Lately I have seen a lot of press about how Google has joined Verizon to push a two-tiered Internet system for cellular providers. This is a major reversal for Google, which until this has been a major defender of Net Neutrality. And it is not good news for small- to mid-range businesses or consumers.

This battle has been going on in and around the Federal Communications Commission (FCC) for several years. Reduced to its basis what the carriers – cellular companies and wired telephone and cable TV providers – want to do is create a premium class of Internet service providers who will pay more to the carriers in return for a guarantee of faster data transmission speeds. This would mean that if say Yahoo paid for the premium service but Google did not, you would see a noticeable difference in the amount of time it takes to receive an e-mail from a Yahoo mailbox versus Google.

I can understand and to an extent sympathize with the carriers. They are fast becoming commodity service providers. What after all is the basic difference to end users between the service provided by Verizon’s cellular service versus AT&T or Sprint? Obviously there are still differences in coverage, service levels, and contract provisions. But basically they all provide the same thing – cellular voice and data service. And in large part they have to compete on price because their services are close to identical. That is even more true for traditional wired telephone services and cable companies. The result is a “race to the bottom” as they try to under-price each other to capture the largest market share.

Inevitably commodity service or product providers end up operating on razor-thin margins. But at the same time the carriers all have major capital expenditures. The cellular companies are still building out their networks to reach more geography across North America and upgrading those networks to 3G and now 4G transmission speeds. The wireline and cable companies are trying to upgrade their transmission capacities, and both sets of providers are facing rapid growth in demand from a portion of their users who want to download large volumes of data in the form of music, video clips, TV shows, and movies. The constant downward pressure on their prices and therefore profits makes it increasingly difficult for them to find the capital to do the network upgrades they need to meet these demands, particularly in the financial environment of the last two years. Meanwhile, they watch the big Internet service providers like Google, Facebook, and Yahoo report huge profits and revenue growth quarter-to-quarter. So I do not entirely blame them for looking for ways to capture a part of the growing Internet boom. After all, they do provide the base services on which everything else rides.

But the creation of a two-tiered service in which providers can pay for guaranteed premium transmission speeds is a recipe for disaster. The problem is that inevitably this will not mean that present transmission speeds will remain the norm while premium class services will get something faster. What will happen instead is that the carriers will ensure that the premium class subscribers get the transmission level guaranteed to them and everyone else will share whatever is left – which in some cases may not be a lot.

This means that non-commercial services, start-ups, inevitably including the next big ideas in Internet service, and niche providers will have to live with poor transmission service whenever and wherever traffic gets heavy. It will be the equivalent of sitting in the traffic jam watching the rich drive down exclusive lanes on the highway at full speed. And that includes your company, which probably depends on the Internet for marketing and communicating to customers and investors. That makes this an issue that should concern every business.

Stay tuned for more analysis in Part 2.