[Senate Hearing 109-1054]
[From the U.S. Government Publishing Office]



                                                       S. Hrg. 109-1054

    RECONSIDERING OUR COMMUNICATIONS LAWS: ENSURING COMPETITION AND 
                               INNOVATION

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

                                HEARING

                               before the

                       COMMITTEE ON THE JUDICIARY
                          UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                             JUNE 14, 2006

                               __________

                          Serial No. J-109-85

                               __________

         Printed for the use of the Committee on the Judiciary










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                       COMMITTEE ON THE JUDICIARY

                 ARLEN SPECTER, Pennsylvania, Chairman
ORRIN G. HATCH, Utah                 PATRICK J. LEAHY, Vermont
CHARLES E. GRASSLEY, Iowa            EDWARD M. KENNEDY, Massachusetts
JON KYL, Arizona                     JOSEPH R. BIDEN, Jr., Delaware
MIKE DeWINE, Ohio                    HERBERT KOHL, Wisconsin
JEFF SESSIONS, Alabama               DIANNE FEINSTEIN, California
LINDSEY O. GRAHAM, South Carolina    RUSSELL D. FEINGOLD, Wisconsin
JOHN CORNYN, Texas                   CHARLES E. SCHUMER, New York
SAM BROWNBACK, Kansas                RICHARD J. DURBIN, Illinois
TOM COBURN, Oklahoma
           Michael O'Neill, Chief Counsel and Staff Director
      Bruce A. Cohen, Democratic Chief Counsel and Staff Director
















                            C O N T E N T S

                              ----------                              

                    STATEMENTS OF COMMITTEE MEMBERS

                                                                   Page

Brownback, Hon. Sam, a U.S. Senator from the State of Kansas, 
  prepared statement.............................................   111
DeWine, Hon. Mike, a U.S. Senator from the State of Ohio.........     3
Durbin, Hon. Richard J., a U.S. Senator from the State of 
  Illinois, prepared statement...................................   197
Kennedy, Hon. Edward M., a U.S. Senator from the State of 
  Massachusetts..................................................     2
Kohl, Hon. Herbert, a U.S. Senator from the State of Wisconsin...     6
    prepared statement...........................................   200
Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont.     4
    prepared statement...........................................   221
Specter, Hon. Arlen, a U.S. Senator from the State of 
  Pennsylvania...................................................     1

                               WITNESSES

Cohen, David L., Executive Vice President, Comcast Corporation, 
  Philadelphia, Pennsylvania.....................................    13
Cerf, Vinton G., Vice President and Chief Internet Evangelist, 
  Google Inc., Herndon, Virginia.................................    12
Kovacic, William E., Commissioner, Federal Trade Commission, 
  Washington, D.C................................................    10
Kuhns, Jeff C., Senior Director, Consulting and Support Services, 
  Pennsylvania State University, University Park, Pennsylvania...    22
Levin, Blair, Managing Director, Stifel Nicolaus & Company, Inc., 
  St. Louis, Missouri............................................    18
McCormick, Walter B., Jr., President and Chief Executive Officer, 
  U.S. Telecom Association, Washington, D.C......................    15
Morris, Paul, Executive Director, Utah Telecommunications Open 
  Infrastructure Agency (UTOPIA), West Valley City, Utah.........    20
Putala, Chris, Executive Vice President of Public Policy, 
  EarthLink, Inc., Washington, D.C...............................    16
Sensenbrenner, Hon. F. James, Jr., a Representatives in Congress 
  from the State of Wisconsin....................................     7

                         QUESTIONS AND ANSWERS

Questions submitted to Paul Morris by Senators Feingold and 
  Specter (Note: Responses to questions were not received as of 
  the time of printing April 16, 2009)...........................    43
Responses of Vinton Cerf to questions submitted by Senators 
  Specter, Kohl, Feingold and Brownback..........................    45
Responses of David Cohen to questions submitted by Senators 
  Specter, Feingold and Kohl.....................................    60
Responses of William Kovacic to questions submitted by Senators 
  Kohl and Feingold..............................................    67
Responses of Jeff C. Kuhns to questions submitted by Senators 
  Specter and Feingold...........................................    76
Responses of Blair Levin to questions submitted by Senators 
  Specter, Kohl and Feingold.....................................    78
Responses of Walter McCormick to questions submitted by Senators 
  Specter, Feingold and Kohl.....................................    84
Responses of Chris Putala to questions submitted by Senator 
  Specter, Kohl and Feingold.....................................    93

                       SUBMISSIONS FOR THE RECORD

AEI-Brookings Joint Center for Regulatory Studies, Robert Hahn, 
  Executive Director and Scott Wallsten, Senior fellow, 
  Washington, D.C., joint statement..............................    99
Cerf, Vinton G., Vice President and Chief Internet Evangelist, 
  Google Inc., Herndon, Virginia, statement and biographical.....   114
City of Philadelphia, Loree Jones, Secretary of External Affairs, 
  Philadelphia, Pennsylvania, statement..........................   125
Cohen, David L., Executive Vice President, Comcast Corporation, 
  Philadelphia, Pennsylvania, statement..........................   127
Consumer Federation of America, Mark Cooper, Washington, D.C., 
  statement......................................................   187
Kovacic, William E., Commissioner, Federal Trade Commission, 
  Washington, D.C., statement....................................   202
Kuhns, Jeff C., Senior Director, Consulting and Support Services, 
  Pennsylvania State University, University Park, Pennsylvania, 
  statement......................................................   215
Levin, Blair, Managing Director, Stifel Nicolaus & Company, Inc., 
  St. Louis, Missouri, statement.................................   224
McCormick, Walter B., Jr., President and Chief Executive Officer, 
  U.S. Telecom Association, Washington, D.C., statement..........   232
Morris, Paul, Executive Director, Utah Telecommunications Open 
  Infrastructure Agency (UTOPIA), West Valley City, Utah, 
  statement......................................................   235
News Multichannel, New York, New York:
    Feb. 20, 2006, article.......................................   239
    March 6, 2006, article.......................................   241
Progress & Freedom Foundation, Kyle Dixon, Ray Gifford, Tom 
  Lenard, Randolph May, and Adam Thierer, Washington, D.C., 
  report and attachments.........................................   243
Putala, Chris, Executive Vice President of Public Policy, 
  EarthLink, Inc., Washington, D.C., statement...................   265
Sensenbrenner, Hon. F. James, Jr., a Representatives in Congress 
  from the State of Wisconsin, prepared statement................   283
Von Coalition, Bethesda, Maryland, letter........................   288
Wall Street Journal:
    Business World, article......................................   291
    March 7, 2006, article.......................................   292
Wsj.com, June 12, 2006, commentary...............................   295
Washington Post:
    March 13, 2006, article......................................   297
    June 12, 2006, article.......................................   299

 
    RECONSIDERING OUR COMMUNICATIONS LAWS: ENSURING COMPETITION AND 
                               INNOVATION

                              ----------                              


                        WEDNESDAY, JUNE 14, 2006

                              United States Senate,
                                Committee on the Judiciary,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 9:30 a.m., in 
room SD-226, Dirksen Senate Office Building, Hon. Arlen 
Specter, Chairman of the Committee, presiding.
    Present: Senators Specter, Hatch, DeWine, Cornyn, 
Brownback, Leahy, Kennedy, Biden, Kohl, and Feingold.

 OPENING STATEMENT OF HON. ARLEN SPECTER, A U.S. SENATOR FROM 
                   THE STATE OF PENNSYLVANIA

    Chairman Specter. Good morning, ladies and gentlemen. It is 
9:30 and the Judiciary Committee will now proceed with a 
hearing on the communications laws, ensuring competition and 
ensuring innovation at the same time. We have the unusual 
pleasure of having the distinguished Chairman of the House of 
Representatives Judiciary Committee, the Honorable F. James 
Sensenbrenner. This is unique, and we welcome our distinguished 
colleague to this hearing. We also have on the first panel 
Commissioner William E. Kovacic of the Federal Trade 
Commission.
    Our hearing today involves a great many very complex 
issues--issues which have been taken up by the Commerce 
Committee in the House of Representatives and by the Commerce 
Committee in the Senate. But there are very important antitrust 
issues involved, and I believe it is appropriate for the 
Judiciary Committees in both the House and the Senate to play a 
significant role in the formulation of the legislation because 
significant parts come within our jurisdiction. I have 
discussed the issues with Chairman Ted Stevens, and we have 
worked out a coordinated plan to meet these important matters.
    The considerations involve very substantial market change. 
Intermodal competition is exploding. Cable companies are 
providing telephone and Internet services in direct competition 
with the Bells, which used to have a monopoly. Developing 
techniques such as fiber to the home and broadband over power 
lines will likely expand the number of competitors in the 
markets for telecommunications services. Those who provide 
Internet access, known as information services, are currently 
not regulated as common carriers under court decisions. Now 
that competition exists, it is entirely possible that the 
antitrust laws will be sufficient to protect consumers and 
competition in this important market.
    The new telecom services have spawned an entire economy now 
amounting to more than $100 billion annually. These services 
have made enormous amounts of information available to 
Americans at little or no cost. Free line encyclopedias now 
make it possible for students to do research without leaving 
home. Vigorous democratic debate, once thought to be 
idealistic, now takes place online on blogger and on public 
interest websites. The innovators in this new economy are 
understandably concerned about the state of competition in the 
market for telecom services. They depend upon cable and the 
Bells to access their customers and the audiences they wish to 
receive. They are concerned that their access could be cut off, 
degraded, or become an expensive barrier to entry. Telecom 
reform also has taken on the issue of vertical integration 
between entities which sell programming, particularly sports 
teams, and companies that provide video service, cable 
satellite, and new phone companies.
    We have quite a number of complex considerations which this 
Committee will be taking up. Net neutrality is very, very high 
on the agenda. We have the issue of video program access. 
Vertical integration between program vendors and cable 
satellite companies has raised concerns about access. We have 
the issue of the broadcast and audio flag. We have 
considerations on municipal broadband. We have issues relating 
to the distribution of child pornography.
    Without objection, my full statement will be made a part of 
the record. I have tried to make it brief here because we have 
a very distinguished opening panel and we have many witnesses 
on the second panel.
    Let me yield at this time to Senator Kennedy for an opening 
statement.

 STATEMENT OF HON. EDWARD M. KENNEDY, A U.S. SENATOR FROM THE 
                     STATE OF MASSACHUSETTS

    Senator Kennedy. Thank you, Mr. Chairman, for calling this 
extremely important hearing on reform of our telecommunication 
laws. All Americans should have equal access to modern 
telecommunications technology and should be able to enjoy the 
full lawful Internet content of their choice. Consumers should 
also be able to shop around and find the best price and the 
best product to fit their needs. It is a fundamental and 
critical part of our economic growth.
    Internet technology has the potential to bring us closer 
together, to reduce costs for families to communicate with 
their loved ones across the country and overseas through e-mail 
and even phone calls over the Internet. And we must continue to 
do all we can to stay on track with the pace of other 
industrialized countries in this new era of technology. If we 
are not careful, we will wake up one day soon to find that 
America has been left behind while other countries leap ahead 
with higher bandwidth and neutral broadband platforms.
    The Internet has broken down barriers in information, 
communications, and commerce, and the Judiciary Committee 
should maintain its jurisdiction and oversight over these 
evolving matters. This Committee has long had a significant 
role in defining the legal standards governing 
telecommunications, and it should continue to do so. It is 
essential to expand access to the Internet for all Americans, 
regardless of income or zip code. Effective leadership can make 
sure that the continued growth and expansion of the Internet 
makes our workers more productive, our schools better, our 
communities safer, and our day-to-day lives easier.
    For decades, the Judiciary Committees of Congress have 
relied on the antitrust laws to prevent monopolies from 
dictating our country's communication laws, and today's hearing 
is an important opportunity to define the Committee's ongoing 
role in this all-important debate.
    I look forward to working with my colleagues to see that 
proposals are fair to both consumers and industries. We need to 
keep the focus on policies that will benefit the economy as a 
whole.
    Chairman Specter. Thank you, Senator Kennedy.
    Ordinarily, the opening statements are made by the Chairman 
and Ranking or designee, but the Chairman of the Subcommittee 
is with us today, and I would yield for an opening statement to 
Senator DeWine.

STATEMENT OF HON. MIKE DEWINE, A U.S. SENATOR FROM THE STATE OF 
                              OHIO

    Senator DeWine. Mr. Chairman, thank you very much for 
calling this very important hearing today. As the Senate 
considers rewriting the telecommunications laws, we are taking 
on many complicated and important issues. It is no exaggeration 
to say that the telecommunications revolution has reshaped the 
way we live our day-to-day lives. From cell phones to 
BlackBerrys and from the Internet to satellite television and 
radio, all of us are communicating and obtaining information 
more rapidly and certainly in different ways. As these changes 
occur, our old regulatory framework is increasingly obsolete. 
In some instances, it actually hinders the progress of this 
dynamic market sector. It is time, Mr. Chairman, to update our 
telecommunications laws for a new century, and it is essential 
that competition be the driving force for our growth and 
innovation.
    The changes in this market have been dramatic. In recent 
years, for example, the cable television companies have started 
to offer high-speed Internet and telephone services while 
telephone companies are beginning to roll out video services. 
It is clear that these businesses are beginning to think of 
themselves less as phone companies or cable companies and more 
as providers of content. Whether that content is Internet 
traffic, phone calls, or television shows.
    This convergence of services offers a unique opportunity to 
increase competition that we simply cannot pass up: All the 
players are attempting to compete in each other's markets, and 
we must help them achieve that goal. However, the path from 
here to there may not be such an easy one to travel because the 
issues we face are certainly very complex.
    For example, we have heard a lot lately about net 
neutrality. Many of the Internet service providers, including 
many phone and cable companies, have expressed an interest in 
finding new ways to ``manage'' their networks. The net 
neutrality debate revolves around how and how much the network 
providers can control the way their networks are used. It also 
involves who pays and how much they pay for using those 
networks. We must address, Mr. Chairman, this issue, I believe, 
very carefully. We may well be at an inflection point, the 
point at which the future of the Internet is determined.
    Action or inaction may dictate the degree of investment and 
the pace of competition and innovation generated by the 
Internet for years to come. This Committee must make every 
effort to ensure that the legal framework for this industry 
provides the best possible platform for competition and 
innovation.
    Another important issue that must be addressed is the 
process for video franchising. As the phone companies enter 
into video services, they tell us that current franchise 
requirements delay how quickly they can enter specific markets 
and begin to provide another choice for consumers. At the same 
time, the cable companies, who were required to get franchises 
in each of the towns and cities they serve, argue that all the 
players in this industry should be treated the same way, 
regardless of the technology they use. At some point soon, we 
must resolve these conflicting views in the market, and we must 
do it in a way that encourages free and fair competition.
    Naturally, issues like these are ones that this Committee 
as well as the Antitrust Subcommittee has examined extensively 
over the last decade. As Chairman of the Antitrust 
Subcommittee, I have worked with the Ranking Member, Senator 
Kohl, to maintain competition in the telecommunications 
industries by holding numerous hearings on the cable, 
satellite, and telecommunications industries, as well as 
scrutinizing a range of mergers in these industries. All of 
this investigation and examination has reaffirmed to me that 
free, fair, and vigorous competition is certainly the best way 
to assure that we get innovation and good pricing for 
businesses and consumers.
    It is essential that this Committee continue to play a 
leading role in any telecommunications reforms and that we 
emphasize competition to guarantee that our laws and 
regulations effectively meet the challenges of this emerging 
marketplace.
    Thank you, Mr. Chairman.
    Chairman Specter. Thank you very much, Senator DeWine.
    We have been joined by our distinguished Ranking Member, 
Senator Leahy, and I yield to him now for an opening statement.

  STATEMENT OF HON. PATRICK J. LEAHY, A U.S. SENATOR FROM THE 
                        STATE OF VERMONT

    Senator Leahy. Thank you, Mr. Chairman. I am glad you are 
having this hearing. I was one of only five Senators to vote 
against the 1996 Telecom Act. I argued that the Act's promise 
of promoting competition and increasing innovation was a false 
promise, and I argued that the Act allowed local regional Bells 
to easily reunite with unregulated local monopoly powers. I 
pointed out that rural consumers would be worse off, that cable 
and phone rates would increase, and that mergers would reduce 
competition. I was told I was wrong. Unfortunately, I was 
right. We should not make the same mistake again.
    Many Americans today have no choice whatever in broadband 
services, while others have only two options. The Internet is 
the ultimate marketplace of ideas. Everyone has equal access. 
Every voice can speak and be heard. A better idea, a better 
service, a better application wins on its merits. It has opened 
windows to the world in one-room schoolhouses in Vermont and 
new doors of knowledge and opportunity to children from Africa 
to Indonesia. I have worked from the start of the Internet age 
to keep the Government's hands off the Internet. The Internet 
was largely conceived in the United States. When the U.S. 
Government seeks to regulate the Internet, the rest of the 
world watches. A triple play of being able to offer video TV 
and movies, telephone, and Internet service raises the risk 
that telephone or cable companies will bundle all three 
services together and not allow each service to compete on its 
own merits. I think this Committee has to ensure that the 
Internet stays open and free to everyone.
    The resolution of the issues raised today will determine 
who is in control of electronic access to our homes and small 
businesses. Will consumers be in control or will it be just a 
few large corporations that control that information link?
    This is not a hypothetical question. Corporations have 
legal duties to their shareholders to maximize shareholder 
returns. Even if it means gouging the consumers, they are going 
to do it. The Supreme Court's Brand X decision effectively 
permits broadband service providers to discriminate against 
competing content applications and other service providers. One 
executive from AT&T has made it clear he wants to control that 
last mile into the house.
    Discrimination includes slower exchange of traffic from 
unfavored content providers, direct blocking of lawful 
websites, and even added fees for access. This would be such a 
dramatic change from what has made the Internet what it is 
today.
    In fact, it is both enlightening and, from a consumer 
perspective, frightening to review the assertions of a White 
Paper issued by Cisco Systems. They made clear that Cisco is 
poised to offer companies such as Verizon, AT&T, Comcast, Time 
Warner, and others the ability ``in real time'' to know the 
identity and profile of the individual subscriber, what the 
subscriber is doing, where the subscriber resides, and their 
service level. Is there any privacy left in America?
    The major telecom and cable providers are threatening to 
refuse to invest in improvements or expansions unless they can 
reap big profits by charging rates based on how the Internet is 
used.
    I believe they are going to make these investments anyway. 
Certainly Verizon will make those investments, according to 
Vice Chairman Larry Babbio. He has said they are in the middle 
of spending billions of dollars on upgrades, with its posted 
revenue of $68 billion last year. He said they have the goal of 
bringing fiber to ``every home it serves,'' not the last mile, 
``not to the curb, but to the home.''
    Verizon and AT&T certainly have some money to reinvest. 
They have bought back hundreds of millions of dollars worth of 
their stock, and paid dividends of $13 billion. I would like to 
put in the record the financial data on those firms, Mr. 
Chairman.
    Chairman Specter. Without objection, it will be made part 
of the record.
    Senator Leahy. The issues raised in Chairman Stevens' bill 
are squarely within the jurisdiction of this Committee. I do 
not think we can allow competitors in this highly concentrated 
market to compete only for affluent, urban residents. Chairman 
Sensenbrenner ran into a similar situation in the other body, 
and looking at the Chairman's face, he knows exactly what I 
mean.
    So I look forward to working with members of this Committee 
to put forward a strong bill along the lines of Chairman 
Sensenbrenner's effort to protect consumers, competition, and 
the Internet. Let's keep the Internet open for everyone. It has 
worked pretty well so far. Let's not screw up a good thing.
    Chairman Specter. Thank you, Senator Leahy.
    Senator Kohl, the Ranking Member of the Subcommittee.

 STATEMENT OF HON. HERB KOHL, A U.S. SENATOR FROM THE STATE OF 
                           WISCONSIN

    Senator Kohl. I thank you, Mr. Chairman, for holding this 
hearing today. Besides food and energy, perhaps no industry is 
as important to millions of American consumers as 
telecommunications. From making a phone call to watching 
television to using the Internet, the telecommunications 
industry touches every American dozens of times every day, and 
we all depend on choice and competition to deliver these 
services at the lowest possible price and at the best possible 
quality. We have today reached an important point in the 
telecommunications industry, and the policies we adopt will 
affect competition in this crucial industry for years to come.
    Many industry critics believe that the enormous gains in 
innovation and competition we have all seen are now threatened 
by the emergence of a few dominant telecom companies. As we 
revise our telecom laws, our Committee, as the guardian of 
antitrust law and competition policy, has a crucial role to 
play. It can start by ensuring that our antitrust enforcement 
agencies are at full strength to protect competition in the 
telecom industry.
    Under current law, the Federal Trade Commission is 
prevented from exercising any jurisdiction over telecom common 
carriers. This common carrier exemption should be repealed so 
that the FTC can protect consumers from unfair methods of 
competition in this industry, as well as in any other.
    Another crucial issue that we must consider is net 
neutrality. Many fear that the relatively few large phone and 
cable companies that provide high-speed Internet access for 
millions of consumers could become the gatekeepers with respect 
to Internet content. We need to ensure that consumers have 
unfettered access to all Internet content free from 
discrimination, and we must prevent broadband providers from 
being able to determine winners and losers in the information 
superhighway. At the same time, broadband providers need to be 
able to manage their networks so that the profusion of video 
content does not degrade the Internet experience for everyone.
    Road blocks to video competition also need to be addressed. 
The deployment of video services by the phone companies brings 
the prospect of much needed competition for video, but the 
requirement of obtaining literally thousands of local 
franchises threatens to seriously retard this promising 
development. We need to ensure that local franchise 
requirements are not a barrier to competition, while at the 
same time respecting the role of States and municipalities. 
Also central is the existence of robust program access law so 
that these new competitors have access to the must-have 
programming necessary to compete.
    In sum, Mr. Chairman, consumers have benefited from an 
abundance of new technologies and new choices over the past 25 
years. Yet today's wave of telecom consolidation means that we 
need to be wary that new dominant providers do not stifle 
competition and harm consumers. We must do everything we can to 
ensure that competition in telecom does not go the way of the 
rotary telephone and the telegram.
    I thank you, Mr. Chairman.
    Chairman Specter. Thank you, Senator Kohl.
    Thank you very much, Chairman Sensenbrenner, for joining us 
here today.
    Chairman Sensenbrenner has represented the 5th 
Congressional District of Wisconsin since his election in 1978; 
prior to that time, served 10 years in the Wisconsin State 
Legislature; has a bachelor's degree in political science from 
Stanford and a law degree from the University of Wisconsin at 
Madison. I thank him for his cooperation on some very, very 
tough issues, work on the PATRIOT Act and other matters, and 
immediately after the Senate passed our version of the 
immigration bill, I went to see Chairman Sensenbrenner to make 
our plans for a conference.
    Thank you for being with us, and we look forward to your 
testimony.

STATEMENT OF HON. F. JAMES SENSENBRENNER, JR., A REPRESENTATIVE 
            IN CONGRESS FROM THE STATE OF WISCONSIN

    Representative Sensebrenner. Thank you very much, Mr. 
Chairman, Ranking Member Leahy, and Committee Members. I am 
here in the unique position today to ask this Committee in the 
United States Senate to save the country from the impulsivity 
of the House.
    [Laughter.]
    Representative Sensebrenner. You do not hear that very 
often.
    Senator Kennedy. You are not talking about immigration, are 
you?
    [Laughter.]
    Representative Sensebrenner. There are two sides to that 
coin, Senator.
    Before I begin, I would like to make an important point 
about the antitrust laws. Some antitrust critics contend that 
fidelity to the free market is somehow inconsistent with a 
commitment to antitrust. However, as a strong conservative who 
adheres to the primacy of free markets, I believe that the 
antitrust laws preserve the integrity of the free market upon 
which economic vitality depends. The communications industry is 
no exception to this rule.
    The principled application of the antitrust laws in the 
communications market has facilitated competition, reduced 
prices, encouraged the deployment of new technologies, and 
enhanced consumer choice for millions of Americans. The House 
Judiciary Committee conducted its first hearing on 
communications and antitrust policy in 1957, when it examined a 
DOJ/AT&T consent agreement addressing anticompetitive conduct 
in this industry.
    In ensuing decades, both the House and Senate Judiciary 
Committees conducted several additional hearings on 
communications competition and antitrust enforcement and 
oversaw the historic 1982 Modification of Final Judgment that 
made long-distance calling an affordable reality to millions of 
Americans. It is crucial to note that the Ma Bell monopoly 
operated in highly intensive regulatory regimes for decades, 
but the antitrust laws provided the pro-competitive remedy that 
regulation could not, did not, and cannot provide alone. 
However, following the consent decree, local service was still 
the exclusive province of Bell companies that inherited virtual 
monopoly control of the local exchange.
    Throughout the 1980s, the Committee on the Judiciary 
conducted extensive hearings concerning the implementation of 
the 1982 decree and anticompetitive aspects associated with 
continuing monopoly control of local service. In the early 
1990s, the Committee conducted several hearings on this issue, 
and in 1995, the Committee examined the Justice Department's 
responsibility to aggressively monitor competition in the 
telecom field.
    The congressional record that gave rise to the 1996 
Telecommunications Act was shaped by four decades of House 
Judiciary Committee involvement in monitoring the application 
of the antitrust laws in the communications field. In order to 
reaffirm the centrality of the antitrust laws in the 
liberalized regulatory regime established by the 1996 Act, 
Congress preserved an explicit antitrust savings clause in the 
legislation.
    Section 601(c)(1) of the 1996 Act provided that: ``. . . 
Nothing in this Act or the amendments made by this Act shall be 
construed to modify, impair, or supersede the applicability of 
any of the antitrust laws''.
    Despite the inclusion of this antitrust savings clause, a 
record of considerable judicial confusion has developed in our 
Nation's courts. In 2000, the Seventh Circuit issued the 
Goldwasser decision, ignoring the plain language of the 
antitrust savings clause and holding that the Telecom Act 
``must take precedence over the general antitrust laws''. In 
2004, the Supreme Court embraced the reasoning of the 
Goldwasser court in Verizon v. Trinko. The decision stated: 
``One factor of particular importance is the existence of a 
regulatory structure designed to deter and remedy 
anticompetitive harm. Where such a structure exists. . . it 
will be less plausible that the antitrust laws contemplate such 
additional scrutiny. . . ''. The Court concluded: ``against the 
slight benefits of antitrust intervention here, we must weigh a 
realistic assessment of its costs''.
    This is precisely the judicial analysis that Congress 
precluded in the 1996 Act, and this holding has done violence 
to remedial antitrust enforcement and competitive gains in the 
telecommunications marketplace. This assault on congressional 
intent and the antitrust laws should be of concern to members 
of both bodies of Congress, but particularly to those who serve 
on committees charged with overseeing their implementation.
    In recent years, the Internet has become a vital 
communication, information, and commercial medium for millions 
of Americans. For many years, the Federal Trade Commission was 
precluded from enforcing the Federal Trade Commission Act's 
competition-enhancing protections in the facilities-based 
broadband Internet marketplace. In its Brand X decision last 
year, the Supreme Court upheld an FCC determination that these 
services were outside of its regulatory ambit, thus permitting 
a more assertive role by the FTC in promoting competition in 
the marketplace.
    According to FCC data released in April, 98.2 percent of 
Americans access high-speed broadband lines by cable modem or 
DSL connections. This lack of competition presents a clear risk 
that broadband providers will leverage dominant market power to 
discriminate against competitors, and pre-select, favor, or 
prioritize Internet content over their networks.
    Regrettably, the legislation recently passed by the House 
invites the risk of competitive abuse by depriving those 
injured by this misconduct from an effective antitrust remedy. 
Specifically, H.R. 5252 provides the FCC with ``exclusive'' 
authority to define and adjudicate discriminatory broadband 
practices. This authority displaces the antitrust laws and the 
vital pro-competitive and pro-consumer purposes they advance.
    It is of little consolation that the House accepted a floor 
amendment containing a nearly verbatim recitation of the 
antitrust savings clause contained in the 1996 Act effectively 
circumvented by the Trinko court. In fact, the amendment passed 
by the House is weaker than the savings provision contained in 
the 1996 Act for two important reasons. First, it is a ``rule 
of construction'' by its own terms, while the savings provision 
in the 1996 Act contained no such limitation. Second, the 
amendment is narrower because it applies only to one section of 
H.R. 5252, while the savings provision in the 1996 Act applied 
to the entire 1996 Act and subsequent amendments thereto. I 
voted against this amendment because I concluded that it 
provides little more than a proven road map for judicial 
circumvention of a substantive antitrust remedy for competitive 
misconduct in this field. In addition, to preserve an explicit 
antitrust remedy for broadband discrimination, I authored and 
my Committee passed H.R. 5417, the Internet Freedom and 
Nondiscrimination Act of 2006, by a bipartisan vote of 20-13.
    Mr. Chairman, I commend you for scheduling today's hearing 
and thank you for the invitation to testify. As the Senate 
Judiciary Committee asserts its role in this body's 
consideration of communications legislation, I urge its members 
to ensure that the antitrust laws and the agencies that enforce 
them are provided a clear, continuing, and unambiguous role in 
promoting and defending the pro-competitive goals for which 
they were established.
    I thank you.
    [The prepared statement of Representative Sensenbrenner 
appears as a submission for the record.]
    Chairman Specter. Thank you very, very much, Chairman 
Sensenbrenner, for coming over. We know how busy you are, and 
you are obviously free to leave, but not before we wish you a 
happy birthday.
    Representative Sensebrenner. Thank you, Mr. Chairman. I am 
not eligible for Medicare yet.
    Chairman Specter. Thank you.
    Senator Leahy. Happy birthday, Jim.
    Representative Sensebrenner. Thank you, Pat.
    Chairman Specter. We now turn to Hon. William Kovacic, 
Commissioner on the Federal Trade Commission. He previously had 
served as General Counsel to the FTC, a professor at George 
Washington University School of Law, a bachelor's degree in 
public and international affairs from Princeton, and a law 
degree from Columbia University.
    Welcome, Commissioner Kovacic, and the floor is yours.

  STATEMENT OF HON. WILLIAM E. KOVACIC, COMMISSIONER, FEDERAL 
               TRADE COMMISSION, WASHINGTON, D.C.

    Mr. Kovacic. Thank you, Mr. Chairman, members of the 
Committee. I am grateful for the opportunity to present the 
Federal Trade Commission's testimony on the Commission's role 
in promoting the interests of consumers in the offering of 
broadband Internet access services. My written statement 
provided to you offers the testimony of the Commission itself, 
and my spoken remarks today offer my own views and not 
necessarily those of my colleagues.
    As you know, the FTC is the only Federal agency with 
general jurisdiction over both antitrust policy and consumer 
protection in most sectors of our economy. This combination of 
responsibilities is a unique and valuable attribute. By this 
institutional design, Congress has given the FTC flexible, 
adaptable, and formidable tools to address fast-changing 
commercial phenomena that defy easy classification into the 
discrete categories of regulatory oversight that our system of 
economic regulation has developed over the past century.
    The development of the Internet as a conduit of information 
is precisely such a phenomenon. On many occasions in the past 
decade, the FTC has used its distinctive mix of authority to 
promote consumer interests in the area of Internet access 
services. For example, with its consumer protection mandate, 
the FTC has investigated and prosecuted Internet service 
providers for allegedly deceptive billing, advertising, and 
marketing of Internet access services. In exercising its 
antitrust responsibilities, the agency has required parties to 
transactions, such as AOL's merger with Time Warner, to take 
steps to ensure Internet access.
    When it carries out its antitrust and consumer protection 
duties, the FTC typically shares jurisdiction with the Federal 
Communications Commission. The two agencies cooperate 
extensively to ensure that the exercise of their concurrent 
authority serves consumer interests effectively. In appearing 
before you today, I make one basic request. Congress presently, 
as all of you have discussed, is giving close attention to 
various issues associated with communications policy and 
Internet access services. As it considers new legislation, I 
ask that the Congress preserve the Federal Trade Commission's 
jurisdiction to address antitrust and consumer protection 
concerns posed by the development of the Internet and other 
features of the information services economy.
    For decades, the common carrier exemption from the FTC's 
jurisdiction has precluded the application of the FTC's 
authority to various features of the communications services 
sector. New legislation should ensure that the limits in the 
common carrier exemption do not expand to encumber the 
Commission's enforcement programs and other activities 
involving access to Internet services on behalf of consumers.
    Allow me to end by thanking the Committee and the Congress 
for its attention to these important jurisdictional 
considerations. In my eyes, there is no contribution more vital 
to the modern success of the Federal Trade Commission than the 
commitment of Congress to make periodic legislative 
improvements to the institutional framework through which the 
Commission seeks to safeguard consumer interests. And I wish 
that Chairman Sensenbrenner were here so that I could thank him 
and the members of the Committee, and indeed the Members of the 
Senate, to express my gratitude for one recent manifestation of 
this commitment, namely, the support of the Senate and Chairman 
Sensenbrenner's Committee for the proposed U.S. Safe Web 
legislation. As it contemplates new statutory reforms regarding 
Internet access, I am confident that the Congress will continue 
to act in the wise tradition of ensuring that no jurisdictional 
barriers impede the ability of the FTC to exercise its 
antitrust and consumer protection powers on behalf of 
consumers.
    I welcome your questions and comments.
    [The prepared statement of Mr. Kovacic appears as a 
submission for the record.]
    Chairman Specter. Thank you very much, Commissioner 
Kovacic. I think that our panel's questioning of you would be 
enhanced if we heard from the witnesses first, if you would not 
mind waiting until they have testified.
    Mr. Kovacic. Pleasure, sir.
    Chairman Specter. All right. Then we will proceed now to 
the panel, and we will begin the questioning after the panel 
testifies, and we will have questions for the Commissioner at 
that time.
    Our first witness on the panel is Mr. Vinton Cerf, Vice 
President of Google Corporation, co-designer with Robert Kahn 
of the TCP/IP protocols and the basic architecture of the 
Internet, for which he received the Presidential Medal of 
Freedom, previously served as Senior Vice President of MCI and 
Vice President of the Corporation for National Research 
Initiatives, holds a Ph.D. in computer science from UCLA.
    As is our custom, gentlemen, we have 5 minutes for each 
panelist, and as you can see, we have very substantial 
representation from the Committee here today, so we would 
appreciate your observing the time limits. The floor is yours, 
Mr. Cerf.

STATEMENT OF VINTON G. CERF, VICE PRESIDENT AND CHIEF INTERNET 
                    EVANGELIST, GOOGLE INC.

    Mr. Cerf. Thank you very much, Mr. Chairman, and thank you, 
members of the Committee. I have to tell you, sitting and 
listening to the comments that have been made so far, my 
respect for your concerns and your ability to express them has 
increased dramatically. I am very, very grateful to know that 
this Committee has chosen to look carefully at the issues 
before us.
    I am not an antitrust expert, and as the Chairman points 
out, I am an engineer. But I have spent the last 35 years of my 
life helping to make the Internet happen, and I am deeply, 
deeply troubled by the current situation in which we may lose 
the openness of the Internet as a consequence of some decisions 
made last year and with legislation that is being considered in 
the present time.
    For the first time in history, the openness and the 
innovation of the Internet is now threatened by the market 
power of broadband carriers. Last summer, the nondiscrimination 
safeguard governing the Internet's broadband on ramps were 
removed by a decision of the FCC. What Google and our 
colleagues seek to reestablish is a small but vital part of 
what was taken away: nondiscrimination safeguards for access to 
the Internet over broadband on ramps. Those safeguards have 
been fundamental to the Internet's development and evolution 
since its inception.
    The broadband carriers now possess significant 
unconstrained market power. The most recent figures from the 
FCC show that the phone and cable operators together control on 
the order of 99 percent of the broadband market. Potential 
alternatives like broadband over power line and wireless and 
satellite make up a half of 1 percent of the broadband market 
today, and, in fact, their share of the market has actually 
gone down since these statistics have been kept. So those do 
not represent any near-term alternatives to the two primary 
providers of broadband service.
    In fact, cable and telephone broadband providers only 
compete in half of the markets. The other half either has no 
choice at all because it has no broadband or it has a choice of 
only one or the other, of cable or DSL from the telcos.
    The carriers' words and deeds demonstrate that this threat 
to Internet openness is very real. The phone companies and the 
cable companies possess both the ability and the vocally 
expressed intention to limit how consumers and producers 
utilize the Internet's on ramps. Their intentions appear to be 
to artificially reduce the capacity that consumers have to 
access the Internet. They intend to charge providers of 
Internet service doubly; that is to say, they charge the 
consumers for access to the broadband network and they 
advertise it as broadband access, and then they turn around and 
say, well, you will not really have access to all of the 400 
million servers on the Internet unless some of those servers 
have paid us to carry their traffic over our broadband--over 
your broadband access.
    The consumers are going to lose their choices. The 
broadband access providers are, in fact, saying that they will 
unilaterally pick and choose what content and services 
consumers can see and use on the Internet. This debate is not 
really about the current crop of Internet application 
providers. It is really about the many potential new 
innovators, new entrepreneurs, each one of which could become a 
Google or a Yahoo! or an eBay in the future.
    More than 100 companies have banded together to talk about 
retaining and preserving the openness of the Internet. When the 
Internet was designed, it was designed with several simple 
principles in its construction. One was end-to-end openness. 
The end-to-end principle allowed any applications to be 
implemented on top of the network and any underlying 
transmission and switching system to be used to provide a 
service. Moreover, when the Internet was accessed by dial-up, 
everyone had a choice of any ISP they wanted. With the 
broadband situation, they have either a choice of one or two or 
none at all or only one.
    At this point, because I am about to run out of time, Mr. 
Chairman, let me simply emphasize that this Committee has the 
opportunity to put back in place consumer choice and the 
creation of marketplaces that will otherwise be utterly 
destroyed by the potential market power exercised by the cable 
and telcos.
    Thank you very much.
    [The prepared statement of Mr. Cerf appears as a submission 
for the record.]
    Chairman Specter. Thank you very much, Mr. Cerf.
    Our next witness is Mr. David Cohen, Executive Vice 
President of Comcast Corporation, previously partner and 
Chairman of Ballard Spahr, one of the Nation's 100 largest law 
firms, was chief of staff to Mayor Rendell in Philadelphia; 
bachelor's degree from Swarthmore and summa cum laude graduate 
of the University of Pennsylvania Law School; and his most 
important title is Philadelphia lawyer.
    Welcome, Mr. Cohen.

STATEMENT OF DAVID L. COHEN, EXECUTIVE VICE PRESIDENT, COMCAST 
            CORPORATION, PHILADELPHIA, PENNSYLVANIA

    Mr. Cohen. Thank you, Mr. Chairman, Ranking Member Leahy, 
and members of the Committee. Sometimes that is not the best 
way to be known, but coming from another Philadelphia lawyer, I 
will accept that in the complimentary fashion that was 
intended.
    I appreciate the opportunity to appear here today to offer 
the cable industry's perspective on the state of competition in 
the video and broadband marketplace. These markets are 
functioning extremely well today. Almost every home in America 
can choose from at least three multi-channel video providers, 
and with the entry of the Bells into video, these choices will 
continue to grow.
    Similarly, in the video content business, the number of 
cable networks has increased from just under 100 to nearly 500 
over the past decade. In high-speed data, in less than a 
decade, service has been deployed to over 90 percent of all 
U.S. households, and 84 million Americans now have broadband in 
their homes. Wireless, satellite, and electric power companies 
are also fighting for a share of the broadband marketplace. In 
our view, this robust competition is proof positive of the 
well-known, if ungrammatical, maxim: ``If it ain't broke, don't 
fix it''.
    With that, let me turn to the worst new idea in Washington: 
regulating the Internet under the cloak of ``network 
neutrality,'' a vague and misleading term. Numerous cable 
companies, such as Comcast, have invested billions of dollars 
of private, at-risk capital to construct networks that give 
consumers access to broadband Internet services, applications, 
and content. These networks have enabled thousands of companies 
to enter the electronic commerce marketplace, but we must 
remember that the broadband marketplace remains in its infancy. 
No one can tell you exactly what our business model will be 3 
years from now, 5 years from now, or 10 years from now. We need 
the ability to continue to invest, to innovate, and to 
experiment in order to maximize consumer choice and the 
consumer experience on the Internet.
    Now, certain large e-commerce companies are pushing for 
regulation of the Internet, trying to turn network operators 
into common carriers or dumb pipes. We do not believe Congress 
should grant their wish, nor do we think their proposals would 
help consumers. Let me just give you three quick overview 
perspectives as to why.
    First, these companies are demanding regulation based on 
hypothetical problems. They do not have evidence to justify 
regulating the Internet, so they dream up horrible hypothetical 
harms and try to panic Internet users into supporting their 
cause. As the Wall Street Journal and many others have 
declared, network neutrality regulation is a solution in search 
of a problem.
    Second, these companies have predicted many times before 
that the sky would fall unless Government regulated the 
Internet. They have been wrong before, and they are wrong now. 
I will just give you one example. Back in 2002, 4 years ago, 
Microsoft CTO Craig Mundie testified, that ``One cannot ignore 
the ominous signs that network operators will frustrate 
consumers' ability to go anywhere on the Internet. It would be 
a mistake for policymakers not to address these concerns''.
    Nearly 1,300 days have passed since that dire prediction, 
and there is still no evidence of a problem. Yet from the time 
of the first ``net neutrality scare'', Microsoft's annual 
revenues have grown by over $10 billion per year. Meanwhile, 
the market cap of Google has soared from nothing to 
approximately $117 billion. Everyone should have these kinds of 
problems.
    Third, proponents of regulating the Internet are opening a 
Pandora's Box that will hurt network providers, consumers, and 
the e-commerce companies themselves. For example, if new 
regulations were imposed, they can impede our ability to stop 
viruses and spam that hurt the overall customer experience. At 
the same time, new regulations could thwart our ability to 
offer new services and applications to consumers and dry up 
investments that need to be made to continue to advance the 
interests of the Internet.
    It is interesting to note that the Wall Street Journal and 
the Washington Post, two papers that rarely see eye to eye on 
any issue, absolutely agree that neutrality regulation is a bad 
idea. And, fortunately, proposals for heavy-headed regulation 
were soundly rejected in a bipartisan vote on the House floor 
last week. That is the same sound course we advocate in the 
Senate.
    Mr. Chairman and Ranking Minority leader, we appreciate 
very much your holding these hearings to hopefully shed some 
light on an issue that has generated a lot of heat but not much 
light, and I look forward to taking your questions.
    Thank you.
    [The prepared statement of Mr. Cohen appears as a 
submission for the record.]
    Chairman Specter. Thank you very much, Mr. Cohen.
    Our next witness is Mr. Walter McCormick, President and CEO 
of United States Telecom Association. At the law firm of Bryan 
Cave, more than 500 lawyers, he chaired the regulatory affairs, 
public policy, and legislation practice. He had been General 
Counsel with the U.S. Department of Transportation, degrees in 
journalism and law from the University of Missouri.
    Thank you for coming in today, Mr. McCormick, and we look 
forward to your testimony.

  STATEMENT OF WALTER B. MCCORMICK, JR., PRESIDENT AND CHIEF 
 EXECUTIVE OFFICER, U.S. TELECOM ASSOCIATION, WASHINGTON, D.C.

    Mr. McCormick. Mr. Chairman, thank you very much, and, Mr. 
Chairman and members of the Committee, I appreciate the 
opportunity to testify today.
    To contrast myself with Mr. Cerf, who indicated that he is 
an engineer, not an antitrust policy expert, I am not an 
engineer. My background is in law and public policy, 
particularly competition policy, economic regulation, and 
antitrust. And as a result of this background, I have deep 
respect for the rigor, the dispassion and the intellectual 
discipline of antitrust analysis, an analysis that examines 
trade practices without regard to the technology in question 
but, rather, with regard to the behavior in question. So 
whether one is examining practices of the telephone industry, 
the motion picture industry, or the software industry, the 
analysis is the same.
    Applying this analysis, one must ask these questions: 
First, is there competition in the relevant market? Do 
consumers have a choice? Today they do. The world has changed 
in the 24 years since AT&T was broken up and in the 10 years 
since the passage of the 1996 Act. Today you can make a 
telephone call on a landline phone, on a wireless phone, on a 
cable phone, or on an Internet phone. You can obtain high-speed 
Internet access from your telephone company, your cable 
company, your wireless company, your satellite company. In 
coffee shops, in airports, on college campuses, and in many 
municipalities, you can access the Internet via WiFi hot spots. 
Electric utilities are beginning to invest in delivering 
broadband over power line. Others are entering the market using 
unlicensed spectrum. And the Government is about to put new 
spectrum out for bid.
    Then, one might ask, do telephone companies have a dominant 
market share of the high-speed Internet access market? No, they 
do not. DSL represents a minority share of the high-speed 
Internet access market. In fact, our share of the high-speed 
Internet access market is less than Google's market share of 
the search engine market and far less than Microsoft's share of 
the business software operating systems market.
    Then, one might ask, do telephone companies have market 
power? Which we know is defined as the power to control price. 
Clearly not. As a result of the growth of competition, the 
price of high-speed Internet access is dropping precipitously. 
Our companies have service offerings now at less than $15 per 
month. There is a veritable price war going on. Google is in a 
partnership with EarthLink to offer an ad-supported service in 
San Francisco for free. As a result of this competition and 
lower prices, broadband penetration is increasing, particularly 
among middle-class Americans and minorities.
    So, finally, one must ask, Is this market contestable? 
Certainly it is. Google itself has shown that it is. As 
mentioned, Google is partnering with EarthLink to provide 
Internet access in San Francisco. Google is reported to be an 
investor in Current Communications, which is deploying 
broadband over power line in Cincinnati, Dallas, and other 
cities. Clear Wire Communications is deploying wireless 
Internet access in Jacksonville and other cities. The FCC 
reports that the number of broadband providers is exploding. 
Indeed, the number tripled in just 1 year, from 485 to over 
1,200 from June 2004 to June 2005. Today, Americans living in 
75 percent of zip codes have three or more providers. In 
California, the PUC has authorized broadband over power line, 
noting that in major metropolitan areas, such as San Francisco, 
Los Angeles, and San Diego, they are up to 23 providers.
    So then what is the antitrust problem? Today, there is no 
problem. No broadband provider in the country is blocking, 
impairing, or degrading consumer access to the Internet. The 
FCC has issued an Internet policy. The policy says that it has 
both the authority and the will to enforce and says that 
consumers will have the ability to access the websites they 
choose, run the applications they choose, and attach the 
devices they choose. And the FTC has made clear that it has 
jurisdiction to assure a pro-competitive environment. So what 
is really being debated here is whether the Government should 
manage competition on the Internet, whether Congress should 
accept Google's vision of how the Internet marketplace should 
operate, which would result in loading all costs on consumers 
and prohibiting any prices being charged to Google. This is not 
a competition policy issue. It is a business plan issue. And it 
is something that Congress should refrain from legislating.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. McCormick appears as a 
submission for the record.]
    Chairman Specter. Thank you, Mr. McCormick.
    Our next witness is Mr. Christopher Putala, Executive Vice 
President of Public Policy at EarthLink. He served on the 
Judiciary Committee staff under Senator Biden, has a bachelor's 
degree from Bates and a master's degree in public policy from 
Harvard.
    Thank you for coming in today, Mr. Putala, and the floor is 
yours.

 STATEMENT OF CHRIS PUTALA, EXECUTIVE VICE PRESIDENT OF PUBLIC 
           POLICY, EARTHLINK, INC., WASHINGTON, D.C.

    Mr. Putala. Thank you, Mr. Chairman, members of the 
Committee, Senator Biden. EarthLink is the Nation's largest 
independent Internet service provider, a publicly traded 
company headquartered in Atlanta. We are proud to provide 
Internet access and services to more than 5.3 million consumers 
throughout the country. Thank you for the opportunity to 
testify today. I ask that my full statement be made part of the 
record, and I will summarize.
    Today, there are three major communications policy issues 
facing Congress: First, how will the Bell companies enter the 
television business? Second, how will cable and others in the 
Internet voice business connect to the telephone network? And, 
third, how will the Internet work if equal access laws and 
regulations around since its inception are allowed to fade 
away?
    The answers to all three fundamentally concern market power 
and what to do about it. To the first two questions, can the 
Bells and the cable companies offer specific legislative 
solutions to correct actual and potential discriminatory abuses 
of market power? But when it comes to the issue of net 
neutrality, the implications of market power have largely been 
ignored, and that is why today's hearing and the leadership of 
the Judiciary Committee is so important.
    Taking the first question of Bell entry into the television 
business, the Bell companies argue that cable has too much 
market power and not enough competition in television services, 
and so they seek changes in program access rules that make sure 
that cable has to make the sports and other programming 
available to the Bells on a nondiscriminatory basis. The reason 
is clear. The Bells need access to content if they are to 
compete against cable. A new competitor is just not going to 
have very good luck starting a new television service in 
Philadelphia if they cannot broadcast the Phillies. Nor would 
one have very good luck in Vermont if they cannot broadcast the 
Red Sox. So the Bells are today fighting to significantly 
expand nondiscriminatory program access rules; in other words, 
television neutrality.
    On the second question concerning how voice over the 
Internet, or VoIP, interconnects with the public telephone 
network, cable argues that the Bells have too much market power 
over telephone networks, so they ask Congress to require 
nondiscriminatory interconnection rules so the new technology 
of voice over the Internet has access to the telephone network. 
The reason is clear. New VoIP companies are not going to have 
very good luck starting a new telephone service if it is too 
expensive for their customers to send or receive calls for the 
millions of Bell company telephone customers; in other words, 
telephone neutrality.
    I respectfully suggest that these same equal access, 
nondiscrimination goals guide Congress as it considers net 
neutrality. Rules that have governed the Internet from the 
start require equal and open access over the last mile 
precisely because consumers lack robust choices. That remains 
so today. Cable modem service and Bell company DSL together 
account for 95 percent plus of all residential and small 
business broadband connections nationwide.
    In the face of the Bell, cable, broadband duopoly, there is 
a need for equal access protections, nondiscriminatory rules so 
that powerful incumbents cannot put their thumb on the scale of 
competition. What happens when the bits line up to come down 
that last stretch of Internet pipe to my house? Will my 
EarthLink Internet voice bits go to the back of the line 
because the Bell does not want EarthLink to be a high-quality 
substitute for its telephone service? If EarthLink creates an 
Internet video service, does cable put my video bits at the 
back of the line to protect its own video service? Would either 
of them let Google video jump ahead of EarthLink video simply 
because Google paid a fee to have the first claim on the last 
mile of Internet bandwidth? The market should decide who can 
sell television, telephone, and Internet services. Incumbents 
with a stranglehold on vital inputs should not. Just as the 
Bells argue for equal access to programming and the cables 
argue for equal access to the telephone network, the Internet 
should be governed by nondiscrimination and equal access.
    The other important way to confront the net neutrality 
issue is to encourage as many new broadband providers as 
possible. One place to start is for Congress to eliminate 
current and future prohibitions on local broadband initiatives. 
EarthLink is proud to be leading the effort to unwire America's 
cities with WiFi technologies, delivering the Internet 
wirelessly and affordably. EarthLink has already partnered with 
the city of Philadelphia to build, own, and manage at our cost 
a wireless network to provide broadband to the entire 135 
square miles of Philadelphia. This will be the Nation's largest 
municipal WiFi network. EarthLink is working with Milwaukee, 
Wisconsin; New Orleans; San Francisco; Anaheim; and many others 
to expand this new technology as far and as wide as possible.
    In closing, EarthLink's WiFi network will practice what we 
preach. We will offer fair, reasonable, and nondiscriminatory 
wholesale rates to all others who seek to bring customers to 
these new networks.
    Thank you for the opportunity to testify. I look forward to 
questions.
    [The prepared statement of Mr. Putala appears as a 
submission for the record.]
    Chairman Specter. Thank you very much, Mr. Putala.
    We will now turn to Mr. Blair Levin, Managing Director and 
Telecommunications, Technology, and Media Regulatory Analyst 
for Stifel Nicolaus, as well as its predecessor, Legg Mason; 
was chief of staff of FCC Chairman Reed Hundt; had been a 
partner of the North Carolina law firm of Parker Poe; a summa 
cum laude graduate of Yale College and a law degree from Yale. 
That is second best, Mr. Levin, to being a Philadelphia lawyer. 
The floor is yours for 5 minutes.

STATEMENT OF BLAIR LEVIN, MANAGING DIRECTOR, STIFEL, NICOLAUS & 
               COMPANY, INC., ST. LOUIS, MISSOURI

    Mr. Levin. Thank you. In considering telecommunications 
investment innovation, I would offer four points.
    First, regulation is not the primary driver of investment 
decisions for network infrastructure. In this network 
neutrality debate, some argue that any regulation will hurt 
network investment, but this confuses a piece of the puzzle 
with the entire puzzle. Decisions involving such investment 
involve numerous factors. For example, looking at one puzzle 
piece, one could argue that the 1992 Cable Act suppressed 
investment in cable infrastructure. But looking at the whole 
puzzle, the Act facilitated the rise of DBS, stimulating cable 
investment to offer improved video service and broadband, which 
in turn stimulated telco upgrades. The point is not that all 
regulation stimulates investment, but the opposite is also 
untrue. And I think we err in judging a policy on the single 
metric of capital investment in a single industry.
    Which leads to my second point, which is that the task of 
public policy ought not to be to maximize investment in one 
part of an economic value chain but to allow the market to 
optimize investment throughout the value chain. The Nation's 
economic policy should create a rising standard of living. That 
requires investments that drive economic growth. This debate is 
part of competition for investments as different parts of the 
broadband value chain seek rules to improve their return on 
capital. Some suggest Government should not be involved, but 
the Government has often intervened in value chain disputes to 
help jump-start new industries and stimulate competition. Some 
of these regulations worked well; others didn't. Some were 
required at a particular time but over time outlived their 
usefulness. The prior speaker mentioned some other disputes 
that are essentially value chain disputes. And with each, 
Government sought to stimulate growth throughout the value 
chain by regulating access to a key input. The facts are 
different with each, but with broadband, if a network owner 
wants to develop new applications or services, nothing stands 
between it and the consumer. A network owner has three ways to 
earn a return on investments: selling basic access, premium 
access, and its own applications. By contrast, applications 
providers have only one way and rely on others to reach a 
critical mass of customers. Uncertainty about if, how, and at 
what cost that happens decreases the odds of funding, which is 
no small thing for our Nation's economy. A key driver of 
economic growth has been Internet innovations, none of which 
were developed by network owners. So to make sure that 
innovations continue, we need investment throughout the value 
chain and not just at one point.
    Which brings me to my third point, that the primary threat 
to the market being able to optimize investment is a non-
transitory bottleneck in any critical part of the value chain 
that restricts economic growth. Public policy should address 
bottlenecks that prevent a rising standard of living. Some 
bottlenecks, such as temporary bottlenecks that can be 
bypassed, do not require Government actions, but others might.
    Antitrust experts, which I know this Committee is familiar 
with, have identified certain harms potentially--I emphasize 
``potentially''--relevant here, such as preventing new entrants 
from entering through adjacent markets, allowing those with the 
bottleneck to leverage dominance into a related market, or 
impeding technology developments by concentrating technology 
leadership.
    In the current debate, these concerns are raised 
principally around last-mile wireline broadband facilities. 
Even network neutrality proponents agree that having five 
providers eliminates the need for regulation. Conversely, if 
there were only one provider, most would favor network 
neutrality rules. Thus, the issue boils down to different views 
about the appropriate rule when we have two, three, or four 
providers. This is, of course, more complicated than simply 
picking a number of national broadband competitors which, if 
reached, trigger an end to the rules, but it is not the problem 
of a long-term national monopoly. It involves discrete 
geographic and product markets. For example, there is a 
relatively smaller risk, in my view, of anticompetitive 
behavior affecting low-bandwidth applications such as e-mail 
and search. But for applications requiring high bandwidth and 
low latency, such as online gaming and streaming video, there 
is a greater risk, though not a certainty, of anticompetitive 
behavior.
    Analyzing specific risks and, if necessary, a spectrum of 
potential remedies is the task of expert agencies, but I would 
hope that as they look at it, they keep in mind the long-term 
strategy, which brings me to my concluding point, that the 
greatest guarantor of the kinds of benefits that network 
neutrality principles have delivered in the past and the 
greatest driver of investment are the same: an opportunity for 
new, ubiquitous broadband networks.
    Ultimately, we want a broadband environment characterized 
by survival of the fittest, selected by the market, rather than 
survival of the friendliest, selected by network owners. We 
have already benefited from such an environment in the Internet 
ecology. We should want it to continue. There are different 
paths there, but ultimately the most reliable path is more, 
bigger, cheaper, and ubiquitous broadband through new, probably 
wireless, broadband facilities. And if we get those policies 
right, network neutrality will be a debate largely of interest 
to historians rather than legislators.
    Thank you very much.
    [The prepared statement of Mr. Levin appears as a 
submission for the record.]
    Chairman Specter. Thank you very much, Mr. Levin.
    Our next witness is Mr. Paul Morris, the Executive Director 
of the Utah Telecommunication Open Infrastructure Agency, known 
as UTOPIA, a coalition of 14 Utah cities created to build an 
open broadband network to all homes and businesses within the 
member cities. UTOPIA must have been suggested by my 
distinguished colleague, Senator Hatch.
    Senator Hatch. Anybody who knows anything about Utah knows 
how great it is.
    Chairman Specter. Mr. Morris serves as Chair of the Utah 
League of Cities and Towns Telecommunications Task Force, had 
been city attorney for West Valley City in Utah; a bachelor's 
degree from Brigham Young University and a law degree from the 
same university.
    We appreciate your coming in, Mr. Morris, and we look 
forward to your testimony.

      STATEMENT OF PAUL MORRIS, EXECUTIVE DIRECTOR, UTAH 
 TELECOMMUNICATIONS OPEN INFRASTRUCTURE AGENCY (UTOPIA), WEST 
                       VALLEY CITY, UTAH

    Mr. Morris. Thank you very much. UTOPIA is an interlocal 
entity created by 14 cities in Utah, with nearly 500,000 
residents. We are constructing one of the Nation's largest 
community broadband projects.
    These municipalities formed UTOPIA to provide every 
household and business within their boundaries access to a 
next-generation, high-speed, competitively priced broadband 
connection. There are two key reasons for this investment: 
first is to promote economic development; second is to enhance 
the quality of life for residents. UTOPIA member communities 
concluded that the best way to achieve these goals was through 
the construction of an all-fiber network that operates on a 
wholesale basis and leaves it to the private sector to provide 
the telecommunications services to the customer--a true public/
private partnership.
    As you are aware, local leaders across the country have 
become actively engaged in supporting the deployment of new 
broadband infrastructure in their cities. Some communities are 
supporting wireless projects while others are focused on the 
fiber-to-the-premises infrastructure, like UTOPIA. Some are 
doing it on a retail basis, others on a wholesale basis, and 
some are a hybrid of the two. Many of these projects involve 
public/private partnerships. The common thread is that each 
community believes upgrades to its broadband infrastructure are 
essential to its economic vitality.
    About 4 years ago, a few local officials in Utah began 
exploring the best way to provide advanced telecommunications 
services within their jurisdictions. They acted on the 
conviction that their communities needed access to services 
that would be second to none, both in terms of bandwidth 
capacity and competitive pricing. These local leaders carefully 
examined the options, and after extensive evaluation, they have 
concluded that a fiber-to-the-premises network was the best 
alternative for both current and future applications and that 
it should be operated on a wholesale basis. At this point, 
25,000 homes and businesses are ready for service. Over 4,200 
have signed up with one or more of our four current private 
service providers, and more are signing up daily.
    The UTOPIA network is different from the broadband 
infrastructure typically found in our country for three 
significant reasons:
    First, the symmetry. Users can send information just as 
quickly as they can receive it. Traditionally, the focus has 
been on download speeds, but human communications for 
entertainment, business activity, social cohesion, and family 
unity needs to be interactive. Giving individuals the ability 
to send as quickly as they receive can be transformational.
    Secondly is capacity. A fiber network has incredible 
bandwidth capacity, enabling new applications such as 
inexpensive, high-quality video conferencing, distance 
learning, high-definition IPTV, telemedicine, and telework. For 
example, we currently are working with private companies to 
test three new applications that require the bandwidth that an 
all-fiber network can support. Two of these tests are being 
conducted by an international media company and involve a whole 
new way of viewing video content. The third is an inexpensive, 
high-quality video chat that is easy to install and use.
    Third is wholesale. Both the symmetry and bandwidth 
capacity of the network enable the implementation of UTOPIA's 
philosophy of operating the network as a wholesale public 
infrastructure. Much like an international airport constructed 
by a municipality to enhance the local economy, UTOPIA is 
building the electronic airport but not ``trying to fly the 
planes''. This allows for robust competition, the introduction 
of new services, and innovation.
    As you consider the legislative proposals pending before 
you, we believe that it is prudent to recognize the vital role 
Government has played in the development of all major 
infrastructure in the history of the United States, from 
railroads and canals to water, sewer, and power systems, from 
highways to the current telecommunications networks. 
Municipalities have a key role to play as we work together to 
provide the most competitive and advanced telecommunications 
system in the world.
    We believe that legislation that recognizes this role and 
allows municipalities to chart their own course should be 
supported. Specifically, the original draft of SB 2686 dealing 
with municipality participation in broadband developments was 
of great concern to us. However, the provisions in the current 
Staff Discussion Draft is a great improvement, and we support 
its concepts. Similarly, the telecom reform bill passed by the 
House last week had similar language that is a positive 
approach.
    Also, there has been much debate over network neutrality. 
While UTOPIA has not taken a position on network neutrality as 
applied to other networks, our network solves this problem 
without the need for regulation. We understand the concern over 
the public policy implications raised in the debate, but with 
an ample supply of bandwidth coupled with multiple service 
providers freely competing for the consumer's dollar on a 
network such as ours, the free market will resolve the issue. 
One of our concerns is the scope of the language of some 
network neutrality proposals and its implications as applied to 
an open network.
    Thank you for your time, and I look forward to any 
questions you may have.
    [The prepared statement of Mr. Morris appears as a 
submission for the record.]
    Chairman Specter. Thank you very much, Mr. Morris.
    Our final panelist is Mr. Jeff Kuhns, Senior Director, 
Consulting and Support Services and Information Technology 
Services at Penn State University, also serves as an instructor 
at Penn State's College of Communications; bachelor's in 
science and business management from Indiana University of 
Pennsylvania and a master of arts in telecommunications policy 
from Penn State.
    We appreciate your being here, Mr. Kuhns, and look forward 
to your testimony.

  STATEMENT OF JEFF C. KUHNS, SENIOR DIRECTOR, CONSULTING AND 
  SUPPORT SERVICES, PENNSYLVANIA STATE UNIVERSITY, UNIVERSITY 
                       PARK, PENNSYLVANIA

    Mr. Kuhns. Thank you, Mr. Chairman, members of the 
Committee. I am directly involved in managing the 
telecommunications and Internet needs of the university. I am 
testifying today on behalf of EDUCAUSE and Internet2, the 
organizations that jointly represent the interests of higher 
education and universities in telecommunications policy.
    I would like to focus my remarks on the importance of 
keeping the Internet open to all--the issue of net neutrality. 
Universities are extremely large producers and users of 
Internet content. Universities such as Penn State, for 
instance, depend upon the Internet to engage in distance 
learning, to provide telemedicine, and to engage in new 
research.
    All these services and activities could be wiped out if the 
providers of broadband capacity are allowed to close down the 
Internet or give preferential treatment to their own services.
    Penn State has over 80,000 students, and about 80 percent 
of our students live off campus. Penn State's online program 
offers more than 50 degree and certification programs to 
students on all seven continents. We have online students who 
have never taken a college course before. These online programs 
are especially valuable to persons with disabilities and to 
members of the military stationed overseas. Many of these off-
campus students use cable modem service or DSL to take 
advantage of these online programs. In short, the availability 
of affordable, high-speed, nondiscriminatory Internet services 
is absolutely essential for my university to meet our 
educational goals in the 21st century.
    Our experience working with advanced networks has taught us 
that the Internet works best if the user, not the network owner 
or operator, determines what information is transmitted over 
the network. Once the user has paid for his or her bandwidth, 
the user should be able to go to any Web page, use any lawful 
application, equipment, or service, and send any lawful 
content.
    Allowing a gatekeeper to monitor, screen, manipulate 
traffic would ruin the Internet as we know it. Instead of the 
open, free-wheeling forum for discourse and commerce that we 
enjoy today, the Internet would become the private playground 
of a few network owners--which face little competition and thus 
have significant market power--whose incentive will be to steer 
users to the products and services that they own.
    The debate over net neutrality is sometimes distorted by 
those who oppose legislation. Let me state a few points very 
clearly.
    First, now that the FCC has eliminated the net neutrality 
requirements for broadband providers, a cable or phone company 
could block access to a Senator's website or an online journal 
simply because they disagree with the viewpoint being 
expressed. At a minimum, Congress must act to prohibit blocking 
or intentional degradation of Internet traffic.
    Second, there is one central principle that underlies the 
entire net neutrality debate: nondiscrimination. Network owners 
should not be able to give preference to their own services 
over those of their competitors. Network operators should truly 
be neutral.
    Third, 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.
    Fourth, giving preferential treatment to certain Internet 
traffic, as the telephone and cable companies desire, is not 
only unfair, it inherently degrades the quality of service 
provided to others.
    And, fifth, if economic tollbooths 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.
    We are aware that some providers argue against net 
neutrality by 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 customers. Let me respond to 
these arguments by telling you about the experience at 
Internet2.
    When Internet2 first began to deploy its Abilene network, 
the engineers started with the assumption that they 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, Internet2 
seriously explored these various quality-of-service schemes. At 
the end of the day, we found it was far more cost-effective to 
simply provide more bandwidth. Today, the Internet2 Abilene 
network does not give preferential treatment to anyone's bits, 
but its users routinely experiment with streaming high-
definition TV, hold thousands of high-quality two-way video 
conferences simultaneously, and transfer huge files of 
scientific data around the global without loss of packets.
    A simple design enables and encourages innovation.
    We urge Congress to restore the net neutrality principle 
that governed the Internet since its inception. The future of 
American education, innovation, and competitiveness is at 
stake.
    Thank you.
    [The prepared statement of Mr. Kuhns appears as a 
submission for the record.]
    Chairman Specter. Thank you very much, Mr. Kuhns.
    Before proceeding to the questions, let me make a comment 
about some administrative matters. We have been advised the 
Majority Leader has set a vote tomorrow for 10 o'clock, and in 
consultation with the Ranking Member, Senator Leahy, we would 
like to start our Judiciary Committee meeting at 9. We have a 
very heavy calendar. I have been requested by quite a number of 
members to move legislation of particular interest to 
individual members, and that will be accommodated to the 
maximum extent possible. We are going to arrange a room, try to 
arrange a room off the floor tomorrow--not the President's 
Room, which is terribly crowded and terribly hot, as we all 
know, but one of the larger rooms, 207 or 211, so that when the 
vote is over, we can adjourn to that room. We all know how hard 
it is to get members to come back from the floor to this room. 
But our business is very, very heavy, and we will undertake 
that arrangement.
    Senator Leahy. Mr. Chairman, if I might, I would urge the 
staff to notify each one of the Democratic Senators that we are 
doing this. I think you are absolutely right. With our 
schedule, we do have a large agenda. If we want to get into it, 
we should do that. So I am urging everybody to be here at 9. I 
have rearranged my schedule for that, and I know others will, 
and I think to make it easier for the Chairman to have a quorum 
as quickly as possible, my side will be prepared to start 
moving as soon as that quorum is here.
    Chairman Specter. Well, thank you again, Senator Leahy, for 
your cooperation. We could conclude our Committee business in 
75 minutes if we started at 9. We could finish by 10:15, and 
they will hold the vote a little while for us. Once we get the 
group together--an experienced Chairman, Senator Biden has some 
doubts about that.
    Senator Biden. It is interesting. I never heard anybody say 
``75 minutes''.
    Chairman Specter. Well, that is the way we count time in 
Russell, Senator Biden. Wilmington is a lot more sophisticated.
    [Laughter.]
    Chairman Specter. We will now turn to the questioning 
rounds with 5 minutes for each Senator. I will begin with you, 
Commissioner Kovacic. The Commerce Committee bill stakes out 
jurisdiction for the FCC, Federal Communications Commission, by 
directing it to monitor competition in the market for Internet 
service and report to Congress annually. That seems to me to be 
a pretty direct encroachment upon antitrust regulation by the 
Federal Trade Commission or perhaps the Department of Justice. 
So what is your view of that?
    Mr. Kovacic. We have not discussed this specific measure. 
As you know, the development of the new proposals has been 
quite fluid and changing.
    Chairman Specter. Well, let us have your personal view. I 
would expect it to be pretty much in opposition to that. Tell 
me why.
    Mr. Kovacic. My strong recommendation, were I having this 
conversation with your colleagues, is that the legislation make 
absolutely clear that no encroachments upon the antitrust 
jurisdiction certainly of the FTC or the Department of Justice 
take place, and with the clearest drafting possible, I would 
want it to be clear that traditional antitrust oversight would 
still be available as a means for overseeing competition 
problems in this area.
    Chairman Specter. Mr. Cerf, the cable companies and the 
telephone companies have taken sharp issue with network 
neutrality and have urged us to see if there is a problem which 
develops. What would you think about a case-by-case 
adjudication to see if there is an antitrust violation or if 
there is inappropriate conduct and take it up in that manner as 
opposed to legislation? When you deal with legislation in a 
matter like this, it is extraordinarily difficult, candidly, 
when you have the giants on both sides of these issues. And 
what I have seen--I think my colleagues would agree--we usually 
have a better resolution if we can bring the parties together 
and craft something which is agreeable on all sides. It is very 
easy to get the Congress to do nothing and very hard to get the 
Congress to do something, and we might structure a case-by-case 
adjudication with some standards as to how that would be 
applied. What would you think about that as opposed to blanket 
legislation on neutrality?
    Mr. Cerf. Having given 30 milliseconds of thought to your 
question, let me just say--
    Chairman Specter. Well, with your background that should be 
sufficient.
    [Laughter.]
    Mr. Cerf. All cylinders are firing.
    First of all, I think it is terribly important to 
understand how the Internet actually works and how business is 
supported by it. Because of the absolutely neutral and open 
access that the Internet has fostered over its 15-year history 
in the commercial form, it has been possible to aggregate 
markets that would otherwise not exist. The simple point here 
is that if consumers are able to go anywhere and do anything on 
the net that they choose, they form a market for services that 
otherwise could not be aggregated. They can come from anywhere. 
All billion users of the Internet all over the world are 
potential customers of services that are brought up on the 
network. Any potential constraint on the freedom to go to these 
various services on the net may actually have a serious impact 
on the business models that will work.
    I would be nervous about a case-by-case analysis, to be 
quite honest with you, Senator. It seems to me that when you 
get into case-by-case analyses, you almost never get to a 
conclusion. I would be a lot more comfortable, frankly, with 
legislation that made it very clear--
    Chairman Specter. But when you talk about a case-by-case 
analysis, I have to disagree with you. You come to conclusions. 
You can come to a faster conclusion there than trying to get 
legislation which provides a general rule. Mr. Cerf, let me ask 
you to supplement your answer in writing because that is a very 
important point, and I would like to have your full thinking. 
In fact, I would like to have the full thinking of the entire 
panel on it, but I want to ask one more question here and stay 
within the 5 minutes of the Chairman.
    Mr. Cohen, the issue of vertical integration between 
program vendors and cable and satellite companies has raised 
very serious concerns that competing cable and satellite 
companies will not be able to access programming sold by the 
vendors. The FCC regulations would prohibit exclusive 
contracts. How would that affect Comcast, which owns the 
Flyers, the Sixers, and the Phillies--my red light just went 
on.
    Mr. Cohen. I hope I have more than negative 3 seconds to 
respond to that.
    Chairman Specter. The red light governs me, not you. I may 
govern you if you go too long.
    Mr. Cohen. I am sure. But I am used to that. Just a quick 
overview comment, then a specific response.
    I referenced in my oral statement that in the last decade, 
the proliferation of competition in the video marketplace has 
resulted in a veritable explosion of cable channels, from fewer 
than 100 to about 500 today. The other key statistic, though, 
is that at the time the Telecommunications Act was drafted and 
the program access and program carriage protections were put 
into law, about 50 percent of those cable networks were 
vertically integrated, that is, they were networks in which a 
cable distributor had an attributable financial interest. 
Today, that statistic is less than 20 percent, and for Comcast, 
less than 7 percent of the programming that we carry is 
vertically integrated programming. So the market has worked 
extremely well in the ensuing decade to distribute on a much 
wider basis the availability of programming.
    In terms of sports, the key and most important exclusive 
sports programming that exists today is DirecTV's NFL Sunday 
Ticket package. Most other sports programming, with one 
critical exception that I will reference which relates to 
Comcast--is not made available on an exclusive basis but, in 
fact, is available across all distributors. That one exception, 
which the Senator is well familiar with, is Comcast Sportsnet 
in Philadelphia, which, pursuant to the terrestrial exemption 
under the program access laws, does not have to be made 
available to cable's competitors.
    Notwithstanding that, we do make that programming available 
to RCN, an overbuilder that is a competitor. The only 
competitor we do not make it available to is satellite, which 
has been challenged twice in front of the FCC, once in front of 
the courts. We have been successful on all three of those 
occasions in defending our rights to make that programming 
available on an exclusive basis in Philadelphia. But it has not 
proved to be a dominant model, and my submission to this 
Committee would be that it is not something that rises to the 
level of the need for legislative reform of the program access 
rules.
    Chairman Specter. Thank you, Mr. Cohen.
    Senator Leahy.
    Senator Leahy. Thank you.
    Mr. Cerf, I would like to get your reaction to something 
Mr. Cohen said. Incidentally, before I do that, I want to point 
out I do not think keeping open access to the Internet is 
regulation. I think it is just the opposite of regulation. 
There are two current net neutrality bills, the Snowe-Dorgan-
Leahy bill and the Sensenbrenner bill. They make clear that 
cable companies can aggressively prevent spam and security 
threats, along with open access.
    Now, Mr. Cohen said that regulation of the Internet would 
prevent cable companies from protecting the Internet. I noticed 
you were making some notes during that time. What is your 
response?
    Mr. Cerf. I think we should distinguish between freedom of 
choice to go anywhere and do anything on the network and doing 
things that are either illegal or things that harm the network. 
I don't have any objection to someone introducing filtering and 
other mechanisms that protect us at the appropriate levels in 
the architecture of the Internet's layered structure. What I 
would be concerned about is abuse of the ability to detect 
these kinds of things and use them in order to prevent people 
from getting access to services that they legitimately expect 
to reach. I would distinguish and divorce those two things from 
each other.
    Senator Leahy. A spam filter or a virus protector, those 
are entirely different.
    Mr. Cerf. Those things, frankly, can take place at higher 
levels of protocol than carrying bits on the underlying cable 
or the underlying DSL.
    Senator Leahy. And, Commissioner, let me ask you a couple 
of questions. In my opening statement, I said I had two 
concerns in the context of competition in broadband service: 
first, unfair practices that discriminate among content 
providers and block consumer access to lawful websites; second, 
the so-called triple play that occurs when a broadband provider 
offers TV and video, telephone, and Internet.
    If a single provider were to force consumers to buy the 
package of all three services, that bundling would be 
anticompetitive. It would impede the ability to substitute 
service providers. It means that each cannot compete on their 
own.
    Does the Federal Trade Commission have the ability to 
investigate and resolve such issues as this if it arose in the 
context of the broadband access market?
    Mr. Kovacic. Our belief is, in light of Brand X and related 
developments, the answer is yes, Senator.
    Senator Leahy. I worry in the broadband access market about 
anticompetitive practices and so on. In the mobile telephone 
industry, subscribers are confronting penalties if they seek to 
change providers. The FTC has considerable expertise in 
recognizing anticompetitive behavior. What potential 
anticompetitive practices should we be thinking about as we 
consider competition in the broadband access market?
    Mr. Kovacic. Certainly where you have a dominant incumbent 
supplier, questions about access, vertical integration, 
exclusion, foreclosure are legitimate conceptual concerns that 
may be borne out in specific fact circumstances. I think 
continuing review of consolidation mergers that affect the 
number of providers is a further area of legitimate concern.
    I would add to my earlier comment, Senator, that as we move 
into the role of that traditional telephony providers offer, 
this is an area where I would endorse Senator Kohl's 
observation and the observation that a number of your 
colleagues have made, that a valuable step in the direction of 
improving our capacity to deal with these specific issues would 
be a repeal of the common carrier exception.
    Senator Leahy. Thank you.
    Mr. Putala, it is good to see you back in this Committee 
room. You spent a lot of time here before.
    Mr. Putala. Thank you, Senator Leahy.
    Senator Leahy. You know that this competition is part of 
the central concern of the Committee. Several of the panelists 
argue that there is competition. A Washington Post editorial 
citing FCC data, which has been criticized, states that people 
residing in 60 percent of zip codes in the United States can 
choose from among four broadband service providers, but 
according to a more recent GAO report, 98 percent of households 
that have Internet connections get their access from either a 
DSL line or the cable company. I guess I am in the small part 
that cannot get any of these. Your company's municipal 
broadband deployments are among the investments that give hope 
for real effective competition.
    What do you see as the primary barrier to entry for 
competing broadband access providers? What are the prospects 
for true competition in the current duopoly?
    Mr. Putala. I think they are very difficult. Much of the 
competition that is cited by Mr. McCormick is actually a 
reflection of the fact that there are commercial agreements 
between folks like EarthLink and Bell companies such as 
Verizon, Bell South, et cetera.
    The rules that required a fair negotiation to get to make 
those commercial agreements are going away. So that is yet 
another kind of barrier to entry that is making it more 
difficult for there to be providers of equal status, even 
though they may be sharing various network elements.
    As a result, if we are going to let those go away, we also 
need to do everything we can to encourage the growth of new 
networks. Something that EarthLink has faced as we try to get 
into the market with a new technology, a new network in 
Philadelphia, is that many of the Bell companies and cable 
companies have sought to pass State laws outlawing 
municipalities from doing their own broadband developments or 
even entering in partnerships with private companies to build 
networks that would cover their particular area.
    Senator Leahy. Thank you, Mr. Chairman. I will submit my 
other questions for the record. Both my time and my voice seem 
to have run out at the same point.
    Chairman Specter. Thank you very much, Senator Leahy.
    Under our early-bird rules, in order of arrival, we have 
Senator Cornyn, Senator Biden, Senator Brownback, and Senator 
Hatch.
    Senator Cornyn.
    Senator Cornyn. Thank you, Mr. Chairman, and I want to 
thank the panel for your testimony. This has been very 
informative. I guess the challenge for us and the trepidation 
that we feel is in part, I guess, characterized by a quotation 
that I heard from Abraham Maslow, who said, ``To the person 
whose only tool in their toolbox is a hammer, they tend to 
regard every problem as a nail''. And, of course, the hammer 
that Congress has is regulation and taxation, and those seem to 
be the two things that are exactly what the Internet does not 
need more of.
    But I would like to ask, first of all, perhaps Mr. Cohen 
and maybe Mr. McCormick a question, and then I would like to 
ask Mr. Cerf a question as well.
    The Internet has already allowed for the creation of a lot 
of innovative business models, such as subscription services, 
online sales and shopping, advertising partnerships, and the 
like. Would the passage of network neutrality provisions 
inhibit the development of new business models in the 
marketplace, Mr. Cohen?
    Mr. Cohen. Senator, in our opinion, the opinion of the 
cable industry and the wireline competitors, the answer to that 
question is that there is a substantial risk that that would 
occur. I come from a little bit of a governmental background, 
too, and I view that any decision whether to regulate needs to 
involve a balancing of the scales of what are the benefits of 
regulating and what are the risks of regulating. I think one 
thing everyone on this panel agrees with is the explosive 
growth of the Internet and the innovation that has occurred, 
all in the absence of regulation of the Internet to make it 
neutral. It has occurred because of the natural competitive 
state that exists and that has fostered that type of 
competition and innovation. So I do not see much of a benefit 
but I see real risks of unintended consequences, of the drying 
up of capital investment, of removal of incentives for 
investment and innovation that could enable the Internet to 
continue to grow, to thrive, and to continue to evolve over 
time.
    Senator Cornyn. Since my time is so short, let me go to Mr. 
Cerf on this question, if I may, please. Google obviously 
filters information during searches on their site and joins in 
corporate agreements to favor websites during searches, in 
other words, to feature certain websites based on those 
agreements. Would Google also like us to regulate its ability 
to create new business models and trying to develop its 
service?
    Mr. Cerf. First of all, I wonder about the model that you 
might have in mind as a consequence of having asked that 
question. Google runs algorithms which try to provide responses 
to searches which are relevant to the queries. That is 
completely independent from the advertising which is put up. 
Those are quite separate and distinct.
    The advertising that is put up goes up on the basis of 
auctions which take place in real time. During the time that a 
query is being made, we are also running auctions against the--
I don't know how many hundreds of thousands of ads that are 
potential competitors to appear on the page. The auction 
determines which ads come up, and that auction is not done on 
anything other than a fair and nondiscriminatory basis. So 
certainly we would not want you to be telling us how to run our 
business. On the other hand, we believe in neutral and open 
processes, which is how we run our operation now.
    Senator Cornyn. Mr. Putala, let me ask you, I am intrigued 
by the development of broadband over power line. I come from a 
State where rural electrification, championed by Lyndon Baines 
Johnson, is a big deal, and obviously we have large, expansive 
rural areas where it is hard to get other types of service. 
Could you elaborate on the broadband over power lines and how 
far that technology has come along and how competitive it is in 
the marketplace with other means of delivering Internet 
services?
    Mr. Putala. EarthLink is an investor in that technology. We 
are looking for any alternative technologies that we can find. 
According to the FCC, in 2005, out of the 43 million broadband 
connections to the home, there were 4,872 which were broadband 
over power lines. So while there are new technologies emerging, 
we cannot lose sight of the fact of what a head start the Bell 
companies and the cable companies have in terms of delivering 
broadband to the home.
    I also would like to take a little bit of issue with a 
comment of Mr. Cohen saying that the Internet did not have any 
rules. Well, in fact, the Internet did have rules. It grew and 
built under the concepts called by some ``common carriage,'' 
which really means nondiscrimination, fair access, equal 
access. Those are the rules which allowed everything from the 
Vermont Teddy Bear Company to Google to build applications on 
the edge of the Internet which have become a major generator of 
economic growth in this country. So it is just simply not 
accurate to say there was not a regulatory structure for the 
Internet. There was, and it was nondiscrimination.
    Senator Cornyn. I thank each of you for your responses.
    Thank you, Mr. Chairman.
    Chairman Specter. Thank you very much, Senator Cornyn.
    Senator Biden.
    Senator Biden. Thank you, Mr. Chairman.
    Is there any preferential treatment now? You are all 
worried about preferential treatment. You want to make sure 
that we have this neutrality rule. What is the problem now?
    Mr. McCormick. Senator, on the Internet networks, there is 
no preferential treatment. Clearly, there is preferential 
treatment with regard to the search engines. In fact, just 
yesterday there was an article that ran that Google's algorithm 
is such that if you type in ``net neutrality'' at Google, you 
will see advertisements for It's Our Net Coalition or other 
sites that they might be pointing to. So what you are seeing is 
with regard to search engines, you are seeing exactly the 
opposite of any kind of neutrality or common carriage. You are 
seeing--
    Senator Biden. That is really not my question.
    Mr. McCormick. So there is some--there is favoritism there.
    Senator Biden. Those of you who are concerned about the 
need for a net neutrality rule, is it something that is 
happening now or is it something that is going to happen or 
could happen?
    Mr. Morris. Senator, I would like to reply to that. I am 
not aware of any blocking that has occurred, at least for 
universities today. But the rules just changed last year, and I 
believe that both AT&T and Verizon are still under 
discrimination requirements as part of their recent 
acquisitions. So that is the current state.
    We also know that Bell South and AT&T have made statements 
about potentially doing these sorts of activities, and my own 
experience in working with Verizon has been that although we 
have tried to hold talks with them, they have been less than 
forthcoming in talking with us. And each time we have talked 
with them, they have never agreed that they would not do this.
    So I am concerned, and I think that concern is justified.
    Senator Biden. The reason I ask the question, it would seem 
to me if the fears you have are real and they occur, there will 
be a virtual explosion in this country. You will not have the 
audience we have here. The Chairman will be required to hold 
this hearing in the largest room in the Capitol, and there will 
be lines wandering all the way down to the White House if that 
occurs.
    I think it is a legitimate concern. I just wonder whether 
or not this need for preemptive action is as urgent as is being 
argued. I do not doubt--by the way, it is not that I trust you 
guys. I do not trust anybody. I do not trust any of you. 
Because I noticed, by the way--I mean in terms of go out there 
and ``do the right thing,'' every one of you has your own 
interest at stake. That is fine. That is good. And every one of 
you tried to alter competition in the field in which you 
compete wherever you are. For full disclosure, David Cohen is a 
close personal friend of mine, and Chris Putala is a close 
personal friend who worked for me for years. Both your 
companies, I mean, David, if you could see to it that EarthLink 
could not compete in Pennsylvania, you would make sure they 
could not, I suspect. Maybe I am wrong. Maybe I am wrong. And I 
suspect EarthLink would try to figure out a way to hedge--and I 
know Google would. But you are wonderful guys. You know, my 4-
year-old granddaughter says, ``Google it, Pop''.
    So I just wonder. I guess my concern is whether or not this 
is premature and whether or not, as the Chairman said, when we 
deal with such powerful collective entities, I mean, you 
represent an incredibly powerful, economically powerful chunk 
of the economy on both sides of this issue. And usually when we 
get into those kinds of legislative initiatives, they end up 
looking at the end of the day not very attractive. That is my 
generic concern. My instinct is that I like the notion of the 
neutrality rule. I just wonder whether or not we can write it 
in a way that does not cause an explosion.
    The flip side of it is, the other side of me says if you 
all divert from the major carriers, if the cable companies, et 
cetera, in fact, began to impose the things we are concerned 
about, the dome of the Capitol will literally blow off. I mean, 
you will have more bloggers in here than you have people in 
America.
    So that is why I raise the question about whether or not 
there is preferential treatment now, but I would like to ask 
one question in my 8 seconds left. Isn't it true, Mr. 
McCormick, that no matter how you structure the pricing of 
network access, it is ultimately the consumer who is going to 
pay the bill? So why does it matter whether you pass the cost 
on through Google rather than directly to the consumer?
    Mr. McCormick. Well, what we have seen in every other 
market is that there are a variety of innovative pricing 
packages, and that competition and creativity that goes into 
coming up with innovative and creative pricing practices 
benefits the consumer. So what we are doing is trying to get 
away from legislating absolutely just one pricing and package.
    Senator Biden. But the bottom line is the bottom line. 
Whatever the cost is, the consumer is going to pay. They are 
going to pay it through Google. They are going to pay it 
through you. I mean, isn't this a bunch of malarkey? I mean, 
the fact of the matter is you are not going to absorb the cost. 
The cost is going to be passed on to the consumer, isn't it? Or 
am I missing something? Does it matter to me whether I pay the 
extra X percent in my bill through Google or through another--I 
mean, what difference does it make?
    Mr. McCormick. Well, it makes a huge difference. It makes a 
huge difference in the area of competition because what you 
will have with the market freedom is you will have competition 
at all levels, and you will have those pricing and package 
options.
    For example, today if you order something from Lands' End, 
you have a choice of getting it by 2nd Day Air. You do not pay 
as much for 2nd Day Air if you order it through Lands' End 
because they buy in bulk. Under the Google model, the consumer 
is going to be charged a flat fee. There is never going to be 
any kind of that bulk purchasing. There is not going to be any 
kind of that marketplace innovation. So there are consumer 
savings that result from allowing companies to enter into these 
kinds of innovative pricing packages.
    Senator Biden. My time is up.
    Chairman Specter. Thank you very much, Senator Biden.
    Senator Feingold has advised that he has a pressing problem 
and would like to be recognized at this time, but others have 
waited, and I would put that issue to Senator Brownback.
    Senator Brownback. If you have got a real pressing issue, 
go ahead.
    Chairman Specter. And I would ask Senator Hatch if he would 
defer.
    Senator Hatch. Yes.
    Chairman Specter. The floor is yours, Senator Feingold.
    Senator Feingold. Well, in light of that kindness, I am 
just going to read my statement because I do not think it is 
fair to Senator Brownback for me to take up the whole time.
    Mr. Chairman, thank you for holding this hearing today on 
the important issue of ensuring competition in our 
communications law. I hope that the Judiciary Committee will 
make this hearing one of a series addressing consumer and 
competition concerns in the telecom field. There are a number 
of significant issues we should look at, such as media 
consolidation, preemption of State rights, and anticompetitive 
practices in the radio and concert industries.
    In fact, as I think about this issue of Internet 
competition, it makes a lot of sense to me to consider it 
through the lens of the problem with the radio and concert 
industries that I have been concerned about for some time.
    Ten years on, the radio and concert industries have not 
recovered from the 1996 Telecommunications Act, which I 
opposed. The massive consolidation that resulted from that law 
took a toll on the local flavor of radio, and it also allowed 
the problem of payments for air play, or payola, to reemerge. 
Within the radio industry, payola effectively created a two-
tiered system of the labels and artists with the resources to 
purchase air time under the table and those who could not or 
would not. Consumers looking for diversity and localism were 
the big losers.
    I see some parallel potentially developing if we allow 
Internet access providers to create another pay-for-play system 
and become de facto gatekeepers to the Internet. Without a 
nondiscrimination requirement, certain websites on the Internet 
could gain an unfair advantage. For example, the major record 
labels, the music stores, might be able to pay what the 
broadband providers demand to prioritize their music 
distribution while smaller rivals might not. The independent 
labels and musicians who found a niche on the Internet after 
consolidation and payola drove them from radio could again face 
an unfair pay-for-play system.
    Moreover, without protections, Internet users could have 
fewer choices as only those content providers who could afford 
to pay the corporate toll keepers would be able to offer a 
competitive level of service. We need to make sure that the 
Internet retains its crucial role as an open forum for the free 
exchange and dissemination of information. While antitrust 
protection such as net neutrality's nondiscrimination concept 
might not be needed if we had truly competitive markets, the 
current landscape, which amounts to an emerging duopoly, does 
not meet this threshold. Perhaps this will change if WiFI, 
municipal broadband, or other technologies become widely 
available and competitively priced. But for the time being, the 
principle of nondiscrimination is a very important one.
    I also understand that there are legitimate reasons for 
broadband providers to prioritize one type of data over another 
to manage their network efficiently. I support the core net 
neutrality proposals I have seen that allow for this legitimate 
management of the network while preserving the basic principle 
of equal access to the Internet.
    Mr. Chairman, thank you for this opportunity, especially 
thanks to Senator Brownback for his courtesy.
    Chairman Specter. Thank you, Senator Feingold.
    Senator Brownback.
    Senator Brownback. Thanks, Mr. Chairman. Thanks for holding 
the hearing, and I want to start off first asking, Mr. 
Chairman, for my opening statement and a series of articles and 
``Dear Colleagues'' to be entered into the record.
    Chairman Specter. Without objection, they will be made a 
part of the record.
    Senator Brownback. Thank you, Mr. Chairman.
    [The prepared statement of Senator Brownback appears as a 
submission for the record.]
    Senator Brownback. I want to start off by saying thank you 
to the panel. It is good information. But also, we had nearly 5 
percent economic growth the first quarter of this year, and I 
think you guys are no small part of that phenomenal economic 
growth that is taking place in this economy. A lot of the 
efficiencies are based on Internet, the quick use of 
information, the growth in the Internet, it is a phenomenal 
tool, and it has been phenomenally successful and useful. There 
are things I do not like about it. There are things that invade 
into my home that we are still figuring out how to try to get 
smarter than our kids, which is really tough to do--not because 
my kids are so smart but I am so slow. It is just a fantastic 
time that we are in. And the ability to get the information so 
quick from so many different sources is fantastic. So that 5-
percent GDP growth or near 5-percent GDP growth that we had the 
first quarter, thank you. I hope we have a whole bunch more 
quarters like that.
    Having said that, Mr. Chairman, I also want to note--and 
this is in that stack of material I am submitting--the American 
Enterprise Institute and Brookings Institution, two entities 
which generally diverge on policy conclusions, issued a paper 
in April of this year through their Joint Center for Regulatory 
Studies, which concluded this--and I want to quote one line of 
that. ``Mandating some form of net neutrality would be 
inconsistent with sound economic management of the Internet''. 
This is AEI and the Brookings Institution together that made 
that statement.
    I think what they are saying is something that just gets a 
check in me, that anytime you go to regulate something that has 
been so phenomenally successful and grown so much in this 
economy, there are just a lot of signals that go off pretty 
fast, saying, Now wait a minute, what are you guys going to do 
here with something that has really been working very well? And 
that is in the stack of things, and that is why I have real 
hesitancy about some of these proposals that are coming 
forward, the Markey amendment on the House side that was 
soundly defeated by a broad bipartisan vote.
    I would ask real quickly, if I could, because my time is 
very short, of these net neutrality proposals such as the 
Markey amendment, who is going to be in charge of enforcing and 
interpreting these net neutrality laws? Mr. Cohen? And if you 
could answer quickly on that.
    Mr. Cohen. Yes, sir, one sentence. I can answer with 
respect to the Markey amendment. In the Markey amendment 
enforcement authority was given to the FCC.
    Senator Brownback. So FCC is going to enforce and interpret 
these laws.
    Mr. Cohen. Correct.
    Senator Brownback. Would the panel agree with that?
    Mr. Putala. And that is the status quo of how the Internet 
has grown for the last 20 years. There have been rules which 
have enforced nondiscrimination, and that really is the status 
quo. The change is what happens if those nondiscrimination 
rules are allowed to fade away, as they will under recent 
Supreme Court and FCC decisions.
    Mr. Cohen. If I could, in one sentence, just to be clear, 
those rules--
    Senator Brownback. All right. One sentence, real quick.
    Mr. Cohen. Those nondiscrimination rules were never applied 
to cable. They did apply on the Bell side to DSL. They did not 
apply to cable.
    Senator Brownback. We have been trying to get them off the 
Bell side and telephone for some time so we could have a freer 
marketplace of competition.
    Let me ask another question here. A number of you noted in 
your written testimony discussion of so-called bottlenecks, 
which the company with the power to deliver online content 
could impede or block that content in a discriminatory way. And 
that is the sort of thing, when you are raising that, I am 
listening, I am hearing you. That also reminds me of the old 
railroad system and the one that people talk about of a model 
for this being the new super highway.
    Are there any specific examples today that any of you can 
cite of an actual bottleneck that has happened today?
    Mr. Putala. There was the Madison River case of a small 
phone company blocking the voice over the Internet traffic of a 
competitor. But, again, it is sort of the same thing that Mr. 
Cohen is concerned--
    Senator Brownback. Chris, let me go ahead and--okay. Thank 
you. Is there an additional one--
    Mr. McCormick. Senator, that is not--that was not a case of 
a bottleneck under traditional antitrust law. Under traditional 
antitrust law, a bottleneck is a sole provider, it is an 
essential service, and you have no other option. And what you 
have in the high-speed Internet access market is that 
nationwide you have a very competitive market. Second, a 
bottleneck requires that the market not be contestable, and 
technology has brought us to the place where every market in 
the country is contestable with regard to high-speed Internet 
access. So the answer is--
    Senator Brownback. So you would argue that there is not an 
example, and this is not an example.
    Mr. McCormick. There are no bottlenecks.
    Mr. Cerf. Actually, I think I am going to disagree with Mr. 
McCormick on this one. The issue here, as Mr. Putala points 
out, is that we had open access, nondiscriminatory access and 
behavior on the Internet for all the time that it has been in 
existence. When the rules changed last year, the threat of 
bottlenecking and the threat of blocking or interfering arose. 
There had been public threats made by the telcos that they 
would, in fact, take advantage of the removal of those 
constraints in order to limit where consumers could go and what 
they could do on the net in exchange for payments from service 
providers who would gain advantage by paying those companies 
for access to the broadband facilities.
    I hope you all remember that the way the Internet worked 
all the way up until now and continues to work is that everyone 
pays for their access to the net, and then they do whatever 
they want to with it. It is so different from the traditional 
telephone system where the caller paid for all of the costs. In 
the Internet world, everybody pays for access to the system, 
and then they do what they want to with it.
    Senator Brownback. Mr. Chairman, thank you, and I would 
just note that I think this is legislation in search of a 
problem. Things have been phenomenally successful on expanding 
of opportunity on the Internet, and it continues to happen, and 
I would hope we would not go in with a regulatory arm on this.
    Thank you, Mr. Chairman.
    Chairman Specter. Thank you very much, Senator Brownback.
    You have been very patient, Senator Hatch. Since I am the 
only one waiting, you may take a little extra time if you want.
    Senator Hatch. Well, I am very grateful for that.
    Let me just say from my perspective there appears to be a 
wide variety of views regarding what net neutrality is and what 
goals it is intended to serve. I was impressed by Mr. Levin's 
analysis of the relevant considerations in his testimony and 
agree with his point that Congress should carefully consider 
the specific problems we intend to address in crafting a 
targeted solution.
    To that end, I would be interested in addressing this to 
the whole panel, those who care to comment, and I would like to 
hear from the witnesses who support some kind of net neutrality 
about the specific problem or problems that justify a net 
neutrality mandate. For the witnesses who oppose net 
neutrality, I would like you to address with particularity 
precisely what things the phone and cable companies intend to 
do that would be prohibited by net neutrality.
    So, Mr. Cerf, should we start with you? And then we will 
just go across.
    Mr. Cerf. Our fundamental concern, once again, is for the 
consumers and users of the Internet to have access to any site 
on the net that they chose to go to. They paid for that. That 
is what they were told when they bought broadband access to the 
Internet, that they were able to go virtually anywhere, run any 
applications.
    The biggest concern I have at this point is that in the 
absence of some form of protection, the broadband providers 
will be able to discriminate against the consumers as to which 
products and services they are able to reach, and that is our 
primary worry.
    Senator Hatch. Thank you.
    Mr. Cohen?
    Mr. Cohen. Senator, I wish I could tell you what we might 
want to do in the future that could be implicated by net 
neutrality regulation, but I am going to be honest enough to 
say that I cannot tell you that. Our position is that there is 
no way to predict what our business model and what the 
potential innovations on the Internet will be a year from now, 
3 years from now, 5 years from now, and that the risks of 
regulating the Internet to protect against a hypothetical harm 
of drying up investment and of drying up innovation are too 
great a price to pay. Let's allow this market to evolve.
    And I would say I think there are at least three 
protections to make sure that the evils that Mr. Cerf and 
others have talked about do not occur: the protection of the 
market, the protection of the antitrust laws and the FTC to 
police this market, as it does in other markets in abusive 
cases, and ultimately the threat of legislative action of this 
Committee and of this Congress being able to intervene. I do 
not think we would ever get to the point of the dome of the 
Capitol blowing off as Senator Biden referenced because I think 
if there was ever any abusive conduct that was not policed by 
the market, the FTC, the Department of Justice, or the 
antitrust laws, Congress could at that point act to protect 
consumer interests.
    Senator Hatch. Okay. Mr. McCormick?
    Mr. McCormick. Senator, I would associate myself with the 
comments of Mr. Cohen and say that there is no blocking, there 
is no impairing, there is no degrading of access. Both the FCC 
and the Federal Trade Commission have indicated that they have 
authority under the respective statutes and jurisdiction to 
take action should there be a problem that arises.
    With regard to our business plans, it is impossible to know 
what the future will hold, so we do not have specific business 
plans that I could discuss with you, because we do not have 
them. They are in development. But what net neutrality 
legislation would do would be to require that, in effect, those 
business plans would have to conform with regulations that 
would be drafted by the Federal Communications Commission.
    The bills that have been introduced say you shall not 
discriminate among bits. We simply do not know what that means. 
We do assign certain priorities to private networks that 
operate on the Internet, such as banking networks for security 
and privacy, governmental networks for security, health care 
networks for privacy and for a quality of service to make sure 
that they are always on in the case of monitoring patients.
    It is questionable whether we could do that if all bits 
have to receive the same priority, a bit for watching a movie 
or an e-mail, and we do not know what it means if a bit is an 
e-mail message versus an instant message. Are those the same 
bits, or are those different bits?
    So in an effort to try and address a problem that is a 
what-if problem, a hypothetical problem that has not arisen, 
the language of these proposals casts extraordinary uncertainty 
over those of us who are attempting to build networks and to 
manage networks.
    Senator Hatch. Mr. Putala.
    Mr. Putala. Another what-if problem is Mr. Cohen's concern 
about how their voice over the Internet products will be 
connected to Mr. McCormick's Bell networks. Mr. Cohen favors 
legislation calling for just, reasonable, and nondiscriminatory 
terms and conditions, Government regulation of the commercial 
transaction between Mr. Cohen's voice over the Internet product 
and Mr. McCormick's telephone network. Mr. McCormick is 
concerned about how he gets access to programming, sports and 
other things, and wants nondiscriminatory terms and conditions 
when it comes to getting the programming that the Bell 
companies will need if they are going to compete in the 
television space--again, a what-if problem.
    In both cases, they are looking for very specific 
Government rules, Government laws, enforced not just by an 
after-the-fact review by the FTC, not just by an after-the-fact 
review by the Justice Department, but by up-front aggressive 
enforcement by the FCC. That nondiscriminatory element is the 
thing that has driven the growth of the Internet and that is 
really the kind of same protections that should stay in place 
so that we can continue the growth of the Internet.
    Senator Hatch. Mr. Levin.
    Mr. Levin. Well, thank you for your comments. As an 
analyst, I am more interested in predicting policy than 
advocating it, but let me just mention a couple of kind of 
targeted notions that others have suggested to address certain 
harms. One is a concern--which I do not think this will happen, 
but if it did happen, it would be very problematic for the 
economy--that if there is a degradation of what we might think 
of as the best efforts or public Internet. In other words, if 
the network companies want to increase or kind of have a high-
speed lane, first-class, you know, that is one thing; but if 
the current best efforts Internet were to be slowly over time 
degraded, that would create a lot of problems for the kind of 
innovation that we have seen in the past. So some have 
suggested, including another Wall Street analyst, Craig Moffit, 
who is very critical of network neutrality rules, suggested--
and I think I kind of agree with this--it would be good to have 
some kind of safety net protection of a best efforts Internet. 
You can do it in a variety of, I think, very nonintrusive ways 
in terms of monitoring it and if there is a problem that 
develops, then Congress can act. Again, I do not think that 
will happen, but if it did happen, it would be problematic.
    Second, Mr. Cerf mentioned that consumers are buying really 
large--you know, they are buying access to the whole Internet. 
Another thing is to have a certain kind of FTC type of consumer 
disclosures where, if a company is providing--they have to tell 
the consumer what bandwidth speed they are getting for the 
entire Internet, and to the extent that there is 
discrimination, that that be disclosed to the consumer. Some 
think tanks have addressed that.
    Then, finally, I would just mention, as Chairman Specter 
mentioned earlier, if you had case-by-case kind of analysis but 
with very kind of clear metrics and with quick timetables and 
those kinds of things, that may be a way of addressing some of 
the antitrust issues or some kind of the potential harms of 
certain kinds of bottlenecks, which maybe actually do not exist 
today, but as we move to the higher-speed bandwidth, it has the 
possibility of existing. So those are the kinds of things being 
discussed.
    Senator Hatch. Mr. Morris?
    Mr. Morris. Our concern is the language of these bills is 
it might apply to an open network like UTOPIA. We are providing 
100-megabit big fat pipe to each home and business that is 
symmetrical, and my reading of the bill that passed the House 
Judiciary Committee was very problematic. While it was designed 
to apply to the people at the other end of the table, the way 
it was worded is it would be unlawful for us, the wholesale 
pipe owner, to allow these private service providers on our 
network to violate those rules. And so we would become the 
enforcer of what they are doing when we are just moving their 
bits back and forth. And the whole point of being wholesale and 
open is to leave it to the private sector to provide their 
services.
    So when you get into the actual wording and trying to 
define network neutrality, it can cause some real problems, as 
that specific bill would cause to an open network.
    Senator Hatch. Mr. Kuhns.
    Mr. Kuhns. Senator, since I am here from a Big Ten 
university, I hope you will allow me a short sports analogy. I 
think we all agree there should be fair play in competitive 
sports, but if we did not have rules in place and penalties 
when those rules were broken, I suspect at times there would be 
examples of unfair play.
    But what we are asking you to do is reinsert the 
nondiscrimination rules that used to be there and make it clear 
that you are not allowed to block or in any way discriminate 
access to, utilization of, or equipment attached to the 
network.
    Senator Hatch. Mr. Kovacic, you can sum it up. How is that?
    Mr. Kovacic. Senator, we ask that when specific, concrete 
problems do emerge, that we have your assistance in maintaining 
the fullest jurisdictional platform to address them on the 
consumer protection and competition policy side of our 
authority.
    Senator Hatch. And you feel you can do that without 
legislation?
    Mr. Kovacic. We think we have both of those powers to apply 
in this area, with the small qualification that questions are 
going to continue to arise where traditional telephony is 
involved, but there, again, we ask your consideration of a 
solution that would fix that, too.
    Senator Hatch. Well, thank you.
    Mr. Chairman, I have gone way over. I have other questions, 
but I will submit them.
    Chairman Specter. Thank you very much, Senator Hatch.
    Just a few more questions before we adjourn, gentlemen. Mr. 
Kuhns, I understand your contention about nondiscriminatory 
practices. There may be a tendency for cable companies and 
telephone companies to create a preferential class for faster 
access to some of the dominant customers. If that were to 
happen, what would the consequence be for someone like Penn 
State, educational institutions? That goes to the thrust of 
your concern about no preferential treatment.
    Mr. Kuhns. Yes, sir. We are in favor of seeing as large 
capacity networks built as possible and delivered into every 
home, because what we want to do is deliver educational content 
to everyone, regardless of where they are at. To do that well 
means that we need high-capacity networks so that we can 
deliver educational content that is not just text but includes 
audio, video, other forms of visualization that make it easier 
to learn. So we are very much in favor of having the capacity 
growth these people have talked about. But if they start to 
charge on a tiering basis, then we worry very much that we are 
not going to be able to afford to put that content out, content 
that would help the entire country.
    Chairman Specter. Mr. McCormick, when we talk about all the 
competition--Internet, power lines, wireless, satellite--those 
really go to what may happen in the future. Currently, we have 
the cable, we have the phone lines. You do not have a monopoly 
but a duopoly. Is that really sufficient competition to give 
the kind of assurances that Mr. Cerf is looking for?
    Mr. McCormick. Well, first of all, Mr. Chairman, it could 
hardly be named a duopoly. I mean, if you look at traditional 
analysis, again, do we have market power, power to control 
price? Clearly we do not. People have Internet access if they 
have a view of the southern sky via satellite. They have 
wireless providers in every market. And they have wireline and 
cable providers in many markets.
    So what we are seeing is a marketplace with massive 
investment and increased competition, but most importantly, 
under antitrust analysis the issue is: Is the market 
contestable? There is not a market in the United States that is 
not contestable. Technology has brought us to the place and the 
FCC through unlicensed spectrum has made it possible for 
anybody who wants to go into this business to be able to go 
into the business.
    So we believe that you have a marketplace in a traditional 
antitrust analysis that is competitive, is contestable, and, 
therefore, should be allowed to innovate and develop.
    Chairman Specter. Mr. Levin, is there really sufficient 
competition at the present time? Or as you project the future, 
to the extent you can, when will there be more competition to 
really have sufficient competition to allay Mr. Cerf's 
concerns?
    Mr. Levin. I am not an antitrust expert, but I in my 
professional career have had--
    Chairman Specter. No, but you are a technology expert.
    Mr. Levin. Well, that is a good question as to what I am an 
expert in, but I appreciate your characterization of it. I 
suspect my kids, who use the Internet far better than I, would 
disagree with you, but I appreciate that.
    I have been impressed in a variety of positions, including 
at the FCC and in other situations, by the ability of antitrust 
economists to really make distinctions about markets and what a 
relevant market is. And I certainly agree with Mr. McCormick 
and Mr. Cohen. The markets are changing rapidly. What we used 
to think of as the Internet, the narrowband Internet, really is 
not sufficient for the kind of economic growth that we want to 
have in this country. And, increasingly, there will be desires 
for faster and faster speeds.
    So going to your specific question, I think as you can see 
in the actual marketplace performance where about--I believe 
the number is 98 percent are getting either cable or--are 
getting broadband from either cable or phone companies, there 
is a big variety of reasons for that. There is certainly hope, 
I know, at the FCC that there will be a new, ubiquitous 
broadband network that will really compete with that. Earlier 
in the year, we had hopes that there would be investment--or 
they would have had hopes that there would be investment by 
some of the DBS providers. Both DirecTV and EchoStar made some 
indications that they were going to invest in one. They now 
more recently announced that they are investing in WildBlue, 
but I do not believe that particular investment is going to 
change the dynamic in most of America. That service is not 
going to be as fast and it is not going to be priced the same 
way.
    It may be that the auctions coming up this summer produce 
something, but I do not really think so. I think the next 
really great hope in terms of kind of ubiquitous networks would 
be the 2008 auctions of the so-called 700-megahertz spectrum. 
Or it may be that what Mr. Putala's company, EarthLink, is 
doing in cities provides it. But as a Wall Street analyst, I 
would say that the current market hold by DBS and cable is 
likely to hold for the foreseeable future. It is probably the 
best way of answering your question. I do not see anybody 
taking market share away from them because I do not think 
anybody--there is a variety of reasons. It has to do with 
bundling. It has to do with performance characteristics. It has 
to do with price. I do not see people taking market share from 
them.
    The question of are the markets contestable, I really would 
leave to antitrust economists.
    Chairman Specter. Okay. Thank you very much, Mr. Levin.
    Senator Hatch. Could I ask just one last question?
    Chairman Specter. Senator Hatch, go ahead.
    Senator Hatch. Just one last question to whoever wants to 
answer it. There has been a fair amount of debate regarding the 
benefits and detriments of a two-tiered Internet where some 
traffic is given priority over other traffic. It seems to me 
that some types of services might need such priority to work 
well. For example, it is essential to have little or no delay 
for a high-quality voice over IP service while it is not 
necessary for things such as e-mail traffic.
    I would like to hear any witness who cares to express views 
about the issue of a two-tiered Internet. Would it really be 
harmful if things like VoIP services receive priority on the 
Internet as long as that priority was offered to all VoIP 
providers on nondiscriminatory terms?
    Mr. Cerf. Thank you very much, Senator, for a cogent 
question on this issue of two-tier distinctions. I think that 
if certain classes of traffic were recognized, regardless of 
the source or destination that needed special treatment, I 
would not have much objection to that at all because if that 
is--if everyone's traffic of a certain type gets properly 
treated so as to provide the performance that is needed, then 
it is not an issue. The problem is if only certain parties' 
traffic is treated in that fashion, that raises major issues 
from my point of view.
    I should tell you, however, that it is not clear, based on 
what we heard from our academic colleagues, that you actually 
need to spend a lot of time carefully crafting the performance 
of the network. Over the weekend, I installed video 
conferencing on--I have a cable broadband service. I installed 
a video conferencing capability on an end-to-end basis through 
an arbitrary set of networks and did not require any special 
treatment at all. If you use Skype or Google Talk or any of the 
other voice over IP systems, you will discover you often get 
better quality than you would normally get from a telephone 
system, and certainly from the wireless system, to first order.
    So I guess I would argue, sir, that you do not necessarily 
need to have those special treatments, but if you do, it should 
be applied on a nondiscriminatory basis so that all sources or 
sinks of those kinds of traffic get the same treatment.
    Senator Hatch. Chris, how about you?
    Mr. Putala. Senator, I think you succinctly made the 
central point. There is some traffic that requires kind of a 
faster lane, but once you are in the faster lane, there should 
not be discrimination among VoIP providers, among video 
providers, and you made the fundamentally important point about 
what, in essence, the debate is about.
    Mr. Kuhns. Senator, just one last comment. From a fairness 
standpoint, what you described would be fine, but in doing 
that, in building those kinds of tiering, you are adding 
complexity to the hardware that is required; you are adding 
complexity to the management of the network; and so you are 
adding cost that is not necessary. Just make the network faster 
using open, standards-based approaches, and we will not have 
these problems.
    Senator Hatch. Thank you very much.
    Thank you, Mr. Chairman.
    Chairman Specter. Thank you, Senator Hatch.
    Thank you, gentlemen. I think this hearing has shed a 
considerable amount of light on the subject, not too much heat, 
and I think the public involvement--C-SPAN is a good carrier. 
It is going to be on tomorrow morning at 3 a.m.
    [Laughter.]
    Chairman Specter. If you want to see yourselves. I say in a 
joking way that the Judiciary Committee has a monopoly on the 3 
a.m. spot. We have the greatest following of insomniacs in 
America. But we have a lot of hearings, and on a serious theme, 
we thank C-SPAN for the job they are doing in informing the 
public. And this touches everybody. It touches a lot of people. 
And you saw the very extensive participation by the Committee. 
This is a very strong showing for the Judiciary Committee, with 
all the other assignments everybody has and all the other 
problems around.
    We may call you all in on a less formal basis, having had 
the public exposure, to see if there is some way to bring the 
competing interests together, short of legislation, or perhaps 
agreed-upon legislation with standards which can accommodate a 
lot of very competitive interests.
    That concludes our hearing.
    [Whereupon, at 11:45 a.m., the Committee was adjourned.]
    [Questions and answers and submissions follow.]
    


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