ANALYSIS – In 2007, when the Android OS was still vaporware, Google made a gutsy $4.6 billion bet on mobile net neutrality. While they never had to pay out the money, that all-in move forced the FCC to license wireless spectrum with binding rules that finally force the wireless carrier that wins a spectrum auction to let Americans use whatever handsets, services and apps they wanted to connect to it.

Verizon, which eventually outbid Google, howled with outrage and filed a lawsuit against those rules, which Google rightly derided as an "attempt to prevent consumers from having any choice of innovative services."

Fast-forward to 2010.

Google and Verizon announced Monday, as part of their bilateral net neutrality trade agreement they want Congress to ratify, that open wireless rules were unnecessary.

"We both recognize that wireless broadband is different from the traditional wire-line world, in part because the mobile marketplace is more competitive and changing rapidly," the joint statement said. "In recognition of the still-nascent nature of the wireless-broadband marketplace, under this proposal we would not now apply most of the [Net Neutrality] wire-line principles to wireless, except for the transparency requirement."

That's fancy language for: Verizon and the nation's telecoms have yet again won, Google officially became a net neutrality surrender monkey, and you – as an American – have lost.

Update: Google defends its reversal, saying through a spokeswoman: "We have taken a backseat to no one in our support for an open internet. We offered this proposal in the spirit of compromise. Others might have done it differently, but we think locking in key enforceable protections for consumers is progress and preferable to no protection."

Compare Monday's statement to this one, from a post on Google's official blog in 2007: "The nation's spectrum airwaves are not the birthright of any one company. They are a unique and valuable public resource that belong to all Americans. The FCC's auction rules are designed to allow U.S. consumers – for the first time – to use their handsets with any network they desire, and and use the lawful software applications of their choice."

Back then, Google figured it would need those rules to catch up to Apple's iPhone dominance in the mobile world, and its interests and the American people's were aligned. It created the "Open Handset Alliance" with handset makers – not carriers.

The idea behind the alliance was that Google and the hardware companies could make phones that were open, elegant, powerful and not subject to the legendary whimsies of wireless carriers, who are prone to crippling devices, failing to innovate on new features, charging extra for whatever built-in features they do include, and controlling what can and can't be done with the devices.

A few Android smartphones hit the market in 2009, but each device was still exclusive to a single carrier, which meant they were all controlled and hamstrung. (In an early sign of what was to come Monday, Google even removed, at T-Mobile's insistence, apps from the market that let Android users use their phones as modems for laptops.)

Then in January, in what looked like a clear sign that Google was taking on the carriers for real, it unveiled the Nexus One – the fabled Google phone. Google promised that users would be able to buy the phone online and have a choice of carriers, who would fight to offer the best deal and service for phone users.

Suddenly, the possibility existed that wireless carriers in the United States, like their landline equivalents, would be advertising exclusively about how good calls sound on their network, how wide their coverage is and how economical their plans are.

Suddenly, it became possible to imagine a wireless world where the devices and the transport of their data were separated into layers, just like the wired world.

We'd be free from the days of artificial scarcity, when carriers competed by advertising the exclusive, cool phones available on their networks – which you can get only by signing a two-year contract, no matter how crappy the coverage and service might turn out to be.

That revolution was a tough sell, even though the Nexus One is, by all accounts, a fantastic mobile device.

It wasn't cool enough. In the States, only the desperate fourth-place carrier T-Mobile ever offered a plan for the Nexus One. Sprint and Verizon announced upcoming support, then pulled out.

Both instead were working furiously to get an Android powerhouse phone of their own in a few months (Sprint with the EVO 4G and Verizon with the Droid X HTC Incredible). Those were phones they could cripple – unlike the Nexus One – locking them down and adding lots of unremovable carrier bloatware.

Google could have fought. It had plenty of tools at its disposal. It could have made phones that worked on all of those networks, and then sued those companies if they didn't allow users to get fair plans.

That sort of blatant denial of carriers' wishes would have been perfect fodder for the FCC to push through new wireless rules. The FTC would have had a reason to pry into unfair business practices. Google could have eschewed online-only selling and partnered with the many independently owned mobile phone shops around the country, so that potential customers could play with the device before plunking down $500.

They could have figured out a way to spread some of the cost of the phone over monthly payments, so that buying a device didn't seem so expensive or budget-busting. They could have made phones designed to work on pay-as-you-go networks like Metro PCS and Cricket. A Google equivalent of Apple's Genius bars, for its Nexus Ones, could have taught people why the device was cool and how to make it even better.

But Google didn't do any of that. It didn't fight, at all.

More importantly, it could have stopped the network-exclusive EVO and Droid X phones, or at least forced them to be open.

Carriers love Android because it's free – in fact, it's probably better than free, since Google is, in all likelihood, paying the mobile carriers for every Android phone that relies on Google Search as its default search engine.

Android may be "open source," but the Google services including navigation, integrated Gmail, and other things are not. This was made quite clear last year, when Google slapped the leading Android phone modder, Cyanogen, with a cease-and-desist notice for including Google's proprietary software in his custom builds, which savvy Android users use to circumvent carriers' crippling of their phones.

In short, a generic Android phone that isn't also a "Google-enhanced" Android phone isn't worth selling. And you can't make a Google-enhanced Android phone without Google's permission.

And that is precisely where Google had, and still has, the power to force openness. Instead, it has decided to play nicely with the wireless carriers in hopes of winning market share and mining advertising gold from miniature computers.

Google's real problem is that it hasn't found sufficient ways to diversify its revenue stream beyond its still stunningly profitable search ads. Now, those just aren't growing the way they have been, and Google is struggling to find another gold vein to mine.

Enter Android. They see that gold in mobile devices, which offer yet another way to get people searching and clicking on Google ads. In addition, the popularity of mobile apps created another good way for Google to advertise, which is why it spent $750 million in 2010 to acquire in-app advertiser AdMob.

Even as the Nexus One finally came to market in January, Google knew Android was on a trajectory to become the number one smartphone OS, even if all of the available models were carrier-crippled versions.

It no longer made financial sense for Google to fight the carriers with its own open phone hardware, even though that meant abandoning its open wireless principles. In retrospect, they may have never actually been principles – just an aborted marketing strategy that proved unnecessary.

Google clearly knew during the spring of 2010, as it was planning to kill off the Nexus One, that Sprint's EVO, Verizon's Droid X, AT&T's Captivate and T-Mobile's Vibrant models were on the way.

And all of those smartphones are crippled by their carriers. They didn't have to be.

Google easily could have attached conditions to all Google-powered Android phones, banning carrier software that can't be removed just as easily as any other app. (Try getting rid of Sprint's Nascar app on the EVO – if you don't have root, it can't be done.). These conditions also could have banned the blocking of Android 2.2's built-in ability to be a Wi-Fi hot spot, which both Sprint and Verizon have crippled. And finally, they could require that any user be able to choose to ditch the carrier's customizations in favor of a stock Android build that can be updated, over the air, to the latest official, non-carrier build, as soon as it's released.

Google did none of those things.

It rolled over for the carriers on their phones, and on Monday, even gave up the fight for net neutrality rules on wireless devices.

Its capitulation allows the carriers it works with to do the same thing AT&T and Apple have done to protect their businesses: ban cool apps for no real reason (Google Voice on the iPhone for one), cripple apps to protect business models (Skype on the iPhone) and outright ban data-heavy apps from third parties (Slingbox for the iPhone), all the while promoting their own app (MLB's iPhone app).

As for unlocked phones, the Nexus One was it. There will never be a Nexus Two. If you want the Nexus One – which gets updates as soon as they are released, as opposed to whenever your carrier decides its phone is ready – pretend to be a developer, in which case Google will sell you one for $529. (It wouldn't want to sell the overstock at a discount, like any normal company would, because it's afraid of pissing off its new telecom buddies).

Or if you happen to know a Google employee, just ask for one – word on the street is that the company is giving them away for free, by the handful, to Googlers.

The thing about surrendering is that it only keeps going.

But Google doesn't care. By surrendering – and by surrendering, I mean, giving up the fight it claimed to be waging on your behalf for open wireless networks – it wins billions of dollars in online, mobile ad revenues.

As a result, openness in the mobile market is no longer in Google's best interest.

Google likes to take jabs at Apple's closed iPhone system, as Google exec Vic Gundotra did at Google's I/O developer conference this spring. But that's just a rhetorical sideshow.

Mobile openness is the tool of the outsider, not the incumbent. Google is now registering some 200,000 Android handsets every day. Phone-to-phone, Android is now outselling the iPhone. Google doesn't need openness anymore.

Now, the outsiders need openness. HP, now in possession of Palm's very cool webOS, could – if it required openness – make handsets that weren't carrier-crippled and sell them cheaply, owning the low end of the smartphone market.

Then there's Microsoft, which after writing itself out of the game with a mobile OS that had all the faults of its desktop OS, started over from scratch, produced a shiny new OS that has even the crankiest gadget bloggers saying it's the only mobile OS that has successfully learned Apple's lessons, and feels new.

Microsoft knows something about taking on closed operating systems, having installed its OS on the cheap through dozens of manufacturers in order to secure dominance on the desktop. It has corporate loyalty out the wazoo, and knows how to satisfy lucrative corporate IT groups. If Google fought for wireless neutrality, it would give Microsoft another shot to break into the mobile market.

And why would Google want that?

The answer should be: its principles, its years of rhetoric about openness, its $4.6 billion bet on open wireless spectrum and its famous mantra, "Don't Be Evil."

But principles are easy to discard, it seems, when one's in search of the next gold mine. "Don't Be Evil" can become "Just Don't Be Stupid" when you're in first place.

Epicenter's Eliot Van Buskirk laid out clearly the meaning of the Google-Verizon deal when it comes to traditional broadband. But let me add that Google gives away little by getting Verizon to agree not to filter any normal internet packets in exchange for the right to build Hulu competitors that can only be watched by subscribers to that ISP.

YouTube's not in the business of licensing big content, like first-run television shows – it's in the business of viral videos and, to a great degree, music videos whose uploaders want the largest viewing audience possible. Allowing Verizon and Comcast to take on Hulu and Netflix – the two largest streaming sources of major content – doesn't hurt Google in the slightest.

None of this is a good sign for Hulu, Netflix, or any other competing video service, given what the telecoms did to VoIP companies like Vonage, and DVR companies like TiVo, which promised to revolutionize phone calls and television respectively, only to see the major telecoms and cable companies mimic their inventions and price them out of the market with anti-competitive bundle deals.

Hulu and Netflix await the same fate. Google is just fine with that, the same way that it's fine with screwing the American public out of an open wireless net. Google got theirs, and as far as it's concerned, that's all that matters.

In the words of Richard Burton, in Who's Afraid of Virgina Wolff, "And that is how you play 'Get the Guests'."

Photo: Davide Ondertoller

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