[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

                              ----------                              
                                                                   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).
---------------------------------------------------------------------------
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.

                                  
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