Verizon and Google said yesterday that regulators should be able to police Web traffic over cable and telephone lines, but carriers should control the speed of access to content on wireless devices.
The joint announcement marks a surprising industry compromise over so-called "net neutrality" - a term that means high-speed Internet providers should not block or slow information or charge websites to pay for a fast lane to reach users more quickly. But it is unclear if the giant companies can get lawmakers or regulators to move forward with their proposal.
But analysts said the Federal Communications Commission is unlikely to cheer for a proposal that would only apply to a slice of Internet channels.
The FCC has been trying for about a year to craft rules for how Internet traffic should be managed on telephone, cable and wireless devices. That effort was thrown into disarray in April when a court ruled the FCC overstepped its bounds by sanctioning Comcast Corp for blocking bandwidth-hogging online applications.
The proposal by the telecommunications and Internet giants on Monday came after the FCC failed to broker an agreement on net neutrality among broadband providers and Web companies.
Stifel Nicolaus analyst Rebecca Arbogast said the compromise would not be enough to avert a potential move by FCC Chairman Julius Genachowski to reclassify broadband into a stricter regulatory regime - one that would allow it to police Internet traffic.
"He is looking for greater network neutrality safety safeguards and a broader agreement among parties," Arbogast said.
Failure to agree on rules for wireless devices - which has broad implications for Silicon Valley, media companies and others trying to determine their next investments - is one of the major reasons the talks at the FCC failed.
Handheld devices is a lucrative business for companies expecting growth in wireless broadband Internet services as more people use Blackberries and other smartphones.
Public interest groups lashed out at the proposal, calling it another failure to protect wireless Internet users.
"That alone makes this arrangement a nonstarter," said Andy Schwartzman, head of the Media Access Project.
At the meetings, the hope among FCC officials and the companies was that, if they could solve the net neutrality conundrum, the FCC would drop a broadband reclassification proposal.
But the meetings were suspended after reports of the side deal between Verizon Communications Inc and Google Inc, who came up with their own proposal after previously being on opposite sides of the debate.
A spokeswoman for the FCC, which is trying to determine if net neutrality rules should apply to both "land lines" and wireless devices, declined to comment.
The Google and Verizon chief executives said on a call with reporters that the proposal does not represent a business arrangement and there are no plans to provide Verizon consumers with a dedicated pipeline to watch YouTube videos and other Google products.
"As far as we're concerned, there would be no paid prioritization of any traffic over the Internet," said Verizon Chief Executive Ivan Seidenberg.
But while the companies said the proposal does not allow for paid prioritization on the public Internet, carriers should be able to make private arrangements with service and application providers to let them offer differentiated services outside of the public Internet.
"Examples of this could be very highly sophisticated healthcare monitoring services, or smart grid services or super advanced educational type things, or even entertainment services," Seidenberg said.
AT&T said it is not party to this proposal, but did not outright oppose the proposal.
"The Verizon-Google agreement demonstrates that it is possible to bridge differences on this issue," said AT&T spokeswoman Claudia Jones.
Seidenberg and Google CEO Eric Schmidt said regulators should police Internet service providers to ensure they do not block or slow Internet traffic on phone lines.
Telephone companies previously suggested that another agency with competition and consumer protection missions such as the Federal Trade Commission might be better suited to regulate broadband.
Google and Verizon said the FCC should have full enforcement authority over the rules, including the ability to impose up to $2 million (£1.26 million) fines on companies that violate the proposed rules.
However, it would not let the FCC go beyond the net neutrality rules written in potential legislation.
"This deal proposes to keep the FCC from making rules at all," said Joel Kelsey, political adviser at Free Press, another public interest group.