[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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