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AT&T said Wednesday that it has started service in four Austin neighborhoods with an offer to bring its GigaPower fiber-to-the-home service for $70 a month — but with a pretty big catch.

If you want to pay the lower rate you must agree “to participate in AT&T Internet Preferences.” This means, “AT&T may use your Web browsing information, like the search terms you enter and the Web pages you visit, to provide you relevant offers and ads tailored to your interests.”

Looks like AT&T isn’t just trying to compete with Google’s(s goog) fiber build-out in Austin, but also its targeted advertising business model. This is also a similar model to what Amazon(s amzn) is doing with its lower priced Kindle tablets that cost less if you elect to let the tablet show you ads. Here are the two options for the service:

Premier: Internet speeds up to 300 Mbps for $70 per month, which includes a waiver of equipment, installation and activation fees. This also means you’ll agree to sign up for AT&T’s Internet Preferences program (a fact noted in a footnote in the release). Customers who also select U-verse TV will receive free HBO, HBO GO for 36 months, and HD service for $120 per month with qualifying TV services.

Standard: Internet speeds up to 300 mbps for $99 per month. AT&T will upgrade those customers later at no extra charge. Later, those customers can get a gigabit at no extra cost, and presumably while retaining their right to privacy. You can add television for $50 more per month.

I’ve asked AT&T for some more information on this model, which is reminiscent of the efforts of ISPs to use deep packet inspection to deliver advertising to users. There’s was a significant outcry about that at the time.

Back in 2008 companies like Phorm and NebuAd used technology called deep packet inspection to scan packets as they passed over the network. The idea is that ISPs could then offer more targeted advertising to users and take a cut of the money that they saw companies like Google or Yahoo snagging from the internet. Several ISPs actually used DPI gear without telling users and the result was a Congressional hearing and a retrenchment by the ISPs.

I asked AT&T how it plans to implement this program, if it was using DPI or if it planned to have users visit a certain search page in order to capture the results (a model closer to Google’s). Here’s the response:

We use various methods to collect web browsing information, and we are currently reviewing the methods we may use for the Internet Preferences program. Whichever method is used, we will not collect information from secure (https) or otherwise encrypted sites, such as online banking or when a credit card is used to buy something online on a secure site. And we won’t sell your personal information to anyone, for any reason.

The good news is AT&T doesn’t plan to overlay ads on top of a site’s existing ads, and possibly hacking off site owners. It will instead use its targeting abilities to deliver better ads. As a commenter notes below, this means AT&T might work with ad networks and publishers.

The gigabit service will have a one terabyte data cap with overage fees of $10 for each additional 50GB, up to an additional $30 per month. The pricing with targeted advertising is in line with what Google charges in Kansas City, although Google does offer a free 5 Mbps service, and has confirmed that it does not inspect your content at the packet level as an ISP.

If you are curious about how AT&T will build out its network, check out this story I wrote yesterday with that information. Meanwhile, because this is such a hot-button topic I’ve pasted a note from AT&T about the program in its entirety. Here you go:

A bit more about AT&T Internet Preferences: We’ll use your individual web browsing information, like the search terms you enter and the web pages you visit, to tailor ads and offers to your interests. You won’t necessarily receive more ads when you are online, but those you do see may be more suited to your interests. For example: If you search for concert tickets, you may receive offers and ads related to restaurants near the concert venue. We won’t sell your personal information. Rather, AT&T may use your personal information to direct another advertiser’s ad to you, but that advertiser would never have access to your Personal Information. For example, after you browse hotels in Miami, you may be offered discounts for rental cars, but that rental company doesn’t know who you are. With AT&T Internet Preferences, we are trying something different. Consumers are used to the concept of a mobile app or an e-reader being priced differently with or without certain ads, or a free email service that stays free by serving ads. We want to give Austinites a similar choice with our latest innovation, U-verse with GigaPower.