocked by Internet Service Providers who will leverage their duopoly markets with restrictive usage limits to keep would-be video competitors from ever getting their business plans off the ground.

William Kidd, industry forecaster for iSuppli, an industry analyst group, sees a future of Internet Overcharging schemes like usage caps, overpriced pay-per-use pricing, and other limitations designed to erect roadblocks for online video content, which increasingly threatens the cable-TV products of both cable and phone companies.

The latest scheme to limit usage of streaming media come not from concerns about bandwidth costs but rather the “unknown risks” online video could have for cable and phone companies’ other products.

Such risks, Kidd believes, will compel broadband providers to increasingly implement caps in order to mitigate any long-term gambles that providers might have to take to make streaming media available to home and mobile environments.

At present, content can be streamed over TV from online service offerings such as Hulu and Netflix, or accessed through a device such as the PlayStation from Sony Corp. In addition, new-media business models continue to emerge with the introduction of new platforms that circumvent services currently provided by traditional cable or satellite pay-TV providers.

The caps planned for implementation will sink virtually all of the video streaming services that are not partnered with cable and phone companies.  Kidd notes the caps he’s seen offer limited viewing — as little as three hours for wireless 200kbps video streams or standard definition video streamed on wired networks for up to 25 hours per month.  True HD viewing is simply not going to happen with caps on many providers planned to cut off viewing after only seven hours.

Business plans and would-be investors must take notice of what providers have in store for would be competitors, Kidd argues.  Since the phone and cable companies maintain a near-monopoly on broadband, they ultimately control what Americans can do (and see) on their broadband accounts.

Rogers reduced usage allowances on several of its broadband plans days after Netflix announced a streaming service for Canadians.

One need only look to Rogers Communications in Canada for a timely example.  Rogers promptly lowered usage limits on some of its broadband plans just days after Netflix announced a video streaming service for Canadians that could directly compete with the cable giant’s video rental stores and cable pay per view services.

“These new-media business models imagine that they don’t have to pay the network through which their data traverse,” he said. “However, such a theory is directly at odds with the ambitions of cable and satellite-TV operators, which increasingly are unwilling to provide heavy data access through their networks for free—especially if a way can be found to monetize ongoing data traffic into viable revenue streams.”

In addition, new Internet-born content providers wrongfully take for granted that the way their largely free content has been consumed now also will apply in the future to premium services. The assumption is a bad one, Kidd observed, because in order for consumers to consider the Internet as a true substitute for their big-screen TV, content would need to be comparable in both technical quality and entertainment value. And to achieve the same level of value, such content necessarily would be extremely bandwidth intensive.

As a result, for any number of these emerging TV-substitute models to work someday, one has to assume that the picture quality being proffered is acceptable for viewing on large-screen TVs.

But providers have a trick up their sleeves by implementing seemingly tolerable usage caps as high as 250GB per month, which seem generous by today’s usage standards.  But they will be downright paltry tomorrow, especially if they do not increase over time, as online video increases in quality and size.

“By implementing caps now that don’t impinge on the way subscribers use the Internet today, cable and telco operators are able to create for themselves an advantageous situation,” Kidd said. “Under these circumstances, emerging media competitors must work more directly with the network owners before getting their services off the ground—as opposed to around them, as they may have previously hoped.”

That means giving them exactly what they want — a piece of the action and control over the content that crosses over their wires to broadband consumers.

The days may be numbered for Sunflower Broadband

A Kansas cable system notorious for Internet Overcharging is nearing a deal to be acquired by a cable overbuilder that does not usage cap broadband customers.

Sunflower Broadband, an independent cable system providing cable, phone, and broadband service to 30,000 Lawrence residents, is expected to be acquired by Georgia-based cable overbuilder Knology, which has been on a buying spree of late.  The asking price – $127 million dollars, according to a report in the cable trade journal Multichannel News.

Sunflower has been overcharging their broadband customers for years with schemes like usage caps and a flat rate service plan that delivers speed throttled broadband service to customers.  Sunflower has remained a hot topic for Stop the Cap! because we hear so many complaints from their long-suffering customers.  In fact, no independent cable operator has generated more reader complaints than Sunflower Broadband, almost all targeting the company’s unjustified usage caps.

Broadband Reports reminds us Sunflower was among the first to implement the idea of low caps and high overages ($2 for each additional gigabyte).  Customers also routinely complain about Sunflower’s stingy upstream speeds, maxed out at just 1Mbps for their $60 Gold tier.

None of the details about Sunflower Broadband’s impending sale can be found in the local newspaper — the Lawrence Journal-World or the local “Channel 6” news operation.  That’s ironic, considering the same parent company that owns Sunflower Broadband, The World Company, also happens to own the newspaper and Channel 6.  It took a cable trade publication based hundreds of miles away to break the story — not exactly a shining moment for journalism in Lawrence, especially considering an LJWorld reporter need not break a sweat to chase the story.

Part of the reason for the sale may have been AT&T bringing U-verse competition to Lawrence.  U-verse does not have customer unfriendly usage limits.  With AT&T ready to usher away many of Sunflower’s customers, management may have decided now was a good time to sell.

The good news for Lawrence residents is that none of Knology’s cable systems engage in Internet Overcharging schemes, so Sunflower’s usage caps may be gone after the sale.

Still, some Lawrence residents are concerned about the implications of a Knology takeover.  The Lawrence Broadband Observer is among them:

I browsed Knology’s corporate web site and was actually pretty unimpressed. To put it mildly, Knology is well behind Sunflower both geographically and technically. Knology offers service in rural areas much smaller then Lawrence, like Storm Lake, Iowa and Dothan, Alabama. They also offer service in a few towns that are equal or larger then Lawrence like Charleston, South Carolina.

Technically, Knology is well behind Sunflower in what they offer customers in other cities. Top internet speeds (albeit cap-free) are only in the 8-10 megabit range, five times slower then Sunflower’s new DOCSIS 3 offerings. On the television side, while it varies from city to city, Knology generally offers only 30 or so HD channels, which is less then half of what Sunflower offers. Knology offers a rudimentary DVR, but nothing like Sunflower’s multi-room options.

Perhaps Knology is interested in buying Sunflower to learn how to offer more advanced services, knowledge they can take to their other markets. I don’t know, but it seems like this is a case of a large buggy-whip manufacturer buying out a smaller company that makes automobiles.

Most of Knology’s network of systems have been acquired from other companies and providers.  Technically, they are a cable “overbuilder” because they do overlap other providers in some areas, such as Knoxville, Tenn., where they compete with Comcast.  In many communities, they are most common in rental parks and apartments.

Knology’s customers in other cities have usually suffered some transitional glitches (Knology uses a more “advanced e-mail system” they eventually forced their PrairieWave customers to join), but overall they have usually increased broadband speeds in their markets and add lots of new HD channels.  Knology is aggressively deploying DOCSIS 3, something Sunflower already has, so few changes should be expected there.  They do not have a history of downgrading customers.

Clues about the impact of a Knology buy can be found in communities like Rapid City, S.D., who saw their cable system switched from Black Hills FiberCom to PrairieWave to Knology.  Rapid City residents first saw changes to the cable system’s technology and billing.  That was followed by the introduction of new services and packages, and then finally the name change to Knology.

With the anticipated sale, existing Sunflower customers (and ex-customers) might want to impress on the new owner that Internet Overcharging schemes like usage caps and throttled speeds are unacceptable, and you want an immediate end to both.

Remember too it could be worse — Mediacom could have been the buyer.