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Updated @ 9:30 pm: In response to an earlier story in The Wall Street Journal, Google offered a clarification and reaffirmed its stance on network neutrality and pointed out that it is not backing away from it. It has dismissed the WSJ story as confused. Instead, Google explained that the OpenEdge effort (the subject of the WSJ story) was a plan to peer its edge-caching devices directly with the network operators so that the users of those broadband carriers get faster access to Google and YouTube’s content.

“Google has offered to “colocate” caching servers within broadband providers’ own facilities; this reduces the provider’s bandwidth costs since the same video wouldn’t have to be transmitted multiple times,” Richard Whitt, Google’s Washington telecom and media counsel, wrote on the company’s policy blog.

He went on to say that all these colocation deals — done via projects like OpenEdge and Google Global Cache — are non-exclusive and “none of them require (or encourage) that Google traffic be treated with higher priority than other traffic. Despite the hyperbolic tone and confused claims in Monday’s Journal story, I want to be perfectly clear about one thing: Google remains strongly committed to the principle of net neutrality, and we will continue to work with policymakers in the years ahead to keep the Internet free and open.”

The reason Google can do this is because the company has the resources and the network infrastructure to pull this off. That alone gives the company an advantage over others. Original report below the fold.

The Wall Street Journal reports that Google (s GOOG), long a network neutrality champion, is looking to cut deals with broadband providers — both cable and phone companies — to get faster access for its own content. The Journal claims it has seen documents that show that Google has made these overtures. I have reached out to the company’s PR to get more information and will update my post accordingly.

According to the Journal, one cable operator who was approached by Google has been reluctant to do the deal because of legislative backlash. “If we did this, Washington would be on fire,” he told the Journal reporters. Nevertheless, by exploring this option, Google is going against its long-held belief in network neutrality where all data packets are treated as equal by network operators.

The WSJ story doesn’t quite outline how this system is supposed to work, but my best guess is that Google would essentially put a majority of its content and services closer to the service provider’s infrastructure. It is not clear how is this different from the kind of deals Akamai (s AKAM) has for its CDN network. Of course, Google could go for preferential arrangements that mimic the deals it has cut in the wireless arena with T-Mobile, which makes it easy to access Google services on its mobile phones.In return, wireless carriers get a piece of the Google’s ad revenue.

While it might seem like a smart move in the short term — it can put Microsoft, Yahoo and Facebook at a disadvantage — in the long run, this move will be like swinging the tiger by the tail. The carriers will start with a fraction of the revenues, but over a period of time they can increase their cut, and Google would have no way to put the genie back in the bottle.

Google is not alone — other, older Internet companies are turning their back on network neutrality. The Journal says both Microsoft (s MSFT) and Yahoo (s YHOO) have also started to back away from a coalition that was formed to protect network neutrality two years ago.

“Network neutrality is a policy avenue the company is no longer pursuing,” Microsoft said in a statement. The Redmond, Wash., software giant now favors legislation to allow network operators to offer different tiers of service to content companies.

Even the so-called Internet liberals have started to back away from the concept of network neutrality, the Journal says.

“There are good reasons to be able to prioritize traffic,” Mr. Lessig said later in an interview. “If everyone had to pay the same rates for postal service, than you wouldn’t be able to differentiate between sending a greeting card to your grandma versus sending an overnight letter to your lawyer.”

Of course, Larry Lessig (a adviser to President-elect Obama), an academic who roared and helped champion such powerful new ideas such as Creative Commons, forgets that we live in a world where access for broadband is provided by a duopoly that has thoroughly corrupted the FCC and legislative system. Who is going to monitor them the way the U.S. Postal Service is monitored? Where is the competitive landscape akin to one that allows DHL, FedEx and UPS to compete with the USPS. (Lessig rejects WSJ’s claims on his blog.)

Forget Lessig for a minute. Google’s attempts to get its packets ahead of others by paying the carriers is going to be a body blow to the network neutrality movement. Or as they say, Et tu, Larry & Sergey?

Given how close President-elect Obama is to the current Google management, I can only fear the worst. Many startups might skip over this issue, which I constantly bring up, but they need to wake up and realize that in the end they are all going to be impacted if network neutrality is backstabbed to death. If Google can buy better performance for its service, your web app might be at a disadvantage. If the cost of doing business means paying baksheesh to the carriers, then it is the end of innovation as we know it.

A part of me doesn’t want to believe this report — I mean it goes against everything Google stands for. If true — and I have no reason to doubt a fine publication like the Wall Street Journal — it proves for once and for all that Google’s talk about ‘do no evil’ is nothing more than hot air, a fancy phrase designed to get more publicity than anything else. Google, at the very core, is no different than any other monopoly before it.