[Senate Hearing 109-605]
[From the U.S. Government Publishing Office]
S. Hrg. 109-605
NET NEUTRALITY
=======================================================================
HEARING
before the
COMMITTEE ON COMMERCE,
SCIENCE, AND TRANSPORTATION
UNITED STATES SENATE
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
__________
FEBRUARY 7, 2006
__________
Printed for the use of the Committee on Commerce, Science, and
Transportation
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SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
TED STEVENS, Alaska, Chairman
JOHN McCAIN, Arizona DANIEL K. INOUYE, Hawaii, Co-
CONRAD BURNS, Montana Chairman
TRENT LOTT, Mississippi JOHN D. ROCKEFELLER IV, West
KAY BAILEY HUTCHISON, Texas Virginia
OLYMPIA J. SNOWE, Maine JOHN F. KERRY, Massachusetts
GORDON H. SMITH, Oregon BYRON L. DORGAN, North Dakota
JOHN ENSIGN, Nevada BARBARA BOXER, California
GEORGE ALLEN, Virginia BILL NELSON, Florida
JOHN E. SUNUNU, New Hampshire MARIA CANTWELL, Washington
JIM DeMINT, South Carolina FRANK R. LAUTENBERG, New Jersey
DAVID VITTER, Louisiana E. BENJAMIN NELSON, Nebraska
MARK PRYOR, Arkansas
Lisa J. Sutherland, Republican Staff Director
Christine Drager Kurth, Republican Deputy Staff Director
Kenneth R. Nahigian, Republican Chief Counsel
Margaret L. Cummisky, Democratic Staff Director and Chief Counsel
Samuel E. Whitehorn, Democratic Deputy Staff Director and General
Counsel
Lila Harper Helms, Democratic Policy Director
C O N T E N T S
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Page
Hearing held on February 7, 2006................................. 1
Statement of Senator Allen....................................... 40
Statement of Senator Boxer....................................... 42
Article from BusinessWeek online, dated February 2, 2006,
entitled Is Verizon a Network Hog?......................... 42
Statement of Senator Burns....................................... 3
Statement of Senator Dorgan...................................... 2
Statement of Senator Ensign...................................... 4
Statement of Senator Lott........................................ 5
Statement of Senator Pryor....................................... 38
Statement of Senator Stevens..................................... 1
Witnesses
Bachula, Gary R., Vice President, External Affairs, Internet2.... 63
Prepared statement........................................... 65
Cerf, Vinton G., Vice President/Chief Internet Evangelist,
Google, Inc.................................................... 7
Prepared statement........................................... 8
Citron, Jeffrey A., Chairman/CEO, Vonage Holdings Corp........... 17
Prepared statement........................................... 19
Comstock, Earl W., President/CEO, COMPTEL........................ 23
Prepared statement........................................... 25
Dixon, Kyle D., Senior Fellow/Director, Federal Institute for
Regulatory Law and Economics, The Progress and Freedom
Foundation..................................................... 45
Prepared statement........................................... 47
Lessig, Lawrence, C. Wendell and Edith M. Carlsmith Professor of
Law, Stanford Law School....................................... 52
Prepared statement........................................... 54
McCormick, Jr., Walter B., President/Chief Executive Officer,
United States Telecom Association (USTelecom).................. 14
Prepared statement........................................... 15
McSlarrow, Kyle, President/CEO, National Cable and
Telecommunications Association................................. 20
Prepared statement........................................... 22
Sidak, J. Gregory, Professor of Law, Georgetown University Law
Center......................................................... 59
Prepared statement........................................... 61
Wyden, Hon. Ron, U.S. Senator from Oregon........................ 5
Appendix
Inouye, Hon. Daniel K., U.S. Senator from Hawaii, prepared
statement...................................................... 77
Rockefeller IV, Hon. John D., U.S. Senator from West Virginia,
prepared statement............................................. 77
NET NEUTRALITY
----------
TUESDAY, FEBRUARY 7, 2006
U.S. Senate,
Committee on Commerce, Science, and Transportation,
Washington, DC.
The Committee met, pursuant to notice, at 10 a.m. in room
SD-562, Dirksen Senate Office Building, Hon. Ted Stevens,
Chairman of the Committee, presiding.
OPENING STATEMENT OF HON. TED STEVENS,
U.S. SENATOR FROM ALASKA
The Chairman. We apologize for the room. We tried to get a
larger room for the hearing, but it's just not possible today.
We will try, for the other hearing.
I've had a letter from some of our colleagues about urging
us to move forward on the legislation on communications. We're
going to finish our hearings first. We've got another nine
hearings, I believe, nine more after today? Nine? I think it's
nine. And we published that schedule, we're going to go through
it. And when it's finished, we'll start marking up the bills.
This hearing on Internet neutrality is one of the most
difficult, but most important, issues before this Committee as
we consider revisions to the Nation's communications laws. How
we decide the issue will determine whether cable companies--the
Bells, the local telephone companies, others--can generate the
revenue needed to justify billions of dollars in investment to
deploy fiber and upgrade existing broadband networks. We will
also determine whether the Internet remains a free marketplace
of ideas with no gatekeeper, and free of interference from
regulation.
As new services, particularly video, stretch the limits of
today's broadband capacity to the home, we are confronted with
net-neutrality arguments from providers of broadband access,
like cable, telephone companies, and wireless providers, on one
side, and arguments from Internet-content and -application
providers, like Google, eBay, Amazon, Vonage, and others, on
the other side. All sides are exploring new businesses, new
business models, providing new offerings to their customers.
Groups for and against regulation, both, make compelling
arguments that their way is the best way to encourage
investment, innovation, and job creation. Cable and phone
companies argue against net-neutrality regulation, while
content and application providers generally argue for net-
neutrality regulation. The FCC has announced net-neutrality
principles, but Chairman Martin has stated that regulation is
not needed, and that it will not be needed. We'll hear
arguments firsthand today from both sides, and we will take
them into consideration as we further examine updating
telecommunications legislation, upon completion of our
hearings.
Now, our Co-Chairman is not going to be here today. He's
asked that he--he cannot be here, for personal reasons.
First, Senator Dorgan, do you have an opening statement?
Senator Dorgan. I do, Mr. Chairman.
STATEMENT OF HON. BYRON L. DORGAN,
U.S. SENATOR FROM NORTH DAKOTA
Senator Dorgan. Let me be very brief, but I think this is
one of the most important hearings that we will hold this year
in this Committee. I was eating some Cheerios this morning, Mr.
Chairman, when I read the business section of the Washington
Post. It says, ``Verizon Executive Calls for End to Google's
Free Lunch.''
The Chairman. That was a free breakfast, then.
Senator Dorgan. Well, my Cheerios weren't free, but----
[Laughter.]
Senator Dorgan.--apparently my lunch is going to be free.
``A Verizon Communications Inc. executive accused Google, Inc.,
of freeloading for gaining access to people's homes using a
network of lines and cables the phone company spent billions of
dollars to build.''
You know, the fact is, I've had both DSL and broadband from
cable. Consumers pay for both of those. I paid for the
opportunity to have DSL and cable broadband, and this is not a
free lunch. The reason I would have paid that is, I want access
to content that exists. And I really believe that net
neutrality is a very important concept. Four years ago, I wrote
to the FCC on this subject. I understand where the equities are
from various companies. I understand why they advocate as they
do. But, it is not a free lunch for any one of these content
providers to come into the Chairman's home or to my home or any
home of anybody in this country over the lines of cable
companies or telephone companies. Those lines and that access
is being paid for by the consumer. And I worry very much if we
start moving down the road of deciding that ``the Internet
shall not be free.''
I think the refrain of this Committee ought to be keep the
Internet free, provide for net neutrality. Were it not for the
decision by the FCC to decide that this was an information
service, we wouldn't be needing this hearing. But, because they
did that, we do need to have this hearing and make judgments
about the future. Will the Internet be kept ``free? '' I hope
so. The answer is, I hope so.
And, once again, I'd just conclude by saying, when I read
the paper this morning that suggests that that which I call up
on my broadband, asking for information from Google or eBay or
any number of providers, it is not a free lunch. I've already
paid the toll, the monthly toll to be able to do that over a
DSL line or over a cable modem.
Mr. Chairman, thank you for calling this hearing. I think
it's very important.
The Chairman. Thank you.
Senator Burns?
STATEMENT OF HON. CONRAD BURNS,
U.S. SENATOR FROM MONTANA
Senator Burns. Thank you, Mr. Chairman. It seems like I'm
involved in a couple of issues today, so I won't get to stay
and listen to the whole thing, but we take a high interest in
this particular issue.
During the time of intense market deregulation, concerns
over fair business practices by the Internet service providers
that control the pipe to the consumers' homes have prompted
corporations and activists to call for a regulation when the
market fails. This concerns me, and it's been a gathering storm
out there, and there's been swirl of information in the press,
especially the communications press. And now there is quite a
lot of concern among all of us that this is an issue that we're
driven to deal with. And I'm not real sure that we're prepared
to do it yet.
The concern by both companies and citizens alike, is that
the ability to provide an access content on the Internet is not
dictated or restricted by the consumer's choice of an ISP. The
guiding principle of this discussion today is a belief that
there should be an unfettered access without discrimination or
courtesy to a particular type of transmission, business, or
software. The Internet should remain open to all users and
should have access to its--all users should have access to its
content. At the same time, however, we must recognize and
balance a company's interest in managing its own--therein--
there, when you go to jumping into that briar patch, therein
lies the challenge. How do we strike the balance? A company
must remain certain--at a certain level of service quality on
its network to stay in business. At the same time, consumers
demand liberated access to the content on the Internet. My
concern is that if we legislate prematurely in this area, we
will not let these different approaches play out in the
marketplace.
I'm hopeful that this hearing will start the debate here in
this town of 17 square miles of logic-free environment, and----
[Laughter.]
Senator Burns.--because it is a debate that has to be
started and completed and completely aired before Congress
makes a step, in one way or the other. The answer to the
question--there's going to be more questions in--coming out of
this hearing than there will be answers, I'll guarantee you
that. But I look forward to working with the Members of this
Committee and the parties interested in this, because the
Internet--we've been around it a long time. We've seen it grow.
We've seen it prosper. We've seen it become a marketplace and
an information place, something that a lot of people rely on.
And free and open access, and the availability of it, should be
free to all Americans, and the same with us who pay for the
services--like Senator Dorgan said, we all pay the fee every
month for that access and that freedom.
Thank you, Mr. Chairman, and I look forward to hearing from
the witnesses. And now I must go over and deal with asbestos.
It's a little old issue over there that's not----
The Chairman. Senator Ensign?
STATEMENT OF HON. JOHN ENSIGN,
U.S. SENATOR FROM NEVADA
Senator Ensign. Thank you, Mr. Chairman.
I want to applaud you, first of all, for the aggressive
schedule of hearings that you've laid out for the Committee
this year. I have introduced, as many people know, the
Broadband Investment and Consumer Choice Act--and every topic
that's contained in my legislation is covered in your hearing,
so I want to thank you for that. We just signed up our 16th
cosponsor for our legislation, so we're getting a lot of
support building on that.
But one of the things that has to be pointed out here, that
when we're talking about the idea of net neutrality and
consumer choice and all of the issues that we're going to be
dealing with, is the fact that the country that invented the
Internet is now 16th in the world in broadband deployment. That
is a fact, and that--it is not something that is getting
better; it is getting worse. Just a couple of years ago, we
were 11th. Now we're 16th. And many other countries are taking
a different approach than the United States. We're more of a
free-market country. And I think that we should be that way.
But the fact is, is that our regulations and our laws need to
be modernized to reflect the realities of technology today, to
create more incentives for companies to invest so that we have
that--those broadband networks that are higher quality, that
are faster, that give consumers more competition.
In today's marketplace, while we have competition, we don't
have nearly the type of competition that could be had that
would benefit the consumer, and that would benefit American
competitiveness in the world.
The idea of net neutrality is going to be one of those
sticky issues that we deal with, because everybody here says
that we should--and everybody agrees that we want the Internet
to be free, and nobody wants anybody to block the access to any
website, for instance. You know, I mean, everybody can agree on
that. But we also have to recognize that there is a balance.
And, Senator Burns, you mention the balance, and that is going
to be--the critical aspect is how we strike this balance when
we're dealing with net neutrality.
If you are a company that is going to be borrowing money
from Wall Street, and Wall Street is looking at, ``What kind of
return are you going to have on that investment?'' and we have
a law that says that you cannot have somewhat control--not
who--what websites and things like that, but, for instance, if
a--if the phone companies are building out their networks, and
going to fiber, and they want to have IPTV, for instance--well,
let's just say, for instance, that they offer 30 megabits per
second. IPTV may take up a fairly significant portion of that,
and they want to guarantee that they can offer their IPTV.
That's the incentive for them to build out their network. The
problem is, is that if there are other Google or Yahoo!, or
whatever, that wants to do the same thing, and they have to
guarantee them access through that at the same--it may take all
of their bandwidth, is what I'm trying to say.
Now, technology in the future is probably going to answer
all this, and we'll have all the bandwidth that we need, but to
give the initial incentive for the companies to build that
network, this is the--this is where the balance is going to
have to come in. And we're going to have to pay attention to
that, because you do deserve a return on your investment, is
the bottom line, if you're going to build out these networks.
Otherwise, if we can't give them a return on their investment,
Wall Street is not going to loan them the money to do this.
Thank you, Mr. Chairman.
The Chairman. Senator Lott, do you have a comment?
STATEMENT OF HON. TRENT LOTT,
U.S. SENATOR FROM MISSISSIPPI
Senator Lott. No, I don't, Mr. Chairman. I came to hear the
panel and get some wisdom. So, I'm looking forward to hearing
them.
The Chairman. Very good.
Senator Pryor, do you have a comment?
Senator Pryor. I don't, thank you.
The Chairman. Thank you very much.
Our former member, Senator Wyden, asked for a comment--an
opportunity to make a comment before the hearing.
Senator Wyden?
STATEMENT OF HON. RON WYDEN,
U.S. SENATOR FROM OREGON
Senator Wyden. Thank you very much, Mr. Chairman. I want to
thank you and your staff for being so kind to me, as a
frustrated ex-member of this Committee. I think you're dealing
with some of the most important issues, and I want to thank you
for this opportunity.
The reason I wanted to come today, Mr. Chairman and
colleagues, is that 10 years ago a bipartisan group of Senators
from the Commerce Committee decided that, even though we hadn't
invented the Internet, we wanted to make sure that we were
taking steps so it would prosper. And our bipartisan group came
together 10 years ago to deal with the fact that the net, at
the time, was being subject to discriminatory taxation. So, we
wrote a law, the Internet Tax Freedom Act--really ought to have
been called the Internet Nondiscrimination Act, because it had
a simple principle. There ought to be technological neutrality
and, in terms of taxes, you ought to do to the online world
what you do to the offline world. In my view, that law was a
real success. It's been a catalyst for the net's growth. And I
just wanted to suggest, today, that we ought to be dealing in a
bipartisan way with another important challenge.
In my view, there are powerful interests who own the pipes
and access to the net that are trying to break the net. These
interests want to expand their control over Internet access to
the limitless world of content, where consumers play the games
and watch online TV and enjoy video. Now, we all know consumers
use high-speed access to the net now, that they've paid for,
for whatever content they want, and they don't have to worry
about someone such a cable company or a phone company
interfering with the use of the net.
Now, some of these cable and phone companies are saying
that they ought to be able to discriminate in the delivery of
content. They're saying that, instead of making available to
everyone the same content at the same price, they ought to be
allowed to set up sweetheart arrangements to play favorites.
Now, in my view--and I'll wrap up with this, Mr. Chairman--
I think this is a fundamental shift in the way the Internet has
worked and prospered. The small startups and the scores of
others that began tiny and dreamed big were able to succeed
because every user has had equal access to all the websites.
So, I'm going to introduce legislation to try to keep it that
way, and the legislation is essentially built on the idea that
all information ought to be made available on the same terms,
so that no bit is better than another one. We need to assure
that information from a company like J. Crew is not treated
worse than information from a company like L.L. Bean.
Second, my legislation will assure that a company like
Comcast, that offers Internet access, does not give
preferential treatment to its own information bits, compared to
information bits from, say, another company, like Yahoo!
Third, broadband service providers should not be able to
create private networks that are superior to the Internet
access that they offer consumers generally. This principle is
important, because it would prevent Internet access providers
from tipping the competitive advantage toward their own
services, such as phone calls over the Internet, VoIP, or
television over the Internet.
What it comes down to, Mr. Chairman, is, we ought to build
on the good bipartisan legislation of 10 years ago, with
respect to taxes. Act now to preserve the spirit of the
Internet, which is fair treatment for everyone.
Again, I want to thank you for the opportunity to come.
You've been very kind to me to let me come on several occasions
in the past. We got it right with the Internet Tax Freedom Act,
10 years ago. I think we can do it again by working together.
And I thank you.
The Chairman. Thank you very much, Senator.
I made the mistake of leaving this Committee for one
Congress. Maybe you made one, too.
[Laughter.]
The Chairman. Thank you.
Our first panel is Vinton Cerf, the Vice President and
Chief Internet Evangelist of Google; Walter McCormick,
President and Chief Executive Officer of the U.S. Telecom
Association; Jeffrey Citron, Chairman and Chief Executive
Officer of Vonage; Kyle McSlarrow, President and Chief
Executive Officer of National Cable and Telecommunications
Association; Earl Comstock, President and Chief Executive
Officer of COMPTEL.
Gentlemen, we welcome you. Again, I apologize for the size
of the room--probably 150 people out in the hall. But that's--
we're still having rooms up there in the Senate redone, and
it's just impossible to get another room.
I'm going to go just in--the way we put them on the
schedule, so, Mr. Cerf, we'd be pleased to have your statement.
All of your statements will appear in the record in full.
We look forward to listening to you, and hope that you will
understand our time limitations. And we'll have questions when
you're finished.
Mr. Cerf?
STATEMENT OF VINTON G. CERF, VICE PRESIDENT/CHIEF INTERNET
EVANGELIST, GOOGLE, INC.
Mr. Cerf. Good morning, Mr. Chairman, Members of the
Committee. Thank you very much for allowing me to testify this
morning. I'll try to be brief and concise.
Let me begin by pointing out that our Nation's policies on
important issues related to Internet access involve consumer
choice, economic growth, technological innovation, and global
competitiveness. These are very important national concerns
which this Committee----
The Chairman. Mr. Cerf, would you pull that mike up to you?
Mr. Cerf. I'm sorry. Is that better? Shall I start one more
time?
I'll try to be brief about this. Thank you, again, for
allowing me to participate.
The matters before you involve a broad range of issues:
consumer choice, economic growth, technological innovation, and
global competitiveness. These are very important and very major
issues that this Committee and the rest of the Congress face.
Nothing less than the future of the Internet is at stake in
these discussions.
I was fortunate to be part of the original team that
designed and built the Internet. We've learned some lessons
from its design over the last 30 years. The first lesson is
that it was structured as a layered architecture, like a layer
cake. Certain parts at the bottom were for physical transport
of bits moving over wires, or over optical fibers, or over
radio channels. The next layers up supported packet switching.
The next layers up, beyond that, supported the actual transport
of information. These various layered structures allowed for
changes in underlying transmission systems and switching
systems over the course of the 30-year period so that new kinds
of technology could be integrated into the system and
everything would still work.
More critically, we had an end-to-end principle which said
that most of the intelligence in the network was at the edges
of the net, where all of the applications were implemented. The
core of the network was fairly ``stupid,'' actually; it just
moved packets back and forth, like little electronic postcards.
The standards for the Internet were published and open and
globally available, even from the very beginning, when the
Defense Department was supporting this system, because we
wanted this to be an open standard that anyone could use to
implement and to test new kinds of applications.
The overarching rationale for all of this was to make the
system completely open and completely distributed, with no
central control. This, actually, was important to the military
to make sure that it was a highly resilient system.
There were key decisions made by the executive branch and
by the legislative branch, some of which you've heard about
earlier this morning, that helped to commercialize the
Internet. Your decisions coming up in this debate are equally
important.
There are something like 250,000 networks around the world
that make up the Internet. Every one of them is compensated by
its users for access to those systems. They are fully
interconnected in order to create this gigantic network of
networks.
The FCC had some very important elements in its policies:
safeguards for user choice and nondiscrimination. We've heard a
bit about that earlier this morning. That's terribly important.
Users got to decide which ISPs serviced them, and no ISP
determined what a user did with access to the network.
What we have today is innovation without permission. For
example, Tim Berners-Lee, in the invention of the World Wide
Web, did not have to ask permission of any ISP to invent this
new and wonderful idea. Yair Goldfinger did not with IM, and
David Filo, and Jerry Yang didn't have to ask permission for
the creation of Yahoo! Jeff Bezos didn't have to ask permission
for the creation of Amazon. And Larry Page and Sergey Brin
didn't have to ask permission for the invention of Google. What
we seek is to continue this very successful policy, this engine
of innovation, which openness and freedom of access permits.
The challenge we have is that there isn't enough
competition in the broadband world. If there were enough
competition, you wouldn't have me sitting here expressing these
concerns. According to the statistics from the FCC in 2004,
only 53 percent of Americans had a choice of broadband access,
either from cable companies or from the telco's with their DSL
service. Only 53 percent. Twenty-eight percent have only one
choice, either cable or DSL. And 19 percent don't have any
choice at all; there is no broadband. There are alternate
transport techniques--for example, radio access and broadband
over power lines--but they occupy maybe about 1.5 percent of
the market. So, there aren't any competitive alternatives,
other than cable and DSL, and they don't necessarily compete
head to head.
It's very important for us to understand what's going on in
the rest of the world. If you look at places like Hong Kong and
Singapore and Japan and South Korea, you discover extremely
high-speed service is available, up to 100 megabits a second,
for $50 a month, with no constraints as to how that bandwidth
is used. That is an engine of innovation which we cannot afford
to lose. We must preserve neutrality in this system in order to
allow new Googles of the world, new Yahoos!, new Amazons to
form.
Mr. Chairman, we risk losing the Internet as a catalyst for
consumer choice, for economic growth, for technological
innovation, and for global competitiveness. We thank the
Committee for its leadership, and we look forward to helping it
fashion carefully tailored legislation that protects the
interests of America's Internet users. And that includes the
future interests of the next Google just waiting to be born in
someone's dorm room or garage.
Thank you very much, Mr. Chairman.
[The prepared statement of Mr. Cerf follows:]
Prepared Statement of Vinton G. Cerf, Vice President/Chief Internet
Evangelist, Google Inc.
Good morning Chairman Stevens, Senator Inouye, and Members of the
Committee. My name is Vint Cerf, and I am currently Vice President and
Chief Internet Evangelist with Google. You may be more familiar with me
for my work over the last few decades as one of the network engineers
involved in devising the software protocols that underpin the Internet.
Thank you for inviting me here today to discuss the important concept
of network neutrality. As this Committee considers the future of U.S.
communications law, it faces choices linked inexorably to important
American values: consumer choice, economic opportunity, and
technological innovation. In turn the way we approach those policy
choices will have a tremendous impact on our ability as a nation to
compete effectively on a global stage. In short, I appreciate the
opportunity to share some of my thoughts about issues affecting nothing
less than the future of the Internet.
I. Introduction and Overview
The Internet's open, neutral architecture has proven to be an
enormous engine for market innovation, economic growth, social
discourse, and the free flow of ideas. The remarkable success of the
Internet can be traced to a few simple network principles--end-to-end
design, layered architecture, and open standards--which together give
consumers choice and control over their online activities. This
``neutral'' network has supported an explosion of innovation at the
edges of the network, and the growth of companies like Google, Yahoo!,
eBay, Amazon, and many others. Because the network is neutral, the
creators of new Internet content and services need not seek permission
from carriers or pay special fees to be seen online. As a result, we
have seen an array of unpredictable new offerings--from Voice-over-IP
to wireless home networks to blogging--that might never have evolved
had central control of the network been required by design.
Allowing broadband carriers to control what people see and do
online would fundamentally undermine the principles that have made the
Internet such a success. For the foreseeable future most Americans will
face little choice among broadband carriers. Enshrining a rule that
permits carriers to discriminate in favor of certain kinds or sources
of services would place those carriers in control of online activity.
Allowing broadband carriers to reserve huge amounts of bandwidth for
their own services will not give consumers the broadband Internet our
country and economy need. Promoting an open and accessible Internet is
critical for consumers. It is also critical to our Nation's
competitiveness--in places like Japan, Korea, Singapore, and the United
Kingdom, higher-bandwidth and neutral broadband platforms are
unleashing waves of innovation that threaten to leave the U.S. further
and further behind.
My testimony will explain briefly why network neutrality has been
so important to the Internet's success and should be preserved. Among
its key points:
The Internet was designed to maximize user choice and
innovation, which has led directly to an explosion in consumer
benefits. The use of layered architecture, end-to-end design,
and the ubiquitous Internet Protocol standard, together allow
for the decentralized and open Internet that we have come to
expect. This created an environment that did not require Tim
Berners-Lee to seek permission from the network owners before
unveiling a piece of software enabling the World Wide Web.
Most American consumers today have few choices for broadband
service. Phone and cable operators together control 98 percent
of the broadband market, and only about half of consumers
actually have a choice between even two providers.
Unfortunately, there appears to be little near-term prospect
for meaningful competition from alternative platforms. As a
result, the incumbent broadband carriers are in position to
dictate how consumers and producers can use the on-ramps to the
Internet.
A number of justifications have been created to support
carrier control over consumer choices online; none stand up to
scrutiny. Open-ended carrier discrimination is not needed to
protect users from viruses, stop spam, preserve network
integrity, make VoIP or video service work properly--or even
ensure that carriers are compensated for their broadband
investments. In particular, we firmly believe that carriers
will be able to set market prices for Internet access and be
well-paid for their investments--as broadband carriers in other
countries have successfully done.
Even as we welcome the deregulation of our
telecommunications system, we must preserve some limited
elements of openness and non-discrimination that have long been
part of our telecommunications law. In this regard, Google
supports tailored, minimally-intrusive safeguards to promote
net neutrality. Legislative approaches in both chambers have
helpfully acknowledged the need for some form of net
neutrality. We look forward to helping strengthen those
provisions to provide the safeguards needed.
Google believes that consumer should be able to use the Internet
connections that they pay for the way that they want. This principle--
that users pick winners and losers in the Internet marketplace, not
carriers--is an architectural and policy choice critical to innovation
online. Google itself is a product of the Internet. We care
passionately about the future of the net, not just for ourselves, but
because of all the other potential Googles out there. Indeed, we are
not alone: Our concerns are shared by Internet companies, small
businesses, end users, and consumer groups across the country. The
vibrant ecosystem of innovation that lies at the heart of the Internet
creates wealth and opportunity for millions of Americans. That
ecosystem--based upon a neutral open network--should be nourished and
promoted.
Mr. Chairman, Google commends you and the Members of this Committee
for your thoughtful leadership and attention in this area, and we look
forward to working closely with you in the weeks and months ahead.
II. The Lasting Lessons of the Internet
Some believe that the Internet was born and flourished out of a
fortuitous accident, a random interaction of market forces and
technology. But that simply is not the case.
The advent of the Internet took tremendous vision and initiative,
by numerous network engineers, and software developers, and hardware
vendors, and entrepreneurs. That advent also included visionary U.S.
policymakers who recognized that the government largely needed to get
out of the way, and allow the free market to work its genius in this
new interactive, online environment. At the same time, as I will
explain below, that policy judgment rested on an existing regulatory
framework that allowed open and nondiscriminatory access to the
Internet.
I was fortunate to be involved in the earliest days of the
``network of networks.'' From that experience, I can attest to how the
actual design of the Internet--the way its digital hardware and
software protocols, including the TCP/IP suite, were put together--led
to its remarkable economic and social success.
First, the layered nature of the Internet describes the ``what,''
or its overall structural architecture. The use of layering means that
functional tasks are divided up and assigned to different software-
based protocol layers. For example, the ``physical'' layers of the
network govern how electrical signals are carried over a physical
medium, such as copper wire or radio waves. The ``transport'' layers
help route the user's data packets to their correct destinations, while
the application layers control how those packets are used by a
consumer's e-mail program, web browser, or other computer application.
This simple and flexible system creates a network of modular ``building
blocks,'' where applications or protocols at higher layers can be
developed or modified with no impact on lower layers, while lower
layers can adopt new transmission and switching technologies without
requiring changes to upper layers. Reliance on a layered system greatly
facilitates the unimpeded delivery of packets from one point to
another.
Second, the end-to-end design principle describes the ``where,'' or
the place for network functions to reside in the layered protocol
stack. With the Internet, decisions were made to allow the control and
intelligence functions to reside largely with users at the ``edges'' of
the network, rather than in the core of the network itself. For
example, it is the user's choice what security to use for his or her
communications, what VoIP system to use in assembling digital bits into
voice communications, or what web browser to adopt. This is precisely
the opposite of the traditional telephony and cable networks, where
control over permitted applications is handled in the core (in headends
and central offices), away from the users at the edge. As a result, the
power and functionality of the Internet is left in the hands of the end
users.
Third, the design of the Internet Protocol, or the ``how,'' allows
for the separation of the networks from the services that ride on top
of them. IP was designed to be an open standard, so that anyone could
use it to create new applications and new networks (by nature, IP is
completely indifferent to both the underlying physical networks, and to
the countless applications and devices using those networks). As it
turns out, IP quickly became the ubiquitous bearer protocol at the
center of the Internet. Thus, using IP, individuals are free to create
new and innovative applications that they know will work on the network
in predictable ways.
Finally, from these different yet related design components, one
can see the overarching rationale--the ``why''--that no central
gatekeeper should exert control over the Internet. This governing
principle allows for vibrant user activity and creativity to occur at
the network edges. In such an environment, entrepreneurs need not worry
about getting permission for their inventions will reach the end users.
In essence, the Internet has become a platform for innovation. One
could think of it like the electric grid, where the ready availability
of an open, standardized, and stable source of electricity allows
anyone to build and use a myriad of different electric devices. This is
a direct contrast to closed networks like the cable video system, where
network owners control what the consumer can see and do.
In addition to this architectural design, the Internet has thrived
because of an underlying regulatory framework that supported openness.
Wisely, government has largely avoided regulating the Internet
directly. Google firmly supports this deregulatory approach, which is
supported by the openness and consumer choices available in this new
medium. At the same time, the underlying network through which
consumers access the Internet has rested on a telecommunications
regulations that ensured openness--including a century's-old tradition
in American law that telephone companies are not allowed to tell
consumers who they can call or what they can say.
In the zone of governmental noninterference surrounding the
Internet, one crucial exception had been the nondiscrimination
requirements for the so-called last mile. Developed by the FCC over a
decade before the commercial advent of the Internet, these ``Computer
Inquiry'' safeguards required that the underlying providers of last-
mile network facilities--the incumbent local telephone companies--allow
end users to choose any ISP, and utilize any device, they desired. In
turn, ISPs were allowed to purchase retail telecommunications services
from the local carriers on nondiscriminatory rates, terms, and
conditions.
The end result was, paradoxically, a regulatory safeguard applied
to last-mile facilities that allowed the Internet itself to remain open
and ``unregulated'' as originally designed. Indeed, it is hard to
imagine the innovation and creativity of the commercial Internet in the
1990s ever occurring without those minimal but necessary safeguards
already in place. By removing any possibility of ILEC barriers to
entry, the FCC paved the way for an explosion in what some have called
``innovation without permission.'' A generation of innovators--like Tim
Berners-Lee with the World Wide Web, Yair Goldfinger with Instant
Messaging, David Filo and Jerry Yang with Yahoo!, Jeff Bezos with
Amazon, and Larry Page and Sergey Brin with Google--were able to offer
new applications and services to the world, without needing permission
from network operators or paying exorbitant carrier rents to ensure
that their services were seen online. And we all have benefited
enormously from their inventions.
III. The Challenge Posed by a Concentrated Broadband Market
As we move to a broadband consumer network, the Internet's openness
is being threatened. Most consumers face few choices among broadband
carriers, giving carriers tremendous market power. At the same time,
the FCC has shown little willingness to extend the long-standing non-
discrimination rules governing our telecommunications system to the
incumbent broadband providers. As a result, carriers increasingly will
have an economic incentive to use their power to block competitors,
seek extra payments to ensure that Internet content can be seen, and
generally control consumer activity online.
Were there sufficient competition among and between various
broadband networks, Google's concerns about the future of the Internet
would largely be allayed. Unfortunately, the FCC's own figures
demonstrate the significant degree of concentration in the broadband
market. In 2004, the Commission reported that only 53 percent of
Americans have a choice between cable modem service and DSL service. Of
the remaining consumers, 28 percent have only one choice, and 19
percent have no choice at all. Thus, nearly half of all consumers lack
meaningful choice in broadband providers.
Moreover, the alternatives to DSL and cable modem service remain a
very small part of the market. As of December 2004, the FCC's figures
show that incumbent cable and telephone company broadband services
together constitute 98.7 percent of the total market. This leaves only
1.3 percent of the current market for alternative broadband networks
such as wireless, satellite, and BPL. Shockingly, the share of
alternative networks has shrunken steadily, from 2.9 percent in
December 1999. Thus, even the FCC's own figures demonstrate that there
are only two dominant and only partially-competitive modalities--cable
and telco--and a tiny and declining share of third modalities. \1\
---------------------------------------------------------------------------
\1\ AT&T CEO Ed Whitacre also has acknowledged the highly
concentrated nature of the consumer broadband market. In a recent
interview with BusinessWeek, he noted that in the broadband space,
``it's still about scale and scope. It's about owning the assets that
connect customers. The assets that probably can't be duplicated except
maybe by the cable companies.'' Certainly the FCC's numbers bear that
out.
---------------------------------------------------------------------------
To me, as a scientist, it comes down ultimately to questions of
physics and economics. First, can such alternative networks be built,
given the limitations of available network atoms and radio spectrum?
Second, will such alternative networks be built, given the immense time
and effort involved? Whether we are discussing BPL or WiMax or
satellite, the prospect of a near-term, ubiquitous competing broadband
platform does not appear promising.
In the absence of any meaningful competition in the consumer
broadband market, and without the user safeguards that have governed
similar last-mile competition to date, one would expect carriers to
have an economic incentive--and the opportunity--to control users'
online activity. Not surprisingly, this incentive is already
manifesting itself. Just last spring, the FCC found that the Madison
River Telephone Company was blocking ports used by its DSL customers to
access competing VoIP services. \2\ Similar examples are emerging
internationally as well. More revealingly, in recent months senior
executives of major U.S. carriers have indicated publicly that they
intend to force competing services and content providers to pay to be
seen online. \3\ Together, these examples show that carrier
discrimination is not a hypothetical concern.
---------------------------------------------------------------------------
\2\ Federal Communications Commission, In the Matter of Madison
River Communications, LLC and affiliated companies, Order, File No. EB-
05-IH-0110, adopted March 3, 2005.
\3\ Just three months ago, AT&T CEO Edward Whitacre observed that
only telephone carriers and cable companies have broadband pipes to
customers. He insisted that Google and other companies ``use my lines
for free, and that's bull.'' He then warned that ``I ain't going to let
them do that'' because ``there's going to have to be some mechanism for
these people who use these pipes to pay for the portion they're
using.'' Rewired and Ready for Combat, BusinessWeek online, November 7,
2005; Online Extra: At SBC, It's All About ``Scale and Scope,
BusinessWeek online, November 7, 2005. As noted below, Mr. Whitacre's
economic theories leave something to be desired.
---------------------------------------------------------------------------
IV. Debunking the Ever-changing Rationale for Network Discrimination
Recently, various justifications have been offered to explain why
carriers need to limit the ability of end users to control their own
connections to the Internet. For years many broadband carriers insisted
that they would never discriminate against application providers, or
limit their customers' access to the Internet. More recent arguments
for carrier discrimination have included the need to insert network
controls to protect their customers against spam and other security
threats, or to insure the quality of VoIP services. Now they argue that
their IP video services will require substantial bandwidth that
otherwise would be used by Internet applications. They also have
decided to look to applications providers such as Google to help pay
for the expense involved in providing broadband networks--and that any
attempts to curtail their network control will remove their incentives
to continue investing. None of these justifications stands up under
close scrutiny.
Network neutrality need not prevent anyone--carriers or
applications provider--from developing software solutions to
remedy end user concerns such as privacy, security, and quality
of service. The issue arises where the network operator decides
to place the functionality in the physical or logical layers of
the network, rather than in the application layer where they
belong. Such a move is contrary to many of the fundamental
architectural principles of the Internet. In particular,
attempting to solve applications issues at the physical layer
violates the layered, modular nature of the net. With a few
very narrowly-tailored exceptions--such as defending against
network-level denial of service attacks or router attacks--
altering or blocking packets within the network is inconsistent
with the end-to-end design principle. The end result is the
insertion of a gatekeeper that--even arguably under the best of
intentions--disrupts the open, decentralized platform of the
Internet.
Broadband capacity is not nearly as constrained as the
network owners would have us believe. Some applications, such
as voice over IP, take up very little bandwidth. Other
activities, such as multi-player real-time gaming or streaming
video, may require more capacity. However, such applications
could be subject to additional customer charges, based on the
access speeds required (as opposed to the source, destination,
or content of the traffic)--but without discriminating based on
who is providing the service.
The broadband carriers already are fully compensated by
their residential customers for their use of the network. These
companies can charge their own customers whatever they want, in
order to make back their investments. Trying to extract
additional fees from web-based companies--who are not in any
way ``customers'' of the provider--would constitute a form of
``double recovery.'' Google takes no issue with the broadband
carriers' ability to set prices for Internet access that
compensate for the costs and risks associated with their
network investments.
Some carriers are also seeking permission to create two
separate IP networks: one for the public Internet and one for a
privately-managed, proprietary service. Allowing segmentation
of the broadband networks into capacious ``broadest-band'' toll
lanes for some, and narrow dirt access roads for the rest, is
contrary to the design and spirit behind the Internet, as well
as our national competitive interests. And by definition,
favoring some disfavors others. In an environment where
consumers already have little to no choice of broadband
providers, the end result is a cramped version of the robust
and open environment we all take for granted today.
Prioritization inevitably becomes a zero-sum game.
Many seem to forget that the rationale for reduced
regulation at the FCC was based in part on the promise that
carriers would build robust broadband platforms to support the
Internet. Turning away from those commitments would undermine
the rationale for deregulation. Moreover, retaining some type
of user safeguard that promotes an outcome of net neutrality
would seem a small burden in the context of the immense
deregulation that has happened, and likely will continue to
happen, at the FCC.
Finally, we would do well to take important lessons from other
countries. Whatever metric one uses, the United States lags behind
other developed countries in the deployment and use of high-speed
connections to the Internet. Ironically, many such countries employ the
same principles of network openness and nondiscrimination that helped
shape our own experience of the Internet. Certainly the incumbent
providers in those countries do not appear to suffer from any lack of
incentives under those principles. For example, in the United Kingdom,
British Telecom has agreed to split itself into a retail arm and a
wholesale business, with a fundamental policy of nondiscriminatory
treatment governing the relationship between them and other providers.
In a number of Asian countries, both incumbent and competitive
providers operating in an unbundled environment sell huge amounts of
bandwidth--100 megabits or more per second--at a fraction of U.S.
prices. By abandoning the principles that helped foster user choice and
innovation, the United States risks falling further behind in the
global economy.
V. Preserving Neutrality in Our Telecommunications Law
Even as we welcome the deregulation of our telecommunications
system, we should preserve some limited elements of openness and non-
discrimination that have long been part of our telecommunications law.
Absent real physical layer competition, Google supports a tailored,
minimally-intrusive, and enforceable network neutrality rule.
Congress now is considering possible legislation in this area. We
are gratified that legislative approaches in both chambers recognize
the need for some form of network neutrality safeguards to protect the
interests of Internet users in a concentrated broadband market.
Unfortunately they do not go far enough towards creating enforceable
protections against carrier interference with consumer choices. \4\
Allowing broadband carriers to discriminate in favor of certain kinds
of services, and to potentially interfere with others, would take
control away from the end users of the Internet, and place it in the
hands of those who own the network. The current draft bills take a step
in the right direction, but ultimately do not go far enough to preserve
the vibrant innovation at the edge of the Internet. Our concerns are
shared by Internet companies, small businesses, Internet end users, and
consumer groups across the country.
---------------------------------------------------------------------------
\4\ Last July, Senator Ensign introduced S. 1504, the ``Broadband
Investment and Consumer Choice Act of 2005.'' While the focus is on
establishing streamlined nationwide video franchises, the bill also
contains language concerning consumer access to the Internet. In
September 2005, House Commerce Committee Chairman Barton issued a draft
bill, widely known as ``BITS I.'' A revised version, ``BITS II,'' was
released in November. Both drafts include provisions requiring
broadband providers to allow consumers to access content, applications,
and services, and to connect devices. Both versions also contain a
number of important exceptions to those duties, related to elements
like value-added services and enhanced quality of service.
Unfortunately, as written the exceptions in each of these bills are so
broad that they undermine the underlying neutrality requirement.
---------------------------------------------------------------------------
As Congress and the FCC consider these issues, we should establish
our end goal with as much clarity as possible, and then work back from
there to develop an optimal mechanism for achieving that goal. In this
context, we favor an environment much like the one that gave birth to
the Internet: where end users can engage in activities such as running
applications, employing devices, and accessing content, unfettered by
the provider of the underlying network connection. Such an environment
is best engendered by retaining a public policy framework that reflects
the modular, end-to-end, and open nature of the Internet.
The best long-term answer to this problem is significantly more
broadband competition. Ideally, physical layer problems merit physical
layer solutions. While the prospects for such ``intermodal''
competition remain dim for the foreseeable future, Congress should
ensure that the FCC has all the tools it needs to maximize the chances
for long-term success in this area.
We must stress here that finding a straightforward, minimally-
intrusive safeguard need not deny the network operators the ability to
recover their investments, and the proper incentives to further deploy
their networks. In a very real way, content and application companies
like Google need the high-speed access provided by broadband carriers,
just as they need the attractive new Internet offerings to drive demand
for that access. It is in our collective best interest for the United
States to have the best broadband capabilities in the world, bar none.
The prospects for continued American ingenuity and entrepreneurship
deserve nothing less.
VI. Conclusion
The Internet has become an immense catalyst for economic growth and
prosperity, in this country and around the world. However, our Nation
is risking the loss of that catalyst, just when the broadband era
should be creating the most benefits for the most people. Allowing the
interests of network owners to shackle the Internet could severely
undercut our Nation's ability to compete effectively in the global
market. We must do all we can to preserve the fundamental enabling
principles of the Internet: user choice, innovation, and global
competitiveness.
Google looks forward to working with this Committee to fashion
carefully-tailored legislative language that protects the legitimate
interests of America's Internet users. And that includes the future
interests of the next Google, just waiting to be born in someone's dorm
room or garage.
Thank you.
The Chairman. Thank you very much, Mr. Cerf.
Our next witness is Walter McCormick, President and Chief
Executive Officer of U.S. Telecom Association.
Walter?
STATEMENT OF WALTER B. McCORMICK, JR., PRESIDENT/CHIEF
EXECUTIVE OFFICER, UNITED STATES TELECOM
ASSOCIATION (USTelecom)
Mr. McCormick. Mr. Chairman, thank you very much. On behalf
of our 1,200 companies, it's a pleasure to be here before you
and this Committee today, and I appreciate the honor of being
able to testify.
Mr. Chairman, there is a lot of debate today about whether
or not the Internet will change. Senator Dorgan really began
this hearing by asking, Is our Internet going to change? And
so, I want to be clear about the position of our companies.
Our companies have a 100-year tradition of connecting
people to each other over our networks. We are 100 percent
committed to continuing this tradition. Our commitment to our
customers, our commitment to you, is this: We will not block,
impair, or degrade content, applications, or services. That is
the plainest, most direct way I know to address the concerns
that have been raised about net neutrality.
Now, how can you be assured of our commitment, in the
absence of a legislative mandate? Well, first, you can be
assured of this commitment, because our culture, our history,
our business has been focused, for more than a century, on
connecting our customers with those they choose. If one of our
customers wants to call Sears, we don't connect them with
Macy's.
Second, because there already exists oversight by the
Federal Communications Commission. The FCC's oversight has
proven to be effective. The Commission has made it clear that
it has the authority and the appetite to move swiftly to
intervene to protect consumers.
And, finally, because consumers aren't experiencing any
problems today, and there isn't any statute in place, there
isn't a problem that Congress needs to address.
Mr. Chairman, consumers expect Internet freedom. And if we
don't provide it, then the consumer will choose to do business
with someone else. Today, consumers have choices in the
marketplace. 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 power line is developing. This competition
results in benefits to consumers, the latest evidence coming
just in the past week, with AT&T announcing $12.99-per-month
DSL service.
As Mr. Cerf said, the Internet operates on networks that
are operated, in part, by our companies, networks that
interconnect with other networks. That is, in fact, as he said,
what the Internet is, networks interconnecting with other
networks. And have we sought to control, restrict the Internet?
No, we have not. We have, instead, invested, grown, and
increased the scale and the scope of the Internet. Indeed, we
have sought to advance public policies that will lead to
increased investment in networks--broadband networks, networks
that make the Internet even more robust.
The next-generation Internet holds enormous opportunities.
I refer not just to movies and entertainment, but to
telemedicine that can improve the accessibility and
affordability of healthcare, particularly in rural areas, to
telecommuting opportunities that can enhance our environment
and reduce our dependence on foreign oil, and other innovations
that our best minds have yet to imagine.
But the promise of the next-generation Internet is
dependent upon there being investment in next-generation
networks. Without broadband networks, these exciting
opportunities will remain beyond our reach. Therefore, public
policy must encourage and reward investment in networks. This
is the 21st century, the information century, and
telecommunications is at the heart of the information economy.
Again, I appreciate the Committee's interest in these
issues, and appreciate the opportunity to be here today.
[The prepared statement of Mr. McCormick follows:]
Prepared Statement of Walter B. McCormick, Jr., President/Chief
Executive Officer, United States Telecom Association (USTelecom)
Mr. Chairman, Co-Chairman Inouye and Members of the Committee, I am
Walter McCormick, President and Chief Executive Officer of the United
States Telecom Association (USTelecom). On behalf of our more than
1,200 innovative member companies ranging from the smallest rural
telecoms to some of the largest corporations in the U.S. economy, I
appreciate this opportunity to discuss net neutrality.
There is a lot of debate today about whether the Internet will
change. Let me be clear about the position of our companies:
Our companies have a 100-year tradition of connecting people to
each other over our networks. We are 100 percent committed to
continuing this tradition as we invest billions of dollars--nearly $15
billion in 2006 alone--building out new, next-generation broadband
networks capable of meeting America's rapidly increasing need for
speed.
Today, I make the same commitment to you that our member companies
make to their Internet customers: We will not block, impair, or degrade
content, applications, or services. That is the plainest and most
direct way I know to address concerns that have been raised about net
neutrality.
If you can go there today, you can go there tomorrow. The
functionality you have on the Internet today, you will have tomorrow.
Now . . . why is that the case in the absence of a legislative
mandate?
First and foremost, because our culture, our history, our business
has been focused for more than a century on connecting our customers
with those they choose. If a consumer wants to call Sears, we don't
connect them with Macy's.
Second, there already exists oversight by the Federal
Communications Commission today that has proven to be effective in
protecting consumers' right to be in control of their Internet
experience. The Federal Communications Commission has made it
abundantly clear that it has both the authority and the appetite to
move swiftly to intervene on behalf of the consumer.
Finally, 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--multiple
communications pathways--consumers simply will not continue to purchase
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 powerline is
available. This results in benefits to consumers . . . the latest
evidence coming just last week with the announcement of $12.99/month
DSL service from AT&T.
Mr. Chairman, the Internet operates today on networks operated by
our companies--networks that interconnect with other networks. That is,
in fact, what the Internet is--networks interconnecting with other
networks. And, have we sought to control, or restrict the Internet? No,
instead we have instead invested, grown, and increased the scale and
scope of the Internet. Indeed, we have sought to advance public policy
that will lead to increased investment in networks, broadband networks,
networks that make the Internet even more robust tomorrow than it is
today.
The next-generation Internet holds virtually unlimited promise to
enhance our Nation's economic opportunities and quality of life. I
refer not only to movies and entertainment, but also to telemedicine
advancements that can improve the accessibility, affordability and
quality of health care, particularly in rural communities . . .
telecommuting opportunities that can enhance our environment and reduce
America's dependence on foreign oil . . . and other innovations that
our best minds have yet to imagine.
To take this next step in the Internet's evolution requires vast
investment in new, next-generation networks with substantial bandwidth
capacity. These are multi-billion-dollar investments that must be paid
for by someone, in some way.
Should the costs all be loaded on the consumer? We say no.
All sides of the net neutrality debate agree that consumers should
be in control of their Internet experience. Where we differ is on
whether consumers alone should foot the bill for the advanced networks
that drive the Internet's growth and evolution. Simply put, our side
believes that businesses that seek to profit on the use of next-
generation networks should not be free of all costs associated with the
increased capacity that is required for delivery of the advanced
services and applications they seek to market.
If you want more, then you pay more, is as American as it comes. It
is a straightforward market proposition. As companies move into live
video and gaming and advanced services, they will be seeking more
bandwidth.
MovieLink, for example, is in talks with a leading communications
provider to purchase additional bandwidth capacity that will speed
movie downloads for its customers. How is this not good news for the
consumer?
Why would public policy preclude MovieLink from investing in
enhanced quality of service for its customers?
If this allows a consumer on a fixed income to buy a lower-cost
Internet service and MovieLink pays for the bandwidth boost needed to
download the occasional movie--how is this not an attractive choice to
offer consumers in the marketplace? Why should public policy pre-empt
it?
Consumers online habits are very diverse. Consumers don't need the
government mandating a `one size fits all' approach. What we all want
are choices. Our companies want to deliver these choices to consumers
as well as to companies whose business model requires exceptional
amounts of bandwidth. We will deliver these choices to the marketplace,
so long as public policy encourages investment in the advanced networks
that make them possible.
In your letter of invitation, the Committee posed a specific
question: Should Congress limit the ability of Internet access
providers to differentiate among different streams of information
traveling over their networks?
We believe such action would be premature and could trigger
substantial, negative unintended consequences. The Internet is the
success it is today because the government has maintained a vigilant,
but hands-off approach that has allowed companies to innovate in direct
response to the evolving wants and needs of their customers. Regulatory
or legislative solutions wholly without justification in marketplace
activities would stifle, not enhance the Internet. Laws can be
inflexible and difficult to fine-tune--particularly when applied to
technologies that are rapidly evolving.
Instead of new laws, we believe in the discipline of the
marketplace--customers voting with their dollars--alongside the
continued, proven vigilance of the FCC.
Mr. Chairman, bandwidth is a finite resource. If you have spent any
time on the Internet, you have likely experienced this. Some days the
pages load faster than other days. This has nothing to do with
management of the Internet. It's supply and demand--which is exactly
why we need to ensure U.S. policy encourages vigorous investment in
continually upgrading network capacity.
One visionary technologist recently compared the Internet to a Los
Angeles freeway:
``Traffic jams happen,'' he wrote. ``The more we upload and
download and share:
standard definition video,
high definition video,
home movies, and
multiple megabit photos,
the more bandwidth we consume. The more PCs and servers we backup
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.''
Internet traffic is multiplying. Network traffic is now growing
about 100 percent annually. Further acceleration is expected soon.
Cisco CEO John Chambers predicts 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.
I urge you to proceed with caution on proposals for government
regulation of the Internet.
The Chairman. Well, thank you very much.
Our next witness is Jeffrey Citron, the Chairman and Chief
Executive Officer of Vonage.
Jeffrey?
STATEMENT OF JEFFREY A. CITRON, CHAIRMAN/CEO, VONAGE HOLDINGS
CORP.
Mr. Citron. Thank you. Good morning, Chairman Stevens, Co-
Chairman Inouye, and Members of the Committee. My name is
Jeffrey Citron. I'm the chairman and CEO of Vonage Holdings
Corporation, the largest Internet-phone provider in the United
States. I am grateful for your invitation to address what I
believe is one of the most important technology policy
questions this Committee will face.
At root, the network neutrality debate is about who will
control innovation and competition on the Internet. Will
innovation be controlled by a few network operators, or will
the Internet remain open, with minimal barriers to entry for
entrepreneurs and garage inventors, alike?
Imagine if the electric company could dictate which toaster
or television you plugged into the wall. Imagine if Pepco said,
``Plug in our pre-approved affiliated toaster, and your power
will work great; but, if you don't, we can't promise the same
level of service.''
Of course this sounds ridiculous. Power companies don't
care who makes our toasters or our televisions. We plug them
in, and they just simply work. The power grid delivers the same
level of service to every appliance, and, as a result, the
market for appliances and consumer electronic devices is
vibrantly competitive. The same should be true for the
Internet.
Innovations enhance the value of networks. People buy
broadband because applications like Vonage cut their phone
bills in half, applications like Google improve their ability
to find information on the Internet. Plain and simple, it's the
applications that give the network its value, and the
applications are driving demand for broadband.
As the Nation's leading Internet voice provider, with 1.4
million lines in service, Vonage offers subscribers Voice-over-
IP phone service. Vonage and the VoIP industry are providing
consumers with new choices for telephone service that the 1996
Telecommunications Act did not contemplate. It is innovation,
not legislation, that created our service and brought this
competition to consumers.
For Vonage, the discussion about net neutrality is not
theoretical, but practical. The very existence of the Internet
phone industry disciplines the prices traditional phone
companies can charge. Because Vonage competes directly with the
telephone service of the network operator that also provides
high-speed Internet access, the incentives to discriminate
against us are very clear. In fact, Vonage has already seen
several smaller network operators block our service. Most
recently, major phone-company executives have suggested that
our service isn't going to work as well if we don't pay them an
extra fee.
Now, as a businessman, I don't get, nor do I expect, a free
ride on anyone's network, but the truth is, these network
operators are already getting paid not once, but twice. Vonage
pays network operators tens of millions of dollars every single
year to transport our services over the Internet to our
subscribers. On top of that, consumers spend billions of
dollars a year every year to get access to these high-speed
Internet connections. No one gets a free ride.
I'm also not suggesting that companies should not be able
to offer a tiered service to subscribers. The power company
charges more or less, depending on how much electricity or
power is used. But the power my toaster uses and the
performance my toaster gets does not come at the expense of my
refrigerator. Once we have paid for it, the power company
doesn't pick winners and losers.
In the same regard, customers already purchase varying
amounts of bandwidth; however, it would be a disaster if a
network operator were able to choose how much bandwidth the
customers could use for a given application on their broadband.
What would happen if, tomorrow, one of the network operators
decided to block Google, Vonage, Yahoo!, or Amazon? What would
be the legal recourse for applications that are being blocked
or degraded by a network provider? The regulatory landscape has
changed. If a network operator chooses to block these Internet
applications, there does not appear any legal recourse.
Innovation and competition would be left behind, with no
possibility of due process.
Let me underscore this point. There is nothing in a statute
or a regulation today that protects consumers or Internet
application providers from potential network discrimination. I
believe providing marketplace certainty to prevent
discrimination is as important as taking actions once a problem
already occurs.
Network operators maintain they will never engage in this
behavior. If, indeed, that was the case, why can't we work
toward a solution that ensures flexibility for network
operators while preserving the openness for application
providers? If the Bells are allowed to pick winners and losers
amongst the vast array of services available on the Internet, I
can guarantee one outcome. The customer will lose. The customer
will always lose. The customer will lose choice, flexibility,
and quality of service if the Bells can dictate how the
Internet is used.
The Internet gives tremendous freedom to individual users
and innovators. It has given consumers access to an
unprecedented variety of content, services, applications, and
devices. As entrepreneurs that use the Internet to change the
way people communicate and conduct business, I am increasingly
concerned that the inherent economic incentives of network
operators will put the creativity from the Internet in serious
jeopardy.
Can the government trust the phone companies to be the
exclusive gatekeepers of innovation and competition on the
Internet, given their history of anti-competitive practices and
customer abuse? If you do not address this issue, the Bells
will exclusively decide what you read, what you see and buy,
and how you ultimately use the Internet.
I look forward to working with the Committee to ensure that
the Internet remains an open and competitive foundation for
innovation.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Citron follows:]
Prepared Statement of Jeffrey A Citron, Chairman/CEO, Vonage Holdings
Corp.
Good morning Chairman Stevens, Co-Chairman Inouye and Members of
the Committee. My name is Jeffrey Citron, I'm the Chairman and CEO of
Vonage Holdings Corporation, the largest Internet phone provider in the
U.S. I am grateful for your invitation to address what I believe is one
of the most important technology policy questions this Committee will
face.
At root, the network neutrality debate is about who will control
innovation and competition on the Internet. Will innovation be
controlled by a few network operators, or will the Internet remain open
with minimal barriers to entry for entrepreneurs and garage inventors
alike?
Imagine if the electric company could dictate which toaster or
television you plugged into the wall. Imagine if Pepco said ``plug in
our pre-approved, affiliated toaster and your power will work great,
but if you don't, we can't promise the same level of service.'' Of
course this sounds ridiculous. Power companies don't care who makes our
toasters or televisions. We plug them in and they work. The power grid
delivers the same level of service to every appliance, and as a result
the market for appliances and consumer electronics is vibrantly
competitive. The same should be true for the Internet.
Innovations enhance the value of networks. People buy broadband
because applications like Vonage cut their phone bills in half, and
applications like Google improve their ability to find information.
Plain and simple, it's the applications that give the network its
value. And it's the applications driving demand for broadband.
As the Nation's leading Internet voice provider with 1.3 million
customers, Vonage offers subscribers voice over Internet protocol
(VoIP) phone service. Vonage and the VoIP industry are providing
consumers with new choices for telephone service that the 1996
Telecommunications Act never contemplated. It is innovation, not
legislation, that created our service and brought this competition to
consumers.
For Vonage, this discussion about net neutrality is not
theoretical, but practical. The very existence of the Internet phone
industry disciplines the prices traditional phone companies can charge.
Because Vonage competes directly with the telephone service of the
network operators that also provide high-speed Internet access, the
incentives to discriminate against us are clear.
In fact, Vonage has already seen several smaller network operators
block our service. Most recently, major phone company executives seem
to suggest that our service isn't going to work as well if we don't pay
them additional fees.
As a businessman, I don't get--nor do I expect--a ``free ride'' on
anyone's network. But the truth is these network operators are already
getting paid twice. Vonage pays network operators millions of dollars a
year for Internet access to deliver our service to subscribers. On top
of that, consumers pay billions of dollars every year to these
companies for high-speed Internet access. No one gets a free ride.
I'm also not suggesting that companies shouldn't be able to offer a
tiered service to subscribers. The power company charges more or less
depending on how much power is used, but once we have paid for it, the
power company doesn't pick winners and losers. In the same regard,
network operators should be able to charge varying amounts for
bandwidth, as they already do. However, it would be a disaster for
future innovation to hand them the power to pick technology winners and
losers.
What would happen if tomorrow one of these network operators
decided to block Google, Vonage, Yahoo!, or Amazon? What would be the
legal recourse of applications that are being blocked or degraded by a
network provider?
The regulatory landscape has changed. If network operators chose to
block these Internet applications, there does not appear to be any
legal recourse. Innovation and competition would be left behind with no
possibility of due process.
Let me underscore this point, there is nothing in statute or
regulation today to protect consumers or Internet application providers
from potential network discrimination. I believe providing marketplace
certainty to prevent network discrimination is as important as taking
action once a problem occurs.
Network operators maintain they will never engage in this behavior.
If indeed that is the case, why can't we work towards a solution that
ensures flexibility for network operators while preserving openness for
applications providers?
The Internet gives tremendous freedom to individual users and
innovators. It has given consumers access to an unprecedented variety
of content, services, applications, and devices. As an entrepreneur
that has used the Internet to change the way people communicate and
conduct business, I am increasingly concerned that the inherent
economic incentives of network operators will put the creativity from
the Internet in serious jeopardy.
I look forward to working with this Committee to ensure that the
Internet remains an open and competitive foundation for innovation.
Thank you Mr. Chairman.
The Chairman. Our next witness is Kyle McSlarrow, President
and Chief Executive Officer of National Cable and
Telecommunications Association.
Kyle?
STATEMENT OF KYLE McSLARROW, PRESIDENT/CEO, NATIONAL CABLE AND
TELECOMMUNICATIONS ASSOCIATION
Mr. McSlarrow. Mr. Chairman, thank you very much for having
me here this morning.
Lost in this debate sometimes is a simple reality, which is
that Internet service is a relatively immature marketplace. Ten
years ago, most of us had not even heard of an Internet
browser. Five years ago, the phenomenon of peer-to-peer
networking, with its huge implications for bandwidth
consumption, was an unknown. It was only last year that the--
for the first time, more American households had broadband than
dial-up. Thus, the business models that are developing right
now are really in their infancy.
Given the explosion of the Internet and its importance to
our competitiveness, the creation of jobs, indeed, our quality
of life, the right call, I believe, is to let the marketplace
develop, as it has, without government regulation. A very heavy
burden should be placed on those who would have the government
intervene for the first time.
I think we can all agree that consumers should have
reasonable expectations from the companies that deliver high-
speed Internet service to them. So, let me be clear, NCTA's
members have not, and will not, block the ability of their
high-speed Internet service customers to access any lawful
content, application, or services available over the public
Internet. As the FCC and Chairman Martin have noted, this
commitment should be consistent with tiers, in terms of a
customer-service agreement, and subject to an operator's
ability to manage its network. As an association that includes
programmers, as well as operators, we are also mindful that
lawful access includes respect for the rights of content
owners.
As the industry which largely created the residential
broadband market with $100 billion of investment over 10 years,
we fully embrace, and will seek to protect, a vibrant Internet.
The world described by Senator Dorgan and others this morning,
the goals of being able to pay for access and to get on
Internet and go anyplace you want, that is the world we live in
today, and that is the cable business model. So, we share the
goals that have been set forth today. The issue is whether or
not we should do something in statute to constrain how the
marketplace develops.
Putting so-called ``net-neutrality principles'' into law
may sound warm and fuzzy, but they are not neutral, in any real
sense. They represent a choice and a departure, with serious
consequences.
Mr. Chairman, in 2002 this Committee held a hearing in
which proponents, including some who are here today, pushed the
concept of net neutrality. And, at that time, some of those
proponents were saying unless we did something, the Internet,
as we know it, will end. And where are we 4 years later?
Companies like Google have come out of nowhere to build a
global empire with a market cap of over $100 billion or
something close to the entire cable industry's market
capitalization. And if you consider other companies which push
net neutrality, like Yahoo! and Amazon.com, you're talking
about some of the most successful companies on Earth. It is
obvious that they were wrong 4 years ago. All of them have
flourished. And the irony is that they have flourished, in
part, because cable companies, telephone companies, wireless
broadband providers have built a broadband infrastructure that
supports their business model.
Right now, innovation is exploding down the broadband
highway, and, perhaps unwittingly, proponents of net neutrality
have chosen the right phrase: they would risk throwing all of
that into neutral and freezing innovation and investment. And
one has to ask why.
The large Internet companies have succeeded with the
current network architecture, and have made an undeniably great
contribution to our Nation. But who is to say what the next
network architecture might look like? With net neutrality and
little or no incentive to invest in capital-intensive networks,
we will likely never find out. As some have noted, by not
allowing experimentation you force all networks to compete only
on size and price, and that benefits only the larger players,
limiting the types of competition and innovations that are
emerging today.
Just as Google and Yahoo! have an incentive to invest, as
they are now, in new broadband platforms like broadband over
power lines or Wi-Fi, broadband providers have incentives to
invest in entrepreneurs who have a new application which might
compete successfully with today's Internet market leaders in
order to bring more customers to the network.
What is really going on here is that companies that started
as entrepreneurs and innovators are now so invested in the
status quo that they fear not cable or telephone broadband
providers, but that next idea, that next search engine that
takes off. What they are asking you to do is freeze the
Internet in place with their position in the marketplace locked
in. There are many possible outcomes of doing so, but the one
thing I am confident of is that it would not be the consumer
who benefits.
Mr. Chairman, thank you. I look forward to answering any
questions you have.
[The prepared statement of Mr. McSlarrow follows:]
Prepared Statement of Kyle McSlarrow, President/CEO, National Cable and
Telecommunications Association
Good morning, Mr. Chairman and Members of the Committee. My name is
Kyle McSlarrow and I serve as the President and Chief Executive Officer
of the National Cable & Telecommunications Association. NCTA is the
principal trade association for the cable industry, representing cable
operators serving more than 90 percent of the Nation's cable television
households and more than 200 cable program networks. The cable industry
is also the Nation's largest broadband provider of high speed Internet
access after investing $100 billion over ten years to build out a two-
way interactive network with fiber optic technology.
I would like to focus this morning on three main points.
First, Congress's policy of leaving the Internet unregulated has
been a resounding success. The resulting network flexibility has
encouraged billions of dollars in investment. Companies that include
high speed Internet services among their offerings have the freedom to
experiment with multiple business models, producing more choices and
competition in content and providers for consumers, and more innovation
than ever before.
Second, any change to this policy could have serious repercussions
to continued network innovation and investment. Government, by its
nature, is ill-equipped to make judgments about the best business
models for an industry. This is especially true for a business as
dynamic as the provision of high speed Internet services. It is clear
that how those business models develop will directly affect the level
of investment and innovation we can expect over the next few decades,
but no one today can predict which business models will most
effectively promote those goals.
Finally, in the absence of any problem calling for a legislative
solution--and since the broadband services marketplace is characterized
by robust competition--Congress should refrain from premature
legislative action and allow the marketplace to continue to grow and
change so network and applications providers can offer consumers the
fullest range of innovative service options.
Congress's Decision to Leave the Internet Unregulated is an
Unquestioned Success
Keeping the Internet free of regulation has helped to spur
tremendous investment and competition in broadband networks and
services. Left free to create new business opportunities and services,
broadband providers (including cable operators, DSL, satellite and
wireless operators) have invested billions of dollars to bring high-
speed Internet access services to consumers across the nation. With
bandwidth usage growing at a rapid pace, continued investment will be
needed to keep broadband services robust.
If broadband providers are to continue to make these investments,
and if consumers are going to be given the levels of services and
innovative new products and features they desire, all at prices they
can afford, broadband providers need to have continuing flexibility to
innovate in the business models and pricing plans they employ.
Likewise, websites and content providers also need the flexibility to
experiment with business models, and to partner with broadband
providers in doing so.
Many so called ``net neutrality'' proposals, however, would seek to
specify today which business models are permissible, and which ones are
not, both for broadband providers and for website owners and content
providers. They would impose by government fiat outcomes that are
better left to the marketplace. This is especially so where that
marketplace is highly competitive, where no real world problems needing
a solution have been identified, and where the pace of technological
development is breathtaking. There can be no better circumstances than
these to leave it to the marketplace rather than government to be the
regulator.
It is far too early for us--or you--to predict which business
approaches will succeed in the long run. Any attempt to do so runs the
unintended, but high, risk of promoting an approach that fails in the
market. By the time the law catches up to the market, it will be too
late to recapture the momentum that characterizes broadband today. The
hands-off policy has given us the flexibility to innovate and respond
to consumer demand. Abandonment of that policy will undermine--not
promote--consumer choice.
Internet Regulation Will Direct Resources to Litigation, Not Innovation
Attempts to impose such requirements on broadband network providers
also would lead to endless and expensive litigation. Even assuming
appropriate regulations could be written--and because this is an area
of rapid technological change, we do not think that assumption is
warranted--they would still lead to uncertainty as to their actual
application. They would also lead to the creation of a new bureaucracy
to apply such rules and add layers of additional costs for dealing with
the regulations and bureaucracy.
Such costs might be undertaken were there real world problems that
needed government intervention to remedy. But again, where no one has
yet identified such problems, where such regulations would likely
increase costs and stifle innovation, and where there is a vigorously
competitive marketplace, one has to ask the question, why take such an
enormous risk?
Thank you again for inviting me here today. I would be pleased to
answer any questions you may have.
The Chairman. The next witness is Earl Comstock, President
and Chief Executive Officer of COMPTEL.
Earl?
STATEMENT OF EARL W. COMSTOCK, PRESIDENT/CEO, COMPTEL
Mr. Comstock. Thank you, Mr. Chairman and Members of the
Committee. It's a pleasure to be here today.
I think it's quite fitting that it is almost 10 years, to
the day--tomorrow will be the 10th anniversary of the 1996 Act,
which many of you spent a lot of time on, and I did, as a
staffer. And I think it's quite fascinating to hear the views
that are being expressed today. What no one has mentioned is
that the Internet today succeeded because of decisions that
Congress made in 1996.
And I think it would be very instructive for the Committee
to go back and review two reports that the General Accounting
Office, at the time, now the General Accountability Office, put
out and sent to every Member of Congress, one in September
1994, one in January 1995. What's fascinating in reading those
reports--and I just reread them over the weekend--is that much
of what's being discussed today was being discussed then.
With all respect to the other witnesses, we did talk about
Voice-over-IP. We did talk about the Internet. Many people
forget there were was an entire title of the 1996 Act having to
do with Internet pornography, so it's fascinating to me that we
knew nothing about the Internet, yet the members were prescient
enough to look at Internet pornography.
So, clearly, people did know about the Internet. We called
it the ``Information Superhighway,'' back then. And the only
thing that wasn't really firmly planted was whether or not TCP/
IP was going to be the victor in the marketplace, or whether it
would be, what the Bells were pushing, which was called ISDN,
integrated services digital network.
But that same fight, the ISDN fight versus the TCP/IP
fight, is instructive for today. What the Bells are doing, and
what the cable companies have already done, is engineer their
networks to create scarcity so that they can then manage the
network in a way that favors their content and services.
Today, the Internet2, which you'll hear from later on
today, they are building the next-generation network. They have
been since 1995. And what they discovered, through their own
research, looking at this question of quality of service which
you hear a lot about, is that the answer to quality of service
is bandwidth. And the reality is that you don't need quality of
service, that what you want is an Internet that does precisely
what Mr. Cerf said, it's very simple, it's very robust, in that
sense, it doesn't favor one service over the other, it's all
best efforts. And as long as you have the bandwidth, that's not
a problem. Other countries today--consumers in other countries
today can get 100 megabits-a-second. Millions of university
students today can get 100 megabits-a-second. And all of you
know universities are not rolling in cash, yet they're able to
come up with the ability to get to the desktop in dormitories,
just like a small community, 10 megabits, 100 megabits, and
sometimes more.
So, it's just fascinating to me that we're reinventing the
wheel here, and once again you're being presented with
promises. I will say, the Bell companies seem to be the best at
making the promises, and the worst at keeping them. If you
review many of your States, if you look back, they promised to
build out a broadband network 12 years ago. In California, for
example, they committed to building out a network by 2005 that
was going to get 45 megabits to every consumer. They haven't
met that promise, not by a long shot. I think there's something
in Senator Boxer's front office, a press clipping about that.
So, we've heard these promises before.
I think you should take credit, too, for the success of the
1996 Act. Cable was deregulated on price in the upper tier in
exchange for building out a broadband network. They have
largely succeeded. According to their own statistics, now more
than 105 million homes are capable of receiving broadband--or,
rather, they pass 105 million homes, and 88 percent of those
are capable of receiving broadband.
Now, the question--you know, somebody made the statement
that we're 16th in broadband deployment. We're not 16th in
broadband deployment by that statistic. We're far ahead of most
nations of the world. We're 16th in broadband penetration. And
so, the point that you need to keep in mind here is, the
Internet was built on a framework called ``common carriage.''
It assured interconnection, reasonable access to service,
attachment of devices. These are all critical elements that are
not being addressed by the FCC today in their net-neutrality
program.
And so, we have been successful. There was a framework in
1996. Is it time for a few changes? Absolutely. Things like the
cable section could probably be gotten rid of if we had
bandwidth in the home. You could do cable a la carte. We can do
telemedicine. And this is about the future. But all I can say,
looking back from the 1996 Act and that experience is, we still
don't know, today, until some various court cases are settled,
what the final shape is of that Act, based on the FCC and the
court's interpretations. So, whatever you do now, it's not
going to be about 2007 or 2010. It's going to be about 2015 or
2025. So, you really have to look down the pike. And I do think
you should look back very carefully over the promises and
commitments that have been made by the network operators,
particularly the Bell companies, and how they've done it. And
this is a fight about who's going to control innovation. Is it
going to be controlled by a few network operators, the
gatekeepers on the Internet, or is it going to be controlled by
the devices at the edge, and, therefore, allow innovation
throughout the country?
Thank you.
[The prepared statement of Mr. Comstock follows:]
Prepared Statement of Earl W. Comstock, President/CEO, COMPTEL
Mr. Chairman and members of the Committee: My name is Earl Comstock
and I am the President and CEO of COMPTEL. COMPTEL is a non-profit
trade association that was formed by the merger of three trade
associations, each of which represented segments of the competitive
communications industry. Today COMPTEL has 180 voting member companies
and stands as the only trade association representing a broad cross
section of the competitive industry. Our members are taking action to
advance communications through innovation and open networks, and are
responsible for introducing many of the innovative services that
consumers and businesses take for granted today.
Introduction
It is a pleasure to be here to testify about the concept of ``net
neutrality'' and its role in any potential rewrite of our Nation's
communications laws. As a former staff member I worked for the Chairman
and this Committee on the last major rewrite effort, the
Telecommunications Act of 1996. Tomorrow marks the 10th Anniversary of
the enactment of that Act, and it is instructive to reflect back on
that effort as the Committee considers once again an overhaul of our
Nation's communications laws.
What the history of the 1996 Act tells us is that this new rewrite
should be concerned with what the legal landscape will look like in
2015 or 2025, and not in 2007. It is 10 years since the 1996 Act was
enacted, and we are only now seeing the final shape of how the FCC and
courts interpret what Congress crafted. As a result, the Committee
needs to look well into the future as it drafts any rewrite.
The key to a successful rewrite will be how well Congress
articulates what it wants our Nation's communications infrastructure to
look like 10 or 20 years hence. Does Congress want an even better
Internet, two competing cable systems, or something else? Much of what
that vision looks like will be decided by how Congress approaches the
issue of net neutrality. The challenges presented are immense, but
there also great opportunity. The convergence of technologies that was
much anticipated in 1996 is finally happening, and that gives Congress
a real opportunity to consider significant changes in our
communications laws.
For example, fiber optic networks have almost unlimited capacity.
If consumers are given access to the kind of broadband speeds fiber and
coaxial cable allow, Congress could eventually eliminate the cable
provisions of the current law almost entirely. Must carry and program
access requirements, for example, would no longer be needed if
consumers can get 100 megabits per second, as Internet2 now delivers to
desktops at universities around the country and consumers in Stockholm
and Tokyo can already purchase. With that kind of capacity consumers
could go directly to Disney.com and download whatever movie or HDTV
program they want. Likewise, consumers who wish to watch the Olympics
could go to NBC.com or could watch in a foreign language by going to
the website of a local TV station that is covering the event.
Basically, consumers could get content a la carte by going to the
website of the content producer.
Computers and high-speed networks can allow America to stay at the
cutting edge of the Information Age. Our economy is increasingly
service oriented, and new information services based on computer
applications are a critical driver of our future growth. If businesses
and consumers have access to reasonably priced transmission capacity,
then any person can invent the next Google, Amazon, eBay, or Yahoo! and
hope to succeed. If rural areas can get access to adequate transmission
capacity, then rural States and communities can share in that economic
opportunity and growth.
Whether or not America will continue to be a world leader in the
21st century's Information Age economy will depend in large measure on
how Congress rewrites the law. The Federal Communications Commission
has recently made significant changes to the structure of our Nation's
communications laws through its interpretation of the 1996 Act. As a
result, Congress has a basic choice to make. In rewriting the law it
can reaffirm the common carrier policies that led to the creation of
the Internet and the tremendous explosion of innovation and growth that
accompanied the Internet, or it can reaffirm the FCC's recent decision
to abandon those policies and trust that the private business interests
of a few network operators--namely the Bells and the cable companies--
will protect consumers, provide access to competing content and service
providers, and enable the next generation Internet to be built. If
history and basic business behavior are any guides, the approach taken
by the FCC will prove catastrophic.
The Internet Depends on a Common Carrier Framework
The FCC's new approach will prove catastrophic precisely because
the Internet depends on basic common carrier rules to ensure the
availability of an essential ingredient, namely the transmission
capacity over which Internet applications reach businesses and
consumers. Those basic rules required all common carriers--incumbents
and competitors alike, to provide non-discriminatory service upon
reasonable request, to permit attachment of devices to the network, and
to interconnect their networks with other operators on a non-
discriminatory basis. Without these basic requirements, the net
neutrality principles that the FCC has articulated to protect the
Internet fall well short of that goal, and the robust competition in
information services that has been the hallmark of the past 25 years
will soon diminish to a shadow of its former grandeur.
This rewrite will in many senses determine America's economic
future. Communications is increasingly at the heart of America's
economy. Companies depend on communications networks to offer content
and services to consumers, advertise, manage inventory, and transmit
voice and data between locations. Today everyone takes for granted that
they will be able to buy transmission services and use those services
without interference. That is no longer the case under the FCC's new
approach, and will not be the case if the similar approaches taken by
S. 1504 or S. 2113 are enacted. Under all three approaches, no longer
will AT&T, BellSouth, or other companies that use public resources be
required to act as common carriers with an obligation to offer non-
discriminatory service upon reasonable request.
Without that obligation, network operators like AT&T will be able
to refuse service to, or discriminate against, anyone offering
competing content or services, just as the cable operators do today.
The CEOs of the various Bell companies have already been saying
publicly how they intend to do just that--namely that the Bell
companies will decide who can get content or service delivered via the
Bells' ``higher'' quality ``private'' networks.
This will cause a radical change to the Internet and the
information services market. Information services--the content and
services made possible by computer applications--all depend on
transmission networks to reach consumers. The information services
market has been robustly competitive--with tremendous innovation as a
result--because the FCC in 1980 required all public network operators
(incumbents and competitors) to provide their transmission services on
non-discriminatory terms and conditions. By regulating the much smaller
class of transmission networks--which everyone needed to compete--the
FCC did not have to regulate anyone's provision of information
services. By reversing that decision the FCC now makes it possible for
the small class of network operators to become gatekeepers on the
Internet and dominate the larger information service market.
The FCC's Reliance on Inter-Modal Competition is Not Well Founded
The FCC's reversal is predicated on a flawed assumption, namely
that the barriers to entry for transmission networks are so low that
anyone who wants to compete can build their own network. Nothing is
further from the truth. The truth is that all three of the ubiquitous
wired networks--telephone, cable, and power--were built in a monopoly
environment. The builder was protected from competition by law, and
could build their networks with the assurance that they would get every
customer. Each of those entities is now entrenched in their market with
ubiquitous facilities and more than 80 percent of the customers, and
therefore a substantial revenue stream. Further, to improve their
transmission capability incumbents merely have to upgrade existing
infrastructure using ongoing customer revenue. In contrast, in the
absence of any rules requiring sharing of existing infrastructure, a
new entrant has to build new facilities with no customers and no
revenue, and then has to win its customers from the incumbent. That is
a very high barrier to entry.
The FCC points to wireless and powerline operators (both of which
have significant facilities) as potential competitors. But an
examination of the facts regarding broadband over powerline (BPL) and
wireless make clear they are not real competitive threats for the
foreseeable future. First and foremost, there is the empirical
evidence. The U.S. is not the only testing ground for new technology.
Nowhere in the world are BPL or wireless being commercially used as the
primary means for data or video communications. In the U.S., the latest
FCC report on broadband shows that wireless, BPL, and satellite account
for less than 3 percent of the market, and that their share of the
market is actually declining. The reality is that there are significant
technical difficulties that remain to be resolved with BPL, and you
also need significant investment to deploy the needed facilities.
Likewise, a review of the empirical evidence shows that wireless is
a complement to wired services, and not a replacement. First and
foremost, wireless services are more expensive on per-minute (in the
case of voice) or per-byte (in the case of data) basis. People are
willing to pay more for wireless because of the mobility, but almost no
one uses wireless to replace wired service where wired service is an
option. The number of business users that rely entirely on wireless is
limited to those that can only get service by satellite, and in the
residential market fewer than 5 percent have chosen wireless only.
The FCC also likes to cite WiMax (a wide area wireless network
standard) as a potential wireless competitor providing broadband
service. Again, the facts don't support their enthusiasm. WiMax, which
like BPL and fixed wireless many of COMPTEL's members are seeking to
use, has numerous barriers to entry that must be crossed. First, a
final standard needs to be agreed to. Second, any competitor needs to
obtain spectrum rights, which must be acquired at auction. Third, they
would need to build out a network. Fourth, any customers they gain must
be won over from a Bell company or a cable company. And finally, this
must be done in the face of competition from incumbent wireless
companies owned by the Bells.
Put simply, the FCC is betting America's future on the good will of
the Bell companies and large cable operators. Counting on companies to
act in the public good against their own financial interest has been
tried before, and it has never worked. The FCC believes that robust
competition between these two entrenched incumbents will ensure that
unaffiliated content and service providers will continue to get access
to consumers. Yet in the 10 years since the passage of the 1996 Act not
one large cable company has voluntarily let any competitor offer
competing service over its network, and not one Bell has voluntarily
negotiated an interconnection agreement with a cable company or
competitor. The reason is understandable--no CEO is going to
voluntarily help a competitor. It is only laws that can make that
happen.
Net Neutrality is Fundamental to Preservation of the Internet
The need for laws is where the concept of net neutrality comes in.
``Net neutrality'' is short for network neutrality, and is a concept
that is much debated these days in connection with communications law
reform. However, it is often not clear exactly what is meant by net
neutrality. Depending upon who is speaking, views of net neutrality
range from the cable and Regional Bell companies view of the concept as
``a solution in search of a problem'' to the view of many consumer
groups, competitors, and content providers (companies like Google,
Amazon, and eBay) that net neutrality is the key to preserving the
future of the Internet.
So, precisely what is net neutrality? Net neutrality is generally
discussed in two basic ways. One approach, the one taken by the FCC and
S. 1504, focuses on a consumer's ability to access any lawful content
and services. Under this approach, a retail end user is entitled to
access any lawful content and services using their own devices, and the
debate is generally focused on what steps, if any, need to be taken to
ensure that consumers can in fact access whatever content and services
they chose. A fundamental limitation of this approach is that it only
addresses consumer rights, and not the rights of the content and
service providers. As a result, a fundamental assumption built into
this approach to net neutrality is that there are no issues associated
with the ability of content or service providers to get on the network
to offer their services.
The other approach, the one taken by network engineers and
academics since the Internet was first being developed in the 1980s,
focuses on the role of the transmission network. The key concept of the
neutral network approach is whether or not the network is ``neutral''
with respect to the content or services being sent over the network;
i.e., is the network simply a ``dumb'' pipe that carries information
controlled by end users or does the network operator play an ``active''
role in controlling content and services through ``intelligence''
(equipment) that interacts with the content and services sent over the
network. At the heart of this view of net neutrality is a debate over
where innovation will occur with respect to the content and services
provided over the network. Does innovation occur at the ``edge'' of the
network through devices attached by both business and residential end
users, or does it occur through devices controlled by the network
operator in the ``core'' of the network? A fundamental advantage of
this approach is that it looks both the ability of consumers to access
content and services and the ability of persons to offer content and
services. By doing so, this approach also brings in the fundamental
common carrier elements that ensure access to the network for both
consumers and providers.
How Congress chooses to address net neutrality will greatly
influence the shape of broadband networks and services in America. If
Congress looks at the problem narrowly, as the FCC and S. 1504 have
done, then they likely will fail to prevent discrimination if that is
their goal. The reason is because the consumer approach deals only with
prevention of discrimination once a network operator has agreed to
provide service to that consumer. If the network operator is under no
obligation to provide service (as is the case with the FCC approach and
that taken by S. 1504), then the operator can legally discriminate by
simply refusing service. Further, this narrow consumer approach fails
entirely to deal with the much more likely, and historically more
prevalent, forms of discrimination, namely discrimination against
competitors or potential competitors.
A network operator that is under no obligation to interconnect
their network with other networks or allow attachment of devices on
reasonable terms and conditions has every incentive to refuse
interconnection or attachment if by such refusal the network operator
can thwart a competitor. The network operator can also discriminate in
more subtle ways than outright refusal, for example by using bandwidth
starvation. Indeed, several different Bell company officials have
already suggested in the press that they intend to create a two-tier
Internet using bandwidth allocation in which their network will be
given priority through the use of Quality of Service management
techniques. If Congress allows network operators to take these steps,
history will have reversed itself. The common carrier open network
requirements that led to the Internet will no longer be in place, and
innovation will depend on having the cooperation of the network
operator. As a result, the potential to have a world in which consumers
can access any content, including HDTV and other high bandwidth
services, will disappear.
There Are Many Ways Network Operators Can Discriminate
There are many ways in which a network operator can discriminate.
As a result, the concept of net neutrality must deal with each of them.
Some, like bit discrimination and port blocking, are addressed by both
the narrow FCC approach and the broader neutral network approach.
However, the FCC approach stops there, far short of what is needed. To
ensure that the Internet we have today continues to grow and flourish,
there are several other discriminatory tactics that need to be
addressed. These include:
Attachment of devices is a concept that refers to the ability to
attach devices to a transmission network. Telephone network users
generally have the right to attach any device to the network without
obtaining the network operator's permission so long as the device will
not harm the network or other users of the network and conforms to
certain minimal specifications. In contrast, cable network operators
can control what kind of devices are allowed to attach to their
network, and that is the reason there is limited competition in set top
boxes and cable modems and why many cable users still rent their
devices. The ability to attach devices without approval or interference
from the network operator is essential for continued innovation.
Bit discrimination is a term used to describe actions by the
network operator to either favor its own content and services or to
degrade the content or services of other providers by using information
conveyed in the individual bits of a message to identify which messages
to favor or degrade. Bit discrimination can be accomplished in any one
of several ways. A network operator could, for example, instruct its
routers (machines which direct the flow of information to its
destination) to delay all traffic bound for Google.com by sending it to
another network operator rather than carrying it directly to the
address. In the alternative, the network operator could use the
sender's address to favor its own services by instructing its routers
to give priority to all packets that originate from a Verizon.net
address.
Port blocking is a term used to describe a specific form of
discrimination in which the network operator uses information in the
message header which tells the receiving computer which software
application to use to open the information. The computer knows which
software to use by the ``port'' through which the message enters the
computer's communications hardware. If a network operator wishes to
block a particular application, for example a Voice over Internet
Protocol (VoIP) telephone call, it can do so by blocking messages
destined for the port used by that application.
Quality of service is a term that is generally used to describe
service offerings in which the transmission component is managed with
respect to bandwidth, latency, jitter, priority, or other technical
aspects of the transmission in order to ensure the quality of a
particular service offering. Quality of service (QoS) is used to
differentiate service offerings from the baseline standard for Internet
transmissions, which operate on a ``best-efforts'' basis. In cases
where bandwidth constraints or other factors result in congestion in
the transmission network, QoS can be used to prioritize the delivery of
certain types of services (for example VoIP or video services).
Many network operators are attempting to market QoS as an
alternative to the ``best efforts'' approach of the Internet. Best
efforts means that all traffic has the same priority, and the network
uses its best efforts to deliver all of the traffic. The problem
created by QoS is that it requires additional protocols and network
management software in order to provide it, thus increasing the cost
and complexity of the network.
Perhaps more importantly, QoS negates one of the key benefits of
the Internet, which is the use of a common protocol (IP) to allow
unimpeded transmission across multiple networks. When QoS is added, it
helps balkanize the Internet because transmissions across multiple
networks require cooperation among the network operators to ensure that
each is using the same QoS protocols. Six years ago Internet2 (an
organization tasked with designing and testing next generation Internet
technologies) took a close look at QoS technology, and concluded that
the cheaper solution to congestion problems was to add bandwidth and
continue to use best efforts.
Bandwidth starvation is a term used to describe actions by a
network operator to degrade or block applications or services by
limiting the bandwidth (capacity) available to provide those services.
One way to think of bandwidth starvation is in terms of trying to drink
through a straw instead of a garden hose. Bandwidth starvation can be
accomplished in a number of ways. At the consumer end, network
operators can limit the upstream (sending) capability of user equipment
in order to prevent consumers from providing content to other users, or
can limit the bandwidth available for downstream content in order to
prevent consumers from being able to access competing content. Examples
of this would be limiting upstream transmission so that large bandwidth
transmissions like digital video content takes much longer to send,
thus limiting consumers ability to send movies, or limiting downstream
transmission so that video streaming can't compete with the network
operator's cable offerings. On the network end, the network operator
can create bandwidth starvation by limiting the capacity of its
interconnection points, so that content coming from a competing network
provider has to squeeze through a narrow choke point, or by creating a
two-tier network (as some Bell company officials have proposed) where
the bulk of the bandwidth is reserved for the network operator's
``private'' network and remainder is allocated to the ``public''
network.
Interconnection is a term used to describe the physical linking of
two transmission networks. The Internet is a series of interconnected
transmission networks that all use a common addressing protocol (the
Internet Protocol or IP) to facilitate seamless transmission across the
disparate networks. The primary issues with respect to interconnection
are the bandwidth (capacity) of the interconnection and where the
interconnection will occur. If the connection between the two networks
is too small for the amount of traffic being sent from one network to
the other, congestion will occur and transmissions can be degraded or
lost. Likewise, if a network operator can only interconnect with
another operator at a single location or at distant locations,
congestion and/or degradation can occur because of the concentration of
traffic across a single point or the additional distance traffic must
travel. Historically, if a network operator is under no legal
obligation to interconnect its network, voluntary interconnection
rarely occurs.
Caching is a term that refers to the local storage of information
that is frequently requested by an end user. By storing frequently
accessed information, in particular large files like pictures or
graphics, at a local storage site near the end user, caching allows the
content provider to reduce network congestion (to the extent there is
any) and reduce the time needed to run an application (for example, web
pages appear faster and file downloads take less time). Caching arises
as an issue in net neutrality discussions in two ways. First, because
caching must be done on devices located closer to the end user, in
general these devices are physically located in a facility under the
control of the local network operator (for example in a central office
or a cable head end). In the alternative, if the caching is done at a
physical location not under the network operator's control, then the
local storage device needs to be interconnected with the local network.
As a result, in the absence of a right for competitors to physically
collocate equipment or to interconnect with a local network, a network
operator could use local caching to favor their own content and
services.
Each of these potential discriminatory actions by themselves would
be sufficient to seriously inhibit, if not prevent entirely,
competition in the provision of information services. The attached
diagram illustrates the many different potential choke points that can
come into play in the absence of strong net neutrality requirements.
Interconnection issues occur at the incumbent local exchange carrier
(ILEC) central offices (numbers 2 and 4) and at the interconnection
point with the ILEC network (number 3). Bandwidth starvation is
illustrated by the narrow red ``ILEC public Internet'' lines connecting
homes to the central offices and the central offices to the
interconnect point. The broader blue pipes of the ILEC illustrate how
the ILEC reserves more capacity for itself and its service offerings.
Conclusion
To prevent the discrimination that is at the heart of net
neutrality concerns, Congress should maintain the basic legal framework
that made the Internet possible. Under that framework any network
operator that built transmission facilities used to provide service to
the public was obligated to provide non-discriminatory transmission
service upon reasonable request, to allow attachment of devices, to
interconnect their network with others on reasonable terms and
conditions, and could not interfere with content or services sent over
their networks. Congress needs to affirmatively overturn the FCC and
require that this framework stay in place. If and when competitive
markets in fact develop for transmission services, then there will be
no need to remove the requirements because the market will dictate
similar behavior. As history has repeatedly demonstrated, it is only
those who can discriminate who object to a requirement that they not do
so. Net neutrality is no exception. In the interests of preserving
America's leading role in the Information economy, Congress should
include net neutrality requirements that preserve access and prohibit
interference in any rewrite.
The Chairman. Thank you very much.
I've got to say, the five of you have given us statements
that I think I personally could sit here and ask you questions
for 2 hours, and still not be finished. But we do thank you all
for coming, and thank you for the times that you've spent with
us in trying to really figure out what to do about this
proposal to change the 1996 Act.
If there's no disagreement, we'll limit ourselves to 5
minutes. We've got another panel coming. And I would urge
members to stay within the time frame.
Mr. Cerf, why doesn't it make sense for a company like
Google to invest in broadband pipes to ensure delivery of
content?
Mr. Cerf. I'm sorry, ``When does it make sense for Google
to''--I wasn't hearing you, Senator.
The Chairman.--invest in their own----
Mr. Cerf. Oh, to invest.
The Chairman.--pipes for delivery of content, broadband
pipes. Why wouldn't you do that?
Mr. Cerf. In fact, Google does invest in broadband
facilities, but it does so to build its own internal network in
order to connect all of its computer centers together. We
interconnect to the rest of the Internet in order to interact
with consumers, people who use the Google services. We've been
relying on the telcos, the cable companies, and others all
around the world to service those customers. Despite the market
cap, we're not in a position to build broadband throughout the
world, but our constituencies, our users, a billion of them,
are everywhere. So, it doesn't make sense for us to try to
build the entire broadband network for the whole world. What
we're trying to do is to build the system that will service
those people through others who already are making money out of
access--building access to the Internet.
The Chairman. You've got a magnificent search engine out
there. There's no question about that.
Mr. McCormick, we've got some testimony that suggests that
network providers could offer more capacity if they wanted to.
Are any of your companies limiting capacity just to restrict
access?
Mr. McCormick. Absolutely not. We are not, in any
intentional way, limiting capacity to restrict access. Just the
opposite. We're looking to build new networks and to capitalize
the investment that will allow us to build those new networks.
And the question that we constantly get from investors is,
``Well, why in the world would you build a network?'' Are you
able to offer movies? Google's going to--talking about offering
movies. Vonage is talking about offering voice without a
network. In fact, Google could offer movies without a
franchise. But woe unto our companies if they build a network
and want to offer video. Then you have to get a franchise, or
subject yourself to other regulations.
So, the question we constantly get is, ``If you're going to
expand to these networks, how are you going to earn a return on
that investment?'' And with America being 13th in the world in
broadband deployment, one of the big public-policy questions
that faces this Congress is, how do we incentivize, how do we
reward, investment in networks? How do we encourage investment
in networks?
Our companies, as you know, are investing. Verizon is
spending over $20 billion to build out the FiOS network. So, we
are investing, and we are looking for new ways of being able to
capitalize that investment.
The Chairman. Well, that wasn't quite my question, but I,
again, say, Are you attempting, in any way, to limit,
artificially, the capacity to prevent others from having
access?
Mr. McCormick. No, Mr. Chairman, and we will not
artificially limit capacity, nor will we block or impair or
degrade any content, any service, or any application.
The Chairman. Thank you.
Mr. Citron, I have been told that there was one company
that blocked the ability of end users to subscribe to VoIP. And
there was a consent decree that said that that could no longer
take place. Are any U.S. providers, other than that one,
blocking the ability of end users to subscribe to VoIP?
Mr. Citron. Sure, Chairman. First, on the case of the
provider who blocked us, Madison River, that occurred prior to
the deregulation of DSL services. So, should Madison River re-
engage in blocking, today, the FCC may not be able to act
appropriately to stop them from doing so.
As it relates to other providers blocking our services,
yes, we do come, from time to time, across small providers who
do block or degrade our services purposely, either explicitly
or implicitly, and we do contact those network providers to try
to provide workaround solutions for our customers. In some
cases, there's no workaround, and the customer cannot subscribe
to our service.
The Chairman. I really don't have time to ask another
question. I'm sort of reminded of my own history, when we, up
our way, in the oil patch, had people build pipelines, and some
other companies came along and made discoveries and wanted
access to pipelines. We're--aren't we entering the same
situation here, in terms of your industry now, that there has
to be someone, FCC probably, that has greater power to be the
umpire, rather than a gatekeeper?
Earl?
Mr. Comstock. Well, Mr. Chairman, I just want to comment. I
think you heard testimony from Mr. McSlarrow talking about the
$95 billion--he called it $100 billion--that the cable industry
has spent since 1996 upgrading their networks. And to respond
to your question on Google, the point is, no one is going to
build new ubiquitous broadband infrastructure in this country
when there are already two wireline infrastructures reaching
every home.
And, you know, you've heard mention by Mr. McCormick that
Verizon's spending $25 billion. Well, the interesting thing is,
this--these are evolutionary expenditures. They're not building
a new network, they're upgrading an existing network with an
existing revenue base from their customers.
And just to give you an idea, in the case of Verizon this
is not a risky investment. They keep talking about Wall Street.
They claimed more in depreciation for every year in the past 5
years than they're planning on spending in 2005. They're
actually disinvesting, as an accounting matter, relative to
their wirelines facilities, including fiber. So, they claim
more in the depreciation in the value of their asset----
The Chairman. I'm over my own time. Sorry about that.
[Laughter.]
The Chairman. Senator Burns is gone. Senator Dorgan?
Senator Dorgan. Mr. Chairman, first of all, I was on this
Committee in 1996, with you and others, when we wrote the
legislation. And, Mr. Comstock, I think you're right, I think
that there are things that we ought to legitimately take credit
for in the 1996 Act. Some things have worked the way we
expected, some not, perhaps. But we did, in fact, anticipate
advanced telecommunications services--i.e., broadband--in fact,
we wrote the provisions dealing with universal service, not
just for basic service, but for advanced services, identical
services at comparable prices through universal service to
bring the charge down. But I--5 minutes is hardly justice. I
understand why you have to do that, Mr. Chairman, but these
witnesses have provided just, I think, excellent testimony
giving us an excellent sample of what the issues are.
Mr. Cerf, you talked about other countries. And I think Mr.
Comstock also described this issue of us ranking 16th. You
know, we're 41st in life expectancy, by the way, in the United
States. But we're 16th in----
[Laughter.]
Senator Dorgan.--we're 16th in broadband--penetration. Is
that right?
Mr. Cerf. Yes, penetration----
Senator Dorgan. Penetration. Sixteenth----
Mr. Cerf.--it may pass many homes, but not everybody is
taking it.
Senator Dorgan. All right. So, a number of other--16 other
countries have done better than we have. Tell me about the
record with respect to those countries and the preservation of
net neutrality.
Mr. Cerf. My impression is that all of those countries have
very open networks. There are no constraints with regard to who
is allowed to put content onto the network or implement
applications.
I might point out that we could learn something from the
United Kingdom. There is a comparable agency--it's called
Ofcom, which is like the FCC--they've taken a very strong
position that the underlying broadband system is a transport
medium and should be distinguished from any of the applications
that run on top.
British Telecom, for example, offers wholesale access to
their broadband facilities, with no constraints, and then they
also offer advanced services on top of that, through which they
compete with others for customers. But the underlying transport
system is open. Every one of those systems, as far as I am
aware, is financially sound.
Now, I'm just an engineer, so I suppose asking accounting
questions of an engineer is--you get the answer you deserve.
But to be quite honest with you, my impression is that these
organizations have found a way to make this a going concern.
Senator Dorgan. Well, Mr. Cerf----
Mr. Cerf. So, I am a little confused why we can't do it
here.
Senator Dorgan. I'm sorry, I didn't--just didn't want you
to take the entire 5 minutes.
[Laughter.]
Senator Dorgan. Let me say, the--Mr. McCormick and Mr.
McSlarrow and others have talked about encouraging the
investment in the networks. Now, I'm--I understand that point,
because I believe, from the last information that we had from
the FCC, 49 percent of North Dakotans, my home State, have
access to only one broadband provider.
Mr. Cerf. Right.
Senator Dorgan. So, half of the people don't have any
choices, no competition with respect to--so, I'm sympathetic to
the notion of investments in network; however, I'm not
sympathetic to that issue, relative to destroying what I think
is basic uninhibited freedom on the Internet--freedom of
content, freedom of choice.
And I mentioned earlier that I have had both DSL and also
cable broadband, and I paid for both, on a monthly basis--still
do--paid on a monthly basis. So, that--I might ask both of you
to comment. ``A Verizon executive says Google is freeloading.''
No, no, I'm calling up Google as a search engine, because I
happen to like Google, and I pay a monthly fee in order to be
able to do that over an Internet service provider. What's wrong
with that?
Mr. McCormick. There's absolutely nothing the matter with
that. And, as I said in our testimony, we will not block,
impair, or degrade any content, service, or application. The
High-Tech Broadband Coalition, several years ago at the FCC,
espoused principles that say any consumer should be able to
access lawful content of their choice, there should be no
impairment of competition among providers on the networks, they
should be able to connect any devices of their choice, they
should be able to run applications of their choice. We
absolutely agree with that.
I wasn't privy to those comments, so I don't know what
context that Verizon official's comments were made, but I do
note that an awful lot of this debate occurs in hypotheticals.
What if Google wants to offer movie services that use up
enormous bandwidth? What if the telephone companies want to
start blocking? How will people capitalize the deployment of
networks? What are you up to? I mean, the questions that you
see fired back and forth constantly is, ``What are you up to?
'' And it's very difficult to set policy or to legislate in
hypotheticals.
So, I come back to the commitment that we have made, which
is, we will not block, we will not impair, we will not degrade
any content, any service, or any application. And the Internet
that you know today is the Internet that we want to see you
have tomorrow, and, in fact, our investments will allow you to
have a faster, more robust Internet tomorrow than you have
today.
Senator Dorgan. Mr. Chairman, if I might just observe, as I
relinquish my time here in a moment, the decision by the
Federal Communications Commission to decide that this is an
information service rather than a telephone service--or
telecommunications service is the reason we're here. If they
had made the decision this was a telecommunications service,
the common-carrier rules would apply and we wouldn't have these
basic questions, because the issue of neutrality and content
and so on would not be before us.
So, let me, again, say, I come down on the side of freedom
on the Internet. And my hope is that when we finish these
hearings, Mr. Chairman, we can address a range of these issues.
And I do think the testimony given us is very instructive, from
all the five witnesses. I appreciate very much their being
here.
The Chairman. Well, you're right, Senator. That's why I
mentioned the question that--comparison to pipelines. You know?
Where is that line on common carriers? I think we have to
explore that.
Senator Ensign?
Senator Ensign. Thank you, Mr. Chairman.
An interesting debate going back and forth, and it, I
think, indicates the difficulty of this issue. And when we try
to compare ourselves sometimes with other countries, Japan and
Great Britain both have monopoly phone companies, and it's
difficult, sometimes you're comparing apples to oranges. And
that's why I mentioned in my opening statement that we are much
more of a free-market-type country, and our Government, first
of all, couldn't afford to build that network out, you know,
all across the country, or maybe we're just choosing not to do
it. And so, it gets back to what Senator Dorgan was talking
about, is--and I think this is the fundamental question--we
would all like to see what, Mr. Cerf, you have talked about. I
mean, everybody--that would be the ideal situation if there was
the financial incentive to build the networks. If those
financial incentives were there, if the networks were being
built--and I think that the problem that we see today is that
we don't have 100 megabits per second--or maybe in Sweden,
where I've heard that it's a gigabit per second----
Mr. Cerf. A gigabit, that's right.
Senator Ensign.--that we don't have that here in the United
States, you know, being built quickly enough. The Bell
companies have talked about it. And I talked with some of the
cable folks this morning, saying that I want the Bell
companies--one of the reasons I believe in deregulating as much
as we possibly can is, I want the cable companies to be forced
by the Bell companies to upgrade their networks, you know, to
fiber as close to the home as possible, and then Bell companies
have to get a little better, and the cable companies have to
get a little better, and whoever else is out there, just like
Yahoo! makes Google better, and Google makes Yahoo! better. I
think the competition--it mentioned the promises, you know,
that Bell companies are making today. I don't trust the Bell
companies. I don't trust any of 'em. I want competition, to
force those promises to be kept, because competition is the
best way. I don't--you know, we can't afford to take anybody's
word.
So, Mr. Cerf, if you could--or, Mr. Citron--if you could
try to help me understand how the financial incentives would be
there to build the networks without doing some of the things
that cable and the phone companies want to do, as far as
guaranteeing, at least the services they want to have, have
access on their networks.
Mr. Cerf. Senator Ensign, it seems to me that--and
remember, now, this is the engineer trying to answer an
economic question, but it seems to me that these other
companies who have managed to build, in some cases, full
duplex--in other words, symmetric--100-megabit-per-second
service, apparently recover the cost of that from the
consumers. And they do so at what sounds to me like reasonable
consumer rates, $50 a month. So, what puzzles me is why we
aren't----
Senator Ensign. Aren't those monopoly situations, though,
the ones that you're talking about, the----
Mr. Cerf. No, actually----
Senator Ensign.--100 megabit-per-second----
Mr. Cerf.--my understanding is that there is competition in
Japan, and there is competition in the U.K. So, perhaps I
have--you and I have a different understanding of that.
Senator Ensign. Mr. Citron?
Mr. Citron. Sure. Well, I think, yes, there is competition
in the countries that are specified. But I think Vinton has,
sort of, gotten it right, consumers pay, and that's the
investment that occurs. You look at a company like Verizon,
Verizon throws off billions of dollars per year in cash-flow
after it makes its investment in its broadband networks. It
returns a great return to its investors, and its stock is
worth, you know, $88 billion today. The Bell companies, at
large--just the Bell companies--throw off tens of billions of
dollars of cash after the investments in--that they make to
upgrade their networks. Wall Street is financially sound and
pleased. Matter of fact, people are now quoting that AT&T stock
might rise to above $30, post-merger.
We've seen consolidation with--inside the industry. The
real question is, What creates the proper economic incentives
to make those investments? Charging consumers for higher speeds
is always clearly the best way to go. I roll out a faster-speed
product at a lower price, my competitor rolls out another
faster product at a even lower potential price, continually
benefiting the consumer.
Well, what happens if we make that commodity, the commodity
of bandwidth, incredibly scarce, like oil becomes incredibly
scarce? Only thing--one thing happens. Prices rise. Prices for
access. And so, I think by creating the incentive system that
allows people to go ahead and incentivize the scarcity, or to
sort of cut the taps off a little bit, you will cause prices to
rise very, very quickly. And whether those prices are
subsidized by governments or subsidized by content providers
or, of course, borne by the customer, ultimately the customer
will pay a higher fee.
Senator Ensign. Just--I only have a couple of seconds left,
but, Mr. McCormick or Mr. McSlarrow, would you care to comment?
Mr. McCormick. Yes, I think that the free market has
brought us the greatest innovation, the greatest social
progress, and the highest standard of living the world has ever
known. And what we have is that we have a marketplace today
that is not characterized by any bottlenecks with regard to
access to the Internet. There are a variety of last-mile
technologies and services, and the barriers of entry can't get
any lower once you make available unlicensed spectrum. So, not
only do we have a competitive market, but we have a market that
is contestable. And if companies are going to be expected to
upgrade their networks to invest greatly in their networks,
they have to have the freedom to develop business plans that
will convince investors that it's a good investment to invest
in those companies that are building out networks.
So, public policy has to allow for a recoupment of your
investment in networks.
Senator Ensign. My time's expired. I didn't know if you
wanted to let Mr. McSlarrow answer. It's up to you, you're the
Chairman.
The Chairman. Go ahead, Kyle.
Mr. McSlarrow. I'll be real quick.
I think the answer is, we can get the investment with the
model we have today. Just taking the cable industry, we
invested $100 billion to put fiberoptic technology into the
ground over the last 10 years, and all of these services--
Google--I use Google every day; I'm sure Dr. Cerf will be happy
with that--I mean, all of these services exploded over the last
10 years. So, this model works. Why change it, in the face of
hypothetical fears?
The Chairman. Thank you.
A little aside here. Mr. Cerf, I notice that you're listed
as an Internet evangelist. If an engineer can be an evangelist,
an engineer can be an economist, too, so----
[Laughter.]
Mr. Cerf. I'm sorry I'm not wearing my ecclesiastical robes
this morning.
[Laughter.]
The Chairman. Thank you.
Senator Pryor?
STATEMENT OF HON. MARK PRYOR,
U.S. SENATOR FROM ARKANSAS
Senator Pryor. Thank you, Mr. Chairman.
I want to follow up, just for a moment, on what Senator
Ensign said a moment ago about competition. And I agree that
competition is very, very good for the marketplace, and that's
the way Adam Smith, you know, figured that out, back a long
time ago, that if we have real competition, that is very, very
good for the consumer and good for the marketplace, good for
the country. But, also, I think that real competition is fair
competition. And that's where I'm trying to--that's where I'm
searching, is trying to make sure that whatever system we set
up, like they did back in 1996, that the system we set up is
fair, that we don't give an advantage, or don't place a
disadvantage on any one company or one technology or one
whatever it may be. So, I appreciate the panelists being here
today and talking to us about your perspectives on this.
Let me start with Vonage, if I may. And I have a question
about Vonage and the Universal Service Fund. You all pay into
the USF?
Mr. Citron. Yes, we do.
Senator Pryor. And how do you do that?
Mr. Citron. When we need to connect our network to the
existing PSTN to get calls on that network, we are charged a
universal-service fee. We, today, do not have a statutory right
to gain access to the underlying network, and are forced to use
third-party providers.
Senator Pryor. OK. And you pay both Federal and State USF?
Mr. Citron. Yes, we do.
Senator Pryor. So, whenever you're in a State, you're
paying the State portion and the Federal portion.
Mr. Citron. The underlying telecommunications provider who
provides us our services has an obligation to charge us
universal service for the calls that we transmit over their
networks.
Senator Pryor. And is that true with all the VoIP
providers?
Mr. Citron. As far as I'm aware, if a VoIP provider is
purchasing services from an underlying licensed
telecommunications provider, it would be true for them, as
well.
Senator Pryor. I want to ask you about USF and your
company's position on USF. Do you all support USF? Do you want
to see it continue? Do you want to see it changed? What--tell
me about Vonage and USF.
Mr. Citron. I think USF is an incredibly difficult topic. I
do believe our company should be supportive of USF, along with
all companies, on an equal and fair basis. But what USF should
be supporting is really the question, and how, of course, you
go about recouping those funds from individual stakeholders.
Today, consumers are charged via a variety of methods, both
on the State and Federal level. There are a number of proposals
today that would shift the burden to be on a number basis or
shift the burden to a revenued-based basis. And each of these
have their pros and cons. I believe that Congress should really
hold hearings to establish the best methods of establishing a
vibrant Universal Service Fund, and then dictate what that fund
should be used for. But, clearly, it should be used for not
just existing telecommunications services, but for new and
advanced communications, maybe ones that are not even deployed
yet.
Senator Pryor. But do you have--does Vonage have a specific
proposal, or a specific set of ideas, on USF? And do you have a
wish list, basically, of what you'd like to see Congress do on
USF?
Mr. Citron. Our only wish list is that, as you said in your
opening remarks, it be fair, that it treat all providers
equally, so that if we are chosen to pay into the fund for
deploying and supporting universal services in rural markets
where we have deployed rural markets, we should be able to draw
from the fund, as well. That level of fairness is about the
only thing that we're seriously concerned with.
As for legislative policy around the social agenda, we'd
really leave that up to the people in this room to make that
decision.
Senator Pryor. So, in other words, what you want to do is,
you want to make sure it's fair for people paying in and fair
for people drawing out.
Mr. Citron. Exactly. One who pays in should also have the
ability to draw out of the fund if they're willing to take on
the obligations and provide services. We provide services
throughout the entire United States in many very rural markets,
yet we have no subsidy provided to us for delivering those
services. The market has created competition that has
incentivized our company to deploy services without the need
for a subsidy. So, the question that comes, Is the subsidy
still needed? And, if so, what is it really supporting? And
that's a question for Congress.
Senator Pryor. All right. If I may ask you, because you
were involved in the 1996 Act, and apparently, as I understand
it, spent hours and hours, days and days, months and months,
years and years working through that, so let me ask you about
the USF. Your view of the USF? Should we change that, given the
realities of today's marketplace? And what should that look
like?
Mr. Comstock. You're absolutely right. It does need to
change--and I think Senator Dorgan mentioned it earlier, the
FCC's decision to treat Internet access as entirely an
information service--in other words, remove the transmission
element out--does have dynamics for the Universal Service Fund.
And I think that's the real challenge in front of the
Committee, is the fact that all of these services ride over
networks, as we've been discussing. There's a cable network and
a telephone network that eventually get you to the customer,
and so you need to find a mechanism for all services that ride
over those to pay. And I would agree with Mr. Citron, I mean,
the point is to make it fair. So everything that uses the
network pays, and you distribute that cost fairly to the
customer.
Senator Pryor. Thank you, Mr. Chairman.
The Chairman. Thank you very much. I appreciate the
questions.
Our next--Senator Allen?
STATEMENT OF HON. GEORGE ALLEN,
U.S. SENATOR FROM VIRGINIA
Senator Allen. Thank you, Mr. Chairman. And thank you to
all the witnesses here, including an actual father of the
Internet, Mr. Cerf, who was really one of them.
Everyone's throwing around the word ``freedom,'' which they
hear a lot from me. And it's freedom on the Internet, and it's
freedom of enterprise. Each and every one of you is very
articulate and touched strings and strains of my philosophy.
And the policy of this country on the Internet has been that it
was invented by DARPA, it was given out to the private sector.
The private sector has operated it. People, obviously, are
getting and using different methods and delivery. And
competition does help a great deal. The competition presently,
as a practical matter for broadband, is cable or DSL.
The question I would ask Mr. Cerf and others, as far as in
the future with Wi-Fi, something that Senator Boxer and I
actually worked together on, but we're going to get even better
wireless and WiMax in the future, which I think will be very
helpful for out in the country where there is a lot of dirt
between light bulbs. And it's one of the reasons cable isn't
out in the country, you know, rural areas; there's not many
customers for all that investment, to recoup it.
Now, how do you see WiMax, or even potentially satellite or
broadband over power lines, ultimately getting to those faster
speeds and thereby creating the competition, which, of course,
is good for the consumer, but also meaning that there doesn't
have to be the heavy hand of government, or the hand of
government involved at all?
Mr. Cerf. Let me distinguish, Senator Allen, between the
technology and its current deployment. I mentioned earlier that
there are very modest statistics for the deployment of
broadband over power lines or alternative wireless access,
compared to DSL and cable. In the long run, I think there's a
high probability that broadband over power lines might actually
work well. There are still things in the lab, so to speak, that
are not yet productized, that suggest to me that hundreds of
megabits per second, or a hundred megabits per second perhaps,
could be reasonably delivered through the power lines. However,
that has not yet entered the marketplace in a serious way.
With regard to radio access, Wi-Fi, in the 2.4 gigahertz
band, is getting very cluttered. That's because it's a band
which doesn't require any kind of registration or payment.
Senator Allen. It's unlicensed.
Mr. Cerf. Pardon me?
Senator Allen. Unlicensed.
Mr. Cerf. Unlicensed.
Senator Allen. Right.
Mr. Cerf. There are higher-frequency bands, up in the 95
gigahertz range, which some companies, like GigaBeam are
looking at, which could deliver on the order of hundreds of
megabits per second of capacity over short distances, a mile or
so. Those are all potential alternatives to----
Senator Allen. What about the--once we get from--the
transition to digital from analog, how would--what are the
distances on that unused analog spectrum--could be used for
wireless?
Mr. Cerf. Are you thinking of the 700 megahertz spectrum,
for example, or television channels that are----
Senator Allen. Right.
Mr. Cerf.--currently occupying----
Senator Allen. Exactly.
Mr. Cerf. That spectrum has the benefit that it will
penetrate better than some of the higher frequencies will, so
that you could reach into a home with a 700 megahertz
transmitter. In terms of data rates, depending on what the
bandwidths that are available, one could see tens of megabits
per second, potentially, being accessible by that means.
Senator Allen. All right. Well, it seems like there is a--
the possibility for some competition.
Mr. Comstock. Senator, if I might just comment on that
briefly. COMPTEL represents companies that have basically tried
every single method of possibly getting around the last-mile
facilities owned by other companies. And, unfortunately, the
success rate is really low. I think the thing the Committee
needs to keep in mind is, whether you're talking about wireless
or BPL, these are people that have to build out networks
against an entrenched incumbent. This is not a case of going to
fertile fields, where there's a customer available if you can
serve them. You have to actually take somebody from someone
who's already being served by someone who already has a network
that's built and partially depreciated. So, it's still a
tremendous obstacle. It may come in the future, and we all hope
it will, but I do think there are some real practical realities
that you need to address, in terms of that.
Senator Allen. Understood, thank you. But the point is,
right now we don't have a problem. The Googles, the Vonages,
the Yahoos!, and others are doing well. The question is, do you
pass a law, presently, as Mr. McSlarrow cautioned against? And,
in the event, though, that there is this--restrictions, then do
you pass a law, retroactively, trying to put--let the genie
back out of the bottle? That is, to me, the way I see this
arising. And I do think we also ought to understand better--and
we don't have time--a concept of this tiered service and tiers
of services, have that understood. Mr. Citron mentioned it, but
my time's expired.
This debate and discussion will go on much longer, and I
thank all our witnesses for really outstanding testimony. And
we're going to have to work this through.
Thank you.
The Chairman. Thank you, Senator.
Senator Boxer?
STATEMENT OF HON. BARBARA BOXER,
U.S. SENATOR FROM CALIFORNIA
Senator Boxer. Thanks, Mr. Chairman, for this hearing. I
want to welcome the panel. You're all really good spokespeople
for your perspective.
Mr. Chairman, I'd like to place in the record a
BusinessWeek article that appeared online February 2nd, if I
might, on this subject, just one page.
The Chairman. Without objection.
Senator Boxer. Good.
[The information referred to follows:]
BusinessWeek online, February 2, 2006
Is Verizon a Network Hog?
By Catherine Yang
the telecommunications giant wants to devote most of its capacity to
its own traffic, to internet companies' dismay
Last November, Vinton G. Cerf wrote a letter of warning to
Congress. The legendary computer scientist, now a vice-president at
Google (GOOG), argued that major telecom companies could take actions
to jeopardize the future of the Internet. The phone companies' networks
that carry net traffic around the U.S. are much like the highway
system. Cerf wrote that they may begin setting up the equivalent of
tollbooths and express lanes, potentially discriminating against the
traffic of other companies. Such moves, Cerf warned, ``would do great
damage to the Internet as we know it.''
Now, Cerf and his net compatriots have new ammunition to back up
their fears. Documents filed with the Federal Communications Commission
show that Verizon Communications (VZ) is setting aside a wide lane on
its fiber-optic network for delivering its own television service.
According to Marvin Sirbu, an engineering professor at Carnegie Mellon
University who examined the documents, more than 80 percent of
Verizon's current capacity is earmarked for carrying its service, while
all other traffic jostles in the remainder.
Paying for Priority. Leading net companies say that Verizon's
actions could keep some rivals off the road. As consumers try to search
Google, buy books on Amazon.com (AMZN), or watch videos on Yahoo!
(YHOO), they'll all be trying to squeeze into the leftover lanes on
Verizon's network. On Feb. 7 the net companies plan to take their
complaints about Verizon's plans to the Senate during a hearing on
telecom reform. ``The Bells have designed a broadband system that
squeezes out the public Internet in favor of services or content they
want to provide,'' says Paul Misener, vice-president for global policy
at Amazon.com.
Verizon argues that it needs to take such measures to earn a return
on its network investments. The New York giant is seeing steep declines
in its traditional telephone market, so it is spending an estimated $10
billion over seven years on new fiber lines to diversify into the TV
business. Unless it can deliver seamless, high-quality TV service--a
real bandwidth hog--Verizon says it won't be able to compete against
Comcast (CMCSA) and other cable rivals. We ``give consumers choice for
video services,'' says Verizon Executive Vice-President Thomas J.
Tauke.
At issue is what the Internet of the future will offer. Critics of
the phone industry say the net has flourished because innovators
anywhere could reach consumers just as easily as deep-pocketed
corporations. But if Verizon and AT&T (T) set up tolls and express
lanes, upstarts may not be able to afford the fees. ``If you deliver
video the way Verizon does now, that makes it very hard for others to
compete,'' says Carnegie Mellon's Sirbu.
Legislative Strategy. The net companies are trying to persuade
Congress to pass a law ensuring that broadband providers, such as the
Bells, don't discriminate against rivals when they charge tolls or
prioritize traffic, an idea called ``network neutrality.''
Verizon says there's plenty of room on its network for everyone.
Still, the growing controversy is giving the company second thoughts
about its legislative strategy. Last year it was pushing Congress for
comprehensive telecom reform. But now Verizon is paring back its
ambitions. At a Jan. 27 press conference, Verizon's Tauke said it was
time for lawmakers to switch gears and pick off piecemeal issues. Top
on the list is a bill on local franchise approvals that would allow
phone companies to offer TV service across the country more quickly.
Meanwhile, net neutrality faces more debate in both the Senate and
the House. Cerf & Co. certainly have a difficult task. After all, the
phone companies employ armies of lobbyists and donate millions to
Congress. Google hired its first lobbyist just last year.
Senator Boxer. I want to read some of it. ``Last November,
Vinton Cerf wrote a letter of warning to Congress. The
legendary computer scientist argued that major telecom
companies could take actions to jeopardize the future of the
Internet. The phone companies' networks that carry net traffic
around the U.S. are much like a highway system. Cerf wrote that
they may begin setting up the equivalent of toll booths and
express lanes, potentially discriminating against the traffic
of other companies. Such moves, Cerf warned,'' ``would do great
damage to the Internet as we know it. Now Cerf and his net
compatriots have new ammunition to back up their fears.
Documents filed with the FCC show that Verizon is setting aside
a wide lane in its fiberoptic network for delivering its own TV
service. According to Marvin Sirbu, an engineering professor at
Carnegie Mellon who examined the documents, more than 80
percent of Verizon's current capacity is earmarked for carrying
this service, while all other traffic jostles in the remainder.
Leading net companies say Verizon's actions could keep some
rivals off the road. As consumers try to search Google, buy
books on Amazon, or watch videos on Yahoo!, they'll all be
trying to squeeze into the leftover lanes on Verizon's network.
On Feb 7, the net companies plan to take their complaints about
Verizon's plans to the Senate during a hearing on telecom
reform. `The Bells have designated a broadband system that
squeezes out the public Internet in favor of services or
content they want to provide,' says Paul Misener, vice
president for global policy at Amazon.''
The reason I'm reading this is, I think it's a very good
explanation of where we are. Sadly, the story ends with the
following: ``Net neutrality faces more debate in both the
Senate and the House. Cerf and Company''--that's you, sir--
``certainly have a difficult task. After all, the phone
companies employ armies of lobbyists and donate millions to
Congress. Google hired its first lobbyist just last year.''
Well, let me tell you, I think this Committee is going to
get above the fray on who's lobbying for what. I think, under
the leadership of our chairman, we are trying to figure this
thing out.
And so, I guess what I'm confused about, Mr. McCormick, Mr.
Comstock, and Mr. McSlarrow, is, Can you not admit this is an
issue? Because, as I heard you and read what you wrote, you're
acting as if this is a nonissue.
Mr. McCormick. Well, I think that there is an issue.
Senator Boxer. OK.
Mr. McCormick. I think there is an issue. The issue is that
the United States, in the information century, is behind. The
United States needs to deploy new broadband networks. The
United States desperately needs investment in broadband
networks.
Senator Boxer. OK.
Senator Boxer. I hear you. But you don't think it's an
issue for consumers to worry about, that some of them could get
squeezed out?
Mr. McCormick. I think, Senator, that what-ifs are always
issues. Here's a what-if issue. Google, which is a company
talking about net neutrality, has absolutely abandoned the
concept of Internet freedom with regard to its customers in
China. Google controls half of all Internet searches.
Senator Boxer. OK, just a second. That's another hearing
and another topic. I'm talking about this issue of net
neutrality. I want to make just one point, because, gosh, that
5 minutes goes so fast.
There's a new policy by a lot of physicians in California.
This is what it is. Physicians take insurance, and they're not
doing as well as they want to do, so what a lot of them are
doing--I pass no judgment on this--is say to their patients,
``If you give me $2,500 a year, on top of what your insurance
gives to me, and on top of your copayments, you get first in
line.'' And a lot of patients are signing up. Now, what
happens, at the end of the day? The patients that pay that
extra money get terrific service, they're first in line, and
the people left out of this system get the leftover time of the
physician. Now, if the people who pay the $2,500 don't get that
sick, everybody's OK, they're all going to get the physician's
time, but if they get sick and the physician has no more time,
the other patients will get a lot of help from the nurses in
the office. That may be OK, but it's not the same quality.
I think what some of us are worried about--I think all of
us are trying to balance what you say about ``let the market do
its thing'' with what happens at the end of the day to the
people that we represent. Will they not be able to use--utilize
the Internet, except in ways that Mr. McCormick, Verizon,
decides is good, or Mr. McSlarrow, the cable companies, or the
smaller telecom companies? And so, freedom is an issue here,
you're right. It depends on how you look at what freedom is.
So, all I can say, because my time is almost up, is that I
am very worried. I, personally, am very worried about this.
That's why I did join with Senator Dorgan in 2002. And I think
we ought to, Mr. Chairman, listen to everyone. But the voices
that brought us this great revolution, I think we should really
hear them, because I think at this stage we don't want to do
anything to stifle them. And so, that's very important to me.
Thank you.
The Chairman. Thank you very much. And we thank you very
much. The reason for the time limit is obvious, we have four
other witnesses, and we----
Senator Boxer. Yes, I'm not complaining----
The Chairman.--expect to be done by----
Senator Boxer.--about it, I'm just saying it's hard.
The Chairman.--by 11:30.
Mr. Cerf, you mentioned the problem of--I think,
inferentially--of distance, in terms of the speed. I'm sort of
at a loss over the comment that we're in the gigabits in other
countries, 100 megabits are common, and yet we're still in the
engineering phase. Now, I don't have time to ask you to answer
that, but we have asked the engineers from all parties to brief
our staff on the reasons for the ability of universities to
deliver 100 megabits to 4 million college students, but the
highest we're getting, in terms of the average range, as I
understand it, is about 15 megabits on other systems. Now,
somehow or other that question's going to come up again and
again, so if any of you want to make any comments about that to
us, we would appreciate it in writing. All right?
Mr. Cerf. Oh, in writing?
The Chairman. Yes.
Mr. Cerf. Yes, certainly. I'll be happy to respond.
The Chairman. Thank you very much.
We do appreciate your courtesy in coming, and your
contribution. You certainly leave us a lot to think about.
Senator Boxer. Mr. Chairman, would it be possible for us to
send you some questions in writing for this panel?
The Chairman. I think within some limitation, yes, because
we have a time limit, in terms of when we're going to get
around to try to deal with all these bills. But, yes, I----
Senator Boxer. Just about four questions, if I could submit
them for the record.
The Chairman. That's up to the--we hope the witnesses will
respond to Senator Boxer.
Senator Boxer. Thank you very much, everybody.
The Chairman. Our next panel--and we thank you very much.
We'll take about a 5-minute station break so people can shift,
here.
[Pause.]
The Chairman. Thank you very much. We'll turn to our second
panel now--and we thank you for coming--Kyle Dixon, Senior
Fellow and Director of the Federal Institute of Regulatory Law
and Economics, The Progress & Freedom Foundation, of
Washington; Lawrence Lessig, the professor of law at Stanford
Law School; J. Gregory Sidak, professor of law at Georgetown
University Law Center; and Gary Bachula--and I hope I
pronounced that right--Vice President for External Affairs at
Internet2, in Washington.
Gentlemen, we thank you very much for coming, and we'll
proceed with the statements. As I indicated, your statements
you've submitted will be printed in the record in full.
And we'll turn first to Mr. Dixon.
STATEMENT OF KYLE D. DIXON, SENIOR FELLOW/DIRECTOR, FEDERAL
INSTITUTE FOR REGULATORY LAW AND
ECONOMICS, THE PROGRESS AND FREEDOM FOUNDATION
Mr. Dixon. Good morning, Chairman Stevens and Members of
the Committee.
As Chairman Stevens said, I am a Senior Fellow with The
Progress and Freedom Foundation, and I direct its Federal
Institute for Regulatory Law and Economics. But before joining
PFF in 2004, I worked for 7 years at the Federal Communications
Commission, most recently as special counsel to Chairman
Michael Powell for broadband policy.
As a former regulator, I'm always careful to evaluate
policy issues in terms of their prospects for implementation,
the goal being to avoid rules that may do more harm than good.
Proponents of network neutrality hope to convince you that
regulating these issues would be simple and harmless, but
imposing a network-neutrality mandate would be neither simple
nor harmless.
For all its flexibility, the Internet has some technical
shortcomings. For example, the Internet suffers from a variety
of security and safety vulnerabilities--worms and viruses,
authentication problems, inappropriate content, and the like.
The Internet also tends to transmit data in short bursts. This
approach works well for things like e-mail, but does not work
well for applications that require a steady flow of information
over the network, like videostreaming.
To address problems this pressing, consumers need help from
all aspects of the Internet, including network providers. The
Wall Street Journal just reported that AOL and Yahoo! will
combat junk mail and identity theft using a new service that
gives preferred treatment to certain e-mails for an additional
charge. Suppose, instead, that a company like AOL seeks to buy
services from Verizon or Comcast to address some of the same
technical shortcomings. A network-neutrality mandate could
prohibit Verizon or Comcast from doing that deal, based on the
notion that the deal would discriminate in favor of AOL. In
that case, a network-neutrality mandate harms consumers by
denying them the opportunity to get more out of the Internet
with less frustration. Essentially, a mandate could force
broadband networks to disarm unilaterally when the battle
against security and other technical limitations has hardly
begun. It also harms consumers by denying them the benefit of
additional investment in broadband networks that revenues from
the service might have supported.
Now, certainly Congress could attempt to craft a more
flexible standard for network neutrality that allows network
owners to contract with content and applications companies, at
least in some cases, but such flexibility would generate more
ambiguity and litigation and push consumers and the industry
down a slippery slope toward further regulation and consumer
harm.
Ironically, most network-neutrality proposals presume that
cable modem and DSL providers will use their supposed market
dominance or power to undermine robust competition to develop
Internet content applications and devices. But even if
presumptions of market power were valid, which they are not, it
is clear that a network-neutrality mandate will do nothing to
increase broadband competition beyond current levels. Rather,
by imposing costs, uncertainties, and constraints on how
network owners address security and other technical
limitations, a network-neutrality mandate likely would
undermine incentives to invest in competing broadband networks.
It also may delay the rollout of new content and applications
that are disfavored by the current Internet.
All that said, the goal of maximizing consumer welfare
suggests that the best answer to the question of network
neutrality is not always ``yes'' or always ``no,'' but
``maybe,'' under certain circumstances. Specifically, if
broadband providers were to obtain and abuse market power in
the future, some sort of network neutrality might prove
beneficial to remedy consumer harm. Congress could accomplish
this either by relying on existing antitrust enforcement or by
giving the FCC a rigorous competitive standard by which it
could identify and remedy abuses of market power in specific
markets. The latter approach tracks recent proposals by Senator
DeMint, of this Committee, as well as by The Progress and
Freedom Foundation, in collaboration with several university
scholars from across the country.
In closing, I would just urge Congress to remain cautious
about imposing network-neutrality mandate at this early stage
of the broadband Internet. Imposing neutrality where it is not
necessary to remedy abuses of market power could be far more
damaging than endorsing a problem in search of a solution.
Doing so could make network neutrality itself the problem.
I thank the Committee for this opportunity, and I ask that
my remarks be added to the record.
Thank you.
[The prepared statement of Mr. Dixon follows:]
Prepared Statement of Kyle D. Dixon, Senior Fellow/Director, Federal
Institute for Regulatory Law and Economics, The Progress and Freedom
Foundation
Good morning, Chairman Stevens, Co-Chairman Inouye and Members of
the Committee. My name is Kyle Dixon. I am a senior fellow with The
Progress and Freedom Foundation (PFF), and I direct its Federal
Institute for Regulatory Law and Economics. Before joining PFF in 2004,
I spent seven years working at the Federal Communications Commission,
most recently as special counsel to former Chairman Michael Powell for
broadband policy. *
---------------------------------------------------------------------------
* The views expressed here are my own and may not reflect those of
The Progress and Freedom Foundation, its Board, or its supporters.
---------------------------------------------------------------------------
Thank you for the opportunity to speak with you about whether
Congress should mandate so-called ``network neutrality.'' Such a
mandate would constrain the ability of Internet access providers to
make private arrangements with other companies that would differentiate
among Internet applications, content or devices that rely on broadband
network connections to consumers.
This issue confronts Congress with the most crucial regulatory
decision for the broadband age. Remedies like a network neutrality
mandate may be beneficial where evidence demonstrates that market power
has been abused. But the more likely effect of a network neutrality
mandate under current competitive conditions would be to reduce
consumer welfare by undermining investment and innovation.
I. Consumer Welfare as the Touchstone for Resolving the Network
Neutrality Debate
Network neutrality is hotly debated because it is so central to the
economy and to our society. The Internet and broadband networks are
permitting virtually any service or application--voice, video or data--
to reach consumers over multi-purpose digital networks. Thus, if
Congress decides to regulate how broadband providers work with content
and other companies, it will affect the evolution of the converged
communications and information technology industries dramatically.
Much ink already has been spilled in this debate, primarily by
companies hoping to use the presence or absence of network neutrality
mandates to their advantage in commercial negotiations. Yet too often
the sound and fury of this rhetoric signifies little that cuts through
to resolve this complex issue. As a former regulator, I recall being
faced with this dilemma frequently. I learned then that the best way to
resolve issues like this coherently and effectively was to return to
first principles.
The touchstone for resolving network neutrality or any other
regulatory debate is consumer welfare. Specifically, policymakers must
balance many (and, inevitably, competing) interests to maximize
benefits to consumers in the form of competition, investment and
innovation. With this as a starting point, it becomes immediately clear
what is known or apparent about the current status quo for consumer
welfare, and what questions remain.
II. What We Know: The Status Quo for Consumer Welfare
A. Broadband Networks, Content, Applications and Devices Are All
Critical to Maximizing Consumer Welfare
A quick Google search reveals that the Internet often is described
as an ecosystem. Like nature, the Internet is highly interdependent,
involving myriad collaborations among end users, broadband network
providers, content and applications developers and so on. The Internet
also resembles nature because it is constantly changing and growing,
adding new users and uses continuously. This interdependence and
dynamism account for the many benefits consumers already receive from
the Internet, as well as the expectation that these benefits will
expand. Conversely, this expansion of consumer benefits depends on
maintaining healthy prospects for each of the Internet's components.
B. Content, Applications and Devices Are Thriving on the Broadband
Internet
One need only consult advertisements, the news or most anyone with
children to assess the vibrancy of the content, applications and device
components of the broadband Internet. Consumers use ``voice over
Internet Protocol'' services like Vonage to call cheaply across the
country and around the globe. Virtual communities spring up daily as
users create and share web logs, instant messages and other media, and
as they compete in online video games. Companies fuel American
productivity using business-to-business and business-to-consumer
applications. Music and video programming lovers increasingly download
or ``stream'' this content to iPods, TiVo boxes and other devices. The
evolution of these components of the Internet continues unabated even
in the absence of a network neutrality mandate.
C. Broadband Networks, Although Increasingly Ubiquitous and
Competitive, Have not Reached Their Full Potential
Despite claims by network neutrality proponents that the market for
``last mile'' broadband connections is not competitive enough, this
aspect of the Internet also shows promising signs:
The FCC reports that nearly all zip codes are served by at
least one broadband provider, and a solid majority is served by
several. \1\
---------------------------------------------------------------------------
\1\ Federal Communications Commission, Wireline Competition Bureau,
Industry Analysis and Technology Division, High-Speed Services for
Internet Access: Status as of December 31, 2004 (Ind. An. and Tech.
Div., rel. July 2005), at 1-5.
Wi-Fi, WiMax, satellite and other emerging technologies
continue to continue to add customers, hoping to compete on a
niche or wider basis with existing cable and DSL offerings. \2\
Effective spectrum reform would dramatically improve these
prospects, thus making such reform a top priority in bringing
consumers the benefits of the broadband Internet.
---------------------------------------------------------------------------
\2\ Id. at 2.
Industry analysts estimate that most Internet users have
defected from ``dial-up'' Internet access to broadband and that
this trend is accelerating. \3\
---------------------------------------------------------------------------
\3\ See, e.g., Bernstein Research Call, Broadband Update: The
Biggest Gains for the Biggest Players (Oct. 14, 2005), at 1.
Cable modem, DSL and, increasingly, wireless and optical
fiber-based networks compete on several bases, including price,
speed and technology. \4\
---------------------------------------------------------------------------
\4\ Id.
That said, neither the proponents nor opponents of network
neutrality want the broadband market to stall at its current level of
development. They agree that additional broadband deployment would
bring consumers more of the benefits of competition and, hopefully,
narrow the gap between the United States and other countries with
respect to broadband usage. \5\ And although providers continue to make
their networks faster, far more of this investment will be needed
before high-value uses like streaming video can become commonplace.
This, in turn, would initiate a ``virtuous cycle'' whereby bringing
consumers more value would intensify demand for broadband investment.
---------------------------------------------------------------------------
\5\ Federal Communications Commission, Availability of Advanced
Telecommunications Capability in the United States: Fourth Report to
Congress (Sept. 9, 2004), at 40-43.
---------------------------------------------------------------------------
III. Narrowing the Network Neutrality Debate
Given the importance and relative health of the broadband network,
application, content and device components of the Internet, Congress
can narrow the network neutrality debate to the following question:
Would enacting a network neutrality mandate add to the benefits
consumers already enjoy, or undermine those benefits?
In the continued absence of demonstrated market power abuses by
broadband providers, I contend that network neutrality mandates would
do more harm than good.
A. Network Neutrality Mandates Would Not Improve (and Could Worsen)
Conditions for Content and Applications Development
The broadband Internet already affords consumers unprecedented
freedom in how they obtain, share and manipulate information. Other
than a few incidents, \6\ broadband providers have not blocked or
impaired consumers' use of the content, applications or devices of
their choice. These incidents often alleged legitimate concerns about
protecting consumers' Internet service quality from erosion by their
neighbors' high intensive use of shared network capacity. In any event,
these incidents generally were abandoned for business reasons or in
response to FCC action.
---------------------------------------------------------------------------
\6\ See, e.g., Madison River LLC and Affiliated Companies, File No.
EB-05-IH-0110, Order, 20 FCC Rcd 4295 (Enf. Bur. 2005).
---------------------------------------------------------------------------
Even as they experiment with business models to support their
expensive network investments, broadband providers are not likely to
change course in any way that reduces overall consumer welfare. This
results from the current level of competition among broadband networks.
There is no single, dominant broadband network provider and none seems
likely to emerge in the immediate future. Instead, cable and phone
companies vie to expand their respective, substantial market shares and
to defend against wireless and other firms who hope to use less
established technologies to enter new markets and expand existing
footholds.
Nor does it seem likely that broadband providers will extract
economically prohibitive terms from other firms any time soon.
Companies hoping to earn a return on the billions of dollars they have
invested or hope to invest in broadband networks understand that
consumers pay a premium over dial-up service so they can access the
diverse and exciting content and applications that the Internet offers.
Although network owners may wish to bargain with other companies to
share the revenues generated by this increased consumer value, they are
unlikely to draw hard lines in the sand that risk losing existing or
future customers to other networks.
Similarly, no broadband network owner is likely to acquire an
``essential facility'' without which rivals are effectively barred from
the market. Whether a facility denied to a competitor is ``essential''
for competitive analysis largely turns on whether the competitor is
unable, practically or reasonably, to duplicate the essential facility.
In most cases, however, at least two firms already compete in the local
broadband market, and consumers continue to sign up for additional
technologies, such as wireless. Moreover, consumers have accelerated
their switch from dial-up to broadband, raising the possibility that
network owners entering the market can gain customers without having to
entice them away from other broadband providers.
Finally, it seems unlikely that broadband providers can parlay
their position in the market as leverage to constrain the market for
complementary or ``vertical'' products, such as content, applications
and devices. Leveraging and attempted monopolization theories, at a
minimum, require that a company has a monopoly or is likely to be
capable of acquiring one. Broadband providers probably will not satisfy
this prerequisite anytime soon, for the reasons already stated. And to
the extent broadband providers take actions that arguably might fit
this theory in the future, attention to the goal of maximizing consumer
welfare would need to make sure those actions were not justified as
pro-competitive. This seems especially true to the extent providers act
to preserve incentives for them (and thus others) to invest in
broadband infrastructure.
Note that there is reason to expect that a network neutrality
mandate actually might weaken the competitive vibrancy of the content,
applications and device components of the Internet. For all its
flexibility, the Internet cannot be all things to all uses. For
example, Internet protocols (e.g., TCP/IP) route packets of digitized
data over the Internet anonymously on ``first come, first served'' and
``best effort'' bases. This approach has worked well for applications
or related devices that are not time-sensitive. This approach works
poorly, however, for uses that depend on a steady transfer of data of
networks, such as streaming media, online gaming and even voice over
IP. \7\ An example of this type of application would include Internet
delivery of high definition television programming. If Congress enacted
a network neutrality mandate, it might prevent network owners from
using private networks to work around this inherent shortcoming of the
Internet. This, in turn, would discourage the offering of services that
consumers want but that are disfavored by the Internet's current
architecture.
---------------------------------------------------------------------------
\7\ Christopher S. Yoo, Beyond Network Neutrality, Vanderbilt
University Law School, Public Law and Legal Theory (Working Paper No.
05-20), Law & Economics (Working Paper No. 05-16), available at http://
ssrn.com/abstract=742404 (visited Feb. 1, 2006), at 5. The information
referred to has also been retained in Committee files.
---------------------------------------------------------------------------
By enacting a network neutrality mandate, Congress also might
complicate efforts to keep the Internet safe and reliable. As recent
events have shown, the phenomenal growth of the Internet also has made
it more crowded and vulnerable to security risks, such as viruses and
spam. Companies hoping to recoup or expand their investment in
broadband networks will be eager to help solve such problems by
offering content and applications developers new services that work
around the Internet's technical limitations, at least until broader
refinements can be made to the global Internet ecosystem. Broadband
providers may not be free to offer such services if Congress enacts a
network neutrality mandate.
Thus, a network neutrality mandate likely would not improve and
could worsen conditions currently faced by developers of content,
applications and devices. That some content and applications companies
vigorously lobby Congress to enact such a mandate may be explained best
by ``public choice'' theory. Public choice predicts that companies will
lobby the government for rules that help them in the marketplace,
thereby saving them the trouble of achieving the same results through
competition and negotiation. \8\ Companies supporting network
neutrality may see their greatest advantage in having a rule that frees
them from negotiating with broadband providers, but such a rule is not
likely to make consumers better off. Broadband providers already face
strong pressures to add as many customers as possible, both to keep
customers from signing up with competitors and to recoup providers'
significant investments in network infrastructure. The facts speak for
themselves; there is no persuasive evidence that broadband providers
systematically have prevented or discouraged consumers from using any
legal content, applications or devices. As such, Congress can accord
little weight to companies' pleas for help in avoiding commercial
negotiations as irrelevant to the main goal of regulation: maximizing
consumer welfare.
---------------------------------------------------------------------------
\8\ See James M. Buchanan, Public Choice: Politics Without Romance,
Policy Quarterly (Spring 2003), available at http://www.cis.org.au/
Policy/spr03/polspr03-2.htm (visited Feb. 1, 2006).
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B. A Network Neutrality Mandate Likely Would Undermine Investment and
Innovation in Broadband Networks
Most significantly, a network neutrality mandate would discourage
investment and innovation in broadband networks.
1. Ambiguities Regarding What ``Network Neutrality'' Actually Means
Would Burden and Delay New Broadband Services and Networks
Perhaps the simplest definition of ``network neutrality'' would be
``nondiscrimination,'' i.e., a requirement that broadband network
owners serve all potential customers equally. As I have suggested, this
kind of mandate could preclude broadband providers from offering
services that address the Internet's inherent reliability and security
limitations and thereby make it more difficult to offer or purchase
valuable new Internet services.
A naked nondiscrimination requirement also could hamstring efforts
by content and applications providers to develop sustainable business
models. It is only very recently that companies began to trade the
``virtual'' profits that inflated the Internet bubble for real profits,
largely based on targeted Internet advertisements. I suspect that even
some proponents of regulation in this area would not want Congress to
bar broadband providers from agreeing to feature content or links on
consumers' Internet ``home pages'' or, as some companies have done,
agree to make Yahoo!, AOL or others preferred Internet service
providers on their networks. \9\ But these arrangements, which seem to
benefit consumers, are difficult to square with the concept of
nondiscrimination.
---------------------------------------------------------------------------
\9\ See, e.g., Burt Helm, SBC's Gambit, Yahoo's Tidy Gain,
BusinessWeek Online (June 2, 2005), available at http://
www.businessweek.com/technology/content/jun2005/
tc2005062_8479_tc024.htm (visited Feb. 1, 2006).
---------------------------------------------------------------------------
Further, more sophisticated notions of network neutrality--notions
that allow companies to improve reliability or security, or develop
pro-competitive business models--are likely to be more ambiguous than
nondiscrimination. This added ambiguity would invite costly litigation
before the FCC or the courts as to what Congress meant when it enacted
a particular network neutrality mandate. The challenge of writing
nuanced network neutrality rules also could result in unanticipated
consequences.
2. Enacting a Network Neutrality Mandate Would Push Consumers and the
Industry Down a ``Slippery Slope'' Towards More Burdensome
Regulation
Fears that a network neutrality mandate would usher in subsequent
regulation are not merely speculative; they are supported by the FCC's
experience in regulating ``enhanced'' services and attachments to the
narrowband, telephone network in its Computer Inquiry and Part 68
proceedings.
The Computer Inquiry requirements were adopted over many years
beginning in the 1970s and, at base, were designed to allow telephone
companies to participate in the emerging data processing industry on
the condition that they afford competing ``enhanced'' or information
service providers (e.g., third-party voicemail providers) the same
access to the transmission capability of the phone network. Phone
companies had to file the terms and conditions of these ``basic''
services with tariff reviewers at the FCC, subject to regulation that
the prices for these services be ``just and reasonable.'' The Computer
Inquiry spawned a vast maze of requirements so Byzantine that few
attorneys at the FCC or elsewhere claimed to understand it fully. Many
of the requirements were rejected in a series of court appeals.
Not surprisingly, the FCC last year honored Congress' demand that
it eliminate barriers to broadband investment by affording DSL
providers the flexibility to opt out of the Computer Inquiry
requirements along with other aspects of ``common carrier'' regulation.
\10\ Likewise, in 2000, the FCC eliminated 125 pages of Part 68 rules
governing the attachment of devices to the telephone network, that time
responding to Congress' mandate that the agency eliminate unnecessary,
and thus burdensome, regulation. \11\
---------------------------------------------------------------------------
\10\ Federal Communications Commission, Appropriate Framework for
Broadband Access to the Internet Over Wireline Facilities, CC Docket
Nos. 02-33 et al., Report and Order and Notice of Proposed Rulemaking
(rel. Sept. 23, 2005), at 40-46.
\11\ Federal Communications Commission, FCC Privatizes Standard-
Setting and Certification Process for Telephone Equipment, CC Docket
No. 99-216, News Release (rel. Nov. 9, 2000).
---------------------------------------------------------------------------
The risk that a network neutrality mandate would lead to further
regulation is illustrated more generally by the FCC's implementation of
the provisions in the Telecommunications Act of 1996 intended to open
local telephone networks to competition. As that experience suggests,
mandates that one company share its network with competitors almost
always lead competitors to call for more regulation regarding how that
sharing is done, especially with respect to price. \12\ Brushing aside
any incentives network owners have to carry as much traffic over their
networks as possible (to spread heavy fixed costs as widely as
possible), competitors' argument is that it does no good to mandate
access to a network if its owner can request price or other terms that
make the access uneconomical for competitors.
---------------------------------------------------------------------------
\12\ See generally Federal Communications Commission, Unbundled
Access to Network Elements, WC Docket Nos. 04-313 et al., Order on
Remand (rel. Feb 4, 2005), at 1-5.
---------------------------------------------------------------------------
By analogy to the broadband context, it seems likely that any
network neutrality mandate that Congress adopts (and that survives
implementation and judicial review) will be met with calls for
additional regulation of the price and other terms of this ``neutral''
access. This additional regulation would heighten the burden imposed by
a network neutrality mandate itself, thereby further discouraging
investment in broadband networks.
3. A Network Neutrality Mandate Would Undermine Broadband Deployment by
Deterring Providers From Addressing Internet Reliability and
Security Concerns
I mentioned earlier the benefits of allowing broadband providers to
develop services to address some of the Internet's inherent technical
limitations. The flip side of the value that those services could offer
content and applications developers (and, ultimately, consumers) is
that such services create new revenue opportunities for network owners.
These revenues then can be used to fund the network upgrades and
expansions that are necessary to support wider availability of
valuable, bandwidth-intensive services, such as video and tele-
medicine. A network neutrality mandate risks blocking this flow of
money, thereby reducing consumer welfare.
In sum, the most significant likely effect of a network neutrality
mandate would be to weaken investment and innovation in broadband
networks when they have not yet reached their full potential. Also, it
is worth noting that a network neutrality mandate that denied broadband
providers the value of the billions of dollars they have invested in
their networks could raise issues as to whether the mandate amounted to
an unconstitutional ``taking'' of property. Taken together with the
likelihood that such mandates (at best) will merely free content and
applications developers from having to negotiate with broadband
providers, this explains why Congress need not enact a network
neutrality to promote consumer welfare at this time.
IV. The Market Power Alternative: A Superior Solution to Protecting
Consumer Welfare
If Congress decides it must assume the risk of harm to which an
across-the-board network neutrality mandate would subject the Internet
ecosystem, it should consider alternatives that reserve such mandates
for situations in which they are needed to remedy abuses of market
power.
Arguments in favor of network neutrality rely largely on the
assumption that broadband providers have market power that they will
use to deny consumers the freedom to use the content, applications and
devices of their choice. Leave aside, for the moment, broadband
providers' incentives to maximize the value of their networks by
keeping the floodgates of content and applications open. It is clear
that a provider cannot extract ``monopoly rents'' (as opposed to
market-constrained fees) unless the provider has market power. Thus,
imposing network neutrality only where a broadband provider has abused
market power should limit that remedy to situations in which the
provider truly is harming consumer welfare.
There are likely multiple options for limiting network neutrality
remedies to abuses of market power. One option would be for Congress to
rely on traditional antitrust enforcement; for example, in the face of
demonstrable evidence that it had abused market power, a broadband
provider could avoid an antitrust suit by agreeing to ``neutrality''
remedies.
Alternatively, Congress could specify a competitive standard
according to which the FCC could identify and remedy market power
abuses. This tracks the approaches recently proposed by Senator DeMint
in S. 2113, and by the Progress and Freedom Foundation in our Digital
Age Communications Act project. \13\ The Foundation developed its
proposal in conjunction with dozens of legal, engineering and economic
scholars and practitioners representing a range of viewpoints.
Nonetheless, these scholars share a passion to updating regulation to
comport with the evolving demands of digital technology.
---------------------------------------------------------------------------
\13\ Randolph J. May and James B. Speta, Co-Chairs, Digital Age
Communications Act: Proposal of the Regulatory Framework Working Group
(Release 1.0), The Progress and Freedom Foundation (June 2005).
---------------------------------------------------------------------------
However Congress crafts a ``market power alternative'' to network
neutrality concerns, it should satisfy at least two prerequisites.
First, the alternative should be narrowly targeted to specific
instances of market power, in terms of both the geographic scope and
behavioral requirements of the remedy.
Second, the alternative should incorporate a rigorous competitive
standard and evidentiary showing to ensure that neutrality mandates are
imposed only to remedy demonstrable cases of market power abuse. A
competitive standard that fails to satisfy these prerequisites likewise
will fail to avoid many of the potential risks to consumer welfare that
``one-size-fits-all'' network neutrality mandates pose.
V. Conclusion
The debate over whether to enact a ``network neutrality'' mandate
is no mere regulatory squabble; it confronts Congress with momentous
decisions that will affect generations of Americans. We know that all
the components of the broadband Internet--from networks to
applications, content and devices--are critical to maximizing consumer
welfare. In order to further this central goal of communications
regulation, I urge Congress to remain cautious about imposing network a
neutrality mandate at this early stage in the development of the
broadband Internet. Imposing ``neutrality'' where it is not necessary
to remedy abuses of market power could be far more damaging than
endorsing a ``solution in search of a problem.'' Doing so could make a
network neutrality mandate itself the problem.
I thank the Committee for this opportunity, and I ask that my
written remarks be made part of the record. I am happy to answer any
questions you may have.
The Chairman. Thank you very much.
Our next witness, Lawrence Lessig, professor of law,
Stanford Law School.
STATEMENT OF LAWRENCE LESSIG, C. WENDELL AND EDITH M. CARLSMITH
PROFESSOR OF LAW, STANFORD LAW SCHOOL
Mr. Lessig. Thank you, Mr. Chairman. You have my testimony.
I worked very hard to prepare it. I want to put it aside and
address four points which the testimony this morning seems to
leave vague in the minds, I'd suggest, of this Committee--two
points, or two principles, no one should disagree about, and
two points, or two facts, that I don't think anybody, with a
straight face, can deny.
The two principles are, first, that Congress should be
conservative in whatever regulation it adopts, or whatever
policy it adopts, about networks, especially the Internet,
meaning Congress should learn from the past. And, second,
Congress should promote competition. It should promote
competition not just in broadband service, but also in
applications and content that run on top of the broadband
network.
Now, against the background of those two principles, I
suggest there are two facts that make the issue that this
Committee is considering today extraordinarily important. The
first fact is that the proposal that is being promoted right
now to deregulate in this context is a radical change in the
regulatory environment governing telecommunications for at
least the past 40 years. In one of the submissions that's
before this Committee, someone credits me with the term
``network neutrality.'' It's crazy to suggest the ideas that
we're talking about today are new. These are extraordinarily
old principles. They've been part of telecommunications law for
the last 40 years, at least. And it's under these principles
that the Internet itself was originally created. It's under
these principles that the most important competition in
applications occurred. It's under these principles that
Internet2 asks that you continue to produce an environment that
will encourage innovation.
And when we look to foreign countries--in particular,
Japan, Korea, and France--it is under these old principles that
those countries have architected a broadband network that has
produced broadband networks that are much more efficient and
cost effective than what we have. As The Wall Street Journal
reported last fall, France offers its citizens broadband at
$1.80 per megabyte--megabit per second. That's about 11 times
cheaper than the service offered by Verizon in the United
States.
So, this new--so these old ideas are now being replaced by
new principles, new principles that are backed by theory, by
theory offered by a bunch of academics and a bunch of
economists that have nothing more than the hand-waving of
theories before them.
Now, I'm an academic, but I feel a little bit like the
stableboy who spends his whole life shoveling--I guess I can't
use that word here, right?--but shoveling whatever, and I'm
surrounded by a bunch of academics offering a bunch of theories
about how we should remake telecommunications law to get to the
grand new age. And I say, you should look to the past and learn
the lessons from the past before you radically change the
infrastructure within which innovation has occurred.
And the fourth point that I don't think anybody can really
deny, the changes that are being described, not by the very
reasonable people who testified in the earlier panel, but by
the leaders of Verizon and the leaders of AT&T, the changes
that are being described would radically reduce competition in
applications and content on the Internet, radically reduce that
competition because as they set up fast lanes on the Internet,
the only companies that could afford to buy access to the fast
lanes on the Internet are companies like Google and Yahoo! and
Microsoft and the content companies that already have succeeded
in the marketplace. The next-generation Yahoos! and Googles
cannot buy access to the fast lane, because they would face a
barrier to entry that would restrict competition. This
restriction in competition would fundamentally weaken the
growth of the Internet.
Now, you have a bunch of theories before you, and I want to
just end with a frame to think about these theories.
I was criticized many years ago for using a quote from one
of my favorite musicians, Jill Sobule. She has a fantastic song
in which the slogan is ``sold my soul, and nothing happened.''
And I'd suggest, 10 years from now, if we follow the regulatory
strategy that we're going right now, which says ``Give up the
framework of regulation that has governed telecommunications
for the last 40 years, give up the principles of neutrality
that has governed telecommunications for the last 40 years,''
then, 10 years from now, we will look back, and we will say,
``In order to get what the broadband providers promised, we
sold our soul, the soul of neutrality that has governed the
Internet since its birth, and we got nothing in return.''
Thank you very much.
[The prepared statement of Mr. Lessig follows:]
Prepared Statement of Lawrence Lessig, C. Wendell and Edith M.
Carlsmith Professor of Law, Stanford Law School
Introduction
Mr. Chairman, and Members of the Committee, my name is Lawrence
Lessig, and I am a professor of law at Stanford Law School. For the
past decade I have been researching the relationship between technology
and Internet policy, and in particular, the relationship between the
architecture of the Internet and innovation. I am therefore happy to
have the opportunity to address the question that this Committee is now
considering--whether Congress should enact rules to protect network
neutrality.
To answer that question, this Committee must keep in view a
fundamental fact about the Internet: as scholars and network theorists
have extensively documented, the innovation and explosive growth of the
Internet is directly linked to its particular architectural design. It
was in large part because the network respected what Saltzer, Clark and
Reed called ``the `end-to-end' principle'' that the explosive growth of
the Internet happened. If this Committee wants to preserve that growth
and innovation, it should take steps to protect this fundamental
design.
In my view, the most important action that this government has
taken to preserve the Internet's end-to-end design was the decision by
Chairman Michael Powell to commit the FCC to enforce what he referred
to as the Internet's four ``Internet Freedoms.'' Building upon an idea
first presented to this committee by Microsoft's Craig Mundie in 2002,
these ``Internet Freedoms'' established for the first time a Federal
policy to assure that network owners don't deploy technologies that
weaken the environment for innovation that the Internet initially
created. Those principles were relied upon by the FCC when it stopped
DSL provider Madison River Communications from blocking Voice-over-IP
services. That enforcement action sent a clear message to network
providers that the Internet that they could offer must continue to
respect the innovation-promoting design of end-to-end.
It is my view that Congress should ratify Powell's ``Internet
Freedoms,'' making them a part of the FCC's basic law. However, in the
time since Chairman Powell announced these principles, it has become
clear that they are missing one important requirement. The now openly-
stated intentions of AT&T and others to introduce access-tiering to the
Internet threatens to undermine application competition on the
Internet. \1\ Congress should act to avoid that result.
---------------------------------------------------------------------------
\1\ See Telcos Propose Web Tiers, Red Herring (January 31, 2006).
---------------------------------------------------------------------------
Access-tiering \2\ will create an obvious incentive among the
effective duopoly that now provides broadband service to most
Americans. By effectively auctioning off lanes of broadband service,
this form of tiering will restrict the opportunity of many to compete
in providing new Internet service. For example, there are many new user
generated video services on the Internet, such as Google Video,
YouAre.TV, and youTube.com. The incentives in a world of access-tiering
would be to auction to the highest bidders the quality of service
necessary to support video service, and leave to the rest insufficient
bandwidth to compete. That may benefit established companies, but it
will only burden new innovators.
---------------------------------------------------------------------------
\2\ By ``access-tiering,'' I mean any policy by network owners to
condition content or service providers' right to provide content or
service to the network upon the payment of some fee. These fees are
independent of basic Internet access fees. No one questions the right
of network owners to charge Google for the bandwidth it uses. Instead,
``access-tiering'' adds an additional tax on network innovators based
upon the particular service being offered.
---------------------------------------------------------------------------
To oppose access-tiering, however, is not to oppose all tiering. I
believe, for example, that consumer-tiering should be encouraged.
Network providers need incentives to build better broadband services.
Consumer-tiering would provide those incentives.
Consumer-tiering, however, should not discriminate among content or
application providers. There's nothing wrong with network owners saying
``we'll guarantee fast video service on your broadband account.'' There
is something wrong with network owners saying ``we'll guarantee fast
video service from NBC on your broadband account.'' And there is
something especially wrong with network owners telling content or
service providers that they can't access a meaningful broadband network
unless they pay an access-tax.
I don't mean ``wrong'' in the sense of immoral, or even unfair. My
argument is not about the social justice of Internet access. I mean
``wrong'' in the sense that such a policy will inevitably weaken
application competition on the Internet, and that in turn will weaken
Internet growth.
The Internet's growth is a crucial part of the Nation's economic
growth. In my view, Congress should take steps to assure that the
current concentration in broadband access does not translate into
reduced application competition on the Internet. A ``network
neutrality'' policy that combined Chairman Powell's ``Internet
Freedoms'' with a requirement that network providers secure a level of
basic Internet service with only consumer-tiering would, in my view,
promote that growth.
I. The End-to-End Internet Inspired A Wide Range of Innovation
The Internet has inspired a wide range of innovation. Because of
its particular architectural design, that innovation has come primarily
from the ``edge'' or ``end'' of the network through application
competition. As network architects Jerome Saltzer, David Clark, and
David Reed describe, \3\ the original Internet embraced an ``end-to-
end'' design, meaning the network itself was to be as simple as
possible, with intelligence for the network provided by applications
that connected at the edge of the network.
---------------------------------------------------------------------------
\3\ 29 See J. H. Saltzer, David Clark, and David Reed, ``End-to-End
Arguments in System Design,'' available at ; David P. Reed et al., ``Active
Networking in End-to-End Arguments,'' available at .
---------------------------------------------------------------------------
One consequence of this design is that early network providers
couldn't easily control the application innovation that happened upon
their networks. That in turn meant that innovation for these network
could come from many who had no real connection to the owners of the
physical network itself. Indeed, if you consider some of the most
important innovations in this history of the Internet--from the design
of its protocols by graduate student Vint Cerf, and Bob Kahn, to the
development of the World Wide Web by a Swiss researcher at CERN, to the
first peer-to-peer instant messaging chat service, ICQ, developed by a
young Israeli, to the first web based (or HTML-based) e-mail, HoTMaiL,
developed by an Indian immigrant--these are all innovations by kids or
non-Americans: outsiders to the network owners.
This diversity of innovators is no accident. By minimizing the
control by the network itself, the ``end-to-end'' design maximizes the
range of competitors who can innovate for the network. Rather than
concentrating the right to innovate in a few network owners, the right
to innovate is open to anyone, anywhere. That architecture, in turn,
has created an astonishing range of important and economically valuable
innovation. Here, as in many other contexts, competition has produced
growth. And that competition was assured by the network's design. \4\
---------------------------------------------------------------------------
\4\ The best work describing this interaction is Barbara van
Schewick, Architecture and Innovation: The Role of the End-to-End
Arguments in the Original Internet, PhD dissertation, Technical
University, Berlin (2005), and Tim Wu, Network Neutrality, Broadband
Discrimination, 2 J. Telecom. & High Tech 141 (2003). I have also
addressed this question in The Future of Ideas (2001).
---------------------------------------------------------------------------
II. Concentrations in Broadband Access Threaten That End-to-End
Neutrality
It was the assumption of many (including me) \5\ that competition
in broadband access would prevent any compromise in end-to-end
neutrality. That was the premise of the ``open access'' requirement
imposed upon telecom providers. The assumption was that in a
competitive market, no individual ISP would have the market power to
successfully restrict the range of Internet applications. ``Open
access'' thus sought to establish a competitive ISP market, which in
turn was thought would protect network neutrality. \6\
---------------------------------------------------------------------------
\5\ See, e.g., Mark Lemley & Lawrence Lessig, The End of End-to-
End: Preserving the Architecture of the Internet in the Broadband Era,
48 UCLA Law Review 925 (2001).
\6\ As the Wall Street Journal recently reported, France has
vigorously enforced ``unbundling'' requirements for network providers.
See Jesse Drucker, For U.S. Consumers, Broadband Service is Slow and
Expensive, Wall Street Journal, November 16, 2005. Japan has followed a
similar policy. See Nobuo Ikeda, The Unbundling of Network Elements
Japan's Experience, available at < http://www.rieti.go.jp/jp/
publications/summary/03110001.html>.
---------------------------------------------------------------------------
This assumption about competition protecting end-to-end neutrality
has been drawn into doubt by recent scholarship. \7\ But given the
increasing concentration in broadband provision, the question whether
ISP competition could protect end-to-end neutrality is now effectively
moot. Whether or not competition among ISPs is enough, America no
longer has sufficient broadband ISP competition. In most markets, an
effective duopoly controls access to high speed Internet. \8\
---------------------------------------------------------------------------
\7\ See van Schewick, supra, Sec. 9.3
\8\ FCC, ``High-Speed Services for Internet Access,'' as of 12/31/
04, available at .
---------------------------------------------------------------------------
This concentration has now led network owners to openly advocate
changes in network policy designed to vest new control in the network
owner over the applications and content that flow over their network.
In the United States, there have been isolated incidents, for example,
of DSL providers blocking Voice-Over-IP (VoIP) services. \9\ That
policy has become the rule in a number of foreign jurisdictions. And as
recently reported, network owners in the United States and Canada are
now discussing adding access-tiering to their networks. \10\
---------------------------------------------------------------------------
\9\ See infra note 12.
\10\ See supra note 1.
---------------------------------------------------------------------------
These changes, if allowed, would fundamentally alter the
environment for innovation on the Internet. With a network that embeds
the principle of end-to-end, there is no danger that an innovator's
application or content will be blocked by the network owner. Consumers
might not like the innovation. That risk is unavoidable. But an end-to-
end network removes the risk that the network owner will interfere with
an innovation, either because it competes with the network owners own
business (e.g., VoIP), or because the owner wants to extract payment
from the innovator. This threat-free environment induces more
application innovation.
If the principle of end-to-end is abandoned, however, then
innovators must now include in their calculation of risk the threat
that the network owner might either block or tax a particular
application. That increased risk will reduce application investment.
III. Powell's ``Internet Freedoms'' Are A Critical, Though Incomplete,
Defense of Network Neutrality
This concern about the costs to innovation caused by network owners
is not new. Since the 1996 Telecom Act, the FCC had been struggling to
formulate policy that balanced both the need for new broadband
investment against the risk that broadband operators would exercise too
much control over network innovation. Former FCC Chairman Michael
Powell finally resolved that policy struggle in February, 2004. In a
speech given in Boulder, he outlined four principles that he promised
would guide FCC policy. As Chairman Powell described, these ``Internet
Freedoms'' were:
(1) Freedom to Access Content. First, consumers should have
access to their choice of legal content.
Consumers have come to expect to be able to go where they want
on high-speed connections, and those who have migrated from
dial-up would presumably object to paying a premium for
broadband if certain content were blocked. Thus, I challenge
all facets of the industry to commit to allowing consumers to
reach the content of their choice. I recognize that network
operators have a legitimate need to manage their networks and
ensure a quality experience, thus reasonable limits sometimes
must be placed in service contracts. Such restraints, however,
should be clearly spelled out and should be as minimal as
necessary.
(2) Freedom to Use Applications. [C]onsumers should be able to
run applications of their choice.
As with access to content, consumers have come to expect that
they can generally run whatever applications they want. Again,
such applications are critical to continuing the digital
broadband migration because they can drive the demand that
fuels deployment. Applications developers must remain confident
that their products will continue to work without interference
from other companies. No one can know for sure which ``killer''
applications will emerge to drive deployment of the next
generation high-speed technologies. Thus, I challenge all
facets of the industry to let the market work and allow
consumers to run applications unless they exceed service plan
limitations or harm the provider's network.
(3) Freedom to Attach Personal Devices. [C]onsumers should be
permitted to attach any devices they choose to the connection
in their homes.
Because devices give consumers more choice, value and
personalization with respect to how they use their high-speed
connections, they are critical to the future of broadband.
Thus, I challenge all facets of the industry to permit
consumers to attach any devices they choose to their broadband
connection, so long as the devices operate within service plan
limitations and do not harm the provider's network or enable
theft of service.
(4) Freedom to Obtain Service Plan Information. [C]onsumers
should receive meaningful information regarding their service
plans.
Simply put, such information is necessary to ensure that the
market is working. Providers have every right to offer a
variety of service tiers with varying bandwidth and feature
options. Consumers need to know about these choices as well as
whether and how their service plans protect them against spam,
spyware and other potential invasions of privacy. \11\
---------------------------------------------------------------------------
\11\ ``Preserving Internet Freedom: Guiding Principles for the
Industry,'' February 8, 2004, .
Powell's speech was an indication about enforcement strategy. In
March, 2005, that strategy was demonstrated. In an extraordinarily
swift manner, the FCC succeeded in securing a settlement with a DSL
provider, Madison River Communications. That company had allegedly
blocked VoIP on their DSL lines. In the settlement, Madison River
agreed it would not use its power over the network to block legal
applications on the network. \12\
---------------------------------------------------------------------------
\12\ ``Madison River Communications, LLC Order and Consent
Decree,'' March 3, 2005, .
---------------------------------------------------------------------------
Powell's strategy, in my view, was a perfect mix of carrot and
stick. His aim was to signal to network providers the kind of network
service they could provide without fear of FCC intervention. But the
Madison River case demonstrated that Powell's FCC would not hesitate to
intervene when these basic principles were violated. Network providers
thus knew the kind of business model that would steer clear of the FCC.
That had an important effect upon investment incentives--both of
network providers, and of application developers.
There is, however, one important hole in the ``Internet Freedoms''
that Powell articulated. And that risk is revealed in the recently
revealed intentions of major network providers to begin to implement
access-tiering for content and service providers on the Internet.
The motivation behind this sort of tiering is perfectly
understandable. Network providers now have significant market power in
the broadband market. They aim to leverage that power to maximize
revenue. No doubt, some of that revenue will support new network
provisioning. That provisioning will of course benefit everyone to the
extent it increases the spread of broadband service.
But this form of tiering will also have consequences for the market
for application and content innovation. That danger can be seen in a
simple hypothetical.
Imagine a network owner with the ability to provision a network
that is providing 6 Mbps to its customers. Initially, that capacity is
the effective space for broadband application competition. Imagine then
that the network begins to offer ``speed lanes'' to particular video
providers. These channels effectively reduce the capacity for broadband
application competition. In this context, video providers have the
incentive both to secure for themselves sufficient bandwidth to
guarantee quality service, and the incentive to guarantee that no one
else, or at least, no one not paying the access fee, be able to provide
that network service. Thus, working with the network provider, large
video companies could secure sufficient provisioning to enable their
content to be served while leaving insufficient bandwidth to other
competitors.
Thus, for example, there are many new user-generated video sites
appearing on the Internet. Google has one such site--Google Video--but
others are being created by traditional Internet startups. Thus,
youTube.com and YouAre.tv are two competitors to Google that are
developing similar services to the Google Video service.
In a world with access-tiering, companies like Google in this
context would have an incentive to secure sufficient bandwidth to
enable its services while leaving competitors without enough bandwidth
for their own. Access-tiering would thus become another barrier to
entry for competitors, reducing application or content competition on
the Internet.
This would represent a fundamental change in the environment for
innovation on the Internet. For the first time, network owners would
have a strategic capability, as well as incentive, to create barriers
to entry for new innovators. We should remember that the current
leaders in Internet innovation all began with essentially nothing.
Google, eBay, Yahoo! and Amazon all started as simple websites
providing limited, but fantastic, services. They had to pay no special
access-tax to be on the Internet; there was no special channeling by
Internet providers that disadvantage these competitors relative to any
others. They succeeded because the product they offered was better than
others. Competition on the merits thus drove this market.
That competition would be threatened by access-tiering. Existing
content providers have an incentive to block competitors; access-
tiering would be a means to effect that competitive advantage. And
while these actions might not rise to the level of an antitrust
violation, it is perfectly appropriate for Congress to select a network
policy that it believes would maximize innovation and growth for the
Nation. Adding toll booths to the Internet may well benefit those who
own the roads; but it won't benefit application and content competition
on the Internet, both of which drive economic growth.
To oppose access-tiering, however, is not to oppose all tiering. It
is certainly valuable for network providers to offer consumers
different tiers of service. Such differentiation will create incentives
for network providers to improve network performance. The currently
abysmal record of broadband provision in the United States demonstrates
that they certainly need more incentives. \13\ Consumer-tiering could
well provide more incentives.
---------------------------------------------------------------------------
\13\ Comparative broadband infrastructure statistics rank broadband
in America somewhere between the 13th and 19th industrialized nation in
broadband penetration. See, e.g., (15th). As the Wall Street Journal
reported last fall, it is not countries such as Japan or Korea that
have outflanked the United States. European countries too now offer
their citizens vastly superior broadband options. French households,
for example, can secure 20 Mbps service at about $1.80/Mbps. The
equivalent Verizon entry-level service plan costs almost 11 times that
price. See supra note 6.
---------------------------------------------------------------------------
But consumer-tiering would not create any of the anticompetitive
effects that access-tiering would. So long as network owners offered
neutral tiering--for example, offering high speed for video content, or
simply higher speed for large file transfers--that ``discrimination''
would not harm application competition. The diversity of consumer wants
would produce a general demand for faster, cheaper Internet service.
That general demand would benefit application competition generally.
IV. Congress Should Ratify Powell's ``Internet Freedoms'' Along With A
Restriction On Access-Tiering
In light of this emerging threat to application and content
innovation, it is my view that Congress should enact legislation that
clearly establishes the competitive baseline for broadband service in
America. That legislation should first ratify Chairman Powell's
``Internet Freedoms.'' These principles are an essential element to any
``network neutrality'' policy.
But in addition to these ``Internet Freedoms,'' Congress should act
to avoid the competitive costs that access-tiering could produce. There
are two ways in which Congress could respond to this threat.
At a minimum, Congress could simply restrict access-tiering by
network providers. That would leave network providers free to offer
consumer-tiered service. But such tiering should not be allowed to turn
upon the particular provider of network content. Instead, such tiering
should be limited to either bandwidth guarantees (e.g., guaranteeing at
least 10 Mbps) or service guarantees (e.g., guaranteeing fast `video
service' without specifying a particular provider).
A more ambitious regulation would require network providers to
provide a ``basic Internet service'' to all broadband customers. The
FCC would define what ``basic Internet service'' was. And the FCC's
definition would turn upon a judgment about the capacity necessary to
assure sufficient competition among application and service providers.
In the current context, that could mean sufficient bandwidth to provide
reasonable video services. But as the uses of the Internet develop, the
scope of this ``basic Internet service'' could change.
Conclusion
The Internet was the great economic surprise of the 20th century.
No one who funded or initially developed the network imagined it would
have the economic and social consequences that it has had.
But though the success of the network was a surprise, we have
learned a great deal about why it was a success. Built into its basic
design was a guarantee of maximum competition. A free market in
applications was coded into its architecture. The growth of that
network followed from this basic design. The world economy benefited
dramatically from this growth.
The threat facing the Internet today is that network owners will
convince regulators to go back on that original design. Through
regulatory policies that permit broadband providers to act however
their private interests dictate, these regulatory policies would
threaten the economic potential of the network generally. New
innovation always comes from outsiders. If insiders are given both
technical and legal control over innovation on the Internet, innovation
will be stifled.
Unlike many other industrialized nations, we in the United States
have failed to preserve the extraordinary competition among ISPs that
characterized early Internet growth. But despite that loss in access
competition, the end-to-end principle, supported in part by the FCC,
still provided significant opportunity for application and content
competition. The changes now being spoken of by the effective duopoly
of broadband providers will weaken that application and content
competition.
It is my view that any policy that weakens competition is a policy
that will weaken the prospects for Internet and economic growth. I
therefore urge this Committee to secure and supplement the work of
Chairman Powell, by enacting legislation that protects the environment
for Internet innovation and competition that the original Internet
produced.
The Chairman. The next witness is J. Gregory Sidak,
Professor of Law at Georgetown University.
STATEMENT OF J. GREGORY SIDAK, PROFESSOR OF LAW, GEORGETOWN
UNIVERSITY LAW CENTER
Mr. Sidak. Thank you very much, Mr. Chairman.
Well, I'm tempted, also, to toss aside my prepared remarks
after that inspiring testimony by Professor Lessig. I agree
with him that there's a lot that we already know about this
problem. I have spent the last 20 years working as a lawyer and
economist on regulatory and antitrust problems in the
telecommunications industry. It's clear to me that economics
understands the distinctive cost and demand characteristics of
telecommunications networks better than just about any industry
that I can think of.
The common problem that we see again and again in
telecommunications is, How do you create the incentives to
build the network while at the same time making use of the
network affordable for as many people as possible? That is the
critical issue that this Committee faces.
In my view, there is not a problem of net neutrality that
requires legislation. We know, from economics, that there are
six essential characteristics of telecommunications networks.
If the Committee will take cognizance of those, I think it will
see that there are strong market forces that will prevent the
harms that are asserted to exist here.
The first unique characteristic of a telecommunications
network is that it requires substantial sunk investment.
Networks are not build overnight. Sunk investment is made
sequentially over time. As soon as it becomes clear, through
the imposition of something like a net-neutrality regime, that
the recovery of the sunk investment of the network is in
jeopardy, the funds that come forward to build the network will
become more expensive, the cost of capital goes up, and the
scale of the network is curtailed.
Second, networks display economies of scale. That means
that the marginal cost of another user using the network is
very low. But if you price on the basis of marginal cost, you
can never recover the sunk costs.
A third and related point is that networks have what are
known as economies of scope. They have common costs, because
they produce multiple products. Those products have costs
incurred in common. That means that there should be a
contribution from each one of those products to the recovery of
the sunk costs of the network. The way that economists have
figured out to do this in the least distortionary way--in other
words, in the way that affects consumer choice the least--is
something known as ``Ramsey pricing.'' It's been known since
1927. Ramsey pricing is one form of differential pricing; in
other words, charging prices based on the intensity of demand.
That is important, because a fifth characteristic of
telecommunications networks is joint demand. A
telecommunications network is an example of a two-sided market.
There is value to someone placing a call, and there is value to
someone receiving the call. There is value to someone browsing
the Internet, and there is value to a Google of providing the
search engine, because it sells advertising to customers who
value the information that is revealed when the person doing
the search reveals that he or she is interested in particular
information.
So, there are two sides of the market. Each one has an
interest in the product being produced. There are two
willingnesses to pay in that situation. There is no basis in
economic theory to presume that it would be socially optimal
for the end users to pay for all the costs of building a high-
speed network, while the companies that deliver content or
applications to those same end users over the network, and who
therefore derive substantial economic advantage from the use of
the network, would pay nothing. But that is the proposition
that's been put to us this morning.
A sixth consideration is congestion. Just like highways,
telecommunications networks are subject to congestion. That's
why pricing signals are very important. We know that if there
is differential pricing of products--something, incidentally,
that we see in many, many competitive markets, so it's not
unique to a monopoly in any way--then the price can be lowered
to the consumer who has the most price-sensitive demand. In
that sense, the scale of the network can be expanded. It can be
made more inclusive. That is a good thing, because we believe
that the larger the network--as universal-service policy, for
example, illustrates--the greater the social benefit.
So, it's important to realize that we have, already, a
toolkit that we have been using for decades in
telecommunications to understand these problems of common costs
of networks and finding the way to pay for the building of the
network in the least distortionary way.
Thank you.
[The prepared statement of Mr. Sidak follows:]
Prepared Statement of J. Gregory Sidak, Professor of Law, Georgetown
University Law Center
Thank you, Mr. Chairman, for inviting me to testify today. I have
worked as a lawyer and economist on regulatory and antitrust
proceedings in the telecommunications industry for twenty years. In the
interest of disclosure, let me say that I have been a consultant to a
number of companies in the telecommunications, content, and software
industries. \1\ Today, however, I am appearing on my own behalf. I do
not represent any company, and no one has paid me to prepare this
testimony. \2\
---------------------------------------------------------------------------
\1\ Since the early 1990s, they have included Alcatel, AT&T, Bell
Atlantic, BellSouth, BT (British Telecom), CanWest Global
Communications, Comsat, Deutsche Telekom, Eircom, Ericsson, France
Telecom, GTE, Hongkong Telecom, Microsoft, National Association of
Broadcasters, Nippon Telegraph and Telephone, NTT West, NTT DoCoMo,
Portugal Telecom, Qwest Communications, Recording Industry Association
of America, SBC Communications, Siemens, Telecom Italia, Telefonica de
Espana, Telstra, The Walt Disney Company, United States Telecom
Association, Verizon Communications, Verizon Wireless, Videsh Sanchar
Nigam Limited, and Vodafone. In addition, I advised the Republic of
Mexico in the World Trade Organization dispute between the United
States and Mexico concerning international telecommunication services,
and the Antitrust Division of the U.S. Department of Justice and the
Canadian Competition Bureau on antitrust matters concerning
telecommunications services.
\2\ The views expressed are my own, and not those of Georgetown
University.
---------------------------------------------------------------------------
``Net neutrality'' obligations would require a telecommunications
carrier to operate its broadband network so that no packet of
information is treated as inferior to others in terms of its urgency of
delivery. Under ``net neutrality'' I can take comfort in knowing that
my son's Internet chatting about what agent Jack Bauer did on last
night's episode of 24 will receive the same priority of delivery as my
file transfer of this testimony to the Committee's staff. The practical
effect of ``net neutrality'' obligations would be to require a
telecommunications carrier to recover the full cost of its broadband
network connection through a uniform flat-rate charge imposed on all
end users. Companies like Google, eBay, and Yahoo! might believe that
such an outcome works to their private economic advantage, but that
short-run view would neglect the disincentive that ``net neutrality''
obligations would create for private investment in the very broadband
infrastructure upon which these companies rely to deliver their content
and applications to consumers.
Few industries studied by economists have received such intensive
theoretical and empirical analysis as telecommunications. Today,
regulators in the United States and other OECD nations understand very
well how the unique cost characteristics and demand characteristics of
telecommunications networks affect market outcomes and the efficacy of
regulatory intervention. ``Net neutrality'' obligations are
incompatible with what we know about the economics of
telecommunications. To understand the harm that ``net neutrality''
obligations pose to economic welfare, Congress needs to appreciate six
salient economic features of telecommunications networks. These six
economic considerations underscore why Congress should not frustrate
the ability of a telecommunications company to recover the sunk costs
of its broadband network in the manner that least distorts consumer
choices.
The first economic consideration is that a broadband network
requires substantial sunk investment. \3\ Private investors will fund
the construction of a broadband network only if there is a reasonable
expectation that the company making that investment will recover the
cost of its investment, including a competitive return on capital. Sunk
investment is not a one-shot deal; sunk investment is made continuously
over time. Therefore, as soon as it is understood that a new regulatory
obligation or regime like ``net neutrality'' will jeopardize a firm's
recovery of its sunk costs, the capital markets will demand a higher
risk-adjusted return. As the cost of capital rises, incremental sunk
investment in the network will be more costly for its owner, and the
likelihood that the network will be completed according to its
originally intended scale will diminish.
---------------------------------------------------------------------------
\3\ See, e.g., Jerry A. Hausman & J. Gregory Sidak, A Consumer-
Welfare Approach to the Mandatory Unbundling of Telecommunication
Networks, 109 YALE L.J. 417 (1999).
---------------------------------------------------------------------------
The second economic consideration is that a broadband network
exhibits economies of scale. The large sunk costs of building a
broadband network imply that the marginal cost of providing service to
one more consumer is very low. However, marginal cost pricing is
insufficient to recover even the average variable cost of the network,
much less the average total cost, which would be necessary to recover
the sunk costs of building the network. In economic theory, the
solution to this problem is to charge consumers a lump sum fee to
recover the sunk costs and to price usage at marginal cost. In a regime
of regulated pricing, however, this solution is impossible for
political reasons because the lump sum fee could be enormous. So firms
or regulators attempt to identify what has become known as the
``optimal departure from marginal cost pricing.'' \4\
---------------------------------------------------------------------------
\4\ See William J. Baumol & J. Gregory Sidak, Toward Competition in
Local Telephony 35-40 (MIT Press & AEI Press 1994); William J. Baumol &
David F. Bradford, Optimal Departures from Marginal Cost Pricing, 60
Am. Econ. Rev. 265 (1970).
---------------------------------------------------------------------------
The third economic consideration is that a broadband network
exhibits economies of scope. In other words, there are synergistic
``common costs'' to producing multiple products over the same network.
The products may have substantially different demand characteristics,
including different price elasticities of demand. A multiproduct firm
can earn contributions to the recovery of the sunk costs of its
broadband network from each of its services. Economic welfare is
maximized when the pricing of each such product makes a contribution to
the recovery of sunk costs that is inversely related to its price
elasticity of demand. This pricing rule is known as Ramsey pricing. \5\
---------------------------------------------------------------------------
\5\ Frank Ramsey, A Contribution to the Theory of Taxation, 37
Econ. J. 47 (1927).
---------------------------------------------------------------------------
The fourth economic consideration is that differential pricing,
such as Ramsey pricing can increase economic welfare because it enables
a firm to lower the price to consumers who would otherwise be priced
out of the market if the firm were constrained to charge a higher
uniform price. Moreover, differential pricing is commonplace in
competitive markets (such as airlines, hotels, retailing, package
delivery, personal computers, and book publishing) because competition
compels firms to adopt rival strategies to lower, to the maximum extent
possible, the prices that they charge price-sensitive consumers. \6\ It
would be perverse to prohibit owners of broadband networks from
employing the same differential pricing methodology that is routinely
used by firms in competitive markets.
---------------------------------------------------------------------------
\6\ See William J. Baumol & Daniel G. Swanson, The New Economy and
Ubiquitous Competitive Price Discrimination: Identifying Defensible
Criteria of Market Power, 70 Antitrust L.J. 661 (2003).
---------------------------------------------------------------------------
The fifth economic consideration is that telecommunications
services have joint demand. For example, a telephone call is valued by
both the caller and the recipient, and a visit to a website is valued
by both the consumer doing the browsing and the owner of the website.
In a ``two-sided'' market of this sort, the demand that one party has
for the product is complementary to the demand that the other party
has. \7\ Over-the-air television programs are free to the viewer
because advertisers pay broadcasters to assemble audiences to receive
advertisements. Google searches are free to Internet users because
Google sells highly focused advertising that responds to the interests
revealed by the Internet user's search request. Each party in a two-
sided market can contribute to the recovery of the sunk costs required
to build a broadband network. There is no basis in economic theory to
presume that it would be socially optimal for end users to pay for all
of the cost of building a high-speed broadband network while the
companies that deliver content or applications to those same end users
over that network--and therefore derive substantial economic advantage
from its use--pay nothing.
---------------------------------------------------------------------------
\7\ See, e.g., David S. Evans, The Antitrust Economics of Multi-
Sided Platform Markets, 20 Yale J. on Reg. 3235 (2003).
---------------------------------------------------------------------------
The sixth economic consideration is that telecommunications
networks are susceptible to congestion. For that reason, correct price
signals must be used at every possible point in the network so that
users who congest the network bear the social cost of their behavior.
\8\ If, instead, the owner of a broadband network were constrained to
charge the same price to every end user, regardless of the amount of
network congestion that the user created, the result would be excess
demand and reduced supply--which is to say, shortages of bandwidth.
---------------------------------------------------------------------------
\8\ See Christopher S. Yoo, Network Neutrality and the Economics of
Congestion, 95 Geo. L.J. (Forthcoming June 2006); J. Gregory Sidak &
Daniel F. Spulber, Cyberjam: the Law and Economics of Internet
Congestion of the Telephone Network, 21 Harv. J.L. & Pub. Pol'y 327
(1998).
---------------------------------------------------------------------------
These six economic factors counsel Congress not to frustrate the
ability of a telecommunications company to recover the sunk costs of
its broadband network in the manner that least distorts consumer
choices. We know from Ramsey pricing that the least distortionary
method is to charge all persons or businesses that use the network, and
to do so in inverse relation to their respective price elasticities of
demand. In that manner, revenues earned from persons or businesses with
the most price-insensitive demand for broadband connections will permit
the telecommunication carrier to reduce prices for consumers who are
more sensitive to price, including those with limited disposable
income. The result is an expansion of the scale and use of the network.
Under differential pricing, intense demanders of broadband delivery--
like Google or Yahoo! or eBay--probably would pay more for expedited
delivery of the advertising that drives their business models. For
these users, conventional ``best efforts'' delivery may be
insufficient. In contrast, consumers who are the less intensive users
of broadband capacity and who would be satisfied with best-efforts
delivery will find it more affordable to subscribe to broadband for
Internet access if they do not have to pay for higher network
performance than they need. It should come as no surprise that the New
York Times reported two days ago that America Online and Yahoo! ``are
about to start using a system that gives preferential treatment to
messages from companies that pay from \1/4\ of a cent to a penny each
to have them delivered.'' \9\
---------------------------------------------------------------------------
\9\ Saul Hansell, Postage Is Due for Companies Sending E-Mail, N.Y.
Times, Feb. 5, 2006.
---------------------------------------------------------------------------
Congress also should not deny telecommunications carriers the
freedom to supplement subscriber revenue with their own advertising
revenue. Newspapers, cable television operators, and Internet service
providers all have business models that rely on revenues from both
advertising and subscriptions. Unless Congress prohibits them from
doing so, telecommunications carriers will also develop business models
that generate advertising revenue. That ancillary revenue will enable
these carriers to reduce further the monthly subscription price for
broadband access.
In short, the enactment of ``net neutrality'' obligations would
impose social costs. It would reduce consumer welfare by forcing end
users to pay more for broadband Internet access or to forgo the
service. At the same time, such obligations would not produce benefits
in terms of preventing anticompetitive behavior. A telecommunications
carrier already lacks the incentive to block a consumer's access to
lawful content, because content and carriage are complementary goods,
not substitute goods. A telecommunications carrier also lacks the
incentive to degrade the quality of packets for VoIP services, because
that degradation would be quickly detected and could trigger antitrust
or business tort litigation.
Finally, the overarching reason why anticompetitive behavior of any
sort is implausible is that competition will constrain the market power
of any given carrier. In most geographic markets, four or more separate
firms will supply broadband Internet access. It will be supplied over
the fixed network of the regional Bell operating company or other local
telephone company, over the fixed network of the local cable television
operator, and over two (if not three) wireless networks in addition to
the wireless network affiliated with the local RBOC.
To conclude, the legislative agenda of the ``net neutrality''
movement ignores the essential cost and demand characteristics of
telecommunications networks. It also posits that the current
marketplace will produce implausible competitive harms. Congress faces
many important questions as it revises the Communications Act, but the
imposition of ``net neutrality'' obligations is not one of them.
The Chairman. Thank you very much.
Our next witness is Gary Bachula, Vice President, External
Affairs, of Internet2.
Thank you.
STATEMENT OF GARY R. BACHULA, VICE PRESIDENT, EXTERNAL AFFAIRS,
INTERNET2
Mr. Bachula. Thank you, Mr. Chairman and Members of the
Committee.
Internet2 consists of over 300 universities, corporations,
and government labs working on an advanced Internet. Our
Abilene network, a private 10-gigabit research-and-education
network, today enables millions of researchers, faculty, and
students to live in the future of advanced broadband. Internet2
students and faculty already routinely use technologies like
TV-quality videoconferencing and are hard at work at creating
more advanced, potentially life-changing technologies in areas
such as telemedicine and distance learning.
These innovations are not being developed by telephone or
cable companies; they're being developed the way the web
browser, the search engine, and instant message were developed
the first time around, by end users. That requires an open,
standards-based, nondiscriminatory Internet. That is why we
support net-neutrality provisions in law and regulations.
Now, some argue against net neutrality, saying that they
must give priority to certain kinds of Internet bits, such as
video, to guarantee quality. Let me tell you about our actual
experience at Internet2.
When we first began to deploy our Abilene network, our
engineers started with the assumption that we, too, should find
technical ways of prioritizing certain bits, such as streaming
video, in order to assure that they arrived without delay. We
explored various quality-of-service schemes. As it developed,
though, all of our research and practical experience supported
the conclusion that it was far more cost effective to simply
provide more bandwidth. With enough bandwidth, there is no
congestion and video bits do not need preferential treatment.
Today, our Abilene network does not give preferential
treatment to anyone's bits, but our users routinely experiment
with streaming HDTV, hold thousands of high-quality two-way
video conferences simultaneously, and transfer huge files of
scientific data routinely around the globe without loss of
packets.
We would argue that, rather than introduce additional
complexity into the network fabric, and additional costs to
implement these prioritizing techniques, the telecom providers
should focus on providing Americans with an abundance of
bandwidth, and the quality problems will take care of
themselves.
At Internet2 universities today, we routinely provide 100
to 1,000 megabits per second of connectivity to the desktop,
the laboratory, the research lab, the classroom. Today's
typical home broadband connection is only 1 to 5 megabits, at
best.
We would like to see Congress set a national goal of 100
megabits of symmetrical bandwidth to every home, business, and
school in America in 5 years, and a gigabit in 10. This is
absolutely doable using coaxial cable and fiber to the home.
That would allow plenty of bandwidth for telephone, video, e-
mail, and many other new uses, without requiring these costly
prioritization and partitioning schemes.
Higher bandwidth will also enable exciting new uses for the
Internet. Home medical monitoring, for example, could save
billions in healthcare costs, reduce hospital stays, and keep
people from needing nursing homes earlier. Education and
telework are two other areas where a high-bandwidth Internet
could have major impact.
Our foreign competitors get this. They are adopting high-
bandwidth, open, simple, low-cost designs for their networks.
We are the only nation looking at making the network more,
rather than less, complex and expensive. We believe this is the
wrong choice.
If we lose the open Internet, the Internet controlled by
users, the Internet that allows innovation and entrepreneurial
investment, we will lose something very important to our
national economic well-being. Keeping network design open,
inexpensive and simple is better than costly, complex, and
closed.
If you do the right thing, we believe you will be enabling
another wave of amazing innovation and economic growth in this
country. We know, because every day in our university campuses
we see part of that future.
Thank you for your consideration.
[The prepared statement of Mr. Bachula follows:]
Prepared Statement of Gary R. Bachula, Vice President, External
Affairs, Internet2
Mr. Chairman, Members of the Committee:
Thank you for the opportunity to testify today. With respect to the
issue of net neutrality, some have said that the future of the Internet
is at stake. We in Internet2 would agree, but might go further. The
future of American innovation and competitiveness is also at stake. To
compete in the world, we need a simple, inexpensive, and open network,
not a costly, complex, and balkanized one.
Who we are. Internet2 is a not-for-profit partnership of 208
universities, 70 companies, and 51 affiliated organizations, including
some Federal agencies and laboratories. Our mission is to advance the
state of the Internet, and we do that primarily by operating for our
members a very advanced, private, ultra-high-speed research and
education network called Abilene that enables millions of researchers,
faculty, students and staff to ``live in the future'' of advanced
broadband. By providing very high speed pipes--10,000 times faster than
home broadband, in our backbone--we enable our members to try new uses
of the network, develop new applications, experiment with new forms of
communications, experiencing today what we hope the rest of America
will be able to have and use in just a few years.
Today on our campuses students are able to take master music
classes with world-renowned musicians via DVD-quality video
conferencing technology. Recently, students at Wichita State were able
to play and take lessons from the New World Symphony in Miami using
Internet2's network. The fidelity of the audio and video is so fine-
tuned, it is as if the teacher and the student are in the same room,
able to discuss details about playing technique and musical phrasing.
Famed oceanographer Bob Ballard is able to take elementary school
children on undersea expeditions using Internet2's network. They can
have a 2-way video conversation with an underwater diver in real time
from any connected school in the country--imagine the lasting
impression this must have--especially for those who may never have
experienced the ocean firsthand.
We have a very strong interest in the current telecommunications
reform discussion that is unfolding here in the Congress: we have seen
an Internet future that is possible for this country and we know that
the rules and incentives that you are considering could have an
enormous and lasting impact upon the kind of Internet we will actually
achieve.
Importance of Net Neutrality. If we lose the open Internet, the
Internet controlled by users, the Internet that allows innovation and
entrepreneurial investment, we will lose something very important to
our economic well-being.
Our experience working with advanced networks dictates that we
support an open Internet where the network operator does not block or
degrade content or applications. Users should be able to decide how
much bandwidth to buy from the network operators--a little or a lot--
but once they've paid for the bandwidth, they should be able to go to
any web page, use any lawful application or service, and send any
lawful content. As network managers ourselves, we understand the need
to be concerned with security attacks, spam, and overall congestion--
but these should not be used as excuses to discriminate.
We also understand that the ``net neutrality'' issue goes deeper
than just blocking a web page or a Voice over IP application. If a
network operator starts to give preference to packets from one source
(that perhaps pays the operator for preference), what happens to all of
the other, ordinary packets? We know that when an ambulance or fire
truck comes down a congested highway, everybody else has to pull over
and stop. For emergencies, and for public safety, that is accepted, but
what if UPS trucks had the same preference? Giving a preference to the
packets of some potentially degrades the transport for everyone else.
In addition, if economic toll booths are allowed for content and
applications to access the Internet, then soon only the richest content
providers will be able to make their material available. What happens
to the little guy, the start-up, the entrepreneur? If charging content
providers to carry their bits to local customers had existed ten years
ago, we would never have seen Amazon, e-Bay, or Google. As start-ups
they could never have afforded the tolls that telephone companies today
are imagining.
Our experience. Having deployed an advanced broadband network to
over five million users for some seven years now, we at Internet2
believe our experience will interest Congress as you consider important
telecommunications legislation.
We are aware that some providers argue against net neutrality,
saying that they must give priority to certain kinds of Internet bits,
such as video, in order to assure a high quality experience for their
customer. Others argue that they want to use such discrimination among
bits as a basis for a business model. Let me tell you about our
experience at Internet2.
When we first began to deploy our Abilene network, our engineers
started with the assumption that we should find technical ways of
prioritizing certain kinds of bits, such as streaming video, or video
conferencing, in order to assure that they arrive without delay. For a
number of years, we seriously explored various ``quality of service''
schemes, including having our engineers convene a Quality of Service
Working Group. As it developed, though, all of our research and
practical experience supported the conclusion that it was far more cost
effective to simply provide more bandwidth. With enough bandwidth in
the network, there is no congestion and video bits do not need
preferential treatment. All of the bits arrive fast enough, even if
intermingled.
Today our Abilene network does not give preferential treatment to
anyone's bits, but our users routinely experiment with streaming HDTV,
hold thousands of high quality two-way video conferences
simultaneously, and transfer huge files of scientific data around the
globe without loss of packets.
We would argue that rather than introduce additional complexity
into the network fabric, and additional costs to implement these
prioritizing techniques, the telecom providers should focus on
providing Americans with an abundance of bandwidth--and the quality
problems will take care of themselves.
For example, if a provider simply brought a gigabit Ethernet
connection to your home, you could connect that to your home computer
with only a $15 card. If the provider insists on dividing up that
bandwidth into various separate pipes for telephone and video and
Internet, the resulting set top box might cost as much as $150. Simple
is cheaper. Complex is costly.
A simple design is not only less expensive: it enables and
encourages innovation.
The design of the Internet. The original Internet grew so fast, and
spurred so many new uses, in part because of the way it was designed.
It was designed to have an agnostic, neutral ``core'' whose job was to
pass packets back and forth--and not to discriminate or examine the
packets themselves. This allowed the network to be very cost efficient
and economical. It also allowed all of the ``intelligence'' in the
network to be at the ``edge,'' that is, in the hands of the user.
This was very important to the evolution of the Internet. The
network provider did not have control, the user did. As long as the
user utilized the standardized protocols, he could expect to send and
receive packets to anyone else on the network in a completely
understandable, predictable manner. That allowed the user to experiment
with new programs, new applications, slightly tweaked applications, and
even new devices--and the user would know that the network would treat
the packets all exactly alike.
Innovation was possible and could happen very quickly at ``the
edge'' because you didn't have to re-architect or re-build the entire
network in order to make a tweak or improvement in an end-user
technology (such as improving a web search engine or developing a new
video encoding program).
As a result of this remarkable design, sometimes called ``end-to-
end architecture,'' an explosion of new Internet technologies were
developed over the past decade, many of them on university campuses or
by recent graduates. The World Wide Web, the web browser, the search
engine, instant messaging, and many other technologies were innovations
by users of the network. Not one of these innovations was developed by
telephone or cable companies.
The future of the Internet. The faculty and staff and students at
Internet2 universities are experimenting with the next generation of
the Internet today. If we do this telecommunications reform right, it
could unleash another wave of new uses, new applications, money-saving
innovations, and economy-driving benefits.
We believe that Americans are going to need, and want, significant
increases in broadband speeds over the next two decades (just as they
have experienced increased computer processing speeds and ever-
expanding computer memory). At Internet2 universities today, we
routinely provide 100 megabits per second to the desktop, and many of
our schools offer 1000 megabit (1 gigabit) per second connections to
their faculty and students. We have done so using commercially
available, open-standards technology and our traffic flows on the very
same fiber used by today's Internet service providers. Today's typical
home broadband connection--which admittedly is a big step up from dial-
up--is only about 1 megabit. So the goal of broadband legislation
should be to encourage ever-increasing bandwidth.
We would like to see Congress set a national goal of 100 megabits
of symmetrical bandwidth, meaning the same speed for both uploaded and
downloaded content, to every home and business and school in America in
five years--and a gigabit (1000 megabits) in ten years. This is
absolutely doable using coaxial cable and fiber to the home. That would
allow plenty of bandwidth for telephone, video, e-mail, and many other
uses--and enable brand new uses that we cannot even imagine today.
It does not cost all that much, relatively, to upgrade a network
once the basic wiring is in place--that's the big original cost. For
example, a university campus in the Midwest that serves 14,000 students
and faculty, recently estimated it would cost about $150 per port (per
end user) to replicate their current 100 Mbps network for a five-year
period, or about $30 a year per user. To upgrade to 1000 Mbps (1
gigabit) it would cost $250, or about $50 per year. University campuses
are like small towns or suburban neighborhoods. Once cable companies
and companies like Verizon make their initial fiber investment, the
relative cost of upgrading bandwidth to customers is small.
What will that kind of high-speed Internet provide?
You will be able to transfer electronic health records that include
X-rays and body scan data in seconds, rather than the hours it takes on
today's broadband networks. It will be possible to monitor patients at
home, remotely, both improving health care quality and reducing costs:
a recent study concluded that we could save over $800 billion over 20
years using home medical monitoring technologies. A Veterans
Administration study showed you could cut hospital stays in half for
many patients--and yet monitor and watch over them for longer periods
of time.
With DVD-quality two-way video-conferencing, patients will be able
to consult with their doctors, parents will be able to confer with
teachers, rural schools will be able to deliver Advanced Placement
courses to their students, and families will be able to stay close no
matter how much distance separates them. Students will be able to
search the Library of Congress from their homes, and form study groups
with friends around the world.
Telework and tele-commuting will finally be realistic for workers
who need the ability to see and talk to their colleagues and transfer
large quantities of data; this ability to reconstitute work at home
will not only save employers money, and reduce oil consumption and
traffic congestion, but also make Federal agencies more resilient to
disaster or attack.
Our foreign competitors. We believe that these new high-speed
networks will unleash a huge new wave of American innovation--new uses,
new products, new services, new jobs, and new wealth. But we have to be
honest: the first time around, America was alone in developing the
Internet and we exported our success to the rest of the world. We were
the leaders. This time the rest of the world is aggressively working to
be ahead of us--and in many cases is ahead of us. We cannot assume that
the next wave of economic benefits, spurred by this technology, will be
American. Our international competitors are adopting high bandwidth,
open, simple, low cost designs for their networks. We are the only
nation looking at making the network more, rather than less, complex
and expensive. We at Internet2 feel this is the wrong choice.
For example, just this past week it was announced that Vienna,
Austria, plans to bring fiber to all of its 960,000 households and
70,000 small and midsize businesses through a collaboration by the
city, a power provider, and a cable company. They will offer their
citizens one gigabit of symmetrical bandwidth. They emphasize that the
network will be an open access platform for all service providers under
equal conditions. Access will not be limited to classic Internet
service providers but also offered to other services such as, for
example, the health sector.
Already, consumers can now get 100 megabits to their homes in Hong
Kong for $49 a month, and a gigabit for $200. Japan has a goal of
bringing fiber to every home this year or next. South Korea, Europe and
Canada all have ambitious plans that put them and their people on the
``path to a gigabit'' in the coming decade.
Some critics make the point that many of these places have very
dense populations, making it easier to deploy big broadband. That may
be true, but why have we not done it in New York, in Chicago, in
Boston, in San Francisco?
Again, our research and experience shows that if the broadband pipe
is large enough, you do not need to discriminate in favor of some of
the bits. A cost-effective, simple network can provide as high a
quality experience for the user as a more complex, costly, partitioned
network.
MIT is pioneering a move to put all of its course content--written
materials, multi-media, videos of lectures and more--onto the Internet
for free distribution to the world. It is an experiment, but a bold one
that could have transformative impact upon those who might never be
able to see the inside of a college classroom. Stanford University is
making the audio from class lectures available on the web. The Library
of Congress is working on projects to make rare materials available
over the Internet. Should MIT or Stanford or the Library of Congress
now have to pay Verizon and AT&T, Comcast and Cox, and all of the other
local network providers to allow Americans access to this material?
Other nations are not putting up toll booths, why should we?
We in the Internet2 community have a keen interest in this upcoming
legislation and we hope that you will protect the integrity of the
Internet architecture that has given our Nation so much benefit. Net
neutrality is an important component of that design. Keeping network
design open, inexpensive, and simple is better than costly, complex,
and closed. If you do, we believe you will be enabling another amazing
wave of innovation and growth. We know, because we have seen part of
that future. Thank you for your consideration.
The Chairman. Thank you very much.
We have a real problem here, in terms of time. And I do
want to thank each of you for taking the time to be here. I'd
like to ask that you do us one favor, and that is, later, when
you--if you have time, give us your feeling about whether the
1996 Act needs replacement, or would some amendments be
sufficient--are amendments sufficient? There are some people
who think it doesn't really need to be changed at all. I would
like your different experience, background--particularly those
of you from law school and Mr. Dixon, from the FCC--Mr.
Bachula, you've got the Internet2 concepts--the Committee would
be very interested to know if you feel that it is really
necessary to replace the 1996 Act, or to amend it, and how.
What problems really that we're talking about this morning stem
from the Act itself?
And, Mr. Lessig, we appreciate your putting the statement
aside. I've looked at your statement, but I appreciate what
you're saying about looking to the past, and not throwing out
the door all of the experience that we've had that has brought
us where we are now. I think you and Mr. Dixon are saying
somewhat similar--are making similar comments about it.
We'd very much appreciate your advice on the basic problem.
Should we replace this Act, or should we amend it, or should we
just go on to other subjects, in terms of some of the basic
problems we have that are in the general area--911, so many
other things, interoperability? The Telecom Act, itself, has
been a major problem that we face, as far as this is concerned.
I can tell you that as far as my questions, I'd like to
come back just to you, Mr. Bachula, and that is, you've got
Internet2, superfast broadband. You serve colleges, research
institutions like NIH. Is it possible to expand that to the
public? And, if so, what's the future?
Mr. Bachula. We think the principles that--the design of
our networks that we--that serve those constituencies is not
based on anything different than what could be provided by the
telecom providers or even the cable companies.
The Chairman. Are there engineering limitations to the
existing systems that prevent you from extending out, just
generally?
Mr. Bachula. There are not engineering limitations. We were
created to essentially serve the university research community,
and that is why--that is what we have been doing. But the kind
of Internet that we provide to our universities could be
provided to every American in their homes by the companies that
were represented here today if they simply follow the right
principles.
The Chairman. Well, I represent an area that's one-fifth
the size of the United States, and it has less than a million
people. Is Internet2 ever going to serve Alaska?
Mr. Bachula. Oh, Internet2 is very active at the University
of Alaska, sir.
The Chairman. That's the university. I'm talking about the
consumers in the State.
Mr. Bachula. Well, the buildout that is required requires
investment by the private sector. Internet2 is not in the
business of serving everyday home consumers.
The Chairman. It's not a replacement, then, for the
Internet, in terms of the general public.
Mr. Bachula. No, not the network that we run, but the
network we run is an example of the kind of network the public
should get in a few years.
The Chairman. Well, then how about these announcements
we're hearing about in other countries, they're getting such
enormous speed, enormous content at such lower cost?
Mr. Bachula. That's exactly right. Vienna, Austria, just
announced, last week, that they were going to create a
partnership between the city, a power company and a cable
company, to provide a gigabit to every household, 960,000
households and 70,000 businesses, and it was going to be a
completely open network. You can buy 100 megabits in Hong Kong
for $49. And I think you can buy a gigabit for $200. It's
available elsewhere. We are operating under a different
scenario here, where we have scarcity, we're preserving
scarcity, and we seem to be trying to say, ``But if you want to
pay us more, then we'll get rid of the scarcity.''
The Chairman. But don't we serve a nation that's
different--that country will fit in one of the peninsulas south
of my house in Girdwood, Alaska.
Mr. Bachula. That's very true, but we're not even doing it
in New York or Chicago or San Francisco these days, here.
The Chairman. It's density-sensitive, though, isn't it?
Mr. Bachula. Density affects the cost, that's true, but
we're not--we're not even doing it in New York today.
The Chairman. Well, again, I would urge that you, if you
will, give us your judgment about the basic structure of the
Act, itself, and whether--what needs to be done to it, if
anything.
The Chairman. Senator Allen?
Senator Allen. Thank you, Mr. Chairman, for your questions,
and all of these witnesses, as well.
The guiding principles have been, for the Internet, that
it--the term is more of common carriage. It's open. What's
great about the Internet is--I've always said it's the greatest
invention since the Gutenberg press for the dissemination of
information and ideas. And no one would have read Martin
Luther's ``95 Theses'' that he nailed onto the church at
Wittenberg if it wasn't for the printing press. We're not
asking the Internet service providers, though, to print
everything that is written. However, the Internet is that
printing press, and it's an individualized enterprise zone, or
individualized system, and an individual makes those decisions.
And that's what makes it compelling.
The net neutrality is--saying that net neutrality would
harm recovery of sunken costs, that Professor Sidak said,
indicates that, OK, well, there are going to be limits now, and
there's not going to be that open opportunity for creativity or
whatever access to information individuals would want. The open
standards that Mr. Bachula was talking about, the net
neutrality, the higher bandwidth, for teleworking, which I
think is so important for congested areas, for quality of life,
for families to actually be able to see their kids, and also
reduce congestion and air pollution, is very important. The
bandwidth also, though, is for video, primarily; it's not for
reading newspapers or reading publications or e-mailing or
instant-messaging. It's mostly for that video quality.
I'm one who's very much for competition, as well as
standing for freedom. To hear that other countries are further
ahead than us is worrisome. Mostly when we hear about foreign
countries, they're talking about limiting access to the
Internet. You have China limiting discussion of Taiwan or the
Falun Gong or Tibet, Tiananmen Square, and so forth. Then you
have the other problem with some of the--some of these
international or other countries wanting governance of the
Internet by governments. And I don't want governments
regulating the Internet. Leave it free.
Now, internal organizations may want to limit what their
employees are saying, but ultimately we don't want the United
Nations or anybody governing the Internet. It should be the
private sector and individuals. The only real role of the
government is the domain-name registry. It's like a telephone
book. Other than that, leave it free.
Now, insofar as France is concerned, how does France--you
say France has better and cheaper--less expensive Internet.
Now, did--was that built out by the government in France, or
was it by Alcatel or a private company?
Mr. Lessig. Well, Senator, there's a regulatory regime in
France, which is very much like the regulatory regime of the
1996 Act, that requires, essentially, unbundling by what was a
monopoly telecom company. And it's that unbundling requirement
that has facilitated extraordinary competition in providing
broadband access in France.
Senator Allen. All right. So, in other words, the--was this
bandwidth in France built out--now, the universities--the
universities doing that, and--or maybe some cities, in some
cases. But in France, as a country, was it built out by the
private sector, or was this built out by the government?
Mr. Lessig. I think everything in France is a mix, private
sector and government. And I think that's one of the points
that this Committee should keep in mind, that regulation, in
this context, has always been a mix. Right? We need
extraordinary competition, free of regulation, on top of the
network. But telecommunications has always had basic principles
that have been subject to principles of law. When Chairman
Powell announced the four Internet freedoms, those were, in my
view, essential principles to how this network should be
regulated. And I think they're very good and this Congress
should adopt them, because the critical change that's happened
between the 1996 Act and today is that telecommunications, as
it exists in broadband service, has moved from Title II to
Title I. Title II is the principle of, as you called it,
``common carriage.'' I don't think we have to go that far, but
basic principles of----
Senator Allen. All right. Under----
Mr. Lessig.--and by giving that up, we've gone to the
complete opposite extreme, where no principles of neutrality
get built into the network design. We've never seen that
network succeed. Every network that's succeeded, around the
world, to produce the kind of Internet that Internet2 would
give us, has operated under a different theory; in fact, the
theory that's governed telecommunications in America for at
least the last 40 years.
Senator Allen. Thank you.
Mr. Dixon, you have to be able----
Mr. Dixon. Thank you.
Senator Allen.--I have to allow you to respond, since----
Mr. Dixon. Thank you----
Senator Allen.--since bringing up----
Mr. Dixon.--for letting me respond.
Senator Allen.--Chairman Powell.
Mr. Dixon. I would say, in general, two things have
changed. I think the most important thing is that Congress, in
the 1996 Act, made a judgment that competition, as opposed to
government regulation in the form of common carriage, et
cetera, was the preferred way of bringing benefits to
consumers. And I am not suggesting that competition should be
limited to networks; it should extend to all layers of the
network. The other thing that changed is that technology, in
fact, changed, and it made it more possible for more
competition to exist. So, what we're--we no longer have, as we
did have in the original telephone network, is a legal
monopoly, where we had to really worry about abuses of market
power and other things that would harm consumer welfare. In a
competitive environment, where prices for broadband continue to
come down to $14.95, now $12.95, et cetera, technology is
continuing to be invested.
I think it's probably too early to call the game and say,
``We're going to throw our hands up and abandon, in essence,
the judgment Congress made in the 1996 Act and go back to a
world where we assume there will be a monopoly.''
Senator Allen. Thank you.
Mr. Sidak. Senator Allen, could I just add one point to
that? I published a book last year, with three economists,
called ``Broadband in Europe.'' In the book we asked the
following question, What has determined the level of broadband
penetration in the different member states in the EU? We found
that the most important driver of broadband penetration was
platform competition. It was competition between DSL and cable.
The role that unbundling played in determining broadband
penetration was much less.
With respect to France Telecom, I think one consideration
is that it continues to be owned, in substantial part, by the
French Government. So, decisions about network investment that
are being made by a major shareholder that is, itself, the
government, are, in essence, a form of public subsidy of the
network.
Senator Allen. Right. Thank you.
Thank you, Mr. Chairman.
The Chairman. Senator Boxer?
Senator Boxer. Thank you, Mr. Chairman.
In one of the discussions that the Chairman was having with
Mr. Cerf, he kind of said as an aside, ``You really have a--
Google really has a magnificent search engine.''
Now, my question is to Professor Lessig. Suppose in the
1990s Microsoft was able to pay to get faster service for
consumers accessing its search engine. What would the impact
have been on the development and expansion of Google?
Mr. Lessig. Well, it would have been negative. It would
have restricted the opportunity for Google or new competitors
to enter into this marketplace. Now, whether it would have been
enough to stop it or not, who knows? But there's no doubt of
the effect. The effect would have been to restrict application
competition, which is exactly what we should be encouraging in
this context.
Senator Boxer. So, when Mr. Cerf says, ``It's the new
Google, the new innovation that's--that could come, that could
be stymied because you can't get your,'' `` `product' out in
this pipe that's been so narrowed,'' it's a real problem. It's
a big problem for anyone who cares about freedom and access and
the ability of the American people to learn. I think it's a
problem.
And I guess what's confusing to me--and any and all of you
could respond to this; because, again, I like to start from a
premise that at least we agree on some things. So, I'd like to
know, has there been anything in any laws we've passed here,
either a long time ago or the recent Act, or any regulations
coming out of the FCC, that has fostered net neutrality?
Because, on the one hand, I hear some people saying, ``Leave it
alone. We never had--you know, we got this net neutrality
without any laws.'' So, I'm just wondering if we could have
some consensus as to whether anything we did, or the FCC did,
brought about a situation of net neutrality. And----
Mr. Sidak. I think you can point to many things that the
FCC has done that do not advance the vision of net neutrality,
as it's been presented here this morning, in the sense that----
Senator Boxer. Well, I'm not asking you that.
Mr. Sidak. No, No, not----
Senator Boxer. Is there anything----
Mr. Sidak. I realize that, but----
Senator Boxer.--that they've done that has fostered net
neutrality?
Mr. Sidak. But the fact that there is differential pricing
with respect to many different services that are subject to
tariffs is, itself, evidence of a realization by the FCC that
you have to pay for the cost of the network by tapping all
people who derive benefit from the use of the network.
Senator Boxer. OK. So, you don't think that we've ever done
anything to foster net neutrality.
Professor Lessig, do you agree with that?
Mr. Lessig. I don't. In fact----
Senator Boxer. Oh. I was afraid of that.
Mr. Lessig. Yes. In fact, in my view, the Government has
done a lot to foster what we now call net neutrality. If it
weren't for what we would now call net-neutrality principles
applied to the original Bell network, you would never have had
the Internet develop. And we know that, because, in countries
where those principles didn't occur, the Internet was slowed
and stopped by existing telecommunications networks. So, we
have always adopted a principle, which is referred to either as
the ``connectivity principles'' or Michael Powell's ``four
freedom principles'' with respect to each technology that
encourages new innovation. We have now changed that. As we've
gone from Title II to Title I, there is no such principle in
telecommunications law anymore.
And so, the question that I asked this Committee is, Why,
when it worked so well to produce the Internet and produce the
kind of competition we see around the world, why would we
abandon it now? Now, I respect Mr. Sidak's academic work,
especially his work in economics, but I suggest his testimony
was a perfect followup to my charge that what we've got is a
history of something working, and now what we're offered is a
theory about what might work in the future. And that theory is
great academic work, but I think this Committee should be
guided by practices that have actually worked.
Mr. Sidak. Well, Senator, if I----
Senator Boxer. I--OK.
Mr. Sidak.--could respond to that.
Senator Boxer. I don't want to--I don't want to prolong,
because I have one more question, but I would love to hear from
you in writing, all of you, on this.
Senator Boxer. But I'm just assuming the two of you, on
either end, that Mr. Dixon would probably line up with Mr.
Sidak, and Mr. Bachula would line up with Mr. Lessig,
basically. Is that correct? OK.
Then let me ask my last question. And this really comes
from Senator Inouye, who is the ranking member here. He asked
this to Professor Lessig. The point is often made by opponents
of network-neutrality rules that if we do not allow network
operators to charge Internet application providers for so-
called quality-of-service guarantees, then network operators
will lack the incentives to build out these networks and make
them available to consumers. How would you respond to that?
Mr. Lessig. There are two kinds of discriminating charges
that we've been talking about. One is consumer tiering, where
you say to a consumer, ``You pay more, you get more.'' And the
other is access tiering, where you say to Google, ``You've been
getting a free lunch. You've got to pay to get onto our
Internet.'' In my view, there's nothing wrong with consumer
tiering. Networks should be able to say, ``You pay more, you
get more,'' and they should be encouraged to do that, because
that will drive deployment of fast networks.
But the problem that we've identified, in the network-
neutrality work that I've been a part of, is the problem with
access tiering, where you start saying to large companies like
Google, ``Here, you can buy the reserved lane, so that the
reserved lane serves your content well.'' And I know Google can
afford it. But when Google then rolls out something called
Google Video that tries to compete with the other video
services out there, like YouTube TV or YouAreTV. Those
competitors will never have the opportunity to compete
effectively against Google Video if Google Video can buy the
fast lane. So, if you want to preserve the kind of competition
that made Google possible, you have to do what Google suggested
this morning, in the words of Vint Cerf, you have to preserve
the end-to-end neutrality principles that define the Internet
and, in my view, define telecommunications law for the last 40
years.
Senator Boxer. Thank you, Mr. Chairman.
The Chairman. Senator Allen, do you have any further
question?
Senator Allen. No, I do not. But I do think, Mr. Chairman,
that this whole issue on tier pricing didn't get enough of an
understanding in the hearing, and it's part of this. There is
tier pricing if you have dial-up versus DSL versus broadband
over, say, the cable modem, and it's something that is
happening already. The whole question, to me, will be, in the
event that there are restrictions on this neutrality, whether
or not we can let the genius--when I said the ``genius''--or
the ``genie,'' whether we can let that genie out of the bottle,
in the event that something happens and we say, ``Why was this
ingenuity bottled up?'' Can a Government, a Congress, a Senate
that moves at the speed of a wounded sea slug----
[Laughter.]
Senator Allen.--can--would that thwart innovation,
competition, and opportunity? And that's, I think the--for me,
as we go through some of the details, will be some of my
guiding criteria in listening to evidence on it.
Thank you, Mr. Chairman. Thank you, all our witnesses.
The Chairman. Senator Boxer, do you have any further
question?
Senator Boxer. Just to add my thanks, again, to both
panels. This is a very important topic. And I thank you, Mr.
Chairman.
The Chairman. This is just a piece of an important topic,
unfortunately.
May I ask the two professors this. You heard Mr. Comstock
talk about--and others--talk about the decision of the FCC with
regard to the difference between common carrier and the
transmission of information. Do you think that--either of you
think that decision needs to be re-examined by this Committee
in connection with this bill?
Mr. Lessig?
Mr. Lessig. I think it absolutely does. I think the
decision to move everything out of the kind of neutrality
regulation principles that Title II created is what will create
the problem for application competition. So, whether you go
back to common carriage, which I don't think is necessary, or
you just simply implement principles consistent with the net-
neutrality principles that Chairman Powell articulated,
supplemented by one idea--and that is that access tiering is
forbidden, and consumer tier should be encouraged--that would
be enough, in my view. It's a minimal amount of regulation, but
it would reestablish a principle that has been part of
telecommunications law forever.
The Chairman. Well, I'd be happy to have a draft from you
of that subject.
The Chairman. Mr. Sidak, what do you think?
Mr. Sidak. My view is a little bit different. I think that
the larger problem that your question about information
services versus common carriage illustrates is that we have an
historic pigeonhole view of how the telecommunications industry
functions and what services it produces. The challenge that
legislators and regulators face today is that firms in
telecommunications and content and applications are devising
completely new models for revenue generation that do not
conform to the old regulatory pigeonholes. So, in a sense, that
means that a re-examination of the basic distinction between
information service and telecommunications service is what's
required.
The Chairman. We thank you very much. And if you have any
further comments, the Committee would be delighted to have
them. We thank you for the--taking the time to be with us. I
know it's an imposition on you for--to come for such a short
period of time, in terms of your individual comments, but we do
examine your comments in full, and the statements, and
appreciate your willingness to help us. Thank you very much.
The Committee will meet again this afternoon in this room
for a series--consideration of a series of nominations to the
Department of Transportation at 2:30 p.m this afternoon.
[Whereupon, at 12:10 p.m., the hearing was adjourned.]
A P P E N D I X
Prepared Statement of Hon. Daniel K. Inouye, U.S. Senator from Hawaii
Tomorrow will mark the 10th anniversary of the Telecommunications
Act of 1996. In those brief ten years, the Internet has evolved from a
hobby for computer enthusiasts into a central pillar of communications
and commerce in the new economy.
Its rapid evolution has spawned applications and services that,
even ten years ago, could hardly have been imagined. However, we cannot
forget that this innovative explosion was no fortuitous accident. The
Internet did not just happen on its own.
It was nurtured by those who built and designed it to allow
creative advances at the edges of the network from the maximum number
of innovators. It was sustained by a legal framework that allowed
consumers to connect to Internet access providers through low cost
telecommunications services.
Now, these early successes are met with new challenges. Despite the
FCC's efforts to establish Internet freedoms through its recently
released policy statement, its classification of broadband services has
called into question the FCC's authority to prevent unfair
discrimination by broadband network operators.
According to recent press reports, network operators are planning
to charge application providers additional fees for access to their
broadband networks. This is ample cause for concern.
Almost 10 years to the day after the Telecommunications Act of 1996
was signed into law, we are confronted with new challenges. The
question is, how will we respond? Will future generations thank us for
preserving and protecting neutrality and nondiscrimination on broadband
networks? Or will they condemn us for breaking the Internet?
These are indeed weighty and complex issues. So it is fitting, Mr.
Chairman, that we begin to consider them today. I look forward to the
testimony from today's witnesses and to working with my colleagues on
these issues in the weeks and months ahead.
______
Prepared Statement of Hon. John D. Rockefeller IV,
U.S. Senator from West Virginia
Mr. Chairman,
In the last few years, both traditional and wireless carriers have
concocted line item charges, fees, and surcharges, purporting to
recover all manner of ``regulatory,'' ``administrative,'' or
``government-mandated'' costs, but which do nothing more than charge
consumers for the carriers' ordinary operating costs.
Though the carriers' monthly line items differ in terms of what
they are called and what the carriers claim to recover through the
charges, they are alike in many respects--all are misleading and some
are downright deceptive.
These charges frustrate consumers and limit their ability to make
reasoned and informed choices among competing carriers.
In 1996, I introduced legislation to prohibit telephone companies
from marking up federally mandated charges on consumers bills. My bill
spurred the FCC to finally adopt its 1999 Truth-in-Billing order.
Unfortunately, the FCC rules have not been sufficient to protect
consumers--most notably wireless telephone consumers.
The explosion of the wireless industry and an explosion of consumer
complaints over their bills forces policymakers to reexamine this
issue. In the first six months of 2005, the FCC received almost 8,000
complaints from consumers about their wireless phone provider--the
overwhelming majority, complaints about billing issues.
In 2004, the National Association of State Consumer Advocates tried
to get the FCC to address the explosion of misleading and deceptive
line items on wireless bills.
Unfortunately, the FCC, rather than adopting stronger consumer
protections, actually weakened consumer protection laws, by completely
preempting states from regulating wireless carriers' billing. Instead
of protecting consumers from abusive carrier practices in an
increasingly complicated marketplace, the Commission instead decided to
exempt carriers from basic consumer protection laws.
As disturbing as the policy in the FCC's order preempting state
authority, I am troubled that the FCC's top staffer in developing this
order was working for the wireless industry's trade association within
weeks of the Commission's adoption of this ruling. It certainly raises
more questions as to process of this rulemaking.
I plan to introduce legislation strengthening Truth-in-Billing
requirements, and to clarify the role of states in setting line item
charges. My bill will be both pro-consumer and pro-competitive.
Consumers will benefit by being able to shop among carriers for the
lowest rates without being subjected to deceptive, misleading, or
confusing billing practices.
I look forward to working with my colleagues on this issue as we
move communications bills in the months to come.