[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]



 
  NETWORK NEUTRALITY: COMPETITION, INNOVATION, AND NONDISCRIMINATORY 
                                 ACCESS

=======================================================================

                                HEARING

                               BEFORE THE

                  TASK FORCE ON TELECOM AND ANTITRUST

                                 OF THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                             APRIL 25, 2006

                               __________

                           Serial No. 109-109

                               __________

         Printed for the use of the Committee on the Judiciary


      Available via the World Wide Web: http://judiciary.house.gov


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                       COMMITTEE ON THE JUDICIARY

            F. JAMES SENSENBRENNER, Jr., Wisconsin, Chairman
HENRY J. HYDE, Illinois              JOHN CONYERS, Jr., Michigan
HOWARD COBLE, North Carolina         HOWARD L. BERMAN, California
LAMAR SMITH, Texas                   RICK BOUCHER, Virginia
ELTON GALLEGLY, California           JERROLD NADLER, New York
BOB GOODLATTE, Virginia              ROBERT C. SCOTT, Virginia
STEVE CHABOT, Ohio                   MELVIN L. WATT, North Carolina
DANIEL E. LUNGREN, California        ZOE LOFGREN, California
WILLIAM L. JENKINS, Tennessee        SHEILA JACKSON LEE, Texas
CHRIS CANNON, Utah                   MAXINE WATERS, California
SPENCER BACHUS, Alabama              MARTIN T. MEEHAN, Massachusetts
BOB INGLIS, South Carolina           WILLIAM D. DELAHUNT, Massachusetts
JOHN N. HOSTETTLER, Indiana          ROBERT WEXLER, Florida
MARK GREEN, Wisconsin                ANTHONY D. WEINER, New York
RIC KELLER, Florida                  ADAM B. SCHIFF, California
DARRELL ISSA, California             LINDA T. SANCHEZ, California
JEFF FLAKE, Arizona                  CHRIS VAN HOLLEN, Maryland
MIKE PENCE, Indiana                  DEBBIE WASSERMAN SCHULTZ, Florida
J. RANDY FORBES, Virginia
STEVE KING, Iowa
TOM FEENEY, Florida
TRENT FRANKS, Arizona
LOUIE GOHMERT, Texas

             Philip G. Kiko, General Counsel-Chief of Staff
               Perry H. Apelbaum, Minority Chief Counsel



----------
    Note: The Task Force on Telecom and Antitrust was established on 
March 26, 2006 and consists of all the Members of the full Judiciary 
Committee.

                            C O N T E N T S

                              ----------                              

                             APRIL 25, 2006

                           OPENING STATEMENT

                                                                   Page
The Honorable Chris Cannon, a Representative in Congress From the 
  State of Utah, and Member, Committee on the Judiciary..........     1
The Honorable John Conyers, Jr., a Representative in Congress 
  From the State of Michigan, and Ranking Member, Committee on 
  the Judiciary..................................................     3

                               WITNESSES

Mr. Paul Misener, Vice President for Global Public Policy, 
  Amazon.com
  Oral Testimony.................................................     5
  Prepared Statement.............................................     7
Mr. Earl W. Comstock, President and Chief Executive Officer, 
  COMPTEL
  Oral Testimony.................................................    15
  Prepared Statement.............................................    17
Mr. Walter B. McCormick, Jr., President and Chief Executive 
  Officer, United States Telecom Association
  Oral Testimony.................................................    47
  Prepared Statement.............................................    49
Mr. Timothy Wu, Professor of Law, Columbia Law School
  Oral Testimony.................................................    53
  Prepared Statement.............................................    54

                                APPENDIX
               Material Submitted for the Hearing Record

Prepared Statement of the Honorable John Conyers, Jr., a 
  Representative in Congress From the State of Michigan, and 
  Ranking Member, Committee on the Judiciary.....................    93
Prepared Statement of the Honorable Bob Goodlatte, a 
  Representative in Congress From the State of Virginia, and 
  Member, Committee on the Judiciary.............................    93
Prepared Statement of Mark Cooper, Director of Research, Consumer 
  Federation of America, on behalf of Consumer Federation of 
  America, the Free Press, and the Consumers Union...............    94
Prepared Statement of Kyle McSlarrow, President and CEO, National 
  Cable & Telecommunications Association.........................   101
Press Release of the Federal Communications Commission, dated 
  April 3, 2006..................................................   106
Article from Communications Daily submitted by Walter B. 
  McCormick, Jr., President and Chief Executive Officer, United 
  States Telecom Association.....................................   109
Letter to the Honorable F. James Sensenbrenner, Jr., Chairman, 
  Committee on the Judiciary, from Deborah J. Majoras, Chairman, 
  Federal Trade Commission.......................................   111
A Public Knowledge White Paper by John Windhausen, Jr., entitled 
  ``Good Fences Make Bad Broadband, Preserving an Open Internet 
  through Net Neutrality''.......................................   119


  NETWORK NEUTRALITY: COMPETITION, INNOVATION, AND NONDISCRIMINATORY 
                                 ACCESS

                              ----------                              


                        TUESDAY, APRIL 25, 2006

                  House of Representatives,
               Task Force on Telecom and Antitrust,
                                Committee on the Judiciary,
                                                    Washington, DC.
    The Task Force met, pursuant to notice, at 2:05 p.m., in 
Room 2141, Rayburn House Office Building, the Honorable Chris 
Cannon (Acting Chair of the Task Force) presiding.
    Mr. Cannon. The Committee will come to order.
    Just a note before we get started that we have a bill 
coming up on the--the Committee has a bill coming up on the 
floor at 2:45. We may have to recess this Committee. We're just 
trying to work out--it is the rule of the Committee that we 
recess when the Committee has a bill on the floor of the House. 
We are trying to work that out so that we don't inconvenience 
everyone with a 45-minute recess, and so we are going to get 
started here directly, and hopefully we will work that out so 
we don't have to recess.
    In recent years, changing technology industry 
consolidation, and regulatory developments have fundamentally 
altered the telecommunications marketplace. With the changes in 
the industry, it is important that the pro-competitive goals 
that were the hallmarks of the 1996 act are maintained. Some 
have argued that these goals have gone unrealized, and it is 
essential that this Committee makes sure these goals do not 
slip away.
    President Ronald Reagan boldly predicted that, ``The 
Goliath of totalitarianism will be brought down by the David of 
the microchip.'' He really was a visionary guy, you know? 
Substituting the word ``Internet'' for ``microchip'' is 
particularly appropriate given the unprecedented manner in 
which the Internet has revolutionized the manner in which we 
access and transmit a broad range of goods, services, and 
information. High-speed broadband Internet services have 
dramatically enhanced the ability of Americans to access the 
Internet, but the safeguards that we have allowed these 
services--that have allowed these services to flourish are 
under growing legal and regulatory assault.
    The Committee on the Judiciary has a central role in 
ensuring that market power of firms that provide access to the 
Internet is not used to discriminate against the content or 
services of competitors that drive innovation and consumer 
choice. Many credit the rapid rise of the Internet to the open 
architecture that defines it. Observers have noted that a 
unique feature of the Internet is the nearly unrestricted 
ability of anyone with service to connect to it, access and 
post information, download content, and consume goods and 
services without discrimination. The open architecture of this 
medium is central to our understanding of the Internet and a 
fundamental attribute of its success.
    Most Americans think that open and nondiscriminatory access 
to the Internet is something to be taken for granted, but it is 
not. Broadband providers exercise considerable control over how 
information and services are accessed over the Internet, and 
the inference that some of these providers may restrict access 
to the networks is of concern to all. While considerable effort 
has been made to confuse the definition of ``net neutrality,'' 
the term refers to the fundamental architecture of the Internet 
that allows for uninhibited, end-to-end communication.
    Former FCC Chairman Powell enunciated four Internet 
freedoms that provide a useful framework to understand this 
issue. These principles of Internet nondiscrimination are:
    First, freedom to access content. Consumers should have 
access to their choice of legal content.
    Second, freedom to use applications. Consumers should be 
able to run applications of their choice.
    Third, freedom to attach personal devices. Consumers should 
be permitted to attach any devices they choose to Internet 
portals.
    And, fourth, freedom to obtain service plan information. 
Consumers should receive meaningful information regarding their 
service plans.
    Principles of net neutrality have been successfully 
articulated, but the mechanism to enforce them has not. The 
most notable example of Internet discrimination involved the 
Madison River Telephone Company obstruction of access to voice 
over Internet protocol, or VOIP, services provided by Vonage. 
In this case, the FCC investigated allegations that Madison 
River violated nondiscriminatory obligations contained in the 
Communications Act, but the redefinition of broadband as an 
information service dramatically reduces the authority of 
regulators to deter this kind of competitive misconduct.
    The House Committee on the Judiciary and the antitrust laws 
have played a critical role in fostering competition in the 
telecommunications industry. While the technological dynamics 
of the telecom industry have shifted the use of market power to 
deter competition and undermine consumer choice has not. The 
continued success of the Internet depends upon unfettered 
interconnection and the ability of consumers to connect and 
access online information, content, goods, and services in a 
nondiscriminatory manner. If consumers are going to continually 
migrate to the Internet and businesses are going to prosper 
because of the Internet, the House Committee on the Judiciary 
must be at the center of the debate defining competition--
defending competition.
    Today's hearing will examine whether the threats posed to 
net neutrality and whether the concerns that broadband 
providers have or intend to abuse their market power to violate 
these principles are substantive or speculative. The hearing 
will also examine whether broadband providers have an economic 
incentive to limit access to the Internet, the sufficiency of 
current legal and regulatory authority to preserve net 
neutrality, the competitive impact of proposals to provide 
Internet access on a tiered basis, recent legal and regulatory 
developments that affect broadband competition, and whether 
current legislative proposals being considered by Congress 
promote or undermine net neutrality.
    Today's hearing marks the first in a series by the 
Committee's Task Force on Telecom and Antitrust. Over the next 
several months, the task force will conduct a number of 
hearings to examine competitive aspects of the telecom industry 
and to consider legislation to ensure that Americans are 
provided with the innovation and consumer choice that 
unrestrained market competition preserves and promotes.
    I want to thank the witnesses for appearing before today's 
panel and yield to the Ranking Member for his remarks. Mr. 
Conyers?
    Mr. Conyers. Thank you, Chairman Cannon. I'm happy to 
welcome the witnesses, as you have, and begin a Judiciary 
Committee undertaking of the subject of net neutrality.
    I begin by noting that our colleagues Zoe Lofgren and Rick 
Boucher, as well as many other Members, have been working on 
this subject for quite a while, and I want to commend them and 
the Chairman of this Committee for making sure that our 
jurisdiction in this matter is put forward and that we can hold 
these kinds of hearings, because this is a very important 
subject, and it has to do with the issues that affect the state 
of competition in the telecommunications industry as applied to 
the Internet. And unless we have instances of a problem, it's 
not clear to me that we ought to be moving forward. But here, 
on the subject of net neutrality, I think everyone agrees that 
it has to be addressed. And without going into the Committee on 
Commerce's work in this area, it I think is to the credit of 
this Committee that we begin to examine the issues that are put 
forward in this matter.
    As far as I'm concerned, we have telecom companies that 
have indicated that they do not intend to let companies like 
Google and Yahoo! or next generations of Internet entrepreneurs 
go free or use the pipes without significant payments. We have 
some very interesting quotations from Mr. Seidenberg at Verizon 
and Mr. Ed Whitacre at AT&T that illustrate that things are 
changing, and what we are trying to do with this hearing is to 
help determine what kind of changes should be made and whether 
or not we should allow the FCC to make the decisions through 
sometimes rather general statements as to what the policy ought 
to be, whether content should be controlled by those who are 
delivering the services.
    It's an important hearing. Network neutrality is something 
that should be very carefully considered as we move forward, 
and I think that the role of the Judiciary Committee is going 
to be very important, especially in the backdrop of a larger 
consideration of the questions involving commerce and 
communications. There are some large issues as we move toward 
the end of the 109th session of Congress that I'm not sure if 
we can handle all of this in the closing months. But there is 
no better and appropriate way to begin this than examining the 
question of net neutrality, and I'd like to have permission to 
put my statement in the record and welcome our witnesses and 
begin a very important hearing.
    And I thank you, Mr. Chairman.
    Mr. Cannon. I thank the gentleman from Michigan, who has 
worked together with me--and I've worked with him, I should 
say, at his feet learning on this issue for a very long period 
of time and look forward to working with him on this Committee. 
And without objection, his full remarks are entered in the 
record, and at this point, without objection, all Members' 
opening statements may be included in the record. Hearing no 
objection, so ordered.
    Let me introduce our witnesses--would anyone like to make 
an opening statement?
    [No response.]
    Mr. Cannon. Good. Thank you.
    Let's go ahead and introduce the witnesses. The first 
witness is Paul Misener. Mr. Misener is the Vice President for 
Global Public Policy at Amazon.com. Prior to joining 
Amazon.com, Mr. Misener worked in both the Government as the 
senior legal advisor to FCC Commissioner Harold Furchgott-Roth 
and in private industry as a partner at Wiley, Rein & Fielding. 
He has the unique perspective of being both an engineer, 
graduating with a degree in electrical engineering and computer 
science from Princeton, and a lawyer, graduating from George 
Mason University. I thought that those were like incompatible. 
I gave up my law degree--or not the degree but my practice, 
largely because I love engineers. It's nice to see someone who 
actually embodies both.
    Our second witness is Earl Comstock, the President and CEO 
of COMPTEL. Mr. Comstock previously served as the chief counsel 
and legislative director for Senator Ted Stevens, former 
Chairman of the Senate Commerce, Science, and Transportation 
Committee, and later served as the special counsel for 
telecommunications for the Senate Commerce Committee, where he 
negotiated and drafted key provisions of the Telecommunications 
Act of 1996. Mr. Comstock graduated with a political science 
degree from the University of California at Santa Barbara and 
earned a law degree from George Mason University.
    Our third witness is Walter McCormick, President and CEO of 
the United States Telecom Association. He has previously served 
as the general counsel for the Department of Transportation and 
then Under Secretary Andrew Card. Mr. McCormick also has 
extensive congressional experience with over 10 years serving 
in the Senate, holding numerous positions including general 
counsel, chief counsel, and staff director for the Senate 
Committee on Commerce, Science, and Transportation. He obtained 
his undergraduate and law degree from the University of 
Missouri, studied international economics and political science 
at Georgetown University, and has completed the program for 
senior managers in government at Harvard University's John F. 
Kennedy School of Government.
    Our final witness is Timothy Wu, Professor of Law at 
Columbia University. He currently teaches copyright and trade 
and advance intellectual property and telecommunications at 
Columbia. Mr. Wu was formerly the Director of Corporate 
Marketing at Riverstone Networks, Inc., in Silicon Valley. He 
has written extensively on telecommunications and the issue of 
net neutrality and has been published in the Supreme Court 
Review as well as a number of Law Review journals, including 
those at Michigan, Virginia, and Harvard. Mr. Wu obtained his 
undergraduate degree from McGill University and graduated magna 
cum laude from Harvard Law School.
    It is the practice in this Committee to swear in all 
witnesses, so if you wouldn't mind standing and repeating after 
me, raising your arm.
    [Witnesses sworn.]
    Mr. Cannon. The record should indicate that all of the 
witnesses indicated in the affirmative.
    We will now proceed with witness opening statements. I 
think you all have probably testified here before, but we have 
a little system of lights. The first light will be green and 
that goes on for 4 minutes. You have a yellow light, and when 
the light turns red, we won't tap you down, but given the 
possibility that we may have to recess, we suggest--we would 
hope that you would keep it near 5 minutes.
    Thank you and, Mr. Misener, would you please proceed.

  TESTIMONY OF PAUL MISENER, VICE PRESIDENT FOR GLOBAL PUBLIC 
                       POLICY, AMAZON.COM

    Mr. Misener. Yes, sir. Good afternoon. It is on. Thank you. 
Good afternoon, Chairman Cannon, Mr. Conyers, and Members of 
the task force. Amazon belongs to a coalition of companies that 
includes eBay, Google, IAC, Microsoft, and Yahoo! that is 
working closely with the growing assembly of well over 100 
consumer groups, associations, and companies which share 
concerns about the topic of this hearing. I respectfully 
request that my entire written statement, which lists the 
organizations in this assembly, be including in the record. 
Thank you very much for inviting me to testify.
    Mr. Chairman, we are here because things have changed. 
Within the past few years, the phone and cable companies have 
acquired the technical means, market power, and regulatory 
permission to restrict consumers' access to broadband Internet 
content, such as movies and music, and they've clearly 
announced their plans to do so. In short, the phone and cable 
companies will fundamentally alter the Internet unless Congress 
acts to stop them. And yet the response so far from Congress, 
the bill being considered in the House Energy and Commerce 
Committee, is wholly inadequate. Worse than failing to confront 
the threat, this bill would tie the hands of the expert agency. 
Surely, as it did a few years ago with the Tax Freedom Act, 
Congress can better thwart this clear and present danger to the 
Internet.
    Mr. Chairman, rather than read all or part of my written 
statement, I would like to use my allotted time to describe 
what will happen if Congress fails to reinstate essential 
consumer safeguards recently abandoned by the FCC.
    For the next 5 to 10 years, phone and cable companies will 
maintain their duopoly market power over consumer broadband 
Internet access. The phone and cable companies also will 
continue to invest and deploy broadband, as they have for many 
years under nondiscrimination rules. And they will continue to 
realize returns on their investments by being handsomely paid 
for access by consumers and content providers alike. Although 
the network operators will continue to promise that they won't, 
quote, block access to websites, they will firm up their plans 
to degrade access to some websites as a consequence of giving 
priority, fast-lane access to others.
    The telcos also will start providing proprietary video 
service and will continue to seek accelerated franchise grants 
without build-out requirements, based in part on the existence 
of Internet video competition which, simultaneously, they are 
moving to quash.
    At some point, the phone and cable companies will present a 
simple ultimatum to major Internet content providers: Pay us 
for prioritization, or if you don't pay, your content will be 
degraded relative to those who do pay. Similar deals may be 
struck based on political or religious viewpoints or other non-
technical discriminatory factors. In this way, the network 
operators will extend their market power over access to market 
power over content. They will use their monopolies to 
monopolize. A bidding war will quickly ensue. The top-tier 
Internet content companies will bid up the price of 
prioritization on each of the half dozen or so major Internet 
access networks. Smaller companies will recognize that they 
have no hope of competing in this bidding war, and independent 
venture capital for new online businesses will dry up.
    The new way for an entrepreneur to take a business online 
will be to seek permission from the phone and cable companies. 
A flurry of antitrust actions will then be filed against the 
network operators, but even if the courts don't find that the 
plaintiffs failed to state a claim, these actions will take far 
too long to be effective.
    Meanwhile, the foreign network operators, such as Deutsche 
Telekom, almost all of which are wholly or partially owned by a 
foreign government, will follow through on their already 
announced plans to use discrimination as a great way to make 
more money off the world-leading American Internet content 
companies. In effect, foreign network operators will restrict 
access of American Internet companies to foreign markets.
    Congress or the FCC will soon thereafter realize that it 
was a mistake to allow the network operators to control 
Internet content and will rush to pass remedial legislation. 
Unfortunately, it will be too late because the lost years of 
innovation will be forever lost, the network operators will 
have wastefully invested in equipment designed for 
discrimination instead of speed, and the foreign governments 
certainly won't reverse themselves just because America 
reconsidered.
    So the result of Congress' unwillingness to address this 
clear and present danger will be to leave American consumers 
with dramatically reduced content choice, to stall American 
online innovation, and to wound U.S. global Internet 
competitiveness.
    Mr. Chairman, this sorry tale is eminently avoidable. I 
urge you and your colleagues to recognize that, despite how 
much we wish it were otherwise, the market for broadband 
Internet access is not competitive and that the network 
operators, both domestic and foreign, fully intend to extent 
their market power over access to market power over content. I, 
therefore, urge that Congress act now to reinstate meaningful, 
enforceable, bright-line safeguards that preserve consumers' 
longstanding freedom of Internet content choice.
    Thank you again for inviting me to testify this afternoon, 
and I look forward to your questions.
    [The prepared statement of Mr. Misener follows:]
                   Prepared Statement of Paul Misener
    Good morning, Chairman Sensenbrenner, Mr. Conyers, and Members of 
the Task Force. My name is Paul Misener. I am Amazon.com's Vice 
President for Global Public Policy. Amazon belongs to a coalition that 
includes eBay, Google, IAC/InterActiveCorp, Microsoft, and Yahoo!, that 
was formed to express our shared concerns about the topic of this 
hearing. Thank you very much for inviting me to testify on this 
important matter. I respectfully request that my entire written 
statement be included in the record.
                            i. introduction
    Mr. Chairman, the phone and cable companies will fundamentally 
alter the Internet in America unless Congress acts to stop them. They 
have the market power, and regulatory permission to restrict American 
consumers' access to broadband Internet content, including music and 
movies, and have announced their plans to do so.
    Amazon.com is an Internet-based retailer and retail platform with 
over fifty million customers worldwide. We merely want to ensure that 
our customers retain their longstanding freedom to access the broadband 
Internet content of their choice, including that content available from 
Amazon.com. Currently, consumers pay network operators for Internet 
access, and have the freedom to select lawful content from providers 
like Amazon, who pay network operators millions of dollars a year for 
Internet access.
    In essence, we fear circumstances in which broadband network 
operators with market power are permitted--based on payments, political 
or religious viewpoints, or any other non-technical discriminatory 
factors--to prefer some content and thereby restrict consumer access to 
other content.
    As already noted, many large Internet content companies including 
Amazon.com, eBay, Google, IAC/InterActiveCorp, Microsoft, and Yahoo! 
are very concerned about network operators' ability and plans to 
restrict content choice. Earlier this month, the chief executive 
officers of these companies, Jeff Bezos, Meg Whitman, Eric Schmidt, 
Barry Diller, Steve Ballmer, and Terry Semel, wrote the Honorable Joe 
Barton, Chairman of the House Committee on Energy and Commerce to say 
that

        Until FCC decisions made last summer, consumers' ability to 
        choose the content and services they want via their broadband 
        connections was assured by regulatory safeguards. Innovators 
        likewise have been able to use their ingenuity and knowledge of 
        the marketplace to develop new and better online offerings. 
        This ``innovation without permission'' has fueled phenomenal 
        economic growth, productivity gains, and global leadership for 
        our nation's high tech companies.

    These six CEOs then urged that, in order ``[t]o preserve this 
environment,'' a bill should be passed ``that directly addresses 
broadband network operators' ability to manipulate what consumers will 
see and do online. It is equally important to pass a bill that fleshes 
out these consumer freedoms via rules of the road that are both 
meaningful and readily enforceable.'' Lastly, the CEOs expressed their 
desire to work for legislation ``to protect millions of Americans' 
legitimate expectations in an open Internet, as well as the innovation 
and competitiveness that it creates.''
    Our companies believe that Congress must act to preserve 
longstanding consumer freedoms. The telco and cable operators must not 
be allowed to extend their market power over broadband Internet access 
to market power over broadband Internet content.
    This is not just a ``big Internet company'' issue, however. 
Ultimately, this is a consumer and much broader industry issue, and a 
coalition of well over 100 organizations have joined together to 
support legislative safeguards to preserve the openness of the 
Internet. These organizations include the AARP, Acopia Networks, 
Adaptive Marketing LLC, Adobe, Advancedmultimedia.com, Aegon Direct 
Marketing Services, Airespring, Amazon.com, American Association of 
Libraries, AnalogZone, AngleBeds.com, Ask.com, Association of Research 
Libraries, Awow Communications, Bandwidth.com, Bloglines, Borsetti & 
Co., BT Americas Inc., Business Software Alliance, CALTEL, Cendant, 
Chemistry.com, CinemaNow, Circumedia LLC, CitySearch, CommPartners 
Holding Company, COMPTEL, Comunicano, Inc., Consumer Electronics 
Association, Consumer Federation of America, Corliant, Cornerstone 
Brands, Inc., Dagdamor Media, Dave Pettito Direct, DiMA, Domania, 
Downstream, Dreamsleep.com, Dresses.com, EarthLink, eBay, eBrands 
Commerce Group, Economics & Technology, Inc., Educause, Elaine P. Dine, 
Electronic Retailing Association, Entertainment Publications, 
Evite.com, Excite, Expedia, Free Press, Free World Dialup, GetSmart, 
Gifts.com, Google, GotVoice, Inc., Graceline Canada, Hawthorne Direct, 
Home Shopping Network, Hotels.com, Hotwire, HSE24, IAC/InterActiveCorp, 
Iceland Health Inc., iFreedom Communications, iNest, InPulse Response, 
INS, Interactive Travel Services Association, InterMetro, Internet2, 
Interval International, Intervox.com, IntraISP, Invens Capital, 
Isen.com, LLC, IVR Technologies, iWon, J. Arnold & Associates, 
JohnnyZip, Lafayette Group, Inc., Law Offices of James Tobin, 
LendingTree, Lingo, Inc., Listyourself.net, Livemercial, Match.com, 
McFadden Associates, MCM Telecom, Media Access Project, Media Partners 
Worldwide, Mercury Media, Merrick Group, Microcom, Microsoft, Miller & 
Van Eaton, National Retail Federation, Nationalblinds.com, 
NetCoalition, Objectworld, Pac-West, PointOne, PRC, Primus 
Telecommunications, Product Partners LLC, Public Knowledge, Pulver.com, 
RealEstate.com, ReserveAmerica, Rifftone.com, S & B Technical Products, 
Savatar, Savvier, ServiceMagic, Shelcomm, Shoebuy.com, Skype, Sling 
Media, Sling Media Inc., SOHOlutions, Sonus Capital Management, Sony 
Electronics Inc., SunRocket, Symercy Financial Corp., Techviser, 
Telekom Austria, Telephia, TELLO, Ticketmaster, Tier1Research, TiVO, 
TNS, Tonystickets.com, Tranqulitymattress.com, Travelocity, udate.com, 
VI Technologies, Vivox, WCW Networks, and Yahoo!
    I hope that all of these entities' views and, most importantly to 
Amazon.com, the interests of our customers, will be thoroughly 
considered.
    Moreover, this is not merely a dispute between American network 
operators on one hand, and American consumers and content providers on 
the other. Rather, it is the first and precedent-setting battle in a 
worldwide conflict. Recent news reports confirm that foreign network 
operators such as Deutsche Telekom and Telecom Italia also are 
interested in extending their market power over their networks to 
market power over content. Thus, if U.S. policymakers were to allow 
American network operators to extract oligopoly rents from American 
content providers, our policymakers would be simultaneously setting a 
precedent for allowing foreign operators to exercise the same leverage 
over world-leading American Internet content companies and their 
customers.
    In my time this afternoon, I will describe the market power of 
network operators and the details of how they intend to extend that 
market power to limit consumer choice of content, such as movies, 
television, and music. I then will describe the need for Congress to 
require adoption of regulations to confront this clear and present 
danger; how failure to act will set a dangerous international precedent 
that will harm American competitiveness overseas; and how legislation 
that would grant national video franchising relief should not be 
enacted without such provisions. Lastly, I will propose modest 
safeguards to preserve Americans' longstanding freedom of Internet 
content choice.
 ii. network operators have market power: consumers have little or no 
                  choice of broadband internet access
    Mr. Chairman, as much as we wish it were otherwise, consumers have 
little or no real choice of broadband Internet access. For the 
foreseeable future, nearly all Americans will have two or fewer 
providers available: the phone company, the cable company, or both. 
And, unfortunately, consumers will continue to face discouragingly high 
costs of switching between them; equipment swaps, inside wiring 
changes, technician visits, long term contracts, and the bundling of 
multiple services all contribute to these costs.
    Despite the common misconception intentionally perpetuated by the 
network operators, the Internet did not grow up in an unregulated 
environment; its growth and success were due in large measure to the 
longstanding rules that governed its infrastructure until last year's 
FCC decision. Although many of the rules were outdated and worthy of 
deregulation, the Commission erred by completely abandoning non-
discrimination requirements before the market became competitive.
    The Commission's own semi-annually reported data on the competitive 
availability of broadband access are fundamentally misleading. These 
data, which purport to show multiple broadband service providers in 
many areas of the country, completely obscure the realities faced by 
individual consumers. Unfortunately, however, these data also were the 
basis for the Commission's recent actions.
    In the first place, the data count as high-speed broadband any 
services that deliver as little as 200 kbps in one direction. Although 
this may have been a reasonable definition of broadband a decade ago, 
it is preposterously slow today, incapable of delivering even typical 
TV quality video, let alone HDTV, and is but one five-hundredth the 
speed being provided to millions of consumers in Korea and elsewhere. 
Second, the geographic areas analyzed are zip codes, not individual 
neighborhoods or households. So while there may be three or four true 
broadband network operators (for example, two telcos and two cable 
companies) serving small separate areas in a zip code, no one consumer 
may have access to more than two of them (one telco and one cable 
company).
    The result of these misleading FCC data is that the amount of 
broadband consumer choice is wildly overstated, particularly when the 
aforementioned high switching costs are considered. If it really were 
easy for Americans to switch among five, six, or more true broadband 
Internet access providers, the market would be competitive and 
legislated consumer safeguards would not be necessary.
    Unfortunately, what exists for the vast majority of Americans is, 
at best, a duopoly of the local phone and cable companies. Widespread 
deployment of alternative broadband technologies capable of high 
quality video remains a distant hope and, with yet another mega-merger 
in the works (this time AT&T and BellSouth), the promise of inter-
regional local phone company competition is all but dead. In such 
oligopolistic conditions, consumers are left with fewer services, 
higher prices, or both.
    The FCC's most recent semi-annual broadband deployment data, 
released earlier this month, verify this bleak assessment. Perhaps the 
most salient fact revealed in the data is that, of the 34.3 million 
advanced services broadband lines serving primarily residential end 
users, only one half of one percent use other than telco or cable 
technology. Given that telco-telco and cable-cable overbuilds are so 
very rare, this fact confirms that nearly all American consumers are 
stuck with the telco-cable duopoly.
    To be clear, we don't begrudge the phone and cable companies their 
current market power over broadband Internet access networks. Despite 
the longstanding desires and noble aspirations of policy makers, 
America is stuck with this super-concentrated market for the 
foreseeable future.
    Moreover, although we oppose the collection of oligopoly rents, we 
certainly don't seek to deny network operators a healthy return on 
their investments. But there are two obvious considerations: what are 
their investments and are they getting a return? While it is true that 
there are new investments being made (well before any discriminatory 
pricing regime has been established), even the operators like to remind 
regulators that they are, in Verizon's words, potential video service 
providers ``who already have access to the rights-of-way'' around the 
country. But, of course, they did not obtain these incredibly valuable 
rights-of-way on the competitive market but, rather, by government 
grant to a monopoly service provider. In sum, much of their 
``investment'' was either given to them or explicitly protected from 
competition by the government.
    Just as importantly, content providers currently pay network 
operators for the amount of connection capacity they use, and network 
operators can charge consumers different prices depending upon how much 
bandwidth they use. This sort of connectivity ``tiering'' makes perfect 
sense. And, of course, network operators will charge consumers for the 
provision of any ancillary services, such as affiliated video content.
    Perhaps the best way to gauge whether they believe their 
investments without discrimination are providing an acceptable return 
is to note that the FCC data indicate that telco and cable broadband 
services are being deployed and taken by consumers at a rapid pace. 
Given the network operators' claims (which I believe) that they are not 
currently engaged in much, if any, content discrimination, this is a 
clear indication that network operators need not discriminate to deploy 
broadband in America.
    We also welcome broadband network operators' innovations within the 
network. With Moore's Law at work, network operators ought to be able 
to deploy innovative new technologies and services that, with 
increasing efficiency, provide benefits to operators and users alike. 
And we certainly don't oppose network operators' entry into competing 
businesses so long as they are not allowed to leverage their market 
power over broadband Internet access to favor these ancillary 
endeavors.
    What we seek is more modest, yet far more important: We ask that 
Congress keep the telco and cable operators from taking their market 
power over broadband Internet access and extending it to market power 
over broadband Internet content.
iii. unless congress acts soon, network operators will use their market 
  power over access to restrict consumer choice of broadband internet 
                                content
    Mr. Chairman, unless Congress acts soon, American consumers will 
receive artificially restricted choice of broadband Internet content. 
Leveraging their market power, phone and cable companies plan to 
restrict American consumers' access to such content based in large part 
on lucrative deals they intend to cut with third parties. And it will 
be just as easy for the operators to favor content based on political 
or religious viewpoints or other non-technical discriminatory criteria. 
By constraining consumer access to content providers, the network 
operators also would create an artificial ``channel scarcity''--
essentially a bandwidth cartel--where none previously existed.
    After years of administrative proceedings and litigation, last year 
the FCC reclassified broadband Internet access by wireline service 
providers, both telco and cable. Although the Commission simultaneously 
adopted a policy statement that confirms the agency's statutory 
authority and possible intentions to act, the statement fails to 
address some likely discriminatory behaviors and, in any case, is 
explicitly unenforceable. So, with the exception of weak merger 
conditions that apply the FCC's equally weak policy statement to a few 
network operators, and expire for no apparent reason in 18 months (the 
market certainly won't be competitive by then), telcos and cable 
companies may restrict consumer access to content at will. Because 
American consumers' access to Internet content is in jeopardy, Congress 
needs to act.
    Just as it is clear that the network operators have the market 
power to restrict consumers' choice of broadband Internet content, it 
has become equally clear that they fully intend to do so. Not only have 
the telcos and cable companies stridently and steadfastly opposed any 
meaningful network neutrality rules, their most senior executives have, 
over the past six months (noticeably, beginning only after the FCC's 
final reclassification actions), issued scary yet refreshingly honest 
statements that reveal their plans for restricting consumer access to 
content. Simply put, the network operators are planning to restrict 
consumer choice of broadband Internet content based on deals they 
intend to strike with content providers and, perhaps, editorial 
viewpoints or other non-technical discriminatory criteria. This is 
precisely the opposite of ``a la carte'' pricing being sought from 
current, vertically integrated video service providers. Indeed, rather 
than enhancing consumer choice and flexibility, the network operators 
are moving retrograde to constrain such choice and flexibility and 
create an artificial scarcity of content outlets.
    Although the network operators have been somewhat less clear on 
exactly how they intend to limit consumer access, their FCC filings and 
public statements reveal that they plan to do so in three key ways. But 
before I describe these, please allow me to summarize their technology 
plans. There are many differences among the technologies the duopoly 
network operators intend to use (hybrid fiber-coax by the cable 
operators and either fiber-to-the-home or fiber-to-the-node plus DSL 
over copper twisted pair by the telco operators), but all three 
technologies have been designed to operate the same way in practice, 
with two downstream components: a very high capacity (``fast lane'') 
cable-like private network component, and a much lower capacity (``slow 
lane'') downstream broadband Internet access component. The fast lane 
will be operated as a closed network, while the slow lane will be more 
(but not entirely) open.
A. Specific Network Operator Plans
    The network operators apparently plan to restrict consumer choice 
of broadband Internet content in three essential ways: by providing (1) 
a closed fast lane and an open slow lane; (2) paid `police escort' 
within the slow lane; and (3) preferential ``local on-ramps'' into the 
slow lane.
    1. Closed Fast Lane and Open Slow Lane. First, as noted before, 
each network operator has or is constructing a fast lane for their 
affiliated broadband content provided by a sister company and a slow 
lane for broadband Internet content provided by others. The fast lane 
they reserve for themselves is a closed, private network. This has 
always been the case for cable operators and, even for the telco 
operators deploying broadband, make no mistake: the overall broadband 
pipes they're deploying are mostly just another version of cable TV, 
not broadband Internet. Consumers should recognize that despite the 
nearly ubiquitous and puffy advertising, it's not about ``your world, 
delivered,'' it's mostly about their world.
    2. Paid Police Escort within the Slow Lane. Second, the network 
operators intend to offer Internet content providers paid 
prioritization (essentially a paid ``police escort'') in the slow lane. 
Their plan is that, as content enters the operators' slow lanes from an 
Internet or other network access point, the speed with which this 
content transits their network will be determined, in part, based on 
whether the content owner paid for prioritization. The terms of art the 
network operators use to describe this prioritization include ``quality 
of service'' and ``tiering.'' Each term is intentionally confusing. I 
am not suggesting that certain types of services be denied 
prioritization, just like certain kinds of road traffic, like emergency 
services, deserve police escort. But such police escort should not be 
made available for a fee; otherwise those unable to pay the fee will 
always be stuck in traffic. Put another way, to prioritize some traffic 
is to degrade other traffic. It's a zero-sum game at any bottleneck. 
This fact is intentionally obscured by network operators, who 
incorrectly claim that they will not degrade anyone's content. Neutral 
prioritization (for example, network management whereby all live video 
streams receive priority above all text files) would be perfectly 
acceptable. But for an operator to sell priority to the highest bidder, 
the degradation of service to content providers who can't or don't pay 
would be anticompetitive. Fortunately, it also is predictable and, with 
modest legal safeguards, avoidable.
    As should be obvious, small businesses will have a very hard time 
innovating if they need to pay for `police escort' prioritization to 
compete. When some companies like mine have noted this previously, some 
of the network operators respond with something to the effect of 
``beware when big companies are looking out for the interests of little 
ones.'' That response seeks to change the subject and obscure three key 
points. First, it doesn't change the underlying fact that small 
entrepreneurs--facing a possible bidding war among big companies--are 
going to be hurt unless Congress does something now. Second, many of 
the big companies noting this imminent throttle on small company 
innovation were, indeed, innovative small companies only just a few 
years ago. And, third, on behalf of our customers, we want to ensure 
that our innovations--essentially new businesses operating in start-up 
mode by our employees--are not hindered in the same way. We merely 
want, as Internet pioneer Vint Cerf so clearly puts it, ``to innovate 
without permission'' of the network operators.
    3. Preferential Local On-Ramps into the Slow Lane. Lastly, the 
network operators intend to offer downstream content injection 
(essentially ``local on-ramps'' to the broadband slow lane) to content 
providers who are willing to pay. This would enable content to be 
delivered from geographic locations closer to consumers and provide 
better user experiences. Such local on-ramps already are provided in a 
competitive access market by companies such as Akamai, which has 
servers distributed throughout the United States so that content can be 
delivered quickly to consumers, rather than having to traverse great 
distances on the Internet. Although content providers have no 
expectation that such local on-ramps must be provided for free, network 
operators must not offer local on-ramps on discriminatory terms.
B. Network Operator Claims
    So how do the network operators discuss these plans? They 
obfuscate. For example, most network operators say they won't, quote, 
``block'' websites. This relatively new concession is neither noble nor 
comforting and, in fact, is quite misleading. While they may not 
actually block access to a particular website, they easily could make 
that site's content unusable, either by overly constraining capacity 
(making the slow lane too slow); by providing prioritization only to 
those willing and able to pay (the paid ``police escorts'' that make 
everyone else wait); or by providing downstream injection (the local 
on-ramps) only on unreasonable or discriminatory terms. So it's a 
matter of semantics: they may never block content, but still could make 
it unusable.
    Wireless network operators and their representatives are seeking 
exemption from any non-discrimination requirement enacted, but it is 
difficult to see on what basis such an exemption would be justified. 
Technology neutrality dictates equal treatment of copper, glass, and 
the ether. Consumers need not, and should not, have their access via 
such various means treated differently by regulation, unless there is 
some difference among them that legitimizes disparate treatment. The 
possible differences for wireless are bandwidth, mobility, ``closed 
network,'' and competition.
    If the concern is bandwidth or mobility, wireless providers can 
rest assured that a non-discrimination requirement would neither 
require certain levels of bandwidth or performance but, rather, that 
all sources of technically-similar Internet content be treated equally. 
And if a wireless carrier wants to offer a purely private network, 
without Internet access, then non-discrimination rules would not apply.
    It is important to recognize that, as competitive as the mobile 
wireless market may appear on the surface, it would not exist on this 
issue because the competing wireless providers are almost all owned by 
the uncompetitive telcos who oppose non-discrimination rules. Although 
Sprint/NexTel is independent, T-Mobile is owned by Deutsche Telekom 
(which has announced its intention to discriminate), Cingular is owned 
by AT&T and BellSouth, and Verizon Wireless is owned by Verizon. On the 
issue of Internet content non-discrimination, therefore, policymakers 
cannot expect the wireless market to behave competitively.
    Other network operators say, dismissively, that this is a 
``solution in search of a problem,'' or that policymakers should wait 
for a problem to arise before acting. This wait-and-see approach was 
endorsed by the FCC last year. But what further proof is needed? The 
time to act is now. To ignore the network operators' market power, 
their strident and steadfast opposition to meaningful safeguards, their 
boldly announced intentions, and their increasingly clear specific 
plans, is truly to turn a blind eye to a clear and present danger to 
consumers.
    This situation is eerily similar to that facing Congress a few 
years ago with respect to Internet access taxes. Congress correctly 
foresaw the future problem of state and local governments imposing 
burdensome taxes on Internet access and moved peremptorily to ban such 
taxes by enacting then extending the Internet Tax Freedom Act. Today, 
the functional equivalents of the state and local tax collectors are 
the oligopolistic telco and cable network operators, and Congress 
should likewise recognize and peremptorily thwart the threat they pose 
to the Internet.
IV. FAILURE TO PROTECT AMERICAN CONSUMERS ALSO WILL ENABLE FOREIGN 
        NETWORK OPERATORS' ANNOUNCED PLANS TO RESTRICT AMERICAN CONTENT 
        COMPANIES' ACCESS TO OVERSEAS MARKETS
    To make matters worse, foreign broadband Internet access network 
operators have plans to restrict world-leading American content 
companies' access to overseas consumers. Deutsche Telekom and Telecom 
Italia have already announced their plans. Earlier this year, for 
example, Kai-Uwe Ricke, the CEO of Deutsche Telekom said that ``the 
Googles, Yahoos, eBays and Amazons'' ``need infrastructure''; that 
``[i]t cannot be that infrastructure providers like [Deutsche] Telekom 
continue to invest, while others profit from it''; and that ``Web 
companies that use infrastructures [sic] for their business should also 
do their part.'' But, of course, Amazon.com and others already do their 
part by paying for Internet connections. What Mr. Ricke actually wants, 
of course, is exactly what our domestic network operators want: to use 
market power to charge consumers once and American content providers 
twice, all for the same thing.
    American policymakers must consider the effects of our domestic 
regulatory actions on our global competitiveness. American content 
companies like Amazon.com are world leaders today, in part because our 
access to consumers in other markets has not been impeded. If foreign 
network operators, almost all of which face no competition and are 
fully or partly owned by foreign governments, with obvious incentives 
to favor non-American content companies, are allowed to extract 
discriminatory rents from American content companies, our 
competitiveness both as an industry and a nation will suffer. Put 
another way, even if it were sound policy for Congress to allow 
American network operators to extract oligopoly rents from American 
content companies, it could not be sound policy to set the precedent 
for foreign network operators to extort payments from world-leading 
American content companies. How could our trade representatives 
challenge such actions abroad if we permit them here at home? Clearly, 
we must not lay the groundwork for every network operator around the 
globe to extort payments from American Internet companies. The only way 
we can hope to prevent this outcome is to hold the line domestically: 
we must not allow consumer choice of content to be artificially 
restricted by network operators with market power.
V. ANY LEGISLATION GRANTING VIDEO FRANCHISING RELIEF MUST ALSO 
        AFFIRMATIVELY PRESERVE CONSUMER FREEDOM OF CHOICE OF INTERNET 
        CONTENT
    Mr. Chairman, the preservation of American consumers' longstanding 
freedom of choice of Internet content should be addressed in the 
context of national video franchising relief. The reason for granting 
such relief is, of course, the introduction of additional video 
competition for consumers, so it would be counterproductive to 
facilitate the delivery of content of one additional competitor (the 
phone company), while limiting the availability of thousands of other 
competitors via the Internet.
    Moreover, in support of their opposition to requirements for system 
build-out and service to rural areas, the telcos recently have 
repeatedly cited the competition from Internet content providers 
(``Internet streaming video'' and ``Internet-downloaded video,'' in 
AT&T's words). As Verizon reported to the Commission in opposition to 
video build-out requirements, there is ``significant competition in 
access to video programming through myriad means, including internet 
and satellite sources. . . .'' BellSouth went so far as to tell the FCC 
that Internet content competition would diminish unless telcos were 
given video franchising relief: ``[i]f LFAs [local franchising 
authorities] are permitted to delay or prevent broadband providers from 
also [in addition to cable] offering video service, then competition 
will be greatly (and probably permanently) impeded. This is 
particularly true given the plethora of new [Internet-based] video 
offerings that require robust broadband networks.''
    So the network operators have the temerity to cite the presence of 
competitive Internet-based video programming as justification for 
preempting local government rules and dodging reasonable build-out 
obligations, all while planning to quash that competition by 
restricting consumer access to Internet content.
    In the interests of competition and consumer choice, therefore, 
video franchising relief must not be granted without meaningful 
broadband Internet content safeguards; otherwise, consumers will 
receive less, not more, choice of content.
    These safeguards must keep the network operators from cutting 
``paid police escort'' deals that would adversely affect the traffic of 
other content providers who can't or don't pay. And they also should 
keep the operators from insisting upon unreasonable or discriminatory 
terms for leasing ``local on-ramps.'' In short, the most likely and 
dangerous anti-consumer discriminatory behaviors of broadband network 
operators must be thwarted in advance by legislation and regulation.
    Mr. Chairman, your Committee's interest in this matter is greatly 
appreciated. We seek bright line rules that would avoid unnecessarily 
lengthy litigation, especially given how easily foreseen--even 
forthrightly announced--the network operators' anticompetitive actions 
are. As I noted in testimony before Congress almost three years ago, 
and as the FCC recognized in its final broadband reclassification order 
last August, that agency does not need new authority to act in this 
area. Congress needs either to direct agency action under current 
authority, or to enact another mechanism for protecting American 
consumers and competition.
VI. CONGRESS SHOULD REINSTATE LONGSTANDING REGULATORY SAFEGUARDS TO 
        PRESERVE CONSUMER FREEDOM OF CHOICE OF INTERNET CONTENT
    Mr. Chairman, we respectfully ask that Congress enact modest but 
effective safeguards to reinstate limited protections that the FCC 
recently abandoned, and thereby preserve American consumers' 
longstanding freedom of choice of Internet content. Without much 
effort, these regulatory safeguards can be narrowly drawn so that 
operators' private networks are not invaded and so that operators are 
appropriately compensated for the services they provide.
    Two essential consumer safeguards we seek can be summarized as 
follows:

        (1)  Content transiting an operator's broadband Internet access 
        network may be prioritized only on the basis of the type of 
        content and the level of bandwidth purchased by the consumer, 
        not ownership, source, or affiliation of the content. (That is, 
        for traffic within the broadband network's Internet access 
        lane, ``police escort'' may be provided only based on the 
        technical nature of the traffic or whether the consumer has a 
        paid more for a somewhat higher speed limit.)

        (2)  The terms for local content injection must be reasonable 
        and non-discriminatory; network operators must not be allowed 
        to give preferential deals to affiliated or certain other 
        content providers. (That is, ``local on-ramps'' into the 
        Internet access lane need not be free, but the road owner must 
        not charge unreasonable or discriminatory rates to favor their 
        own or only some others' traffic.)

    Note that we are not seeking to have broadband Internet access 
reclassified as common carriage. To the contrary, we think that with 
modest safeguards, appropriately drafted and clarified, and with 
mandatory and meaningful agency enforcement, American consumers could 
be confident that their longstanding choice of lawful Internet content 
will not be limited by network operators.
VII. CONCLUSION
    In conclusion, Mr. Chairman, the phone and cable companies will 
fundamentally alter the Internet in America unless Congress acts to 
stop them. They have the market power, technical means, and regulatory 
permission to restrict American consumers' access to broadband Internet 
content, and they've announced plans to do so.
    For the foreseeable future, American consumers will have little or 
no real choice of broadband Internet access. And--unless Congress acts 
soon to reinstate modest and longstanding consumer safeguards--consumer 
freedom to choose broadband Internet content will be artificially 
limited. I urge you and your colleagues to recognize that, despite how 
we wish it were otherwise, the market for broadband Internet access is 
not competitive and that the network operators--both domestic and 
foreign--fully intend to extend their market power to restrict consumer 
choice of content by discriminatorily constraining consumer access to 
American content companies. I also urge that, simultaneous to any grant 
of video franchising relief, Congress enact safeguards to preserve 
American consumers' longstanding freedom of Internet content choice.
    Thank you. I look forward to your questions.

                               ATTACHMENT


    Mr. Cannon. Thank you, Mr. Misener, for a very compelling 
statement. We appreciate that.
    Mr. Comstock?

         TESTIMONY OF EARL W. COMSTOCK, PRESIDENT AND 
                CHIEF EXECUTIVE OFFICER, COMPTEL

    Mr. Comstock. Thank you, Mr. Chairman and Members of the 
Committee. It's a pleasure to be here. I'm Earl Comstock, the 
President and CEO of COMPTEL. We represent a diverse mix of 
competitive providers. We have everything from cable 
overbuilders to wireless companies to Internet companies. We 
basically represent the entire spectrum of application and 
network operators that seek to serve consumers.
    I would like to build a little bit on what Mr. Misener just 
said. I think, you know, he is speaking from an Internet 
content company side, and now we're looking at the folks that 
are primarily in my organization, actually seek to provide 
competing transmission services. Many of them do have their own 
facilities, and the keys that are here and the reason why 
Congress needs to act is that the reality of the situation 
today is in this United States we have two facility-based 
operators that reach essentially all homes and one facility-
based operator that reaches essentially all businesses. And 
that has not changed. Both of those operators built their 
networks in a protected environment. They had at least a 
decade, if not several decades, in which to build out their 
facilities with the guarantee that if they built those 
facilities, they would get the customers. And here I'm talking 
about not only the incumbent phone companies, but the incumbent 
cable companies as well.
    And I think it's important for the Committee to recognize 
that the network dynamics lead to inevitable discriminatory 
practices if Congress sets the law the wrong way. Right now 
today, you have the possibility that residential consumers 
might actually enjoy two facilities-based options while most 
businesses enjoy only one. Without some kind of rules that 
provide access to that infrastructure that was built across 
public rights-of-way and using public spectrum, we will not 
have competition that allows the content providers that Mr. 
Misener was speaking about, the innovators of all the 
innovative services and applications that everyone seeks to get 
access to today, we won't have any competition in the provision 
of the vital transmission. That's the key ingredient that 
everyone needs, the essential facility, in antitrust terms, 
that has to be available. And it's something that can't easily 
be duplicated. It took a lot of time and a lot of money to 
build out infrastructure throughout the United States. The 
thought that a competitor in the face of an entrenched 
incumbent would be able to not only gain the capital but then 
construct facilities--which, again, can't magically appear 
everywhere at once but have to be built out over time. In the 
face of someone who has an entrenched revenue stream and an 
entrenched network and the very customers that competitor is 
seeking to serve, that's an incredible barrier to entry unless 
there are some rules that make it possible for you to do that.
    Now, this Committee doesn't necessarily set the common 
carrier rules, but you do have oversight over the antitrust 
rules. And I'd point out the parallels here between what's 
happening now and we're seeing the re-establishment of the very 
kind of monopoly that led the Reagan administration Antitrust 
Division to break up AT&T. It was an effort that actually 
started 10 years before in the Nixon and Ford administrations 
and was carried through to the Reagan administration, and 
thankfully they followed through it. And what that case 
illustrated--the divestiture from AT&T illustrated was the 
incredible loss to this country, the lost opportunity that came 
about from having that kind of monopoly control of a network. 
It wasn't until after the divestiture that we saw all the 
benefits, the innovation of the Internet, wireless companies, 
all kinds of new broadband services, none of which the 
incumbent would have employed or deployed because it would have 
threatened their revenue stream.
    And the same is true of cable operators. Cable modem 
service came about largely because of an opportunity that 
Congress provided in the 1996 act, where the cable industry 
believed that the phone companies were going to come into their 
market immediately, so they sought to respond to that potential 
competition by offering Internet access service.
    Now they're in a situation where, gee, if I just continue 
to do what I'm doing, maybe the Bell Company gets in and offers 
video, but I'd much rather have a cozy duopoly than I would see 
competition. So what you're seeing is an effort to get the 
cable rules applied to everybody, and those rules tie 
transmission and content, and that's what's so dangerous to the 
United States. If you allow that essential facility, the 
transmission, to be tied together with the content you will 
create the very gatekeepers that we broke up the AT&T monopoly 
to prevent.
    So I hope that you'll look at enforcing some antitrust 
provisions, and I think antitrust is a possible remedy. But to 
do that, you really need to spell out some very clear 
violations, because I think as Mr. Misener said, the problem 
for most start-up companies is it's a matter of time. If they 
don't know up front that there's going to be some relief from 
the kind of anticompetitive abuses, the exclusionary practices 
that network operators traditionally will engage in, then 
they've got no opportunity to get in the market in the first 
place.
    So it's the opportunity foregone, the opportunity lost, 
that really is at issue here, and it is going to take some 
rules to make the Internet work. The Internet grew up on common 
carriage, and if we're not going to have common carriage, we 
need a stronger antitrust remedy to solve that problem.
    Thank you.
    [The prepared statement of Mr. Comstock follows:]
                 Prepared Statement of Earl W. Comstock




























































    Mr. Cannon. Thank you. I appreciate that. That was also 
very insightful.
    And now for a slightly different perspective, I believe, 
Mr. McCormick?

  TESTIMONY OF WALTER B. McCORMICK, JR., PRESIDENT AND CHIEF 
      EXECUTIVE OFFICER, UNITED STATES TELECOM ASSOCIATION

    Mr. McCormick. Thank you, Mr. Chairman. Chairman Cannon, 
Congressman Conyers, Members of the Committee, thank you for 
the opportunity to be here today and to appear before this task 
force to discuss net neutrality.
    Mr. Cannon. You know, I think that box will slide closer to 
you, if you'd like.
    Mr. McCormick. Is that better? Okay.
    As you know, our association represents about 1,200 
innovative companies that range from the smallest rural 
telecoms in the Nation to some of the largest corporations in 
the United States economy.
    What unites us is that we have a 100-year tradition of 
connecting people to each other over networks. We are 100 
percent committed to this tradition as we invest billions of 
dollars building out our new, next-generation broadband 
networks that are capable of meeting America's rapidly 
increasing ``need for speed.''
    Today, I make the same commitment to you that our companies 
have made to their customers: We will not block, impair, or 
degrade content, applications, or services.
    If you can go there today on the Internet, you'll be able 
to go there tomorrow. The functionality that you have today on 
the Internet, you will have tomorrow.
    For more than a century, our businesses have connected 
customers with those whom they choose to connect with. If a 
customer wants to call Sears, we don't connect them to Macy's.
    And the FCC has made it abundantly clear that it will move 
swiftly to protect consumers' right to be in control of their 
Internet experience.
    But more fundamentally, consumers' Internet experience is 
today unimpeded--in the absence of virtually any regulation of 
the Internet--because there exists a powerful consumer mandate 
for Internet freedom.
    In a new communications era defined by multiple choices--
numerous communications pathways--consumers simply will not 
continue to purchase Internet service from a provider that 
seeks to block or restrict their Internet access.
    When consumers have choices in the marketplace, consumers 
have control. There is vigorous competition between DSL, cable 
modem, wireless, satellite, and other Internet access 
providers. In some areas free Wi-Fi access is available. In 
others, access over powerlines is available. This results in 
numerous benefits to consumers, including DSL prices as low as 
$12.99 a month. These benefits, of course, contribute to the 
FCC's recent announcement of a 60-percent year-over-year 
increase in U.S. broadband subscriptions, which is, of course, 
good news for our Nation's economy and global competitiveness.
    But continued progress, continued technology advancements, 
continued expansion of consumer communications and 
entertainment choices, rests on continued investment in these 
next-generation networks.
    Mr. Chairman, the Internet exists today on networks. That 
is, in fact, what the Internet is--networks connecting with 
networks. Have network operators sought to control or restrict 
the Internet? No. Our companies have invested and grown and 
sought to increase the scale and the scope of the Internet. And 
we have sought public policy that encourages increased 
investment in networks that will make the Internet even more 
robust tomorrow than it is today.
    All sides of the network neutrality debate agree that what 
will be required in the future is more investment in networks. 
Indeed, Internet traffic is multiplying. Network traffic is now 
growing about 100 percent annually. Further acceleration is 
expected soon. Cisco CEO John Chambers predicts that broadband 
video and other bandwidth-intensive applications will drive a 
four-fold to six-fold increase in network traffic over the next 
decade.
    The answer is investment, not legislation that would 
discourage it.
    Congress has an important role in promoting competition. It 
should facilitate investment in next-generation broadband, 
investment from across today's competitive landscape, along the 
lines of the legislation that's now being developed by the 
Energy and Commerce Committee. We appreciate the vigilance of 
this task force, and we look forward to our continued work 
together.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. McCormick follows:]
             Prepared Statement of Walter B. McCormick, Jr.








    Mr. Cannon. Thank you, Mr. McCormick.
    And now for sort of the higher view, I suspect. Mr. Wu, 
you're recognized for 5 minutes.

          TESTIMONY OF TIMOTHY WU, PROFESSOR OF LAW, 
                      COLUMBIA LAW SCHOOL

    Mr. Wu. Thank you, Mr. Chairman, Mr. Conyers, and Members 
of the Committee. Thanks for having me testify, and thank you 
very much also for directing your attention to this issue.
    What I want to emphasize in my remarks today is, as you 
suggested, the long view. I want to suggest that the issue the 
Committee faces here and the Congress faces here is really not 
a new issue, despite the fancy label of ``net neutrality.'' It 
is a very old problem that this Nation has always had--the 
problem of the abuse of market power on information networks. 
This is a problem that's been confronted as far back as the 
telegraph, through the Bell networks, through every stage of 
telecommunications history, and it has at every stage been 
important that Government do the minimum that it needs to do to 
prevent the worst anticompetitive practices from occurring.
    Now, I want to start by discussing why there's been such a 
popular reaction to this issue of network neutrality, and I 
think we live in an era where the Internet has become part of 
the infrastructure of American life. That is to say, people 
rely on the Internet the way they rely on the electric network, 
the way they rely on the roads, the way they rely on the 
telephone. They plan their lives around it. They plan weddings. 
They buy airplane tickets. People use this network for their 
daily life. And I think that's why there was such a surprise 
and reaction when the Bells began to announce plans that they 
would be considering plans and situations where they would be 
picking and choosing favorites, trying to decide which 
companies should get favored access and which should get less 
favored access. And I think that cannot fail but to provoke a 
reaction.
    You know, if you allow an analogy, it might as if pne day 
the electric company were to say from here on forth your 
refrigerator you purchased from Samsung isn't going to work 
quite as well as the one purchased from General Electric. That 
might make more money for the electric company. It might make 
more money for General Electric. But it's obvious that this 
would be a bad outcome for competition between refrigerators. 
And that's exactly the situation we face today.
    The problem with network discrimination is it is inherently 
a tax and a distortion on competition in the network. The 
situation we have today, the basic layout, is that you have an 
extremely vigorous market operating on top of the Internet, 
operating on top of the infrastructure. It's a market where 
someone with very little resources, just a good idea, a 
website, and people willing to invest, can almost overnight 
become a billion-dollar company. Companies like Amazon, 
companies like eBay, companies like Google started very, very 
small, with almost nothing. Today, if you write a good blog, if 
you're clever and smart enough to say funny things or have 
insight into politics, you can get more readers than the 
Washington Post or the New York Times.
    This is how the free market is supposed to work. The 
markets on top of the Internet are probably the best examples 
in our current economy of markets working the way the free 
market is supposed to work. They're low barriers to entry, 
they're entrepreneurial, they're innovative, and they are a 
driving part of the American economy.
    The only problem with this market is it has one Achilles 
heels, and that is the infrastructure. The access side of this 
market has never been competitive. It is not competitive today. 
Over 90 percent of Americans have a choice between one or two 
companies. And the threat, the real threat, is that the 
anticompetitive, the noncompetitive side of this network will 
spill over into what is the best functioning market in the 
United States today, the infrastructure--the market that is on 
top of the Internet's infrastructure. That is the trade-off.
    Now, Mr. McCormick and the Bell Companies will explain that 
greater profit is needed because they need to make investments 
in their network, and no one denies that. The question for the 
Committee and the question for Congress is: What is the best 
way to fund these kind of things? And I suggest to you the 
worst way is to tax innovation and tax competition. I suggest 
that among the alternatives to Government, the worst way to try 
and promote a network build-out is allow the network owners, as 
gatekeepers, as crown corporations, to distort what is the 
strongest and one of the most vigorous parts of the American 
economy.
    Now, not all the plans that have announced are so bad, but 
some of the worst ones amount to what I would call a Tony 
Soprano model of networking; that is to say, they're simply a 
threat by companies who are in a position to hurt other 
companies to make their life difficult. If you are offering 
some companies better service and degrading others, you are 
saying pay us or we will ruin your business. That's simply a 
protection scheme and not a market strategy. That's 
anticompetitive conduct, a threat of anticompetitive conduct, 
and even if you believe, as I do, in limited Government, there 
must be a role of Government to guarantee the very basics of a 
fair market and prevent the worst anticompetitive conduct.
    Thank you very much.
    [The prepared statement of Mr. Wu follows:]
                      Prepared Statement of Tim Wu
                              introduction
    Mr. Chairman, and Members of the Committee,
    Over the last several months, the debate over Network Neutrality 
has provoked rather more of a reaction than I think anyone might have 
thought, and I want to begin by considering why.
    I think there are several reasons. First and foremost, this is an 
issue that affects people directly. Once upon a time the internet was a 
kind of toy, used by hobbyists, scientists, and geeks. But today it's 
something different: it has become part of America's basic 
infrastructure. It has become as essential to people and to the economy 
as the roads, the electric grid, or the telephone. It's an 
infrastructure that people and firms depend on for everyday activities, 
whether planning weddings, managing investments, or running a small 
business.
    Given this infrastructure, Americans are accustomed to basic rights 
to use the network as they see fit. That's why there's been surprise 
and indignation over plans, advanced by the Bells, to begin deciding 
what consumers want, by slowing down disfavored companies, and speeding 
up favored companies. It's as if the electric company one day announced 
that refrigerators made by General Electric would henceforth not work 
quite as well as those made by Samsung. That would be a shock, because 
when it comes to the electric grid and the internet, people are used to 
a network that they are free to use as they wish.
    Second, whatever AT&T and others may claim as motives, the 
potential for abuse of market power is obvious to everyone. Ninety-four 
percent of Americans have either zero, one, or two choices for 
broadband access.\1\ Many of us wish things were otherwise, but they 
are not.
---------------------------------------------------------------------------
    \1\ Cf. Federal Communications Commissions, ``High-Speed Services 
for Internet Access,'' as of 12/31/04, available at .
---------------------------------------------------------------------------
    Given today's market, it's obvious that a firm like AT&T may earn, 
at the margin, more money by distorting competition among internet 
firms. It can, through implicit threats of degradation, extract a kind 
of protection money for those with the resources to pay up. It's 
basically the Tony Soprano model of networking, and while it makes some 
sense for whoever is in a position to make threats, it isn't 
particularly good for the nation's economy, innovation, or consumer 
welfare.
                                 ______
                                 
    The problem faced here is actually not new at all--it is a familiar 
problem of market power on networks that government has grappled with 
since the days of the telegraph. What I want to make clear is the 
central economic tradeoff involved in these kinds of cases. Letting the 
internet or any infrastructure become discriminatory may offer 
marginally more profit for operators. But it does so at the cost of a 
tax on network competition and innovation. Whether it's a nation's 
ports, roads, canals, or information networks, discrimination comes at 
a price to the activities that depend on the infrastructure.
    That's why at nearly every stage in the history, governments have 
maintained at least a basic anti-discrimination rule to block the worst 
forms of anti-competitive behavior. And today, that's all that's 
needed--a simple ban on the worst kinds of behavior; a basic rule whose 
goal is simply to guarantee basic consumer rights and let the free 
market work.
          network discrimination problems in history and today
    Problems of network discrimination are nothing new. Network owners 
with market power have always been tempted to use their gatekeeper 
position to discriminate between favored and disfavored uses.
    The history, in fact, goes as far back as the 1860s, when Western 
Union, the telegraph monopolist, signed an exclusive deal with the 
Associated Press. Other wire services were priced-off the network--not 
blocked, but discriminated against.\2\ The result was to build 
Associated Press into a news monopoly that was not just dangerous for 
business, but dangerous for American democracy. As telecommunications 
historian Paul Starr writes ``Western Union had exclusive contracts 
with the railroads; AP had exclusive contracts with Western Union; and 
individual newspapers had exclusive contracts with AP. These linkages 
made it difficult for rival news services to break in.'' \3\ The AP 
monopoly had an agenda: it didn't just favor Google or Yahoo--it went 
as far as to chose politicians it liked and those it didn't. As 
Historian Menahem Blondheim has documented, AP used its Western Union-
backed monopoly to influence politics in the late 19th century, even 
going so far as to exercise censorship on behalf of the State. The 
method was simple: when faced with messages from disfavored 
politicians, the wires simply didn't carry them.
---------------------------------------------------------------------------
    \2\ For more on the early history of the telegraph, see Robert L. 
Thompson, Wiring a Continent: The History of the Telegraph in the 
United States 1832-1866 (1947); Daniel J Czitrom, Media and the 
American Mind: From Morse to McLuhan, ch. 1 (1982); Paul Starr, the 
Creation of the Media 184 (2005).
    \3\ Starr, the Creation of the Media, 184.
---------------------------------------------------------------------------
    A much more recent example comes from the 1960s, when the Bells 
would not allow anyone to hook up anything to their telephone system 
other than a Bell telephone.\4\ It took the courage of the D.C. 
Circuit, and later the FCC, to force Bell to accept a consumer's right 
to attach anything to the network not dangerous to the network. To that 
courage we owe better choice in telephones, and over time much more. To 
the freedom of network attachments we also owe the answering machine, 
the fax machine, and finally the modem and the whole birth of personal 
networking. I don't want to overstate the point, but freeing network 
attachments from Bell control, as technical as that sounds, has played 
a part in making this country the leader of the world in information 
technology. Here's what two FCC economists, Jay Atkinson & Christopher 
Barnekov, said about freeing network attachments from Bell control:
---------------------------------------------------------------------------
    \4\ On this episode, see Carterfone, 13 F.C.C.2d 420 (1968); See 
Jay Atkinson & Christopher Barnekov, A Competitively Neutral Approach 
to Network Interconnection 3 (Office of Plans & Policy, FCC, Working 
Paper No. 34, Dec. 2000); Kevin Werbach, Breaking the ICE, 4 J. Telecom 
& High Tech. L.J. (2005).

        ``we believe that the recent development of the Internet, and 
        of much of Information Technology, would not have happened if 
        CPE (for example, modems) were still marketed only by LECs. The 
        blossoming of the CPE market into a highly competitive industry 
        offering a wide variety of choice at low cost and rapid 
        technological advances, and enabling previously unknown 
        possibilities such as the increasingly numerous Internet 
        services, is arguably a direct consequence of the deregulation 
        of CPE.'' \5\
---------------------------------------------------------------------------
    \5\ See Jay Atkinson & Christopher Barnekov, A Competitively 
Neutral Approach to Network Interconnection 3 (Office of Plans & 
Policy, FCC, Working Paper No. 34, Dec. 2000).

    So what do we have today? In terms of market structure, you have a 
range of diverse and highly competitive markets operating on top of the 
internet's basic infrastructure. These markets are viciously 
competitive. Invent a new search engine, like Google did, and in a few 
years you can be a multi-billion dollar concern. Write a popular blog, 
and if you're lucky you can have nearly as many readers as the New York 
Times. Conversely, many more businesses and ideas have failed, like the 
famed ``pets.com,'' but usually on the merits.
    These markets functioning on top of the internet are in many ways 
an economist's dream. Barriers to entry are low. Startup costs are 
minimal: many successful business began with just an idea and a good 
web site. Competition is mostly meritocratic--the best online stores 
win, not the ones with a famous names or the right connections. 
Meritocratic competition, in turn, leads to Darwinian or what 
economists call ``Schumpeterian'' innovation. That just means that new 
technologies supplant the old, in a constant process of industrial 
rebirth. In all, today's markets operating on top of the internet's 
neutral infrastructure may be some of the best examples of markets 
working like the free markets are supposed to.
    But this thriving market has an Achilles heel. For there's one part 
of the net which isn't competitive at all: broadband access. The access 
networks are part of the old telecom world--monopolistic, slow-moving, 
well-connected in Washington, and prone to anti-competitive behavior. 
They are the ``Broadband Bottleneck.'' And the Bells, who lead the way 
in their efforts to change the internet, are almost an extension of 
government, fed and raised on government subsidies and rate-setting 
since 1913 or so. It is no surprise that they should be leading the 
way, looking for a way to make the free market of the internet work 
more and more like the old Bell monopoly.
                              the tradeoff
    In any discussion of neutrality rules, the Bells and even the cable 
companies will always turn back to their one big argument: we need more 
money to build the infrastructure, and if you don't give it to us, we 
won't build it. I think the government needs to learn how to stand up 
to these kinds of threats. What we have here in truth is a tradeoff. 
The Bells want permission to discriminate in exchange for a promise 
that they'll use any money earned to build more infrastructure. But 
even if the Bells make more money, and even if that money is actually 
invested in infrastructure deployments, that doesn't mean the tradeoff 
costs don't exist. The tradeoff is a distortion, a tax, on the healthy 
markets that are on top of the basic network.
    It is inevitable that a discriminatory infrastructure will affect 
competition and innovation in the markets that depend on it. Imagine, 
for a moment, that private American highway companies reserved a lane 
for Ford cars. That would be good for Ford, but obviously would affect 
competition as between Ford and General Motors. It would also slow 
innovation--for it would no longer be the best car than wins, but the 
one that signs the best deals and slows down their competitors. The 
race is no longer to build a better car, but to fight for a better deal 
with the highway company.
    That's the threat to innovation on the internet. Today, as I said 
early, you can start a business on the internet with relatively little 
capital. But in a world where AT&T or Verizon decides who gets priority 
access, entrepreneurs get a different message. Its not who has a better 
product: its who can make a deal with AT&T, Verizon, Comcast or Time-
Warner. That's a different kind of market, one more like the old days 
of telecommunications. That's when starting a network business meant 
making a deal with a big Telco, or forget it.
    In short, the long-term costs to the economy of allowing a 
discriminatory internet are real. Encouraging infrastructure 
investments is a serious challenge, but in the end one only 
tangentially related to the Network Neutrality debate. The real spur to 
network deployment and innovation will be market entry--whether 
municipal broadband, or otherwise, that scares today's providers into 
offering something better. Indeed, even given the limited competition 
we have today, it is the superiority of the cable network that has 
goaded the Bells into beginning fiber optic deployments. For these 
deployment decisions, facilities-based competition is the strongest 
answer, and letting gatekeepers tax application competition is really a 
sideshow. Taxing innovation is hardly the only, and probably the most 
expensive way to encourage infrastructure deployment.
             on the case for maintaining government's role
    I think many people agree instinctively that an open and neutral 
internet has been a good thing for the nation. It's been good for 
consumers, good for entrepreneurs, and good for the U.S. economy. 
Countries become rich through innovation, and need basic infrastructure 
to innovate. That's often the difference between rich nations and 
poor--access to basic infrastructures needed to start a business. In 
this respect the neutral internet has been a sterling example of an 
infrastructure that has driven the national economy. Perhaps, in U.S. 
history, only the early canals, railways, roads, railways and electric 
networks can compare as boosters to the U.S. economy and the well-being 
of citizens.
    Even if neutrality works better--something the cable operators, to 
their credit, agree with--there is a different kind of hesitation out 
there. It is as to whether government should be involved at all. After 
all, Congress has with some exceptions stayed away from trying to 
regulate the Net, and for the most part that's been a good thing. 
There's no rate-setting, and no long battles over ``internet 
unbundling.''
    But in truth things are more complex. As everyone knows, the 
essential initial research and build-out of the internet was funded by 
the Defense Department. That funding of research and development was an 
astonishing success, in part because the resulting design was so good 
it hasn't much needed government. The internet is by design diverse and 
decentralized, making competition on top of the infrastructure 
viciously competitive. That competition has ironed out many of the 
problems government might otherwise be needed to solve.
    But while Government hasn't acted much to regulate applications, at 
the infrastructure side the story is completely different. The initial 
build-outs, as we already said, were all government funded. Thereafter, 
through the entire history of the internet, the Government has 
maintained some kind of rules to maintain basic neutrality on the 
network--to control, in effect, the bottleneck it helped create. We 
already discussed the deregulation of network attachment in the 1960s--
a matter essential for letting consumers buy modems and hook them up, 
and a right that helped lead to a mass consumer internet. Later, the 
Federal Communications Commission, through the 1980s and 1990s 
maintained rules that protected the rights of dialup ISPs to reach 
customers over the phone lines. That tradition continued when, in the 
early 2000s, Chairman Michael Powell announced the ``network freedoms'' 
rules. In 2005 the FCC fined a regional phone company that was blocking 
Voice over Internet services, the latest of a long tradition of efforts 
to protect Network Neutrality.\6\
---------------------------------------------------------------------------
    \6\ ``Madison River Communications, LLC Order and Consent Decree,'' 
March 3, 2005, .
---------------------------------------------------------------------------
    What do these stories have in common? At each stage, the internet's 
vigorous competition has relied on one baseline government guarantee: 
consumers get the use their network as they like. That's the same 
deregulatory instinct that government needs now--to guarantee consumers 
access to whatever content and applications they want, free of 
discrimination and playing favorites.
    Some of you may feel hesitant, feel that government's role will 
necessarily be complex. It need not be. All government needs to say is 
this: leave things the way they are. It needs merely to recognize 
consumers' rights to access the content and applications of their 
choice, free from discrimination, and give meaningful remedies when 
those freedoms are interfered with.
    The best proposals for network neutrality rules are simple. They 
ban abusive behavior like tollboothing and outright blocking and 
degradation. And they leave open legitimate network services that the 
Bells and Cable operators want to provide, such as offering cable 
television services and voice services along with a neutral internet 
offering. They are in line with a tradition of protecting consumer's 
rights on networks whose instinct is just this: let customers use the 
network as they please. No one wants to deny companies the right to 
charge for their services and charge consumers more if they use more. 
But what does need to be stopped is raw discrimination that is nothing 
more than a tax on innovation taken by government-supported 
corporations.
                               conclusion
    This mission--protecting consumer choice against market power--is a 
minimum and appropriate role of government. I wouldn't be here if there 
were five broadband providers, each competing to give customers the 
best and fastest service possible. If that were the case, I am certain 
that the best service would win out--if one company blocked or slowed 
some companies, consumers would run away. If a rental car company 
doesn't let you drive the car where you wanted, you'd choose a 
different company. The problem is the lack of choice in this market.
    Let me close by looking at who's on each side. The Bell companies 
have taken the lead in moving things back to the world where they pick 
and choose who gets better access on the network. Who wants that? Very 
few people. Not bloggers, libertarian, conservative, or liberal, who 
know that larger media outlets will be favored over them. Not the 
application makers, among the most active sectors of the nation's 
economy. Not anyone who dislikes or distrusts excesses of centralized 
power. Not even cable operators. And, when made aware, certainly not 
consumers. In fact, no one wants this but the Bells themselves, and 
perhaps that tells us something.

    Mr. Cannon. The Chair would note that all members of the 
panel concluded their remarks in remarkably good time. We 
appreciate that.
    I'd ask unanimous consent that the following items be made 
part of the hearing record: testimony from Mark Cooper of 
Consumers Union; a letter to Chairman Sensenbrenner from the 
National Broadcasters supporting net neutrality protections; 
testimony from Kyle McSlarrow; an open letter from small, 
medium, and large Internet companies opposing the Energy and 
Commerce bill; and the Federal Communications Commission press 
release of April 3, 2006. Pardon me. That should be the 
National Religious Broadcasts. Somehow I skipped over that very 
important distinction. And without objection, so ordered.
    The Chair recognizes himself for 5 minutes to ask 
questions, and first, a subject dear to my heart that I'd like 
a quick opinion on from all of you. Should we extend and make 
permanent the Internet Tax Freedom Act's moratorium on the 
taxation of Internet access? Let's just go down the line?
    Mr. Misener. Yes.
    Mr. Comstock. Yes.
    Mr. McCormick. Yes.
    Mr. Wu. I haven't thought about it before, but why not?
    Mr. Cannon. Thank you for the quick answers. Do you have 
any rationale? This is not exactly the record we're building, 
but are we going to get investment--is the lack of a permanent 
moratorium chilling investment in any of your views? Mr. 
McCormick?
    Mr. McCormick. Well, Mr. Chairman, I think that, you know, 
consumption taxes were typically applied as a matter of policy 
on those areas of the economy where we want to discourage 
consumption. Internet is an area of the economy, and 
particularly the information economy, where we want to 
encourage further investment and consumption, so that the whole 
theory of tax policy in that area would be to keep hands off 
the Internet when it comes to taxation.
    Mr. Cannon. Thank you. I note that every other member of 
the panel is concurring. I agree with that, so let's cut that 
one off and move on to some other issues.
    Mr. McCormick, you mentioned that consumers have a range of 
broadband options, but can you explain the apparent discrepancy 
between that in your remarks and the statistics provided by the 
FCC that 98.8 percent of advanced service lines--the advanced 
service line marketplace is cable and DSL?
    Mr. McCormick. Yes, Mr. Chairman. Under traditional 
competitive analysis, the immediate choice to the consumer and 
the contestability of the market are both restraints upon 
price. Market contestability is very present today. We have 
access to the Internet today over DSL, over cable modem. 
There's satellite access wherever you have a view of the 
Southern sky. There is wireless access to the Internet. There 
is now unlicensed spectrum available to those who want to 
invest, unlicensed spectrum through Wi-Fi and Wi-MAX 
technologies. In fact, Google has now entered into partnerships 
where it's providing, for a fee, Internet access.
    So what you have is you have both consumer choice and you 
have market contestability. Indeed, even at a convention like 
the COMPTEL convention, you have individuals like Jeff Compton 
of Telscape Communications being reported in Communications 
Daily as saying that it would be a mistake for the Bells to 
push competitors off of wirelines because, he says, ``If the 
competitive industry is pushed off telecom wires, it will ally 
with cable, broadband over powerline providers, wireless 
carriers, or even satellite companies. The Bells will be 
sitting there with the infrastructure maintained and less of 
the market share.''
    I'd like to introduce this article for the record because 
of the variety of consumer choice.
    Mr. Cannon. Without objection.
    Mr. Comstock. Mr. Chairman, if I might just respond very 
briefly to that?
    Mr. Cannon. Certainly.
    Mr. Comstock. The statistics you cited are absolutely 
correct. There is no real competition in that, and I'd also 
note that that's in the residential marketplace. In the 
business marketplace, without the access rules imposed under 
the Communications Act, there would be relatively little 
competition; fewer than 3 percent of the buildings in this 
country have alternative fiber going into them. And with 
respect to satellite and broadband over powerline and other 
services, the reality is less than 1 percent of the services 
are being provided over that. These are not competitive 
alternatives at the moment, and they probably won't be in the 
foreseeable future.
    And I'd just like to add for the record, on page 6 of my 
testimony we cited a Wachovia analysis that basically said 
there's a cozy duopoly structure here and that's what's 
allowing Verizon to raise their low-end DSL price from $15 to 
$18 and tack on a $20 surcharge. So if that's a competitive 
marketplace, then, you know, I think we're all missing 
something here.
    Mr. Cannon. Does anyone on the panel know how many 
consumers current access the Internet over powerlines?
    Mr. Comstock. According to the FCC's own statistics, it's 
less than 1 percent.
    Mr. Cannon. Right. That's for all----
    Mr. Comstock. That's for all access over----
    Mr. Cannon. Not just powerlines, which are----
    Mr. Comstock. Right.
    Mr. Cannon. It seems to me that the point here is that we 
have lots of potential, but, in fact, we have sort of a 
duopoly. Can I just ask the panel their views on municipal 
build-out for access to the Internet? Starting with you, Mr. 
Misener, if you'd like.
    Mr. Misener. Well, certainly more competition is better. 
The sooner the better, the better for American consumers, 
American innovation, American industry. It's just not there 
yet. It won't be here anytime soon.
    Mr. Cannon. Are you familiar with the Swedish model?
    Mr. Misener. The Swedish model?
    Mr. Cannon. Yes, of Internet build-out. [Laughter.]
    It provides wonderful access.
    Mr. Misener. I have no recollection.
    Mr. Cannon. They are--Sweden---- [Laughter.]
    It was the after-dinner drinks, I suspect, but thank you. 
Does anyone know about Sweden, what's happened with the build-
out in Sweden?
    Mr. Comstock. The municipalities are building out the 
infrastructure and----
    Mr. Cannon. It's actually private, but has done--it's been 
a very interesting process. Do you have a comment, Mr. 
McCormick? Do you have any members who are municipals?
    Mr. Comstock. Well, we have members that are supplying the 
service to municipalities, and I second what Paul said. But I 
think the key point everybody has to remember, regardless of 
whether it's municipalities or someone else, all of these are 
smaller networks that need to connect to the larger networks.
    Mr. Cannon. Right.
    Mr. Comstock. And I think that's really the key, is without 
strong interconnection rules, a smaller network has no chance.
    Mr. McCormick. I guess my point, Mr. Chairman, is that----
    Mr. Cannon. Let me just ask it this way, because my time is 
almost up. You can answer as long as you'd like, but I can't 
imagine that you guys would be opposed to the municipals 
building out and adding to your network.
    Mr. McCormick. Our view has been that as long as they come 
in and compete on an equal basis with the private sector. But 
as I said, I represent 1,200 companies. A number of them are 
smaller rural companies. In many of these areas, there is not 
Internet access today. What's standing in the way of Internet 
access is investment. The technology is there, whether it's 
broadband over powerline, whether it's unlicensed spectrum, 
whether it's cable modem or DSL, or whether it's wireless. 
There is no technological barrier to entry. The only barrier to 
entry is the willingness to invest and to deploy. And 
historically in this country, people invest and deploy if they 
feel that they can get a return on their investment.
    So for everyone sitting here at the table, there is an 
opportunity for them to invest and deploy Internet access.
    Mr. Cannon. I think the--could you just--pardon me, I've 
gone over my time, but just let me ask: Isn't deployment 
dependent upon many of your members connecting with these 
smaller networks?
    Mr. McCormick. There is a history in the Internet of 
interconnection on a pairing arrangement. I am not aware of any 
problems relating to interconnection of Internet networks that 
has not been--the only one I'm aware of is the one that you 
mentioned, Madison River, which was dealt with immediately. But 
every Wi-Fi network that's being deployed is connecting with 
the Internet. There's been no problem whatsoever.
    Mr. Cannon. I plead the panel Members to accept my apology 
for going over time and hope that none of them follows my 
example. I yield back now and recognize the senior Member of 
the Committee, the Ranking Member, Mr. Conyers.
    Mr. Conyers. Thank you, Mr. Chairman. This is a very 
important and informative set of statements that have come from 
the witnesses.
    Professor Wu, what we're gathered here about in discussing 
market neutrality, net neutrality, is really a question of 
whether market power is going to be able to prevail over and 
intercept and control content; and that at the same time, the 
Federal Communications Commission has been moving away from 
this issue, making it very hard for consumers to seek a remedy 
without having to all get lawyers. Is that a fair 
interpretation of what I've been hearing from the majority of 
the witnesses at the table today?
    Mr. Wu. I think it is, Congressman Conyers, and this is a 
situation with historical precedent. I'll give you one strong 
example from history.
    In the 1860's, the telegraph companies, which were also a 
monopoly--Western Union--signed an exclusive deal with 
Associated Press that only allowed Associated Press to be 
carried over the wires; that is to say, they only allowed--they 
didn't actually block other companies. They just discriminated 
against other companies.
    That in turn led to a news monopoly in the late 19th 
century which was a threat not only to American business and 
competition but a threat to American democracy, because this 
was a combined action of the telegraph monopoly plus the news 
monopoly that would pick political favorites, choose 
politicians they liked, and run only their news and their 
information over the wires.
    I don't want to suggest we're at that far of a stage, but 
what I'm suggesting is when network owners pick favorites, 
that's very dangerous for the American democracy and dangerous 
for American business.
    Mr. Conyers. Well, the idea of network neutrality, a few 
years ago I didn't see a problem but--I would argue that there 
wasn't a problem then. I've got statements now from people in 
the business who use--who have market power, control the pipes, 
who are saying we're going to start charging, we're going to 
start discriminating.
    Is that, Mr. Misener, a fair appraisal of what the issues 
are that bring us to the table here this afternoon?
    Mr. Misener. Yes, sir, Mr. Conyers. Things have changed. 
It's not the case that this is a static circumstance. The 
market has radically consolidated over the past few years. Ten 
years ago, soon after my company started in business, there 
were dozens of ISPs in any major metropolitan area. Currently, 
at best, you'll get two broadband ISPs serving an area. As Mr. 
Comstock pointed out, something less than 1 percent of 
consumers are taking broadband Internet access from someone not 
on cable or a telco.
    The other thing is that the FCC has deregulated last year 
to allow longstanding nondiscrimination principles to be 
removed from the books before competition arrived. I think we 
all wish there were competition and all believe that, were 
there competition, the rules would not be necessary. But the 
Commission moved first before the competition arrived.
    Mr. Conyers. I just wanted to ask Mr. McCormick, we've got 
a number of quotations from industry leaders, from SBC--all 
friends of mine--Verizon--some less friendly--BellSouth. But 
the whole idea is that they're saying network operators must be 
free to control the type and quality of service on the system. 
How does that comport with what you've told us this afternoon, 
sir?
    Mr. McCormick. Mr. Conyers, I think what Mr. Whitacre and 
others in the industry like Mr. Notebaert have done over the 
course of the last couple months is respond to--try to respond 
in a very thoughtful way to that in two ways: First, they have 
said we will not block, degrade, or impair anyone's access to 
the Internet. With regard to operating the network, the way we 
currently operate it, by making sure that certain applications 
are afforded a level of security or privacy, we have to have 
the flexibility to do that in the future.
    So, for example, today the Federal Government comes to us, 
and they say----
    Mr. Conyers. But you're telling me that I should sleep 
comfortably in my bed tonight because I shouldn't take these 
too seriously.
    Mr. McCormick. No. I think that you should take them 
seriously, but I'm trying to explain what they meant by that.
    Mr. Conyers. Oh.
    Mr. McCormick. And what they meant was that there are 
network applications, for example, Bank of America comes and 
they want to have a virtual private network that is secured for 
privacy purposes. That network operates over the Internet, but 
we plug into that network certain security and quality of 
service applications. The Federal Government comes to us and 
needs secured applications for national security. Health care 
facilities come to us, and they need to have virtual private 
networks. We need to be able to continue to be able to manage 
the networks----
    Mr. Conyers. Well, I don't know if Ed Whitacre was thinking 
about that when he said, ``Now, what they''--Google and 
Yahoo!--``would like to do is use my pipes free, but I ain't 
going to let them do that.'' Those are--that's his vernacular.
    I don't think he's talking about the concerns that you're 
explaining to me.
    Mr. McCormick. Well, I think that what he is relating is 
that, as Google and Microsoft and others move into new 
applications that require enormous amounts of bandwidth, that 
Google and Microsoft will be looking for what amounts to 
virtual private networks. And I think, Mr. Conyers, that terms 
like ``toll lanes on the Internet'' and others, those have 
not--that's not been our terminology.
    The network neutrality debate has two sides to it: one is 
the service provider side; the other is the content and 
application side. This Committee took its first look at search 
engines in connection with airline reservation systems and said 
there should be no screen bias. Today, if you wanted to buy a 
book, Trover Book Shop is about three blocks away. But if you 
go on Google and plug in that you would like to buy a book near 
1st and Independence Avenue, S.E., you will get ten responses; 
nine of them--eight of them will be Barnes & Noble book stores, 
as much as 8 miles away, and Trover Books won't be listed until 
number eight down. If you plug in that you just want to buy a 
book, the first response you will get is Amazon.com out of more 
than 1 billion responses.
    Now, the reason for that is that they have paid for 
priority. There is a screen bias in Google, and the screen bias 
with regard to ``buy a book'' is a priority that's paid by 
Amazon.com that disadvantages Trover.
    So if the Federal Government is going to get into the 
business of regulating network neutrality, pursuant to these 
FCC principles, that applies both to the service providers and 
to the content providers. And this kind of screen bias is 
precisely the kind of screen bias that this Committee 
investigated in connection with computer reservation systems in 
the airline industry.
    Mr. Conyers. Well, this is--I'm way past my time, but----
    Mr. Wu. Can I comment?
    Mr. Cannon. But asking very interesting questions.
    Mr. Wu. Can I comment? There's a large difference in the 
search engine market and the Internet access market. The search 
engine market is a highly competitive market in which it is 
truly survival of the fittest. Google comes along, A9 comes 
along. There's an ongoing battle. And customers go to whoever 
gives them the best search results.
    What we're talking about here is a completely different 
issue. We're talking about a noncompetitive market with one and 
two competitors, at most, with some others on the side. It's a 
completely different situation. The analogy is not apt.
    Mr. McCormick. Except the market share of Google in the 
search engine market far exceeds the market share of the Bell 
companies with regard to Internet access.
    Mr. Cannon. The gentleman's time has expired, and the 
gentleman from North Carolina, Mr. Coble, is recognized for 5 
minutes.
    Mr. Coble. Thank you, Mr. Chairman. Good to have the 
panelists with us today.
    Mr. McCormick, telecom companies provide capital to build 
out and maintain the Internet's hard infrastructure pipes. Of 
course, we want more pipes. We want growing Internet access and 
lowering prices.
    If I'm a small businessman or small businesswoman or rural 
Internet provider paying to use your pipes, competing against 
one of your companies, is it your belief that that constitutes 
fair competition in an open market?
    Mr. McCormick. Mr. Coble, let me make sure that I 
understand. What you're saying is that you are a small business 
owner, like a furniture store, that would be trying to obtain 
Internet access over our pipes?
    Mr. Coble. Yeah.
    Mr. McCormick. And you want to sell furniture and you're 
concerned that because you're having to pay the local telephone 
company in North Carolina for Internet access that you might 
somehow be disadvantaged?
    Mr. Coble. Yeah, that's the direction in which I'm headed.
    Mr. McCormick. I cannot imagine a situation where they 
would, but I can tell you, just like with Trover Books, if you 
were to plug into the search engine that you want to buy 
furniture in a small town in North Carolina, what you're going 
to find is that out of hundreds of thousands of responses, 
you're going to get eBay and you're probably going to get 
Amazon.com and you're going to get a few other large companies 
that are paying for priority to be listed on that search engine 
as the first two or three examples.
    So this part of net neutrality with regard to content and 
application providers is a very significant issue in the 
competitive realm and one that I know the Committee will want 
to take a look at with regard to the broader issue.
    Mr. Coble. Now, the professor's body language tells me he 
wants to insert oars into these waters.
    Mr. Wu. You know, I think you bring up a very important 
point, which is that small businesses are very dependent on 
infrastructure. They need roads to get to the rest of the 
country, they need phone lines, and they now need the Internet. 
They rely on getting neutral access to whatever they depend 
upon for the Internet. And the whole problem with the Bell 
Companies starting to pick and choose favorites is that small 
businesses cannot be sure that they'll get the access they need 
to the companies that they partner with. Or if the small 
business is a company itself that wants to succeed on the 
Internet, it needs to be in a position where it can enter the 
market really without having to make a deal with the Bells.
    Mr. Coble. Mr. Comstock, did I detect body language from 
you as well, or Mr. Misener won?
    Mr. Comstock. Absolutely, sir. What I think the important 
difference is--and while this Committee may well want to look 
into prioritization of screens and the practices of content 
providers, it's a totally distinct issue because the 
infrastructure that's essential for all of the content 
providers is that transmission network. And that's where the 
essential facility. That's where there's a bottleneck. This is 
like--very much like someone owning a road and getting to 
decide which cars will travel on it. And the problem in the 
furniture example would be if the Bell Company were also--or 
the cable company also owned a furniture store and then said, 
``I'm going to favor my furniture store over someone else,'' 
this is becoming an essential medium for people to do their 
business. They're advertising, they're reaching consumers. And 
this is about making sure there's rules that allow people to 
get access to that infrastructure on a nondiscriminatory basis.
    Mr. Coble. I want to ask the professor a question, but I 
don't want to cut Mr. Misener out. Okay. Professor, let me ask 
you this before my red light illuminates. Adequate 
infrastructure is vital to Internet access. How does net 
neutrality affect rural areas where smaller telecom providers 
maintain infrastructure, A? And let me ask you this: In the 
era--in this era of wireless phones and growing Internet 
services, what markets or regulatory measures protect the 
profitability of these rural telecom companies? And I ask that, 
gentlemen, because I'm subjective. I have rural outfits in my 
district.
    Mr. Wu. Right. I don't think that they are the same issues. 
For rural areas, as much as the rest of the country, it's 
important that the businesses and people in rural areas get the 
access they need to a neutral infrastructure, the neutral 
Internet. They're as dependent on the Internet for economic 
growth as the rest of the country.
    Now, what about the precise situations of rural carriers? I 
don't know if--I think the network neutrality issue is more or 
less--is not directly implicated by that. I think it's just a 
different issue. There are probably--there's a lot of money 
that needs to be spent to build infrastructure in rural areas. 
There's no question about that. Government has ways--Government 
has ways of encouraging companies to build infrastructure. But 
allowing discrimination as a way to encourage companies to 
build infrastructure strikes me as one of the worst ways to do 
so. It's a tax on innovation, it's a tax on the infrastructure 
that doesn't actually promote what you need. If you want to 
have rural build-outs, Government needs to subsidize them.
    Mr. Coble. Thank you----
    Mr. McCormick. That's not necessarily true.
    Mr. Comstock. Mr. Coble, the short answer to your question 
is these rural companies have all lived under exactly what 
we're asking for for the last 60 years of their life. They were 
regulated as common carriers. It didn't in any way impede their 
ability to provide the service that they offer, which is 
transmission. So net neutrality is nothing more than the 
reimposition of common carrier rules or antitrust rules that 
mimic the common carrier rules. They're flip sides of the same 
coin. So this is not something that they haven't lived with 
before.
    Mr. Coble. Thank you, gentlemen. Before the Chairman 
keelhauls me, I'm going to yield back. Thank you, gentlemen.
    Mr. Cannon. I wish there was a bright-line rule about what 
questions were interesting or not, but I was certainly engaged 
in what you were asking, Mr. Coble.
    The gentlelady from California, Ms. Lofgren, is recognized 
for 5 minutes.
    Ms. Lofgren. Thank you, Mr. Chairman. I think this hearing 
proves the value of this task force, and I look forward to 
additional hearings, because as we've listened to the 
testimony, at least to me it becomes clearer and clearer the 
need to make sure that networks remain available to all users 
and there be some net neutrality rules.
    I was on the Committee when we did the Telecom Act in 1996, 
and really since that time, and especially in the last several 
years we've seen a reconglomeration, I guess, if that's the 
right word, of telecom companies. And I think about what the 
old AT&T monopoly was like in terms of competition. I mean, you 
couldn't hook up an answering machine or a fax machine to the 
network. It certainly disfavored new technology. And since we 
lessened that death grip, I mean, technology exploded. And in 
my part of the world, in Silicon Valley, there were--the 
companies that have really led the economy really were allowed 
to do that because of the freedom to innovate that the 
limitation on the monopoly provided. And I worry if we allow, 
for example, the incumbents to control access to Google, as has 
been suggested by some company executives, what happens--not 
just to Google; they're now a pretty big company--but to the 
next Larry and Sergei in a dorm room coming up with something 
that will be Google? I mean, we need to make sure that there is 
an environment for innovation and creativity, and that's what 
monopolies prevent.
    I am concerned--I just want to say one thing about Google. 
They're just outside my district, and I have thousands of 
constituents who work for them. And I think I just want to 
correct the record. It is a mistake to suggest that anything 
but the algorithm they uses--they use come up with the results. 
I mean, they have an algorithm that favors hits. They also have 
paid placements, but I use Google all the time. The paid 
placements are very--I mean, they're evident. They're marked as 
paid placements. Everybody knows you can use them or not use 
them. I just thought it was important to mention that, and as 
has been mentioned by the witnesses, there are a plethora of 
search engines. It's a very competitive market. And, for 
example, the Amazon search engine is for the Amazon site. I 
mean, and a lot of sites have sell sites. So it's a mistake and 
misleading to try and mix those two together.
    I just--the one issue that has been raised by the incumbent 
monopolies, and I think we have to discuss them in that way, 
because--what is it?--94 percent or better of all people get 
their Internet access or high-speed Internet access from one of 
two providers, and that's the market situation. The one issue 
that has been raised to the Congress in opposition to the net 
neutrality is essentially--I'm paraphrasing--if we don't get to 
do it our way, we won't build out the remainder of the network.
    I took a look at fourth quarter revenues for AT&T, fourth 
quarter of 2005, and the report was that they added 1.8 million 
DSL lines in that last year, that the revenues from consumer 
DSL services went up 21 percent last year, and the penetration 
rate for DSL services more than doubled in the last 2 years. 
They also reported that its operating revenues from data 
services went up more than 43 percent, the highest rate of all 
its business segments, to an increase of about 30 percent of 
its operating expenses. And today the reports for the first 
quarter of 2006 were in, and the data revenues rose 85 percent 
from the last year compared to a 45-percent increase in 
company-wide revenues and a 57-percent increase in company-wide 
expenses.
    So I'm looking at really a very positive--I don't think I 
own any stock in AT&T I might ask my husband to look at that--
a very positive revenue stream. I'm wondering, Professor, 
you're someone who just looks at this, you don't have any axe 
to grind, you're an academic. What do you make of their 
suggestion that if they don't get their way to control access 
and other users, that they won't build out this network?
    Mr. Wu. It's something of a regulatory tactic, and my 
opinion--and I think the statistics bear this out and the 
economy bears this out--is that this neutral Internet has been 
good for everybody. It's floated all boats. It's been great for 
the cable companies. It's been great for the Bell Companies. 
And it's been great for the application makers and, by 
extension, the American economy.
    You know, I think that the network attachment point you 
brought up is a great example. The Bells fought tooth and nail 
to prevent consumers from having a right to hook up things to 
their telephone lines because they thought that that would 
destroy their market and that would hurt them. In the end, it 
turned out to be a giant boom. We owe it to that bravery of the 
FCC and of the D.C. Circuit in the 1960's to say that consumers 
have a right to hook up whatever they want to their telephone, 
such developments as the answering machine, the fax machine, 
ultimately the Internet itself as a mass medium. And I think 
today that--you know, even the cable operators take a different 
position than the Bell Companies. They say a neutral Internet 
has been great for them, too. They just, you know, feel 
differently about regulation.
    I think that these kind of threats really represent an old 
style of thinking and a return to a kind of 1960's idea of 
centralized network build-outs, which has failed. And I think 
we need to learn the lessons of the 1990's of what has really 
succeeded for everybody.
    Mr. Comstock. I would also note that if they don't deploy 
their networks, if they don't upgrade their networks, then they 
can't offer video. And that means the cable companies take more 
of their market share. So I think there's a strong financial 
incentive for them to upgrade their networks notwithstanding.
    Mr. Cannon. The gentlelady's time has expired.
    The gentleman from Texas, Mr. Smith, is recognized for 5 
minutes.
    Mr. Smith. Thank you, Mr. Chairman.
    Mr. McCormick, let me address my first question to you. The 
goal of antitrust law is to maximize consumer choice through 
free markets. How do you think the kind of tiered access that 
we are talking about today will benefit consumers? And, more 
specifically, they've been used to a free Internet now for 10 
years. How do you think they're going to respond to this kind 
of tiered approach?
    Mr. McCormick. Okay, let's--I'm hearing a lot of--let me 
respond to that in terms of what really isn't in debate, that 
the Hushaphone and Carterphone attachments to the Internet, not 
in debate. I mean, the FCC has said--one of its principles is 
you can attach any lawful device, and we absolutely agree. 
What's not in debate is that we would in any way block, impair, 
or degrade consumers' access to the Internet. Not in debate.
    What I also don't think is in debate is that everyone would 
leave it in control of the consumer to decide how much capacity 
they want to buy. Do they want to buy one meg? Do they want to 
buy a T-1 line? What amount of Internet access do they want to 
buy? If you're paying $12.99 for Internet access as opposed to 
$100, you're probably getting a much bigger pipe. If you are at 
home where you're running--you know, a business gets a bigger 
pipe than does a residence.
    I think that what is in debate here is when you have 
certain application providers who want to move into new areas 
that will require enormous bandwidth, such as the delivery of 
huge amounts of video, technology will allow you to do that in 
one of two ways: either by putting a bigger pipe into the home 
and requiring everybody to have that bigger pipe, or doing 
certain network configuration that will allow you to compress 
and to deliver. So that's a network part.
    What's in debate here is who pays for that enhanced portion 
of the network. There are a variety of application providers 
out there who would like to say that they'd like to 
differentiate their product by investing. In the same way today 
a person, if they want to have home--a phone answering machine, 
they can connect it at the end of a network, right? Or it can 
be done inside the network. If you have a cell phone, you 
probably want to go ahead and have the messages answered inside 
the network.
    So the debate here really is who bears the cost. We believe 
that the consumers should be in control. We believe that the 
consumers should decide what costs they want to bear, how much 
network access they want to buy, and that they should be in 
control of deciding what sites they want to go visit. Others 
would like to say that they would like to load all of the costs 
of their own business plans onto the consumer, which will 
require us to raise consumer rates to spread out their costs 
among everybody. That's not a free market, and we don't agree 
with that approach.
    Mr. Smith. Okay. Thank you, Mr. McCormick.
    Mr. Misener, you look like you're ready to answer, but let 
me ask you a slightly different question that you won't mind, 
and it's sort of the other side of the coin. The ISPs spent 
billions of dollars setting up these networks. Companies like 
yours use these networks. Why shouldn't they be able to charge 
what the market will bear? And the second part of that question 
would be: What do you think the consumer reaction is going to 
be?
    Mr. Misener. Okay. Thank you, Mr. Smith. It's hard to know 
where to begin, but I'll start with saying that we do pay. 
Companies like mine pay millions of dollars a year for Internet 
access, and we pay based on how much capacity we need to pump 
into the networks.
    Secondly, we support what Mr. McCormick has suggested as 
consumer tiering of services whereby a high user--a gamer, for 
example, or someone who wants to watch HDTV on the Internet--
pays more than someone who occasionally sends e-mail. That 
makes perfect sense from an economic perspective and a consumer 
fairness perspective. These consumers expect that. They pay 
more for what they--to get more.
    What we don't like is the concept of taking market power 
over the network and extending it to market power over content. 
It's been suggested somehow that there'd be this deal made in 
which some content is prioritized for a fee and other content 
is not thereby degraded. That is physically, technically 
impossible. We've heard several times Mr. McCormick say today 
that he's not going to degrade content. If that's the case, who 
on Earth would pay for prioritization that doesn't thereby 
relatively degrade the competitor's content? No one's going to 
ever pay for that kind of service. It's not worthy. The fact of 
the matter is the way the Internet works is that if you 
prioritize some content, you put some content in the fast lane, 
you by definition at bottleneck choke points put other content 
in the slow lane.
    Mr. Smith. Okay. Thank you, Mr. Misener.
    Mr. Chairman, let me just finish with a comment really 
directed toward our full Committee Chairman, Mr. Sensenbrenner. 
I just appreciate his having a hearing on this subject because 
I think it emphasizes once again, quite frankly, that the 
Judiciary Committee is the proper forum to address questions 
that involve interstate commerce and monopolization. Whether or 
not it occurs isn't the point. The point is that this is the 
proper forum to consider those kinds of issues.
    I yield back the balance of my time.
    Mr. Cannon. I thank the gentleman. I think the Ranking 
Member of the full Committee would also thank the gentleman for 
that focus on the jurisdiction of this Committee, which is very 
important to all of us.
    Before we recognize the gentlelady from Texas, let me ask 
unanimous consent to include in the record a letter from the 
FTC Chairman to Chairman Sensenbrenner on the Brand X decision 
and cable broadband obligations. Hearing no objection, so 
ordered.
    The gentlelady from Texas, Ms. Jackson Lee, is recognized 
for 5 minutes.
    Ms. Jackson Lee. I thank the Chairman very much and thank 
the witnesses. I hope that as we probe each of you, as the 
Members inquire, that this will be what it is. It is fact-
finding and it is a recognition that we have a challenge before 
us and somewhat of a dilemma. And I might echo or associate 
myself with the words of Chairman Cannon to say that--and 
Congressman Smith, I believe--that this is the appropriate 
vehicle and venue to address these questions.
    Let me first start with you, Professor Wu, because I liked 
your comparison of the refrigerator. We all want to get into a 
refrigerator now and then, and I think the plainness of your 
explanation of a refrigerator not working because it was one 
versus another so the electricity worked better for the other 
one, sort of a biased selection of who ate and who did not. 
Help me understand--and I will be going to a few of the other 
panelists very quickly, if you can help me understand that 
blocking sensation, because we've heard one witness--and, in 
fact, I will question Mr. McCormick, because he clearly makes 
the point he will not block, impair, or degrade. What is your 
sense, Professor Wu, that this will, in fact, happen?
    Mr. Wu. Thanks. I do think the electric--the electricity 
network is important because it really does capture some of the 
feelings that Americans have got--have gotten used to with the 
Internet, that they plug stuff in and it works or they go to 
the sites they want to go to and they work. And I think I'm 
going to disagree with Mr. McCormick, who keeps saying that 
degradation is not the issue here. Degradation is the central 
issue here in this case. When Bell Companies, when AT&T in 
particular--and I've seen AT&T's plans. Their plans are to give 
favorable treatment to the companies they make deals with. And 
so it's exactly as if the electric company made a deal with 
Samsung or made a deal with Kitchenware and suddenly, you know, 
your toasters work better, your refrigerator works better, and 
you want to buy a General Electric refrigerator, and it just 
doesn't work as well, or, you know, it doesn't function the way 
you'd like, your iron doesn't get your clothes to be starched 
or----
    Ms. Jackson Lee. Sooner or later you get rid of it.
    Mr. Wu. Right, and the obvious point is that it distorts 
competition. It's not who makes the better refrigerator. It's 
who has the deal. And so that distorts innovation. It's no 
longer survival of the fittest. It's no longer who has the best 
technology. It's a question of who goes golfing with the CEO of 
AT&T. And I think that's not the American way. I mean, 
sometimes it is, but it shouldn't be the American way.
    Ms. Jackson Lee. This is the--and thank you, Professor. 
This is, I think, the large mountain, Mr. McCormick, that we've 
got to ascend to. And let me first of all acknowledge the 
reality of life, and that is, we thank you for the massive job 
creation that this industry has created, and certainly out of 
that, because of the appetite of consumers, certainly we've had 
the opportunity for your companies to grow, for jobs to be 
created, and, of course, for our districts to be made happy. 
But I do want you to try to, if you will, overcome I think the 
very succinct argument that has been made. We are fact-finders 
here today. Block, impair, or degrade the content applications 
or services, what you've said, but my thought is that if I 
build a private road and I pay for it, then it is likely--and 
that is a transportation road. It is likely to have the right 
to say who travels on that road or not. I don't want the big 
18-wheeler--forgive me, truck drivers--that may put potholes in 
the road. So help me understand and appreciate how you will 
avoid that situation.
    And then I want to--let me do this with Mr. Comstock, 
because you've said some very viable things. I want you to jump 
in right after and help me understand why the FCC authority 
over broadband--recently limited their authority over broadband 
services, and I think you have another comment in here that 
said the subjugation of the economic rights of many to the 
interests of the few has not been limited only to the FCC. So 
we have some regulatory problems as well. But let me go on to 
Mr. McCormick, if you would.
    Mr. McCormick. Thank you very much. I'd like to stick with 
your analogy of the road for a moment, because I think it's a 
very apt analogy. The Internet today remains a relatively new 
network, like the early road network. And in many areas like 
the early road network, there's a single lane. And so the way 
the Internet is built is that the consumers who are going to 
use that network, that road network, they pay and that covers 
the cost of the road network.
    Now, let's say that somebody comes along and they want to 
put a bunch of 18-wheelers on that network. So now the network 
has to be expanded in order to accommodate the shipper who's 
putting a bunch of 18-wheelers on that network. Think of 
Amazon.com or Google or some others as that shipper. The 
consumer--who bears the cost of the ones who are going to now 
load onto that network a whole bunch of additional traffic? 
Should the cost be borne by the individual consumer? Should 
everybody's rates be increased? Or should the people who want 
to load that network with a bunch of 18-wheelers have to pay 
for the network expansion?
    We would argue that the analogy with regard to the road 
network is that if you want to load a whole bunch of traffic 
onto that network, then you help pay for the network expansion. 
Don't make all of the consumers at home have to pay for that 
network expansion, because some of those consumers, they may be 
only buying things or using the Internet for stuff that's 
shipped by small trucks or by cars.
    So I think that that analogy is absolutely, absolutely 
apropos and apt.
    Mr. Cannon. The gentlelady's time has expired, but I think 
Mr. Misener is anxious to respond.
    Ms. Jackson Lee. He's anxious and I think Mr. Comstock, if 
you would indulge me for an additional minute, I ask unanimous 
consent for them to be able to respond. Thank you.
    Mr. Comstock. I'll be brief, but using that road analogy, I 
think where Mr. McCormick takes you astray is the people who 
want to load the 18-wheelers on are paying for their access to 
the Internet, and the question is, if I pay as a consumer for a 
road that would carry that 18-wheeler to my house, can I get 
anybody's 18-wheeler or just the 18-wheelers that they say? And 
what the Bell companies and the cable companies are saying is 
we may build an 18-wheeler road to your house, but then you're 
only going to get to use the sidewalk for your public traffic. 
The rest of it's going to be my 18-wheelers and the people that 
I say.
    So that's the problem with this. What's been abandoned in 
this--and you mentioned the subjugation of the rights of many. 
The FCC has said these are not common carrier services. That 
means that with respect to these services, those companies are 
no longer obligated to provide nondiscriminatory service upon 
reasonable request. So they won't block it once they agree to 
serve you, but as long as they reserve the right to not serve 
you in the first place, that's how they'll discriminate.
    Ms. Jackson Lee. Mr. Misener?
    Mr. Misener. Ms. Jackson Lee, just one more point on the 
18-wheeler analogy. Mr. McCormick misapprehends how the 
Internet works. Those 18-wheelers don't get there based on the 
companies' sending them. They only get there when the consumer 
asks for them. And our simple point is that when the consumer 
asks, he or she ought to be able to get whatever 18-wheeler 
they want, not just the ones allowed on by the road owner.
    Ms. Jackson Lee. I thank the gentleman.
    Mr. Cannon. The gentlelady yields back.
    Ms. Jackson Lee. I yield back.
    Mr. Cannon. The gentleman from California, Mr. Lungren, is 
recognized for 5 minutes.
    Mr. Lungren. Thank you, Mr. Chairman. Very enlightening. 
We've been talking about Swedish models and golf courses and 
18-wheelers and sidewalks and streets.
    Mr. Cannon. The Swedish model would never--it would never 
have occurred if Mr. Misener was not so handsome, by the way. 
[Laughter.]
    Mr. Lungren. I appreciate that. I hope that wasn't out of 
my time.
    I thought this was relatively simple when I walked in, and 
it's become more complicated. I try and look at it from the 
standpoint of a consumer. I'm a frustrated consumer. The house 
I have here in this area is in Virginia. I keep getting ads 
from Verizon asking me to join their broadband, and then every 
time I call I find out their broadband access stops two blocks 
from my house--close to your house, Mr. McCormick. So I believe 
I have cable, which is really the only access I've got.
    A couple of questions. One is, look, people have paid 
additional money for broadband over regular telephone lines, 
and presumably that was to cover the costs of the investment 
made by the phone company. Presumably we're paying for 
broadband access for cable to pay for the investment cost here. 
What I'm trying to understand is Mr. McCormick's statement that 
you're not going to block, you're not going to degrade, you're 
not going to interfere with content on the one hand, and on the 
other hand, the suggestion I get in this analogy that you're 
only going to allow certain 18-wheelers to come through to my 
house.
    Now, what are we talking about? If, in fact, your industry 
has no intent to block, degrade, or interfere with, do you have 
any objection to any legislation that says you can't do that 
and won't do that?
    Mr. McCormick. Congressman, the Chairman of the FCC has 
already said that they feel that they have the authority to 
prevent anybody from blocking, impairing, or degrading.
    Mr. Lungren. Right. But what I'm asking is----
    Mr. McCormick. And they----
    Mr. Lungren. --whether you'd object to language in 
legislation which would say that----
    Mr. McCormick. The House----
    Mr. Lungren. --irrespective of what they say, but we will 
make that a matter of law that you can't do that.
    Mr. McCormick. The House Energy and Commerce Committee is 
going to mark up legislation beginning this evening that has 
specific language in it that tracks the FCC principles. And 
so--and we are supportive of the language that says that we--
the FCC should have authority to make sure that we cannot 
block, impair, or degrade.
    I'm with you. I'm a little confused when we make the 
statement that we'll not block, impair, or degrade, and then I 
hear others saying but they're going to block, impair, or 
degrade. We're not going to block, impair, or degrade. The FCC 
is not going to allow it.
    Mr. Lungren. Okay. Well, let me ask the other two panelists 
to your right, my left. If, in fact, that's true, why are you 
worried about blocking, degrading, or impairing access to 
content?
    Mr. Comstock. Because there's a long history here of 
exactly this type of exclusionary behavior. Today in the 
marketplace, our companies face the situation where they go to 
seek a customer, and the Bell Company has said, oh, in order 
for you to get a lower rate on the areas where we have no 
competition to a business user, you must give us all of your 
traffic in the areas where there is competition. They use 
specific exclusionary practices to prevent competition. And as 
I said before, what they keep hiding around is the provision 
that the Energy and Commerce Committee is looking at would 
restrict the FCC's jurisdiction to a very narrow set of things 
on an adjudicatory basis, and it is far narrower and far less 
behavior controlling than the type of antidiscrimination 
principles contained in the antitrust laws.
    Mr. Lungren. Well, let me ask Mr. McCormick--I mean, he's 
just give us a specific example that he claims is where your 
industry does, in fact, impair access except for a price.
    Mr. McCormick. Well, I am unfamiliar with any--what I----
    Mr. Lungren. I'd like to find out what we're talking about. 
I mean, I'm tired of talking about 18-wheelers. I'm tired of 
talking about golf. I'd like to know what we're talking about 
here. Now, does it exist or doesn't it exist? I'm not going to 
play games. I'm trying to figure out what we're talking about.
    Mr. McCormick. Well, what we know is that there are--that 
there are hundreds and hundreds of commercial negotiations that 
have been entered into between companies that I represent and 
companies that Mr. Comstock represents, and that those have led 
to finalized deals. We know that at Mr. Comstock's own 
convention, his people were saying that if the Bells try and 
push competitors off their networks, it's shortsighted because 
they can ally with cable, BPL providers, wireless carriers, or 
even satellite companies.
    What we have said is that there's a marketplace out there 
that's working, that with regard to last-mile access, there are 
competitive choices and there's a contestable market for 
anybody who's willing to invest. So it seems to me that a 
requirement, as the FCC has put forward so far, that says you 
cannot block, impair, or degrade, an FCC that very aggressively 
monitors the kind of interconnection arrangements that Mr. 
Comstock is talking about, and finally, the antitrust laws that 
he says are strong disincentives to any kind of anticompetitive 
behavior, I would be one to say it sounds to me like we've 
already got a belt-and-suspenders approach to this. I'm not 
sure what problem we're trying to address that hasn't already 
been addressed.
    Mr. Comstock. Once again, we're talking about fiction here. 
He's talking about provisions of law that the FCC has 
affirmatively removed, and that's the problem. The world is 
changing. The FCC as of last August and then through the 
Verizon decision in March removed the very protections that 
made the competition possible that he is referring to. That is 
the problem.
    Mr. Lungren. Mr. Chairman, could I ask Professor Wu to 
comment on that?
    Mr. Wu. You know, what the Bell Companies are basically 
saying here is, ``Trust us.'' But if I were in their position, 
if I were the gate--if I was in a strong market position to be 
a gatekeeper of the Internet, why wouldn't you start wanting to 
degrade and block content, or at least threaten to do so and 
extract more revenue. It makes perfect sense. I'm not saying 
it's evil. I'm just saying it's bad for the economy. I think 
they're in a logical position to be in a position to advance 
those kind of business plans. If you look at AT&T's plan 
specifically, that is their ideas of where to raise and get 
more marginal revenue, by putting a toll booth on companies 
like Google, Yahoo! and so forth. So it makes perfect sense, 
and, you know, they won't want to call it degradation. They'd 
want to call it priority or give it some name so it gets 
around, you know, potential FCC action. But why wouldn't they 
want to do it? It doesn't--I don't see any reason why not.
    Mr. Cannon. The gentleman's time has expired.
    The gentleman from California, Mr. Schiff, is recognized 
for 5 minutes.
    Mr. Schiff. Thank you, Mr. Chairman. I think this has been 
a wonderful hearing, and I think the witness testimony has been 
very helpful.
    I wanted to ask just a couple questions, the first of Mr. 
McCormick. In my district, a lot of the industry involves the 
creation of content, and we've had a number of discussions over 
the years about how to protect that content from piracy. And 
the pretty consistent position of the telecommunications 
industry has been we just have a pipeline. It's a dumb 
pipeline. It doesn't discriminate between content, and we 
really can't be responsible for what goes through our pipeline. 
But it sounds like here you're now saying we should be able to 
discriminate on what goes through our pipeline and be able to 
pick winners and losers, or at least discriminate in a way that 
helps us recoup the investment necessary to expand the 
pipeline.
    Are you prepared, if you're allowed this ability to 
discriminate, to also accept the responsibility for illegal 
content going through your pipeline?
    Mr. McCormick. Congressman, first, with regard to the 
existing network, the FCC principles that we ascribe to say we 
shall not block, impair, or degrade access to any content or 
site. So when we say to the creative community, ``Don't hold us 
liable if somebody's going to a site and downloading illegal 
material,'' because the FCC principles require that we not 
block, impair, or degrade.
    Now, at the same time--at the same time, you are probably 
aware that as we have tried to begin to move into video, that 
we have been trying to work with the content community because 
their great fear in the Internet space is being able to have 
security and privacy and being able to have some integrity to 
control their copyright. So when you start hearing us talking 
about being able to work with companies like Disney, like 
Movielink, like a variety of others who are coming to us and 
saying we would now like to explore some new models where we 
could provide new services to the consumer, and we would like 
to work with you in the development of virtual private networks 
that will offer us security and privacy and a variety of other 
functionalities, we're met with this kind of opposition that's 
saying, ``Aha, they're going to advantage some and disadvantage 
others.'' And so----
    Mr. Schiff. But if you get into----
    Mr. McCormick. --you've hit on one of the issues.
    Mr. Schiff. If you down the road get into deciding that 
Grokster or Napster or one of the more modern iterations should 
be in the fast lane rather than the slow lane, aren't you going 
to be taking on some responsibility for the fostering of those 
services if those services are primarily in the business of 
piracy? Won't it be more difficult for you to claim that we're 
just a dumb pipeline?
    Mr. McCormick. No. I see it the other way. I see companies 
that are engaged in the development of content and want to 
protect that content from a Grokster or Napster coming to us 
and saying, ``We would like to distribute this content to 
consumers over the Internet,'' being able to utilize what is, 
in effect, a virtual private network. So----
    Mr. Schiff. And you'll facilitate making that happen, but 
what happens when the Groksters of the future come to you and 
ask you to facilitate the delivery of their pirated work 
product? I assume you won't be able to fall back on the 
response we had to allow them to have the fast lane because we 
can't discriminate?
    Mr. McCormick. Well, I guess the response to that would be 
that, you know, in many respects, people sometimes don't even 
find those sites without going through an Internet search 
engine. So, you know, do you go through an Internet search 
engine and find a Grokster site? And then do you hold liable 
the Internet search engine, do you hold liable the service 
provider, if they find the Grokster site by going to Amazon.com 
and then buying a book that has the Grokster site? I think that 
the issue has been if people like Grokster or Napster are 
engaged in the illegal distribution of content, they should be 
held liable. What we have done in entering into arrangements 
with the content providers, those who are originating content, 
their concern with us is that they want to be able to have a 
secure network.
    Mr. Schiff. If I can, I because I'm running out of time, I 
want to pose this one question to Mr. Misener that was posed 
earlier by Mr. Conyers or by actually your response to Mr. 
Conyers, and that was the question about the prioritizing of 
Amazon.com on a search engine. And I understand the point that 
there's greater competition within the search engines, but 
let's say that there was that same level of competition among 
the access providers as are among the search engines, or that 
the search engines become less competitive because you have two 
that monopolize. Would you argue that you shouldn't be able to 
discriminate based on your paying a fee to get to the top of 
the list? I always naively assumed you got to the top of the 
list by having more hits than anyone else, but maybe it's a 
self-fulfilling cycle. But if the number of entrants into the 
field of access increases, would you allow them to 
discriminate? If the number of search engines decreases, would 
you come before us and argue, well, we should no longer have 
the ability to discriminate in the search engines?
    Mr. Misener. Again, great questions. There are some two 
dozen search engines out there. If there were two dozen 
residential broadband Internet access providers, we would not 
be here seeking legislation. There aren't. There's a duopoly 
for the present, for the near future, probably even for the 
distant future. This will be a duopoly. They're seeking to 
extend their market power. I'm very frustrated by this 
incredibly obfuscatory argument that somehow this is analogous 
to a search engine. It's not. A search engine is a destination. 
Consumers have a choice of going to it. A consumer can get 
broadband Internet access and never, ever once go to Google if 
they so choose. There are another two dozen search engines 
available to them if they want to use a search engine. They 
don't even have to use one. But in this circumstance they're 
forced to use either the cable or the telephone company. There 
is no other choice for consumers. It's a radically different 
proposition, and the law should treat them differently.
    Again, if there were some two dozen broadband Internet 
access providers available to each consumer, we wouldn't be 
here.
    Mr. Schiff. And, conversely, if the search engines so 
whittled down to two major providers, you would----
    Mr. Misener. Hopefully not because we have a stake in one 
of them.
    Mr. Schiff. Well, hopefully not to the exclusion of the one 
you have the stake in, at least.
    Mr. Misener. Thank you.
    Mr. Cannon. The gentleman's time has expired.
    The gentleman from California, Mr. Issa, is recognized for 
5 minutes.
    Mr. Issa. Thank you, Mr. Chairman. And I want to echo and 
associate myself with my colleague Mr. Schiff. It's always 
amazing to me that we came in as classmates together, and he 
was smarter then, and he's still smarter. But I will try to 
focus on a slightly different area since he did such a good job 
where he was.
    When we talk about a duopoly versus, if you will, the power 
of a search engine, the selectivity, to me I just have to ask 
why is it that I shouldn't treat this like a standard antitrust 
question. You have incredible market power, far past the 10 
percent by any stretch of the imagine. And, look, we could 
pretend that satellite delivery of Internet and a few other 
ways are going to grow, but it is unlikely, particularly Mr. 
McCormick, it's unlikely that either of the two entrenched 
utilities are going to drop below 10-percent market share 
anytime. But more importantly, in a given neighborhood like 
mine, it is unlikely that you're going to have all the others 
available to you anyway. If you have 30 percent, 50 percent, 60 
percent, and more importantly, if your companion is doing 
exactly the same thing, why shouldn't I treat this simply as a 
utility that has been granted a monopoly, or the equivalent, 
trying to have a tie-in of less desirable services, leveraging 
the more desirable service or, if you will, the essential 
service? Why shouldn't I look at it that way?
    Mr. McCormick. I think that--I think to take a traditional 
antitrust analysis is the way to do it, and a traditional 
antitrust analysis looks at the existing market and the 
contestability of the market.
    A couple of points. First, the market share of the 
telephone companies with regard to Internet access is less than 
the market share of Google with regard to Internet searches. 
So----
    Mr. Issa. Well, wait a second. With all due respect I'll 
define the relevant market here.
    Mr. McCormick. Okay.
    Mr. Issa. We're talking about the pipe.
    Mr. McCormick. And with regard to the pipe, you would have 
to look at all the ways to access the Internet. So I would take 
issue with the duopoly. You can access the Internet, DSL, cable 
modem, wireless--Sprint is offering a full wireless access to 
the Internet--satellite if you have a clear view of the 
Southern sky; in some areas, broadband over powerline, but 
where it does not exist, it could exist but for investment; Wi-
Fi and Wi-MAX technologies.
    Now, therefore, a traditional antitrust analysis would take 
a look at what are existing market shares, what is the ability, 
you know, of others to enter the market, and what barriers are 
there to enter the market. So I support----
    Mr. Issa. And I'll follow up on that using, if you will, 
telcos and cable providers. If we--and this would be Commerce 
Committee, not Judiciary Committee, I have to be sensitive to. 
But if we redefined that you were regulated for the last mile, 
you had to put a green box in, and everybody could have access 
from there and put T-3 lines in and compete so that you were 
only selling a very regulated last hook-up to the house, then 
would you--you know, to be honest, would you see that, in fact, 
that isn't the way that you have--I mean, to have competition, 
you would have to essentially recognize that the two wires to 
leading to the house are the absolutely best way to deliver 8 
MP or higher data rates and that in the current technology 
that's the only way to deliver that kind of bandwidth because 
you're the only ones, the telephone company or the cable 
company are the only ones that have the right to tear up the 
streets to get to my house, and certainly virtually the only 
ones in most communities to get to a mile away from my house. 
You don't see that?
    Mr. McCormick. Well, Congressman, there are--no, I don't 
see that because----
    Mr. Issa. Okay. Mr. Wu, do you see that?
    Mr. Wu. I do see that. You know, the argument--I do see 
that, and the argument that isn't--market power isn't a duopoly 
problem is like saying there wasn't a Standard Oil monopoly 
because they would have invented solar power one day or 
something.
    All these things, wireless, you know, they exist in these--
--
    Mr. Issa. Or you could have hauled your own oil in from 
Venezuela.
    Mr. Wu. Right. You know, and there was always the potential 
if someone really wanted to, they, you know, could have 
invented--or taken a bicycle or something. I mean, these are 
sort of potential technologies that may one day be more 
competitive, but I think you're exactly right. This is a 
classic duopoly, a classic antitrust problem, and there are 
ways that a monopolist can extract extra rents at the cost of 
the entire economy. And it's the duty of Congress to make sure 
that doesn't happen and preserve competition.
    Mr. Issa. Mr. Misener, I'd like to hear your comments. I'd 
also like to tee up another ``what if.'' What if every product 
that you made was tied in with Microsoft in their package? 
Would you say that--and if, in fact, they charged a premium if 
you wanted to be able to access your product using their 
operating system, would you have a problem with that even 
though Linux is around?
    Mr. Misener. Yes. I think that was the right answer. More 
to the point, on the duopoly here, the switching costs are 
extraordinarily high. When we look at search engines, the 
switching cost is a click of your finger. You want to go from 
ask.com to Google.com to Yahoo! to MSN, A9--put in a plug for 
Amazon's. All these search engines are----
    Mr. Issa. Duly noted.
    Mr. Misener. --a click away. Okay? A click away. To switch 
between cable and telco broadband is huge. You've got long-term 
contracts. You've got truck rolls, equipment changes. These 
sorts of things present very high barriers just switching among 
them. So consumers don't have the sorts of choices that they 
have of search engines in the broadband Internet access world. 
It just is--it simply is not the case.
    Mr. Issa. Thank you, and thank you for holding this 
hearing, Mr. Chairman.
    Mr. Cannon. You're welcome.
    The gentleman's time having expired, the gentleman from 
Maryland, Mr. Van Hollen, is recognized for 5 minutes.
    Mr. Van Hollen. Well, thank you, Mr. Chairman. Let me also 
thank you and the Chairman of the full Committee and the 
Ranking Member for holding these hearings and thank all our 
witnesses.
    I've been listening for some time, and one thing I think we 
can all agree on, which is that we all have--clearly the 
witnesses have different definitions of what it is to block, 
impair, and degrade. And I am just trying to understand sort of 
the universe we're operating in here.
    I do think that we have to distinguish between future 
potential and the reality today. The reality today based on the 
statistics is we have an effective duopoly if it's true that 90 
percent of the pipes essentially are through cable and telecom. 
Clearly, there's potential in the future for a build-out of a 
greater network, but in terms of the regulatory scheme we have 
in place, we have to deal with the reality that's in place 
today.
    But I would like to ask the witnesses to respond to issues 
I understand Mr. McCormick raising here, which is that we 
have--we don't have enough, you know, broadband, we don't have 
enough bandwidth today to accommodate all the substance we want 
to put on the content that we want to put on the network, 
especially as we're talking about video on demand and those 
kind of services. So if you have a pipeline and you have 
already more traffic that is crowding that pipeline, I don't 
understand the technology completely, but does that mean that 
if you don't somehow make choices between the different content 
providers, that everybody's service is going to be somehow 
degraded.
    I mean, the question I have is there seems to be consensus 
that we have limitations on the size of the pipe----
    Mr. Comstock. Well, I think that's----
    Mr. Van Hollen. --and then the question is, if that's true, 
somehow someone is going to either be left out or degraded. And 
while we don't want people to sort of pay more to play and get 
preference, there is somebody, according to this analysis I've 
seen, that is being left out; it's just that we're not being 
clear as to how they're being left out. If you could all 
respond to that.
    Mr. Comstock. I think that's where we might disagree a 
little bit. The reality is we have two broadband networks that 
run by everybody's home today, and as I said, in the business 
market it's limited to one. But there's a lot of capacity out 
there. Right now, in the case of cable, they choose to use the 
bulk of it for their exclusionary video programming, and a lot 
of this is about protecting that market share. The Bell 
Companies would also like to protect market share in video by 
tying video content to transmission.
    If you look at what Verizon is doing to the home today, 
when they run their FIOS network fiber to your home using 
commercial technology, there's a minimum of a gigabit coming 
into that. Yet they've already filed papers at the FCC saying 
we're going to take the bulk of that and reserve it for our 
cable service; then we're going to take another big chunk of it 
and reserve it for our private network, the extra--the pay 
extra network; and then we'll reserve this tiny little bit for 
the public Internet.
    And the problem that we have in the United States is we've 
set up incentives for the network operator to restrict 
transmission capacity in order to protect their core services, 
particularly video.
    And so if you allow competitors to get access to this 
network, as it going on in Europe today, for example, you'll 
suddenly find that you can get 25-megabit-a-second DSL service. 
Cavalier Telephone, one of COMPTEL's members, is doing that in 
Richmond today. If we allowed more people access to the 
network, innovators would come along and solve a lot of our 
transmission problems and expand the bandwidth available.
    If you took the capacity that's being reserved for video 
today and made that available to the end user for purchase, and 
they could freely buy it, they would have unlimited choice of 
video content providers. They could go directly to Disney, 
directly to ABC. That's the nightmare that the cable industry 
fears and the Bell Companies also fear. They want to reserve 
that capacity for their exclusive content as a means of 
leveraging their transmission monopoly into other services.
    Mr. Wu. Congressman Van Hollen, if I could just try and 
address your question directly, it is true that for the average 
broadband connection there is, let's say, one or two megs, a 
certain amount of capacity there. The fundamental question 
we're getting at is who gets to decide how that capacity is 
used. The way the Internet is today, primarily it is the 
consumer who is deciding. The consumer, if they try to download 
a movie that they don't have enough bandwidth for, the movie 
will not function properly. If you have 30 different things 
running at once, if you are, you know, reading your e-mail, 
watching movies, and do everything at once, your bandwidth will 
begin to degrade.
    But the critical choice is whether consumers should get to 
decide how their bandwidth is used or whether the gatekeepers, 
the duopolists, are going to decide how that bandwidth is used 
and charge extra to the different companies.
    My submission is that consumer choice serves you better--
the economy better and is essential to the free market system, 
and that's why these kind of constraints are something that 
consumers should solve for themselves.
    Mr. Van Hollen. Thank you.
    Mr. McCormick, if you could respond, please, to both 
statements that were made, I'd appreciate it.
    Mr. McCormick. As I stated in my testimony, one visionary 
technologist recently compared the Internet to a Los Angeles 
freeway. He said, ``Traffic jams happen. The more we upload and 
download and share, standard definition video, high definition 
video, home movies, and multiple megabit photos, the more 
bandwidth we consumer. The more PCs and servers we back up 
online, the more bandwidth we consume. The more bandwidth we 
consume, the more Internet traffic jams we have. The more 
Internet traffic jams we have, the worse our Internet 
applications perform.''
    Now, not to oversimplify, but there are two parts to the 
network. One is the part that goes from the network up to the 
consumer's house. That's really the amount of bandwidth you're 
buying to access the Internet network. We're saying we're not 
going to block, impair, or degrade; whatever the consumer buys, 
that's how much capacity they're going to have to download 
their applications.
    But the other part of the network is this network that's 
carrying everything. And as consumers begin to look to obtain 
more stuff, some consumers may be buying truckloads of material 
from Amazon.com. So the issue becomes, you know, how do we 
expand? The network has to be expandable and scalable, and who 
pays to expand and to scale that network?
    If you go to Land's End today and you want to buy five 
truckloads of clothes, you know, the average consumer sitting 
in the house next door to you doesn't have to pay for that. 
You're paying Land's End, and Land's End pays the provider of 
the service.
    So, similarly, we think that the network of the future 
ought to operate the same way. It should not be spread across 
consumers who aren't asking for all those applications. It 
ought to be the consumers that want to make use of it that are 
paying for it and that they're going to be in a financial 
arrangement with these companies.
    Mr. Van Hollen. All right. Mr. Chairman, if I could, I 
mean, I don't know if there's a response to that, but as I 
understand it, let's say I'm, you know, a moderate user or a 
limited user of the Internet and I use it for certain purposes. 
I guess the question is: If I'm on the sort of low user end of 
the Internet, should I be also paying for the costs of building 
out the major pipelines on the Internet because everybody else 
wants to have a much higher usage? I mean, these are rough 
analogies.
    Mr. Comstock. That is the analogy.
    Mr. Van Hollen. It would be useful for me to get a response 
from the others very quickly, if I could, Mr. Chairman.
    Mr. Comstock. That is the thing, but he's basically 
reversed it. It is about the last mile to your home. There is 
so much capacity in the backbone today. There are tons of 
companies that have unlit fiber. This is not an issue of 
network congestion in the backbone--unless, of course, you're 
talking about solely on the AT&T backbone or solely on the 
Verizon backbone, which they own and control. But nobody is 
asking consumers to pay for the expansion of that backbone. 
That is being paid for by the big companies that use it. It's 
the last-mile connection that they're using to make you drink 
through a straw when you wanted to pay for a much bigger straw, 
and that's the issue. I think Mr. Wu said it correctly. It's 
who controls this. Does the user control the bandwidth or does 
the network operator?
    Mr. Van Hollen. Okay. Thank you. Thank you all.
    Mr. Cannon. The gentleman yields back.
    Mr. Goodlatte, the gentleman from Virginia, is recognized 
for 5 minutes.
    Mr. Goodlatte. Thank you, Mr. Chairman.
    Mr. Chairman, I have an opening statement I'd ask be made a 
part of the record.
    Mr. Cannon. It's already been agreed to by unanimous 
consent. I thank the gentleman.
    Mr. Goodlatte. I'd like to direct a follow-up question to 
Mr. McCormick's comments and Mr. Comstock's comments to Mr. 
Misener and ask you how you'd respond to Mr. McCormick's 
arguments that network providers need to find a way to continue 
to pay for the increased bandwidth that will be necessary to 
ensure that we don't counter those Internet traffic jams that 
he and others have described as more and more content is made 
available to providers. And how would you recommend that the 
network providers pay for the increased capacity they need to 
build?
    Mr. Misener. Well, as they're doing today, Mr. Goodlatte. 
The FCC's biennial report on the deployment of broadband 
services to American consumers came out earlier this month, the 
most recent one, and it showed two things. We've been talking 
about one of them, which is the strong and growing duopoly 
power of the cable and telco network operators. But something 
else it shows is the rapid deployment of broadband lines to 
American consumers, which is a great thing. I think we'd all 
agree that it is. But it's being deployed in a circumstance 
where many of the parties actually deploying the lines are 
precluded from the source of discrimination that they have 
announced that they intend to engage in. Some are precluded by 
their merger conditions. AT&T is one; Verizon is another.
    So the fact of the matter is that lines are being deployed 
today. Investment is being made today, even with these 
nondiscrimination merger conditions imposed upon the companies.
    We are fully in favor of consumer tiering, as has been 
suggested. The person who sends the occasional e-mail should 
not have to pay as much as someone who games 24/7. That 
certainly isn't the case. What we oppose is what has been 
called Whitacre tiering, which is where the network operators 
take their market power over the network itself and extend it 
to market power over the content. They essentially extort 
monopoly rents from content providers who have no other way to 
get to consumers----
    Mr. Goodlatte. I understand that. You're moving away from 
my question, though, which is: How do they pay for it in the 
future?
    Mr. Misener. Well, they're continuing to pay for it. I 
mean, they've already demonstrated that they're paying for it. 
How they will pay for it in the future is----
    Mr. Goodlatte. And you think that----
    Mr. Misener. --continue to pay----
    Mr. Goodlatte. --current revenues are sufficient to 
continue the kind of rapid build-out that's needed?
    Mr. Misener. Yes. It's a demonstrated fact, yes, sir.
    Mr. Goodlatte. All right. Well, let me ask Mr. McCormick a 
question then. In the future, is it feasible that the Internet 
could become the ultimate video programming arena and that each 
website could have programming similar to a current television 
station or channel, like the Discovery Channel's website, it 
could offer all of its programs via its website? Isn't it a 
natural instinct for cable companies and now the telephone 
companies to want to protect their investments in their closed 
video programming services by resisting such a move to a 
potentially open Internet video programming model? Are you 
aware of any telecom companies in your association or any 
companies that have built into their contracts with content 
providers any requirements that content providers not offer 
their video programs on their websites?
    Mr. McCormick. I'm not aware of any contractual provisions 
like that. I would go back to the FCC principles, which say we 
will not block, impair, or degrade access to any website, that 
consumers would have the ability to access any website they 
want. And I think that it--this is going on right now. I mean, 
if I want to access Movielink or if I want to access Starz, I 
can do that right now and pay Starz $30 a month, and I can 
download movies. Disney is going to begin to offer Web-based 
services. But these companies are coming to us, companies like 
Disney and others, and they're talking to us about building 
into our networks certain applications that will enhance their 
services. I don't think that this is any different than what 
has been historically done with our networks where we have 
offered to people the ability to have in the network virtual 
private network and enhanced services that offer increased 
security and privacy and we build that into the network and let 
the companies bear the cost of that rather than having the 
consumers across the board bear that cost.
    Mr. Goodlatte. Let me ask the other panelists if they want 
to respond, particularly Mr. Misener, to the comment made 
earlier by Mr. McCormick that the legislation that may be 
coming forth from the Energy and Commerce Committee contains 
language that would effectively codify the FCC's comments 
regarding having sufficient authority to prevent downgrading.
    Mr. Misener. Yes, Mr. Goodlatte, actually it ties the hands 
of the agency by precluding them from rulemaking in this area. 
It's very unfortunate. The Commission currently has the 
authority to fully enforce using their rulemaking and 
adjudicatory powers the policy statement that they issued last 
August. What the Energy and Commerce bill would do, however, is 
actually remove the rulemaking authority from the Commission 
over those--over that area.
    Mr. Goodlatte. I wonder if the other--Mr. Comstock?
    Mr. Comstock. Yeah, I was just going to point out that, 
again, we don't have to speculate about some of the behavior, 
and I appreciate your point about the cable. You know, the 
reality is in the 10 years since the 1996 act, the cable 
companies have been free to enter the phone and data market, 
and people have been free to enter the video market. And the 
behavior of the cable companies, once the FCC decided not to 
treat them as common carriers, demonstrates exactly what were 
concerned about. They ran the ISPs out of business by refusing 
them access to their network and by bundling their broadband 
service with their ISP.
    So, I mean, this is natural financial behavior. I mean, 
it's been seen over and over and over again. And so the concern 
that somehow imposing some of these conditions would result in 
lost investment isn't borne out in other parts of the world. 
Europe is imposing these very same open access requirements 
that we had in the 1996 act, and people are investing. And the 
other point is that empirically the evidence is strong that 
without some kind of behavior constraints, these network 
operators will use their market power to protect their core 
services.
    So I think that, you know, we have demonstrated over and 
over again that this is a problem, and what you're hearing from 
Mr. McCormick is just more promises to listen to us once again, 
and don't worry, we'll take care of it.
    Mr. Goodlatte. Do you agree with Mr. Misener that the 
language that is being proposed in the Energy and Commerce 
markup is counterproductive? I take it that's what your 
position is.
    Mr. Comstock. It is counterproductive and the only 
qualification I would make on Mr. Misener's statement is I'm 
not sure that the FCC does, in fact, have any authority now 
that they've declared them non-common carriers to enforce those 
principles. They are principles that follow along the line of 
common carriage, and it's not clear that the FCC's title I 
authority would be adequate.
    Mr. Goodlatte. Mr. McCormick, do you want to respond? And 
also, do you want to respond to Mr. Misener's answer to my 
first question regarding how you pay for all this?
    Mr. McCormick. Yeah, I would. First, with regard to Mr. 
Misener and the House--we'd be happy to see that provision drop 
out of the House bill. We think that the FCC has sufficient 
authority today. We don't think that there's a need for the 
House to move forward and codify it. At the same time----
    Mr. Goodlatte. I found something you all agree on. We could 
agree to drop----
    Mr. Comstock. You'd have to make it stronger.
    Mr. McCormick. Secondly, I think one of the reasons that 
there's such difficulty here is that the whole debate is ``what 
if.'' You know, what if the Bell Companies do this? What if the 
cable companies do this? There's no problem out there right 
now. There's no problem that can be cited that the Congress 
needs to deal with or that even the FCC needs to deal with. The 
Chairman of the FCC has said if a problem comes along, I've got 
sufficient authority to deal with it. But until such time as a 
problem develops, let's let the marketplace work.
    I had begun my testimony today by saying that the net 
neutrality debate under these FCC principles does, in fact, 
address not just service providers but content providers, and 
that this Committee did look at screen bias in connection with 
the original search engines, which were the airline computer 
reservation systems. And I would like to insert for the record 
this search on Google with regard to where you buy books, and 
the first one that comes up is Amazon.com as a sponsored link--
a sponsored link here, a sponsored link over here, too. But for 
the average consumer, that screen bias is pursuant to a toll 
that is paid to Google by Amazon.com to list Amazon.com as the 
very first result. It says so right here, ``Sponsored link.''
    So I would argue that because--there's not a real problem 
out there right now because the marketplace is exploring this 
new era of the Internet and companies are beginning to jockey 
for how to make the right investments, how to find the market.
    I would go with what John Chambers of Cisco said, which is 
now is not the time to legislate. Now is not the time to 
regulate in this area. First, do no harm. Let's wait and see if 
a problem develops and then address it.
    Mr. Goodlatte. Mr. Chairman, if I might have leave to allow 
Mr. Wu to respond to that, I would----
    Mr. Cannon. First of all, let me suggest that--or ask 
unanimous consent that the document you've indicated from 
Google, the Google search, be admitted to the record.
    And without objection, Mr. Wu, you are recognized to 
respond.
    Mr. Wu. Yeah, I think that Mr. McCormick is right that 2 or 
3 years ago there wasn't a problem. The reason that this 
hearing is being held, the reason that there's so much popular 
attention, the reason the blogosphere is alarmed, the reason 
that gun groups, the reason that conservative bloggers, 
libertarian bloggers, liberal bloggers are all getting into 
this is because they've seen the plans of AT&T and Verizon. 
And, you know, Mr. McCormick uses words like ``VPN,'' virtual 
private network, which are designed to sound very low key, but 
they're simply a priority lane for selected companies. That's 
why we have a problem now, is we have a plan for roll-outs of 
networks that are discriminatory, and that's a change.
    As for this question of, you know, who will build the 
networks, I think the network neutrality issue is almost a side 
issue to that question. There is marginally more profit that 
may be made from this priority lane approach, from this 
degradation approach, which is the same thing, which is why the 
Bells are interested in it. But the truth is that the neutral 
and open Internet has floated all boats. That is to say, these 
companies are making more money than they ever have with the 
neutral network. And so while there's a possibility of 
marginally more profit, what the Committee has to really 
understand is the trade-off. The trade-off is distortion of 
competition. I said this already about the refrigerator. We're, 
you know, starting to repeat ourselves. But there is a trade-
off from this priority approach. There are other ways for them 
to make money that are less distortionary, less discriminatory. 
What the Government needs to do is to urge the less distortion, 
least discriminatory way----
    Mr. Goodlatte. In that regard, how would you respond to his 
analogy with regard to Google and Amazon?
    Mr. Wu. You mean that Google--you know, first of all, I 
mean, Zoe Lofgren, Congresswoman Lofgren pointed this out. 
Google actually does run a neutral search. Google search 
results are neutral. They have advertisements. And what he's 
referring to is the fact that there are advertisements on the 
Google website, which he is calling a priority lane. And I 
think it's a confusing issue. I think it confuses the issue. 
We've already said over and over again that--we've already said 
over and over again that the search engine is a competitive 
market. A9 is a pretty good search engine. I'm thinking of 
switching myself. It's a completely different type of market, 
and the analogy is just confusing. It's just this ``Blame 
Google'' approach. You know, maybe because Google is in China 
or something we can get some traction on this. It's a 
completely different issue. No one thinks the competitive 
conditions--no economist could come up here and say that 
competitive conditions for the search engine market are 
anything like the access market. So I don't think it's even a 
good use of the Committee's time to think about it or talk 
about it.
    Mr. Goodlatte. Thank you, Mr. Chairman. I thank all the 
panelists. It was great.
    Mr. Cannon. I thank the gentleman. The gentleman yields 
back.
    The Chair recognizes the Ranking Member for purposes of a 
unanimous consent request.
    Mr. Conyers. I want to insert into the record the Chair's 
of the Federal Trade Commission's letter to myself and Chairman 
Sensenbrenner dated March 14.
    Mr. Cannon. Without objection, so ordered.
    The Chair recognizes the gentlelady from California, Ms. 
Waters, for 5 minutes.
    Ms. Waters. Thank you very much, Mr. Chairman and Members. 
This has been a very interesting discussion, and it seems to me 
we need to put a lot more time in on understanding what is 
taking place with the Internet.
    I have some very simple and direct questions I'd like to 
ask. Is there a capacity problem with DSL, broadband, and 
cable?
    Mr. Comstock. I think it depends on how you define that. 
The issue today is that because increasingly competitors cannot 
get access to the infrastructure, you're seeing a degradation, 
a slowing down of the innovation that goes on that's led to it. 
As I mentioned, Cavalier Telephone down in Richmond, Virginia, 
is using DSL circuits to provide voice, video, and data. 
They're doing that on TV. If you look at in Europe today, DSL 
is widely used to do IPTV. So it can be done, and that 
innovation occurs when you unbundle the network.
    If you look on the cable side, there is far less innovation 
going on because they've got an incentive not to expand the 
capacity too quickly or people might provide video over it.
    So I think that the infrastructure is there, broadband 
deployment is there. The issue broadband penetration, which 
means you need to bring down the price, and the way you bring 
down the price is by having competition. And that's why 
Americans are paying so much more today for broadband than 
people are in other parts of the world, and that's why we're 
dropping in the OECD statistics. It's not broadband deployment 
we're dropping in. It's broadband penetration that we're 
dropping in, which is a function of people buying the service.
    Ms. Waters. Mr. Misener, you said when there was some 
discussion about charging and paying, you say, ``Well, we do 
pay.'' Would you explain?
    Mr. Misener. Yes, ma'am. Companies, content companies like 
Amazon.com, have large servers in which we--servers and content 
in which we've invested billions of dollars of capital. And to 
connect those servers to the Internet backbone, we have 
contracts with many companies, including many of Mr. 
McCormick's members, in which we pay millions of dollars a year 
just to connect our content to the Internet.
    Ms. Waters. However, that does not give you any priority, 
just the connection. Is that right?
    Mr. Misener. That's correct.
    Ms. Waters. I'd like also again for you to explain why the 
consumer is being squeezed and why there's less access or 
potentially less access for the average consumer, small 
consumers, not the big guys?
    Mr. Misener. Yes, Ms. Waters. Thank you. It's because there 
are only two available service providers. Right now and for the 
foreseeable future, there will be this duopoly of only cable 
and telephone companies providing broadband Internet access to 
American residential consumers. We see the same thing overseas 
as well, in fact, and one of the things that I think has come 
out in this hearing is that not only is there this strong 
potential--in fact, announced intentions of the network 
operators in America to try to extract monopoly rents from 
American Internet companies, we're actually seeing 
announcements from foreign Internet companies. In my testimony, 
there's some quotes from the CEO of Deutsche Telekom. He 
intends to go after Google, eBay, Yahoo!, and Amazon. Those 
were the companies he named. Certainly no German companies were 
on that list.
    American Internet companies are world-leading, and so 
foreign carriers are going to follow the example here in 
America and try to extract the same sorts of rents except it 
won't be foreign Internet companies that they're getting it 
from. It'll be American Internet companies.
    Ms. Waters. Thank you. I guess it would Mr. McCormick, will 
you counter the argument that consumers are being squeezed, 
that they will have less access and they will basically be 
competing for space with the huge companies that can afford to 
pay, like Disney?
    Mr. McCormick. I guess I'm still--I can't even comprehend 
how the consumer is going to get squeezed. The FCC has said 
that there are four principles: consumers are entitled to 
access lawful Internet content of their choice; consumers are 
entitled to run applications and use services of their choice 
subject to the needs of law enforcement; customers are entitled 
to connect their choice of legal devices that do not harm 
networks. In the case of those who are offering voice over 
Internet protocol services, the FCC has already shown that if 
consumers are in any way blocked or impaired from being able to 
use the VOIP provider of their choice, that the FCC will act. 
The Chairman of the FCC has said that he believes he continues 
to have legal authority in that regard.
    So I don't know how the consumer is going to get squeezed.
    Ms. Waters. Okay. Well, thank you.
    Do you know how, Mr. Wu?
    Mr. Wu. I do, and it comes from--it comes from the problem 
of network stagnation; that is to say, if we have a situation, 
if we move towards--which is the plan of the Bells, to move 
toward a discriminatory Internet, consumers--the applications 
which consumers may prefer may not be the ones that run best. 
I'll turn it back to the electric network. You know, let's say 
you really prefer General Electric products over Samsung. But 
you go out and buy and General Electric's refrigerator just 
doesn't operate as well. That is, the applications the 
consumers like best, whatever their idiosyncratic preferences 
may be, may not work as well on the network, and that's the 
threat--that's the short-term threat to consumers. The long-
term threat is that when competition on the network becomes a 
question of who has the best connections with the gatekeepers, 
you no longer have the kind of innovative market which has been 
good for consumers. Consumers every year can look forward to 
new search engines, for better or for worse--I keep talking 
about A9, have these strange ways you can search block by 
block. There's constant arrival of new innovations in Internet 
space, and that is what's at threat. That's something that's 
very important for consumers, very good for the national 
economy. And that's what's at threat, the innovative dynamic 
nature. That's the trade-off of allowing discrimination.
    Ms. Waters. Thank you. Mr. McCormick, I would take it you 
would just flatly disagree with Mr. Wu.
    Mr. McCormick. Well, I would flatly disagree. I mean, let's 
take--let's take his refrigerator example and let's say that 
you've got some refrigerator that you can now make telephone 
calls on and watch TV on and maybe Samsung will come up with 
that kind of refrigerator. What the FCC principles say is that 
the consumer has the right to attach that device to the network 
and that the network operator will in no way block, impair, or 
degrade service to that Samsung refrigerator that you can watch 
TV and get telephone calls over. So with those----
    Ms. Waters. So you're basically saying electricity is 
electricity, that if you have access to it, you can buy as much 
as you need or want, but that electricity works well for 
everybody.
    Mr. McCormick. It works well very everybody.
    Ms. Waters. Thank you, Mr. Chairman. I don't know if I know 
any more than I knew before I came in here about this argument, 
but it has been interesting. Thank you.
    Mr. Cannon. As long as your heart is pure, it will work. 
The Chair would ask unanimous consent to include in the record 
a document by John Windhausen, Jr., dated February 6, 2006, 
``Good Fences Make Bad Broadband.'' Without objection, so 
ordered.
    The Chair would ask unanimous consent that he be allowed an 
additional 5 minutes to ask questions of the witnesses without 
going into a second round. Without objection, so ordered.
    I really do this because I'd actually like to flesh out the 
record a little bit. And, Mr. Misener, you talked about the 
Commerce bill, which I take it you're somewhat familiar with. 
In your view, what would happen to antitrust enforcement if the 
Commerce bill is passed?
    Mr. Misener. Mr. Chairman, I'm no expert on antitrust, but 
I am concerned that if that were to be passed, then the holding 
in Trinko might actually prevent antitrust enforcement in this 
area. We certainly would like to see bright-line rules adopted, 
however they're adopted and however they're enforced, to be in 
place and advanced so that we're not engaged in long, spread-
out litigation post hoc.
    My company is all of 11 years old. Seven years of an 
antitrust case don't get us very far, especially in this 
circumstance where there is such an obvious clear and present 
danger that is, as I say, eminently avoidable by bright-line 
rules in advance.
    Mr. Comstock. I think, Mr. Chairman, if I might comment, I 
think the concern specifically with the Commerce bill is, as 
drafted, it appears to provide exclusive authority to the FCC 
and then limit that authority specifically to these wonderful 
principles that Mr. McCormick keeps referencing, which are 
that--they're principles, they're very vague, and there's no 
rulemaking authority.
    So I think the concern would be that it might be 
interpreted, particularly in light of Trinko, to have preempted 
antitrust enforcement, and that's a major concern. You know, 
these entities, particularly the Bell Companies, are claiming 
protection under the filed rate doctrine. There's issues having 
to do with whether or not I'm directly buying service from 
them, what if I'm an indirect purchaser, with respect to the 
antitrust laws that we'd need clarification on. And I think 
having that Commerce Committee language that says the FCC has 
exclusive authority to deal with these matters might pose some 
problems as well.
    Mr. Cannon. Thank you. I'm holding the document, the 
proposed bill, the legislation in front of me, and section 3 
talks about this adjudicative authority, which you have quoted 
precisely. Mr. McCormick, would you like to respond to that?
    Mr. McCormick. Yes. I'm sure that if there is a concern 
that that language would have any negative impact on antitrust 
enforcement, we could probably reach an agreement among the 
three of us to let it drop out and let the antitrust laws 
govern. I mean, we strongly believe that it's a marketplace 
today that should be governed like the rest of the American 
marketplace, and it ought to be governed by the Nation's 
antitrust laws, and it shouldn't be governed by continued 
regulation. So if that language in that bill is of a concern to 
these constituents, we could probably reach an agreement in 
that regard.
    Mr. Cannon. So let me just take it a step further. Based on 
what you're saying, would your organization support codifying 
those principles in antitrust law?
    Mr. McCormick. No. We believe that the antitrust laws are 
very explicit with regard to illegal restraints of trade and 
anticompetitive behavior, that the antitrust departments and 
agencies that are overseen by this Committee--the Federal Trade 
Commission, the Department of Justice--are very aggressive in 
their enforcement. And as Mr. Issa said earlier, we believe 
that traditional antitrust analysis ought to be the analysis 
that's applied to this marketplace.
    Mr. Cannon. Are you familiar with the hearing the full 
Committee had on Trinko sometime ago?
    Mr. McCormick. I'm aware of it. I'm not familiar with it.
    Mr. Cannon. The industry, the people that you represent 
today, had representatives here who testified that we really 
didn't need antitrust oversight. I take it you're now saying 
something different from that.
    Mr. McCormick. Well, I think what the representatives said 
is that there should not--you shouldn't be subject to double 
jeopardy. You shouldn't have a belt-and-suspenders approach. 
There shouldn't be enforcement at the FCC and then once you 
follow the dictates of the FCC you should be subject to a 
separate level of enforcement on the antitrust laws, so choose. 
And I think that what I'm saying today is that if there's 
concern that this language as applied to broadband would create 
a situation where the antitrust laws would not apply, then 
let's not do belt-and-suspenders. Let's let the antitrust laws 
govern this segment of the industry, just like they govern 
every other segment of the American marketplace.
    Mr. Comstock. Mr. Chairman, if I just might, I think it's 
important to note that when the antitrust action that broke up 
AT&T was taken, the common--the Communications Act applied to 
AT&T just as well. So the issue that really exists here is that 
you have an industry that has been very successful in 
manipulating the arms of Government, and what they keep doing 
is saying, well, that guy's regulating me over here so you 
don't need to worry over here. And then when you flip it 
around, they say the reverse.
    And so if antitrust law is going to be the primary tool--
and I think the FTC letter that you entered in the record 
illustrates this, that now that there's no longer a common 
carrier obligation, the FTC may well be the primary law 
enforcement agency. I think it is essential for the American 
economy and our position in global competitiveness to have a 
clear set of rules spelled out with respect to the operation of 
broadband networks in this country, because communications is 
an essential service that we all need today if we're going to 
stay competitive. So we need something specific. As Mr. Misener 
said, 7 years of an antitrust suit isn't going to get Amazon 
off the ground, if that's what they're trying to do.
    Mr. Misener. Mr. Chairman, if I just may very quickly.
    Mr. Cannon. Please.
    Mr. Misener. It may be restating the obvious, but consumers 
don't care. They don't care how this is accomplished. They just 
want to ensure that their longstanding Internet freedoms are 
preserved.
    Mr. Cannon. Thank you.
    Mr. Wu, did you want to make a comment, please?
    Mr. Wu. I agree with that. This is an issue about the 
Nation's economy and about innovation and the future of this 
country. And richer countries have better neutral 
infrastructures; poorer countries don't. This is--we risk 
getting lost in this battle as to whether it should be 
antitrust or whether it should be telecom law or the FCC. The 
question--the basic principle is that the engine of the economy 
has been the applications layer of the Internet, and this 
incredibly well-functioning market on top of the Internet's 
infrastructure.
    What is needed is minimum action to prevent spillovers from 
the uncompetitive part of this network from distorting the 
competitive and highly functioning part of this network, the 
application side, and that's important to this country's future 
and to its economic health. And it doesn't matter how you do 
it.
    Mr. Cannon. Thank you. I would like to thank all of you for 
being with us today----
    Ms. Jackson Lee. Mr. Chairman, would you yield for an 
inquiry, please?
    Mr. Cannon. Certainly.
    Ms. Jackson Lee. I know that you had the last 5 minutes 
without having a second round, but can I inquire to you, which 
would then allow the panelists, the very respected individuals, 
to answer the question and, that is, if I may give the 
question, that they may ask--answer in writing----
    Mr. Cannon. Without objection.
    Ms. Jackson Lee. I would be jumping for joy if they could 
answer today, but I will yield to that. We have heard a 
jangling of agencies--FTC, FCC, and the Department of Justice--
all around the question of what would be a better regulatory 
structure for the consumer. I'd be interested in hearing from 
each of them as to what would be the better regulatory 
structure--to re-engage the FCC, to put the anchor in the FTC, 
or whether or not strictly under the Department of Justice, 
particularly as it relates to the antitrust law. I'd appreciate 
their response in writing, Mr. Chairman, if I could.
    Mr. Cannon. Just a clarification. Would you like them to 
try and address that now and avoid writing, or would you like--
--
    Ms. Jackson Lee. Mr. Chairman, only at your kind indulgence 
would I be grateful if they could.
    Mr. Cannon. I would prefer leaving them without the burden, 
and then you can follow up with----
    Ms. Jackson Lee. Well, I'd be happy to have them answer. 
I'd be willing to hear their answer on this point.
    Mr. Cannon. Why don't we go, Mr. Misener, from you down 
the----
    Ms. Jackson Lee. Thank you, Mr. Chairman.
    Mr. Misener. Thank you, Mr. Chairman and Ms. Jackson Lee. 
We certainly would prefer any a priori regulation that 
communicates directly to the network operators and to American 
consumers what the rules of the road are. So we're looking for 
bright-line rules of the road.
    It seems to me that since these historically have resided 
at the FCC, that that likely is the best place to keep them. 
But ultimately, again, consumers don't and need not care from 
whence Government rules of the road arise but, rather, that 
they exist and they do protect these longstanding consumer 
freedoms.
    Ms. Jackson Lee. Thank you.
    Mr. Comstock. I would generally agree. I mean, we had a 
very effective common carrier regime, and I think the problem 
that's arisen--and I would note we had a common carrier regime 
backed up by antitrust enforcement, and maybe not by the FTC 
but still by the Department of Justice. And I think that was a 
great model.
    I think the problem is then that we've got an agency that, 
notwithstanding fairly clear instructions from the Congress in 
the 1996 act, has chosen to abandon those responsibilities. And 
so I would say the FCC if the FCC is actually going to carry 
out the law, but in the absence of that--and that's, I think, a 
lot of the reason we're here--then we've got to find another 
solution. And, unfortunately, the Department of Justice has 
also abdicated in their recent approval of the mergers. You 
know, one industry swallowed the other major competitors whole, 
and they didn't even blink. So I'm not sure what happened to 
competition analysis, but, you know, Mr. McCormick keeps saying 
standard antitrust analysis. Well, there appears to be none. So 
if it's not going to be either of those two, I'd certainly vote 
for the FTC. But, again, I think that's only going to happen--
they're now an ad hoc enforcement agency, and you can't have 
something run that way. You've got to have, as Mr. Misener 
said, the rules set out up front and very clearly stated. And 
if that's going to happen, then it's imperative for this 
Committee, the Congress as a whole, to adopt clear rules with 
respect to how we're going to deal with these networks. Those 
rules should make sure you have service upon reasonable 
request, nondiscrimination, interconnection, attachment of 
devices--essentially the same things that you have under common 
carriage because that's the framework upon which this massively 
successful Internet has been built.
    Ms. Jackson Lee. Thank you.
    Mr. McCormick. Congresswoman, today there exists no 
problem. The FCC has set forth a series of principles and has 
said that if a problem develops, it has the authority to 
enforce. We support that.
    Recently, you asked the Federal Trade Commission if the 
Federal Trade Commission believed that it had authority to 
address anticompetitive behavior, and the Federal Trade 
Commission responded that it believed that it did have 
authority, sufficient authority to address any anticompetitive 
behavior that could result. That we support. We think that the 
current environment is one where the Government has clearly 
articulated a policy and has available to it the tools it needs 
to address any problems should problems arise.
    That having been said, we don't think there needs to be new 
authority created. We think that the existing antitrust laws 
are sufficiently definite with regard to illegal restraints of 
trade, attempts to monopolize, and anticompetitive behavior for 
the Government to have available to it whatever remedies need 
to be available should a problem develop.
    Ms. Jackson Lee. Professor?
    Mr. Wu. Yeah, I'd just make one point. These matters have 
often ended up at the FCC, and part of the problem with that is 
what are really issues of national economics and macroeconomic 
policy end up always being seen as these kind of weird, geeky 
telecom issues, like a battle at the Star Trek Convention or 
something. And part of the reason for moving the authority, 
arguably, outside the FCC is that it will be easier to 
recognize and understand that these are straightforward 
antitrust issues. And I think this is part of what, you know, 
the Committee is here today to understand. And so these are 
issues that affect the entire country and that are 
straightforward, familiar anything problems that involve 
industries and involve consumers.
    So I think there's a good argument from trying to take this 
away from this tiny, strange world of telecom policy and into 
the broader questions of national economic policy, which are 
just moving things away from the FCC.
    Ms. Jackson Lee. Thank you, Mr. Chairman. I think we have 
our work cut out for us, but we have had an expansive hearing. 
Thank you. I yield back.
    Mr. Cannon. The Chair's time having expired, let me just 
thank the panel for being here today. This has been among the 
most lucid, engaging of all hearings I've been to, certainly of 
those that I've chaired.
    Thank you, and the Committee stands adjourned.
    [Whereupon, at 4:28 p.m., the task force was adjourned.]
                            A P P E N D I X

                              ----------                              


               Material Submitted for the Hearing Record

Prepared Statement of the Honorable John Conyers, Jr., a Representative 
 in Congress from the State of Michigan, and Ranking Member, Committee 
                            on the Judiciary
    I want to thank the Chairman for asserting our jurisdiction in this 
matter. Contrary to what our friends in the Commerce Committee may 
think, it is the Judiciary Committee that has jurisdiction over issues 
that affect the state of competition in the telecommunications 
industry.
    When it comes to the Internet, we should proceed cautiously. Unless 
we have documented instances of a problem, I do not believe the 
Congress should regulate. I have consistently taken this position. In 
the area of Internet taxation, I have always sided with those who 
believe we should oppose multiple and discriminatory taxes on the 
Internet and need a moratorium on those taxes. In the area of campaign 
finance regulation of blogs and other Internet communications, I was 
one of the first in Congress to tell the Federal Election Commission to 
go slow.
    That said, when we do see evidence of a problem, Congress has a 
duty to act. In some instances, Congress must provide the rules of the 
road to ensure competition, fairness, and sound public policy.
    While I remain open on the issue of network neutrality, I have 
become more and more concerned that if Congress does nothing, we could 
be heading in a direction where those who pay can play, and those who 
don't are simply out of luck.
    For example, some telecom companies have indicated that they do not 
intend to let companies like Google and Yahoo--or the next generations 
of Internet entrepreneurs--use their pipes without significant 
payments. Verizon's CEO Ivan Seidenberg said he would not let these 
companies ``sit on our network and chew up our capacity.'' AT&T's Ed 
Whitacre said ``I ain't going to let them do that.''
    The network operators say they have a right to charge companies for 
enhanced services. The content companies and consumers say the Internet 
should be open to all, regardless of their ability to pay.
    Americans have come to expect the Internet to be open to everyone 
and everything. This is also a key factor in one of the fastest growing 
areas of our economy--the Internet.
    Whatever Congress does, it must protect these aspects of the 
Internet. One option would be to legislate in the most general way 
possible, offering only guidelines or principles and punting to the FCC 
to figure out how or whether to enforce them. I think that approach is 
not responsible. I think Congress has a duty to do more.
    I look forward to hearing from our witnesses today, and I hope we 
can have a dialogue about how best to ensure and protect the Internet 
on which we have come to rely.
                               __________
Prepared Statement of the Honorable Bob Goodlatte, a Representative in 
                  Congress from the State of Virginia
    Thank you, Mr. Chairman, for holding this important hearing.
    The Internet continues to be an engine that empowers our citizens 
and our economy. New and exciting products and services continue to 
emerge that enhance the quality of life of our citizens and increase 
the efficiency of businesses.
    Part of the reason why the Internet is such a creative forum for 
new ideas is that there are very few barriers to using the Internet to 
deliver products, information and services. Startups such as Google, 
ebay and many others have sprung up and prospered because they had the 
same access to consumers via the Internet that other, larger and 
established entities had.
    In the 106th Congress, I introduced legislation, along with 
Congressman Rick Boucher, to ensure competition in the broadband access 
and services market. Specifically, this legislation amended the 
antitrust laws to prohibit anti-competitive behavior so that the 
Internet would remain open to fair competition, free from government 
regulation, and accessible to American consumers.
    I believe that the Internet should remain open and that network 
operators should not be able to pick and choose who wins and loses in 
the Internet marketplace. At the same time network operators must be 
able to manage their networks in a way that allows them to build more 
capacity so that they can provide more consumers with the Internet 
sites that continue to grow in size and complexity.
    In time, as competition in the provision of broadband Internet 
access emerges, it is my hope that the market will provide solutions to 
the questions that we will pose today. In the meantime, we must be 
vigilant to ensure that the unique benefits of the Internet do not fall 
prey to anti-competitive pressures. While I continue to grapple with 
whether legislation is needed in this area in the short-term, I believe 
that Congress must conduct aggressive oversight on this issue to gather 
accurate information about what is--and is not--occurring in the 
marketplace.
    I thank the chairman for holding this important hearing today, and 
I look forward to hearing from our expert witnesses.
                               __________
 Prepared Statement of Mark Cooper, Director of Research, the Consumer 
Federation of America, on behalf of the Consumer Federation of America, 
                the Free Press, and the Consumers Union
                                summary
    In amending the Communications Act we do not have to abandon a pro-
competitive vision for the future, but we must understand the failures 
of the anti-competitive past and get back to traditional principles of 
communications networks that have served the nation well.
    First, the commitment to universal service is more important than 
ever because access to communications is increasingly vital in the 
digital information age. Second, universals service is an evolving 
concept that must ensure that Americans can participate in the digital 
future. Policies that attempt to segregate the ``legacy'' network from 
the future network and ``ghettoize'' universal service are 
unacceptable. Third, at its heart, communications is local. Global 
networks are useless without last mile facilities--the local switches/
routers and transport facilities that connect the consumer to the 
world. Fourth, competition is an operational means to serve public 
interest ends; it is not the end in itself.
    Prospects for last mile competition in the converging world of 21st 
century U.S. communications are not good. There are only two local, 
last mile communications networks that can provide a fully functional 
broadband network to the residential consumer and prospects for a third 
or fourth are bleak. This feeble duopoly we will not accomplish the 
goals of a ubiquitous, nondiscriminatory network available to all 
Americans at reasonable rates. America has been falling behind in the 
global race to the broadband future, not because there is inadequate 
incentive to invest, not because we are less densely populated than 
other nations, but because there is inadequate competition to push the 
``cozy duopoly'' to make attractively priced services available and 
unleash the Internet economy to develop consumer-friendly services.
    We urge the Congress to begin from the successful principles of 
past policies and to learn from the problems and failures of past 
mistakes.

          Nondiscrimination in interconnection and carriage 
        should be the explicit legal obligation of communications 
        networks that provide last mile connectivity and local network 
        access, as it has been for the last century.

          The commitment to universal service should be 
        strengthened, not weakened, and we should apply the program 
        beyond the dial-tone to broadband capabilities. We support 
        legislation introduced by Members of this Committee to meet 
        this need.

          Congress can promote the goals of competition and 
        universal service simultaneously by making available more 
        spectrum for unlicensed uses and protecting the right of local 
        governments to build last mile networks. We applaud Members of 
        this Committee who have introduced legislation to accomplish 
        both of these goals.

          Congress should recognize the economic reality of the 
        communications market and direct public policy to correct for 
        the abuses of a duopoly market structure. Without explicit, 
        pro-competitive policy, we cannot expect it to grow of its own 
        accord.
                                 ______
                                 
    Mr. Chairman and Members of the Task Force,
    The Consumer Federation of America,\1\ Free Press,\2\ and Consumers 
Union \3\ appreciate the opportunity to submit this statement for the 
record on the issue of concentration and convergence in the high-speed 
broadband market and the importance of preserving Internet Network 
Neutrality. My name is Dr. Mark Cooper. I am Director of Research at 
the Consumer Federation of America.
---------------------------------------------------------------------------
    \1\ The Consumer Federation of America is the nation's largest 
consumer advocacy group, composed of over 280 state and local 
affiliates representing consumer, senior, citizen, low-income, labor, 
farm, public power and cooperative organizations, with more than 50 
million individual members.
    \2\ Free Press is a national, nonpartisan organization with over 
225,000 members working to increase informed public participation in 
crucial media and communications policy debates.
    \3\ Consumers Union is a nonprofit membership organization 
chartered in 1936 under the laws of the state of New York to provide 
consumers with information, education and counsel about good, services, 
health and personal finance, and to initiate and cooperate with 
individual and group efforts to maintain and enhance the quality of 
life for consumers. Consumers Union's income is solely derived from the 
sale of Consumer Reports, its other publications and from noncommercial 
contributions, grants and fees. In addition to reports on Consumers 
Union's own product testing, Consumer Reports with more than 5 million 
paid circulation, regularly, carries articles on health, product 
safety, marketplace economics and legislative, judicial and regulatory 
actions which affect consumer welfare. Consumers Union's publications 
carry no advertising and receive no commercial support.
---------------------------------------------------------------------------
    Dozens of witnesses have testified in Congressional hearings this 
year about the future of the Internet, telecommunications policy and 
the need for reform. It is not a pretty picture for consumers. Previous 
hearings have dealt with specific details of the failure of the 
competition policy under the Telecommunications Act of 1996 (the 1996 
Act). The 1996 Act promised an explosion of competition voice, video, 
and data communications, and yet today we are witnessing the 
reconstitution of Ma Bell and the crystallization of a cozy duopoly of 
cable and telco. The Committee has been told of skyrocketing cable 
rates and the plummeting position of the United States in the global 
race to the broadband future. It has been presented with examples of 
anticompetitive and anti-consumer behaviors of the giant communications 
companies that now dominate the market. Despite the perverse anti-
competitive results of the ``pro-competition'' policies in 1996 Act, 
these companies come before you to demand that you legalize 
discrimination in the provision of access to the communications network 
of the future, an approach that Congress has rejected for a century.
    If future prospects are determined by our success in the broadband 
market (which few analysts deny), our current position is untenable. We 
are now 16th in the world in broadband penetration. Virtually none of 
our broadband lines can sustain even 1 megabit per second of speed in 
both directions-up and down the network. We pay $15-$20 a megabit for 
download speed--20 times more than the global leaders. We have a 
pervasive rural/urban digital divide that is increasing as time passes. 
Our universal service policies have not been updated and reformed to 
efficiently address our broadband woes. Insufficient spectrum has been 
opened to facilitate a legitimate, independent wireless broadband 
competitor. All we are left with is the false promise of competition 
from 1996 and the farcical declarations from cable and telephone giants 
that a duopoly market is vigorously competitive.
    The parade of horribles with which you have been presented goes on 
and on and I will not regurgitate them in detail today. I have attached 
half dozen Appendices to this testimony that contain analyses prepared 
by our organizations that detail the failure of competition under the 
1996 Act. I believe that we have been brought to this sorry condition 
because:

        (1)  the 1996 Act tried to do the impossible in some markets, 
        aiming to build competition where conditions could not sustain 
        sufficient competition to protect the public from abuse (e.g. 
        local, last mile access);

        (2)  the Federal Communications Commission (FCC) and the 
        antitrust authorities mishandled the introduction of 
        competition in markets where it was sustainable, allowing the 
        incumbents to drag their feet, engage in all manner of anti-
        competitive behaviors, and mergers (e.g. network opening, 
        program access and mergers); and

        (3)  the FCC misread the 1996 Act in other markets, undermining 
        and threatening competition that actually existed (e.g. 
        allowing network owners to undermine competition in Internet 
        access and services).

    In amending the Communications Act (the Act) we do not have to 
abandon a pro-competitive vision for the future, but we must fully 
understand the failures of the anti-competitive past. A competition-
friendly, consumer-friendly future requires that we return to certain 
key traditional values and fundamental principles that made the 
American communications network the envy of the world throughout most 
of the last century.
social, technological and economic principles for communications policy
    In order to evaluate competition and convergence in the 
communications sector in the context of a legislative hearing on 
amendments to the Communications Act of 1934, there are four basic 
principles that must be kept in mind.
    First, the Act has a specific purpose laid out clearly in the first 
sentence of Title I, Section I: ``to make available, so far as 
possible, to all people of the United States, without discrimination on 
the basis of race, color, religion, national origin or sex, a rapid, 
efficient, nationwide and world-wide wire and radio communications 
service with adequate facilities at reasonable charges.'' This 
commitment is more important than ever because access to communications 
is increasingly vital in the digital information age.
    Second, today's analysis must be forward-looking, in the spirit of 
the Act, focusing on the broadband communications network that will be 
the dominant means of communications in the 21st century. Looking to 
the future does not mean we should ignore the problems or the progress 
of the past. On the contrary, the right combination of correcting past 
mistakes and evolving successful policies for the digital era is the 
only means of satisfying the public interest. Certainly, the track 
record of competition and the past behavior of market participants are 
relevant, especially if the same actors play similar roles. These 
market patterns can give a good indication of what is likely to happen 
under the various policy regimes under consideration. However, policies 
that attempt to segregate the ``legacy'' network from the future 
network and ``ghettoize'' universal service are unacceptable. The 
commitment to universal service needs to include a commitment to an 
evolving level of service to ensure all Americans participate in the 
future, as the Telecommunication Act of 1996 (the 1996 Act) explicitly 
recognized in Section 254.
    Third, at its heart, communications is local. Communications starts 
and ends with a local transmission medium and a local network. In order 
to make a call from Los Angeles to anywhere in the world, you need a 
wire or spectrum and a switch in Los Angeles. In order to terminate a 
call in New York from anywhere in the world you need a wire or spectrum 
and a switch in New York. The network in between may be national or 
global, but the last mile is local. Global networks are useless without 
last mile facilities--the local switches/routers and transport 
facilities that connect the consumer to the world. The Act recognizes 
this as well, in the first two sections of Title II, which establish 
the obligation to provide interconnection and carriage of 
communications on nondiscriminatory rates, terms and conditions. 
Technology has not changed this basic fact.
    Fourth, competition is an operational means to serve public 
interest ends; it is not the end in itself. Further, the state of 
competition is an empirical question, not a theoretical statement of 
belief or desire. There is an expression in economics used to describe 
competition in markets--``four is few, six is many.' When there are 
fewer than the equivalent of roughly six, equal competitors, a market 
is considered highly concentrated because economic theory, empirical 
evidence and a century of practical experience shows that markets that 
are this concentrated do not perform well. In highly concentrated 
markets, prices are set above costs and innovation declines. With so 
few competitors, it is easy to avoid vigorous, head-to-head 
competition, especially when each uses a different technology, 
specializes in a different service, or concentrates on a different 
geographic area or user sector. Where competition is lacking, there is 
little chance that markets will accomplish the goals of the Act. Even 
where there is vigorous competition, there are circumstances in which 
the market will not accomplish the broader goals of the Act. It is the 
responsibility of legislators to conduct a fair assessment of 
competition thresholds in order to maximize the effectiveness of public 
interest communications policy. We must not place our trust in the 
rhetoric of special interests without facts on the ground.
            the current state of competition and convergence
    In the emerging, converging world of 21st century communications, 
prospects for vigorous competition in the local segment of the industry 
are not good. At present, there are only two local, last mile 
communications networks that can provide a fully functional broadband 
network to the residential consumer--the incumbent local telephone 
companies and the incumbent cable operators. Two is not a sufficient 
number to ensure vigorous competition, and both sets of incumbents have 
a miserable record of anticompetitive, anti-consumer behavior.
    The best hopes for a third, last mile alternative were undercut 
when regulators allowed the most likely candidate--wireless--to be 
captured by dominant wireline firms through ownership or joint 
ventures. It stretches credible expectation to assume that a wireless 
provider owned by an ILEC, or in partnership with a cable giant, will 
market a wireless broadband product that directly competes with its 
wired product. They will offer premium, supplementary services to be 
sure--but it will not be a true third broadband competitor. Hope and 
hype surrounding other technologies cannot discipline anticompetitive 
and anti-consumer behavior. Mergers such as that proposed by AT&T and 
BellSouth will only make matters worse. No company with sufficient 
market power to extract monopoly rents will fail to do so absent proper 
public policy protections.
    On the current trajectory, consumers are falling into the grip of a 
``cozy duopoly'' of cable and telephone giants, which will abuse its 
market power, abandon it social responsibility and retard the 
development of our 21st century information economy. We can debate 
whether a regulated monopoly is better or worse than an unregulated 
duopoly, but we believe the evidence shows beyond any doubt that the 
feeble duopoly we have will not accomplish the broad Communications Act 
goal of a ubiquitous, nondiscriminatory networks available to all 
Americans at reasonable rates.
    The danger of relying on a ``cozy duopoly'' is already apparent. 
The harm has already been done, and its impact is severe (see Expanding 
the Digital Divide and Falling Behind on Broadband: Why a 
Telecommunications Policy of Neglect is Not Benign--October 2004; 
Broadband Reality Check: The FCC Ignores America's Digital Divide--
August 2005). America has been falling behind in the global race to the 
broadband future, not because there is inadequate incentive to invest, 
not because we are less densely populated than other nations, but 
because there is inadequate competition to push the ``cozy duopoly'' to 
deploy attractively priced services and unleash the Internet economy to 
develop consumer-friendly services. The current jostling for upscale 
consumers with big bundles of services leaves the majority or Americans 
behind. On a per megabit basis Americans pay five to twenty times as 
much for high-speed services as consumers in many other nations. Is 
there any doubt that the primary cause of the broadband digital divide 
is price? Now, after leaving the American consumer in a serious 
predicament, the network giants are insisting on the right to 
discriminate against content, applications, and services on the 
Internet, as blackmail for building broadband networks.
    The failure of penetration resulting from high prices and the 
threat of discrimination in network access drives innovation out of the 
American Internet space and overseas. We should take note that the 
world's most advance broadband nations have instituted policies that 
are based on last-mile competition, strategic direct investment in 
infrastructure, and free market principles of non-discrimination on the 
network to drive innovation. Not only has the FCC failed to institute 
pro-competitive policies, the Commission has done precisely the 
opposite, masking it in rhetorically glowing but substance-less reports 
on the state of the broadband market.
the past as prologue: successes and failures on the road to convergence
Telecommunications
    The idea behind the break up of AT&T in 1984 was to separate those 
parts of the industry that could be competitive from those parts of the 
industry that could not and use public policy to advance competition in 
the competitive sector. It worked in the long distance industry for 
most consumers. Requiring the local companies to provide ``equal 
access'' to their networks and shifting fixed cost recovery onto 
consumers, federal regulators created an environment in which long 
distance companies eventually commoditized long distance--as long as 
consumers took large bundles--and competed the price down.
    The Telecommunications Act of 1996 sought to introduce more 
competition into last mile markets in telecommunications and cable. In 
telecommunications, it sought to promote competition by identifying the 
various elements of the local exchange network and making them 
available to competitors on terms that would allow competition. The 
idea was that new entrants would invest in competing facilities where 
they could, while the monopoly elements were rented from the 
incumbents. Billions of dollars were invested, but this experiment 
failed. In the decade since the Telecommunications Act of 1996 was 
passed, the Federal Communications Commission (FCC) and the antirust 
authorities failed to enforce the communications and competition laws 
of this nation to promote a consumer-friendly competitive environment. 
The FCC allowed the incumbent local telephone and cable companies to 
avoid their obligations under the law to promote entry into the 
communications field, while the Department of Justice (DOJ) and the 
Federal Trade Commission (FTC) allowed them to buy up their actual and 
potential competitors. (See Competition at the Crossroads: Can Public 
Utility Commissions Save Local Competition--October 2003; Broken 
Promises and Strangled Competition: The Record of Baby Bell Merger and 
Market Opening Behavior--June 2005).
    The Competitive Local Exchange Carriers (CLECs) were strangled by 
the failure of the FCC to force the incumbent local exchange carriers 
(ILECs) to open their local markets. And when the possibility of voice 
over Internet protocol (VOIP) arose, the ILECs slammed the door by 
tying high speed Internet to VOIP service. In essence, forcing 
consumers to pay twice, if they wanted an unaffiliated VOIP provider. 
The two largest CLECs were recently absorbed by the two largest ILECs. 
The same two dominant local companies also absorbed the two players in 
largest long distance service and enterprise market, reconstituting the 
old Bell system as two huge regional entities that dominate their home 
territories with about a 90 percent share of local service, an 80 
percent share of long distance, and over a 50 percent in-region share 
of wireless service. (See Petition to Deny of the Consumer Federation 
of America and Consumers Union, In the Matter of Application for the 
Transfer of Control of Licenses and Authorizations from AT&T Wireless 
Services, Inc. and its Subsidiaries to Cingular Wireless Corporation, 
Federal Communications Commission, WT Docket No. 04-70, May 3, 2004; 
Reply, Federation of America and Consumers Union, In the Matter of 
Application for the Transfer of Control of Licenses and Authorizations 
from AT&T Wireless ``Services, Inc. and its Subsidiaries to Cingular 
Wireless Corporation, WT Docket No. 04-70, May 3, 2004).
Cable
    The 1984 Cable Act ended local regulation under the promise of 
competition. Overbuilders were supposed to enter to compete head-to-
head, and satellite providers were supposed to provide intermodal 
competition. It never happened. The last mile market for cable proved 
too difficult to crack. Cable rates skyrocketed and the industry was 
subject to conditions of nondiscrimination in access to programming in 
1992. Rates stabilized because of regulation, not competition.
    As in telecommunications, the 1996 Act sought to stimulate head-to-
head competition in multichannel video programming distribution (MVPD), 
but failed. Overbuilders could not crack the market--taking a scant 2 
or 3 percent of subscribers. Satellite grew, but could not discipline 
cable's market power nor effectively discipline prices. The local 
telephone companies were invited into the cable business in a variety 
of ways, but chose not to enter.
    Cable operators still account for about 75 percent of all MVPD 
subscribers. Regional concentration has reinforced market power at the 
point of sale. Monthly cable rates have doubled since the 1996 Act and 
consumers are offered massive, monthly packages which afford them 
little choice in what to buy (See Time To Give Consumer Real Cable 
Choices: After Two Decades of Anti-Consumer Bundling and Anti-
Competitive Gatekeeping--June 2004; Reply Comments of the Consumer 
Union and the Consumer Federation of America, In the Matter of Comment 
Requested on a la Carte and Themed Tier Programming and Pricing Options 
for Programming Distribution on Cable Television and Direct Broadcast 
Satellite Systems, Federal Communications Commission, MB Docket No. 04-
207, August 13, 2004). Geographic consolidation has created a huge 
obstacle to entry into the programming sector. Cable operators control 
the programming that reaches the public and discriminate against 
unaffiliated programmers. The results of these market trends have left 
consumers and independent programmers at the mercy of the cable giants. 
(See Comments of Consumer Federation of America, Consumers Union and 
Free Press, In the Matter of the Commission's Cable Horizontal and 
Vertical Ownership Limits and Attribution Rules, Federal Communications 
Commission, MM Docket No. 92-264, August 8, 2005.)
Internet
    When cable rolled out a telecommunications service--cable modem 
service--the FCC moved the goal posts, redefining cable modem service 
into a different regulatory category. It abandoned one of the vital 
underpinnings of the success of the Internet, the ``Computer 
Inquiries.'' This was the digital age expression of the principle of 
nondiscrimination that the FCC applied to computer and data services 
starting in 1968. As telecommunications in this country have evolved, 
the FCC established the policy of keeping the network neutral--allowing 
the intelligence in the network to stay at the edge. This dovetailed 
with the end-to-end principle of the Internet and provided an arena for 
free market innovation, competition and consumer choice that was 
unparalleled in recent experience.
    When the FCC abandoned this policy for cable modem service, 
America's slide from Internet leadership began. This allowed the cable 
operators to discriminate against Internet service providers--forcing 
consumers to pay twice if they preferred an Internet service provider 
other than the cable affiliate (See The Public Interest in Open 
Communications in Networks, July 2004). Cable operators have imposed 
all manner of anti-consumer, anti-innovation restrictions in their 
customer agreements, which have driven applications developers away 
from this space. More importantly, the decision to remove Title II 
obligations of nondiscrimination in interconnections and carriers 
(common carrier regulations) from cable modem service paved the way for 
a total cashiering of a century of communications policy. The immediate 
result will be nothing short of the destruction of the Internet if the 
Congress does not move to hold the line on the last remaining 
safeguard-network neutrality. The fundamental mistake in communications 
policy, which we have made over and over in the last two decades, is to 
allow a very small number of network owners to control the physical 
communication system. If we duplicate that mistake again, the result 
will be the destruction of the vibrant, vigorous competition and 
burgeoning innovation of the Internet economy.
                               the future
    The telephone companies now say they are ready to compete with 
cable in video, and the cable companies now claim to be ready to 
compete with telephone companies for voice. But they have demanded the 
elimination of the fundamental social obligations of the Act--universal 
service and nondiscrimination--before they do so. The notion that 
Congress anticipated or would ever have enacted the 1996 Act under 
belief that we would end up with a duopoly is not believable. The hope 
was for vigorous competition among many providers.
    Two competitors are simply not enough to discipline pricing, as the 
new entrants just match the high priced bundles of the incumbents. Two 
are not enough to ensure nondiscriminatory access to the communications 
network, as the new entrants demand to be allowed to discriminate and 
exclude Internet service providers and rival services. By traditional 
economic standards, three or four market players are not enough to 
assure competition, certainly not when access to the means of 
communications are at stake. If both network giants in a market adopt 
the same anti-competitive practices, where will consumers go? They are 
trapped.
    The fundamental importance of nondiscriminatory access to networks 
and services embodied in the Communications Act was reaffirmed just 
this month by key members of the ``cozy duopoly.'' Time Warner, the 
second largest cable company, has petitioned the Federal Communications 
Commission to impose an obligation of nondiscriminatory interconnection 
on the incumbent local telephone companies, under Section 251 of the 
Act. Verizon, the second largest telephone company, has petitioned the 
Commission to impose an obligation of nondiscriminatory access to video 
programming under Section 628 of the Act. Yet, both of these entities 
directly and indirectly through their trade associations, are lobbying 
the Congress, and have pushed the FCC, to eliminate all such obligation 
with respect to Internet access and services.
    The fact that the anti-competitive and anti-consumer practices of 
these companies come and go, as political pressure or public attention 
ebbs and flows, is not a justification to abandon the principles of 
nondiscrimination. On the contrary, when innovation depends on the 
whims of network gatekeepers it is stunted and chilled. As Vint Cerf 
has said: the Internet is about ``innovation without permission.'' When 
the choices are few, the switching costs for consumers are large, and 
the gatekeepers decide which services have access to the public, 
innovative activity will go elsewhere.
    Current arguments against obligations to provide nondiscriminatory 
access are based on the claim that competition exists between two 
networks and that is all the American economy needs. That claim is 
wrong as a matter of historical fact and practical experience. The 
obligation of nondiscrimination came to this country under English 
common law. From the founding of the Republic, public roads competed 
against privately owned canals, but they were both subject to 
obligations of nondiscrimination. Private railroads were added to 
compete with canals and roads, and when they began to brutally 
discriminate, refusing to be bound by their common law obligations, 
they brought a more explicit anti-discrimination approach into the law. 
``Unjust discrimination between persons, places, commodities, or 
particular descriptions of traffic'' brought common carrier down upon 
the railroads in the Interstate Commerce Act of 1887. Telegraph and 
wireline telephone were also expected to behave in a nondiscriminatory 
manner, but when AT&T refused to interconnect with independent 
companies, common carrier obligations were extended to that industry in 
the Mann Elkins Act of 1910, thus ensuring nondiscrimination in 
communications.
    In other words, one of the enduring principles of communications in 
America has been nondiscrimination. We have layered alternative modes 
of communications one atop another, each using a different technology, 
each optimized for a somewhat different form of communications and 
still we imposed the obligation of nondiscrimination. We have 
accomplished this through both a liability approach and a regulatory 
approach. The layering of networks subject to the obligation of 
nondiscrimination makes even more sense today when the importance of 
the free flow of information is magnified as it is in our digital 
economy.
                               conclusion
    As this Committee moves forward to construct a new regime of 
communications policy, we urge the Congress to begin from the 
successful principles of past policies and to learn from the problems 
and failures of past mistakes.

          Nondiscrimination in interconnection and carriage 
        should be the explicit legal obligation of communications 
        networks that provide last mile connectivity and local network 
        access, as it has been for the last century.

          The commitment to universal service should be 
        strengthened, not weakened, and we should apply the program 
        beyond the dial-tone to broadband capabilities. We support 
        legislation introduced by Members of this Committee to meet 
        this need.

          Congress can promote the goals of competition and 
        universal service simultaneously by making available more 
        spectrum for unlicensed uses and protecting the right of local 
        governments to build last mile networks. We applaud Members of 
        this Committee who have introduced legislation to accomplish 
        both of these goals.

          Congress should recognize the economic reality of the 
        communications market and direct public policy to correct for 
        the abuses of a duopoly market structure. Without explicit, 
        pro-competitive policy, we cannot expect it to grow of its own 
        accord.
Prepared Statement of Kyle McSlarrow, President and CEO, National Cable 
                    & Telecommunications Association










        Press Release of the Federal Communications Commission, 
                          dated April 3, 2006






  Article from Communications Daily submitted by Walter B. McCormick, 
   Jr., President and Chief Executive Officer, United States Telecom 
                              Association




    Letter to the Honorable F. James Sensenbrenner, Jr., Chairman, 
Committee on the Judiciary, from Deborah J. Majoras, Chairman, Federal 
                            Trade Commission
















A Public Knowledge White Paper by John Windhausen, Jr., entitled ``Good 
  Fences Make Bad Broadband, Preserving an Open Internet through Net 
                              Neutrality''





















































































































                                 
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