[Senate Hearing 109-1128]
[From the U.S. Government Publishing Office]



 
                                                  S. Hrg. 109-1128
                S. 2686, THE COMMUNICATIONS, CONSUMER'S
                  CHOICE, AND BROADBAND DEPLOYMENT ACT
                   OF 2006 (PART II)--NET NEUTRALITY
                          AND INTERCONNECTION
=======================================================================

                                HEARING

                               before the

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                              MAY 25, 2006

                               __________

    Printed for the use of the Committee on Commerce, Science, and 
                             Transportation




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       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                     TED STEVENS, Alaska, Chairman
JOHN McCAIN, Arizona                 DANIEL K. INOUYE, Hawaii, Co-
CONRAD BURNS, Montana                    Chairman
TRENT LOTT, Mississippi              JOHN D. ROCKEFELLER IV, West 
KAY BAILEY HUTCHISON, Texas              Virginia
OLYMPIA J. SNOWE, Maine              JOHN F. KERRY, Massachusetts
GORDON H. SMITH, Oregon              BYRON L. DORGAN, North Dakota
JOHN ENSIGN, Nevada                  BARBARA BOXER, California
GEORGE ALLEN, Virginia               BILL NELSON, Florida
JOHN E. SUNUNU, New Hampshire        MARIA CANTWELL, Washington
JIM DeMINT, South Carolina           FRANK R. LAUTENBERG, New Jersey
DAVID VITTER, Louisiana              E. BENJAMIN NELSON, Nebraska
                                     MARK PRYOR, Arkansas
             Lisa J. Sutherland, Republican Staff Director
        Christine Drager Kurth, Republican Deputy Staff Director
             Kenneth R. Nahigian, Republican Chief Counsel
   Margaret L. Cummisky, Democratic Staff Director and Chief Counsel
   Samuel E. Whitehorn, Democratic Deputy Staff Director and General 
                                Counsel
             Lila Harper Helms, Democratic Policy Director
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on May 25, 2006.....................................     1
Statement of Senator Allen.......................................    43
Statement of Senator Boxer.......................................    65
Statement of Senator Burns.......................................     6
Statement of Senator DeMint......................................    44
Statement of Senator Dorgan......................................     3
Statement of Senator Inouye......................................     2
    Prepared statement...........................................     3
Statement of Senator McCain......................................     1
Statement of Senator Bill Nelson.................................     6
Statement of Senator Pryor.......................................     9
Statement of Senator Snowe.......................................     7
    Prepared statement...........................................     8
Statement of Senator Sununu......................................     4

                               Witnesses

Cochetti, Roger J., Group Director for U.S. Public Policy, 
  Computing Technology Industry Association (CompTIA)............    53
    Prepared statement...........................................    55
Comstock, Earl W., President/CEO, COMPTEL........................    58
    Prepared statement...........................................    60
Misener, Paul, Vice President, Global Public Policy, Amazon.com..     9
    Prepared statement...........................................    11
Regan, Timothy J., Senior Vice President, Global Government 
  Affairs, Corning Incorporated; on Behalf of Telecommunications 
  Industry Association...........................................    23
    Prepared statement...........................................    25
Scott, Ben, Policy Director, Free Press; and on Behalf of 
  Consumers Union and Consumer Federation of America.............    33
    Prepared statement...........................................    35
Tauke, Hon. Tom, Executive Vice President, Verizon...............    19
    Prepared statement...........................................    21

                                Appendix

Brenner, Daniel, Senior Vice President of Law and Regulatory 
  Policy, National Cable & Telecommunications Association, 
  prepared statement.............................................    81
Response to written question submitted by Hon. Jim DeMint........    89
Pies, Staci L., Vice President of Governmental and Regulatory 
  Affairs, PointOne; President, VON Coalition, prepared statement    84
Smith, Hon. Gordon H., U.S. Senator from Oregon, prepared 
  statement......................................................    81

 
                  S. 2686, COMMUNICATIONS, CONSUMER'S


 
                    CHOICE, AND BROADBAND DEPLOYMENT


 
                 ACT OF 2006 (PART II)--NET NEUTRALITY



                          AND INTERCONNECTION

                              ----------                              


                         THURSDAY, MAY 25, 2006

                                       U.S. Senate,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 11:15 a.m. in 
room SD-106, Dirksen Senate Office Building, Hon. John McCain, 
presiding.

            OPENING STATEMENT OF HON. JOHN McCAIN, 
                   U.S. SENATOR FROM ARIZONA

    Senator McCain. Good morning. Today's hearing focuses 
mainly on ``net neutrality,'' a term that was rarely used by 
average Americans just months ago.
    Could I mention that the distinguished Chairman of the 
Committee--of the full Committee, Senator Stevens, is not here 
because he is with his fellow veterans of the Flying Tigers of 
World War II, very appropriately. He has a scheduled meeting 
with them, and we obviously honor them, as well as him, for 
their service, as well as our distinguished colleague from 
Hawaii, who is the Ranking Member of this Committee.
    Today's hearing focuses mainly on ``net neutrality,'' a 
term that was rarely used by average Americans just months ago. 
In fact, before this year, fewer than 300 newspaper articles 
were written about net neutrality. By contrast, just in the 
last month, almost 500 articles have been written on net 
neutrality, along with about 1,800 blog entries.
    The growing attention paid to net neutrality befits the 
seriousness and the difficulty of the matter before us. The 
Internet has traditionally been a neutral network of pipes that 
distributes packets of data in generally the same way 
regardless of whether it's e-mail, voice communications, video 
transmissions, or website content. Some refer to this model as 
the ``dumb pipe,'' because it doesn't choose what it carries. 
But the so-called ``dumb pipe'' has resulted in an abundance of 
innovation. Everything from search engines to e-mail to instant 
messaging has resulted largely from this network architecture. 
Current proposals to change how the network works may impact 
deeply on how we use this essential medium of communication and 
commerce.
    Over time, we have understood that network operators do 
not--do need to prioritize certain data that flows through 
their networks. For example, the failure of a 911 emergency 
call through a Voice-over-IP application would result in great 
injury or death. We know that networks must be able to ensure 
such critical communications, as well as protect against 
threats such as spam and spyware. Practical need and 
technological advances have, thus, led to innovations inside 
the network, which many believe are just as important as the 
advances in services and devices connected to the Internet on 
the edges.
    I, like most Americans, strongly support innovation. I 
believe the network operators should get a return on their 
infrastructure investments, which will encourage more 
development of broadband capacity in the U.S. I also firmly 
believe that network operators should not stifle the free flow 
of information that has been the essential component of the 
Internet, now such a fixture and core component of our social, 
economic, and political lives.
    Prohibiting consumers, or significantly limiting them, from 
legitimate use of the Internet is anathema to the principles of 
a democracy, and it goes contrary to our free market economy. 
It may also jeopardize the tremendous innovation that has been 
such a key part of the Internet's growth and development.
    We also strongly support robust competition. Unfortunately, 
today the broadband market is one where too many consumers have 
only two, sometimes one and even no, broadband service options. 
According to the Federal Communications Commission, a quarter 
of all zip codes have two or fewer broadband service providers, 
and many observers believe that there's much less competition 
than the FCC figures suggest. Without significant competition 
in the broadband market, network operators may be tempted to 
exercise market control that hurts consumers.
    I hope that my colleagues will join me in promoting greater 
competition by encouraging municipal broadband initiatives and 
the emergence of new technologies, such as broadband-over-
powerlines and wireless services.
    Last, on a separate note, I understand that, this morning, 
Treasury Secretary John Snow announced that the IRS will not 
collect the Federal excise tax on long-distance telephone 
services. This antiquated luxury tax was enacted in 1898 to 
fund the Spanish-American War and has far outlived its purpose.
    I introduced bills in the 106th and 107th Congress, along 
with others, to repeal this tax, and I look forward to 
consumers seeing immediate savings on their long-distance bill.
    Senator Inouye?

              STATEMENT OF HON. DANIEL K. INOUYE, 
                    U.S. SENATOR FROM HAWAII

    Senator Inouye. Thank you very much.
    As noted, today the Committee examines topics that are 
critical to the future of competition in communications. Mr. 
Chairman, my voice is not up to par, so may I yield to my 
friend and ask that my statement be made part of the record?
    Senator McCain. Thank you, Senator Inouye, and your full 
statement will be made part of the record.
    [The prepared statement of Senator Inouye follows:]

    Prepared Statement of Daniel K. Inouye, U.S. Senator from Hawaii
    Today, the Committee examines topics that are of critical 
importance to the future of competition in communications markets and 
to the preservation of an open and free Internet.
    While the term ``network neutrality'' may be new to some, the 
principle of nondiscrimination that it represents, has stood as one of 
the founding tenets of communications law for some time. It has been 
central to the development of the Internet and has fueled the explosive 
growth in the applications and services enjoyed today by millions of 
Americans. If we are to continue on this path in promoting further 
innovation, we must ensure that this very old principle remains a 
central part of communications law in the new information age.
    Towards that end, I recently cosponsored legislation introduced by 
my colleagues Senators Snowe and Dorgan, to reaffirm our commitment to 
innovation and openness by establishing enforceable rules that will 
prevent unfair discrimination by network operators.
    In addition to our concerns about fair competition on the Internet, 
we must not lose sight of other competitive issues such as the need to 
preserve essential rights of interconnection for competitive 
communications providers and to restrain market power in special access 
markets, where consolidation among the Bell companies is only making a 
bad problem worse.
    To assist us in our review of these issues, I have asked my staff 
to circulate a discussion draft to Chairman Stevens, my colleagues, and 
to other interested parties in an effort to suggest reforms that will 
promote competition in all markets and will preserve America's ability 
to compete in a global information economy. I look forward to working 
with my colleagues on these issues in the days ahead.
    But today, our time is short. As a result, I welcome our witnesses 
and look forward to their testimony.

    Senator McCain. Senator Dorgan?

              STATEMENT OF HON. BYRON L. DORGAN, 
                 U.S. SENATOR FROM NORTH DAKOTA

    Senator Dorgan. Mr. Chairman, thank you very much.
    First of all, I listened to your statement, Mr. Chairman. 
It's not surprising at all, and I think all of us understand, 
that there has been little discussion about net neutrality in 
the press and in the blogs and so on. And there's a good reason 
for that, I think. Until the Federal Communications Commission, 
some while ago, decided that broadband--for example, broadband 
services--would not be classified as telephone services, and, 
therefore, not a part of the common-carrier rules or the 
nondiscrimination rules that would normally have applied had 
that ruling not existed--I think, when that happened, then the 
question began to be raised, well, what rules, if any, do 
exist? Are there no rules at all?
    I don't view this as regulation. I was--this morning, as I 
was getting ready for work, I had the television on, and I saw 
a television advertisement, I assume, that was beamed exactly 
for the audience it reached, myself and perhaps others who were 
getting ready for work. It was by a consortium of people 
saying, ``What they're trying to do in the U.S. Congress at the 
moment is to regulate the Internet, something called `net 
neutrality'. ''
    In fact, this is exactly the opposite. Senator Snowe and I 
have introduced a piece of legislation, and the purpose of it 
is to make certain we continue in the future to have an open 
Internet--Internet freedom, an open Internet. The point is, 
consumers ought to be able to get any content they wish to get 
over the Internet without asking permission from anybody, from 
any network operator. And the consumers ought not be pushed and 
pulled by the ability, or the muscle, of any network operator 
to move them into certain corners or persuade them into certain 
areas.
    I believe we want to continue to have the open architecture 
of the Internet. It is true that we've had almost breathtaking 
innovation occur in this country. It's pretty unbelievable what 
has happened.
    I don't know how much time we have, but if I might just 
tell a very short story. I went back to my hometown, to the 
little house that I grew up in, a town of 300 people, and I 
knocked on the door and asked the woman if I could see the home 
I grew up in. I hadn't seen it for decades, and just look 
inside. She said, ``Sure.'' I went inside, and this woman had a 
little contraption on her cupboard in the kitchen, and she was 
taking a photograph of something with a camera attached to this 
little white contraption with an arm hanging out and a piece of 
jewelry hanging down.
    I said, ``What are you doing?''
    She said, ``Well, I'm photographing this piece of 
jewelry.'' She said, ``I sell on eBay, on the Internet.''
    And I said, ``Really?''
    ``Yes,'' she said, ``I sell on eBay, and I have a business 
here out of my home.''
    And I said, ``Do you make money?''
    ``Yes, I do pretty well. It's my job.''
    And she ships out of a little town of 300 people and has a 
business, and--because the open architecture of the Internet 
serves New York City, it serves the smallest city, the largest 
city; it serves the smallest customer and the largest customer.
    I'm not--this is not an advertisement for eBay, because I 
bought a pressure cooker on eBay once that I shouldn't have 
bought, so I'm not real happy with these online auctions.
    [Laughter.]
    Senator Dorgan. But my point is--my point is, we have 
empowered consumers through the open architecture of the 
Internet. The entire purpose of the legislation is for an open 
Internet--not regulation--an open Internet. If that's what we 
achieve as a result of deliberation by Congress, we will have, 
I think, retained the flavor of the Internet that encourages 
innovation. And that will be a very significant accomplishment.
    Mr. Chairman, I yield.
    Senator McCain. I thank you, Senator Dorgan. And I would 
mention to my colleagues that we will be having a vote here 
pretty soon, and then another vote after that, which is going 
to make this hearing rather difficult to have any continuity, 
so I would hope that maybe their remarks could be relatively 
brief.
    Senator Sununu?

               STATEMENT OF HON. JOHN E. SUNUNU, 
                U.S. SENATOR FROM NEW HAMPSHIRE

    Senator Sununu. Thank you, Mr. Chairman.
    You know, I'm concerned that we have, at last, reached the 
point that comes all too often, where legislators--Congress, in 
this case--look out and see something that has thrived, that 
has been successful, that has created economic opportunity, 
that--from which has derived new services, new consumer 
products, new methods of communication; new methods of access 
to people that never had access to information, to education, 
to products and services. And, in our wisdom as legislators, we 
say, ``We'd better start regulating it, because it's just too 
attractive an opportunity to pass up.'' That is what we do, we 
pass laws. And when something is big and large and important 
and a source of success that sometimes we envy, unfortunately, 
I think that's where we end up.
    I think we need to recognize and understand that this is 
the Internet, broadly speaking. It is something that has 
succeeded, has done all the things that I just described, 
effectively with no rules whatsoever. There are standards, 
there are protocols, but no one has forced anyone to 
participate in any particular way, to sell to people in a 
particular way, to market to people in a particular way, or to 
develop new products in a particular way.
    And what we're talking about here, at least in regards to 
the legislative proposals that are before us, some of them, is 
regulation. I mean, we should be honest about that. If you are 
statutorily mandating access, mandating marketing practices, 
mandating the existence or prohibition of certain pricing 
mechanisms, you are regulating the Internet.
    Now, you may argue, and many may argue, it's in the public 
interest to regulate the Internet; that it somehow would create 
greater competition if we regulate the Internet, although the 
number of instances where Congress passes new laws and new 
regulations that result in greater competition are few and far 
between. Usually we're passing laws to improve competition, 
because some law we passed before has stifled competition. 
That's not what we're talking about here. We have not done so 
with the Internet, and we shouldn't do it now. So, you might--
someone might genuinely believe there's a reason to regulate 
the Internet, but that is not what we're talking about.
    What we have today is a situation where the FCC has put 
forward principles for access and connectivity. I think they do 
reflect a consensus. They may or may not be exactly what any 
member of this committee would craft, but I'll suggest and 
stipulate that they reflect consensus. Some of the very largest 
providers have agreed to those principles, to implementing 
those principles in the future. And what we're left with is a 
situation where certain Members of Congress, including Senator 
Dorgan, in a good-faith effort, have put forward a law, 
regulation, that is really predicated on a prediction of what 
communications companies might do and a prediction of what the 
market impact of that choice might be. So, it's not just one 
area of speculation, but it's two--what might they do, and what 
might the market reaction be--and I think that is not a sound 
basis for moving forward with regulation.
    I think this is an issue of concern. We don't want to see 
anticompetitive practices. We don't want to see restrictive 
behavior that--where someone uses their monopoly position, 
either nationally or locally, to somehow prevent this kind of 
access, to undermine the principles that the FCC has put 
forward. But we are not at that position yet, and we can always 
have the opportunity, and take the opportunity, to regulate if 
we see that for some reason the market mechanisms have 
ultimately failed. But I think it's very hard to argue that 
market mechanisms have failed here. It's very difficult to 
predict whether or not they will.
    The history of this thing we call the Internet is 
absolutely incredible in its resiliency, its flexibility, and 
its ability to surprise anyone that tries to forecast or 
predict or prognosticate as to what will happen next. And 
that's the beauty of it. That's the source of its vitality and 
the source of the impact that it has had on so many lives. And 
if we start regulating it now, in a haphazard way, we will not 
kill the goose that laid the golden egg, but I think we'll 
create a great many unintended consequences that we'll regret. 
That's problematic enough, because we all care about ourselves 
and our jobs and how we view the job that we've done. But, more 
importantly, the country and consumers in America will have 
suffered.
    Thank you, Mr. Chairman.
    Senator McCain. Senator Nelson?

                STATEMENT OF HON. BILL NELSON, 
                   U.S. SENATOR FROM FLORIDA

    Mr. Nelson. Thank you, Mr. Chairman. And I'll be very 
brief.
    I just want to say that as we approach this issue, we need 
to encourage further broadband deployment if we want to compete 
worldwide. That's just a basic--nail that down. But then, on 
this issue of net neutrality, I believe that Congress needs to 
craft policies that encourage investment in broadband networks, 
and the broadband network providers need maximum flexibility to 
innovate and to manage high-intensity network traffic.
    On the other hand, I understand that the anticompetitive 
conduct could arise if network owners become Internet 
gatekeepers. Consumers might be hurt under those circumstances, 
if network owners unfairly discriminate against Internet 
content.
    And so, at this point, I can tell you that I don't know yet 
how to solve this net neutrality issue, but I know that this 
committee has to work together to agree on a set of rules.
    On another issue, you know of my interest in ensuring that 
Internet phone providers offer E-911 services to their 
broadband subscribers. And I believe that any net neutrality 
rules must ensure that those digital packets carrying 911 
emergency calls get top network priority under all 
circumstances. This is a critical public safety matter, 
especially after what we've been through over the last several 
years. And so, we need to address this net neutrality issue 
with great caution because of the enormous implications to our 
global competitiveness, as well as for consumer choice.
    Thank you.
    Senator McCain. Senator Burns?

                STATEMENT OF HON. CONRAD BURNS, 
                   U.S. SENATOR FROM MONTANA

    Senator Burns. My statement will be very short. I came to 
listen to the folks at the table.
    This net neutrality thing, let's hear from them, because 
it's already obvious around this table we haven't solved it 
here. So, let's go to--let's go get some more information.
    Thank you very much. I'll make mine in the form of the 
questions, sir.
    Senator McCain. Senator Snowe?

              STATEMENT OF HON. OLYMPIA J. SNOWE, 
                    U.S. SENATOR FROM MAINE

    Senator Snowe. Mr. Chairman, thank you. And I only ask 
unanimous consent to include my entire statement in the record. 
And I just----
    Senator McCain. Without objection.
    Senator Snowe.--want to express my appreciation to Senator 
Dorgan, in particular, for working closely to craft the 
legislation that we have introduced, to preserve the freedom of 
the Internet, as well as Co-Chair Inouye for cosponsoring this 
legislation.
    The fact of the matter is, Mr. Chairman, this is going to 
be a fundamentally different dynamic with respect to the 
Internet. And the essence of our legislation is to protect 
Internet freedom.
    Net neutrality is, as some have said, the first amendment 
of the Internet and the basic idea that all content, 
applications, and services will be treated equally and fairly 
on the Internet. And what we're responding to today is exactly 
and precisely what the FCC did in that respect, which was 
basically to do away with the nondiscrimination safeguards that 
have been in place since the inception of the Internet. That's 
what has changed the dynamic that we're dealing with here 
today.
    Our legislation simply restores those protections to ensure 
that we can allow the Internet to continue to flourish and to 
thrive. If you think of the worldwide revolution that has 
developed as a result of the Internet, the technological 
revolutions that are allowed, you know, the spawning of new 
businesses, spreading of democracy around the globe, giving 
access, infinite access, to information for consumers, it has 
grown exponentially. And if we do not address this issue in 
preserving the Internet as it exists today for consumers to 
access the Internet, you know, to make their choices whenever, 
wherever they want, we're going to fundamentally alter the 
landscape. And if you think that there's a hue and cry when it 
came to media consolidation, this will, I think, exceed that, 
when 73 percent of the households in America have access to the 
Internet.
    So, what we're trying to do is to restore what we have--we 
had designed with the Internet, which was to allow it to 
flourish, to allow it to do all the things that consumers take 
for granted today, by being able to access whatever website 
they want, or to, you know, make some decisions about whether 
or not they're going to watch online videos or podcasts or 
search or e-mail or instant messaging. What they're assuming is 
called network neutrality and the principle that has made the 
Internet what it is today. And it should be open and free and 
restricted by no one.
    And, unfortunately, if Congress fails to act on this very 
question, the foundation of the Internet's success will be 
undermined, and that's why we've introduced this legislation, 
to respond to the FCC and what it has done. Yes, it has 
identified principles, but it's not going to preserve the 
nondiscrimination standards that are so essential. We will have 
a two-tiered system. We'll have those--you know, the 
information superhighway will be for those who are wealthy and 
the favored. And those who aren't favored, who can't pay the 
high prices for that access, are going to be relegated to what 
has been described as a ``dirt road'' on the Internet. We're 
going to create two tiers, of the haves and the have-nots, and 
that's not what America, not to mention the world, you know, is 
accustomed to with respect to the Internet. That's what's at 
stake here, Mr. Chairman, and it's no less than that. And it's 
the consumers that have been dictating the marketplace, 
choosing the winners and losers. But if we have a gatekeeper, 
it's going to be fundamentally different than what we know 
today, what Americans know today; and you're not going to have 
entrepreneurship, and innovation and technology developing at 
the pace in which it is today. It will be very, very different. 
And I think that consumers ought to decide, you know, which--
who succeeds and which--who fails, but not gatekeepers, 
determined by the price that you pay to access the Internet. 
And that's what it's all about.
    I hope that we are able to work out our differences on this 
question. I think many of us agree on the common goal, and the 
question is how we go about it. But if we fail to take action, 
then I think that we're going to clearly see the consequences 
of that in a very short time. And once, you know, we go down 
this path, I can only assure you it'll be very difficult to 
recover and retreat. It's going to be very different. It took 
10 years in which to even consider rewriting the 
Telecommunications Act. I hesitate to think what it'll require 
if we fail to do, you know, anything on this question, where 
we'll be in 10 years in being able to say, ``Well, no, I think 
we've got to change course.'' It'll be too late.
    Thank you, Mr. Chairman.
    [The prepared statement of Senator Snowe follows:]

  Prepared Statement of Hon. Olympia J. Snowe, U.S. Senator from Maine
    Mr. Chairman, thank you for holding this hearing today to examine 
net neutrality. I applaud the work that Chairman Stevens and Co-
Chairman Inouye have done to develop a comprehensive communications 
bill rewrite. I want to thank Senator Dorgan, with whom I have worked 
closely to carefully craft the Internet Freedom Preservation Act. I 
also want to thank Senators Inouye and Boxer for co-sponsorship of our 
legislation.
    Senator Dorgan and I introduced the Internet Freedom Preservation 
Act to preserve net neutrality--the basic idea that all content, 
applications, and services should be treated equally and fairly on the 
Internet. Unfortunately, the 2005 FCC decision that deregulated 
broadband services also lifted nondiscrimination safeguards that had 
been in place since the Internet's inception. Our legislation brings 
these protections back in order to ensure that the Era of Digital 
Democracy, brought about by the proliferation of the Internet, is 
allowed to continue.
    The Internet represents one of the most revolutionary technological 
innovations the world has ever seen. With over 1 billion users 
worldwide, the Internet has fomented an explosion in consumer choice, 
the creation of new businesses, and the spread of democratic ideals 
around the globe. This revolution occurred because the Internet was 
allowed to develop in an open, unfettered, nondiscriminatory 
environment.
    Now that the Supreme Court and FCC have removed longstanding 
regulations, cable and phone companies are planning to set up 
tollbooths along the information superhighway. Soon, innovators with 
great ideas will have to pay a fee if they want to be sure their 
website can get through on the fast lane of the web. Innovators with 
great ideas, but without deep pockets, will be relegated to the 
Internet's ``dirt road.'' This will fundamentally alter every Internet 
user's experience and stifle the entrepreneurship that flourishes on 
the world's last remaining frontier.
    Some have argued that net neutrality legislation is a solution in 
search of a problem, but we know a two-tiered Internet is on the 
horizon because the executives of these companies themselves have 
publically announced their intentions to divide the Internet into a 
fast lane and a slow lane. One company executive announced his plan to 
turn the Internet into a ``pay-for-performance marketplace.'' Another 
has said that content providers want ``to use [his] pipes for free. But 
[he] ain't going to let them do that.'' These comments are a far cry 
from the democratic spirt under which the Internet was created. A First 
Amendment for the Internet is needed to continue to allow all 
expressions on the Internet to be heard with equal weight.
    In a competitive marketplace, consumers would not stand for an 
Internet that doesn't embrace the same principles upon which this 
country was founded. But the reality is that 98 percent of high-speed 
Internet subscribers get their service from either a phone company or a 
cable company. It is true that new competitive broadband technologies 
like wireless and broadband-over-powerlines are being developed, but 
they have not yet taken hold in the marketplace. Most Americans have 
only one or two providers to choose from. If they don't like the 
charges they must pay to ensure that their website can be viewed, they 
often have no where else to go.
    I recognize that some parties are concerned that if net neutrality 
legislation is not done right, investment in next-generation broadband 
could be harmed. I am open to input to ensure that does not happen. The 
truth is that consumers don't want purchase-broadband to have an empty 
pipe, they want access to all the compelling websites at the other end 
of the pipe. The Internet Freedom Preservation Act ensures all Internet 
websites are treated in a fair manner so that subscribers who pay their 
monthly access fees can have an Internet worth accessing.
    It took Congress ten years to get around to rewriting the 
Telecommunications Act of 1996. We cannot afford to wait another ten 
years to save the Internet from becoming a world of haves and have-
nots--a situation clearly not in the consumer's best interest. I look 
forward to hearing constructive feedback on my legislation from the 
witnesses here today, and I hope to work with Chairman Stevens and 
other members of this committee to ensure we get this right, and going 
forward.
    Thank you, Mr. Chairman.

    Senator McCain. Senator Pryor?

                 STATEMENT OF HON. MARK PRYOR, 
                   U.S. SENATOR FROM ARKANSAS

    Senator Pryor. Thank you, Mr. Chairman. I know that my 
colleagues are eager to hear from the panel and ask questions, 
so I'll withhold my comments on the bill today until my turn 
for questions.
    Thank you.
    Senator McCain. Thank you, Senator Pryor.
    I want to welcome the witnesses today. Mr. Paul Misener is 
the Vice President of Global Public Policy, Amazon.com; Mr. Tom 
Tauke, Executive Vice President of Verizon; Mr. Timothy Regan, 
the Senior Vice President of Corning Incorporated; Mr. Ben 
Scott, Policy Director of Free Press; Mr. Roger Cochetti, who's 
the Group Director of U.S. Public Policy, CompTIA; and Mr. Earl 
Comstock, President and Chief Executive Officer of COMPTEL.
    We'll begin with you, Mr. Misener.

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

    Mr. Misener. Good morning, Chairman McCain, and Ranking 
Member Inouye and members of the Committee. Thank you very much 
for inviting me to testify.
    Mr. Chairman, Amazon.com belongs to a coalition of 
companies that includes eBay, Google, IAC, Microsoft, and 
Yahoo!, that is working closely with the growing assembly of 
well over 100 consumer groups, associations, and companies that 
seek to preserve the open, nondiscriminatory Internet which has 
been so beneficial to American consumers, innovation, and 
global competitiveness.
    On behalf of our coalition, I want to thank Chairman 
Stevens and Co-Chairman Inouye for calling today's hearing, and 
for Chairman McCain to chair it. Our coalition also appreciates 
the attention the Committee has today to the issue of net 
neutrality. We are particularly grateful to Senators Snowe and 
Dorgan for their leadership on this issue, and for introducing 
S. 2917, the Internet Freedom Preservation Act, which our 
coalition enthusiastically endorses.
    Mr. Chairman, rather than read all of my rather lengthy 
written statement, I will use my allotted time to describe how 
net neutrality advocates, including myself, share the 
philosophy of limited government espoused by opponents of net 
neutrality. We just don't share their view of the facts.
    Indeed, if the salient facts were truly as the opponents 
portray them, I would be on their side of the debate. But the 
realities of net neutrality are far different from how the--its 
opponents discuss it. And here are a few key examples.
    Opponents of net neutrality say that policymakers should 
defer to the competitive free market. I wholeheartedly agree. 
But the market for residential broadband Internet access is far 
from competitive now, and won't be competitive anytime soon. 
The FCC's most recent data, released last month, revealed that 
99.5 percent of American residential consumers get their 
advanced-Internet access from either phone or cable companies. 
It is a duopoly.
    Opponents of net neutrality say that net neutrality would 
regulate the Internet for the first time. I would share this 
implicit concern if this were true, but it's not. The Internet 
has been regulated, and it flourished while it was. Until last 
summer, nondiscrimination rules regulated most, if not all, 
American consumers' Internet access.
    Opponents of net neutrality say that network operators 
won't invest in infrastructure if net neutrality rules are 
adopted. I would be very concerned if this were true, yet the 
network operators already were investing heavily before 
nondiscrimination regulations were lifted last summer. Over the 
most recent period reported by the FCC, which ended before the 
Commission dropped its nondiscrimination rules, broadband 
advanced Internet access lines increased by over 60 percent in 
just 1 year.
    Opponents of net neutrality say that broadband network 
operators should be paid for the services they provide. I 
agree. But, contrary to the impression left by the network 
operators, they already get paid for their service by 
consumers, by content companies, by corporate users of 
ancillary services, and by other consumers who now, or soon 
will, purchase video services from them.
    Opponents of net neutrality say that net neutrality needs a 
return to common carriage, which they oppose. I, too, oppose 
returning broadband access to full common-carrier status, but 
nondiscrimination is only one component of common carriage, 
and, in this context, it's the least regulatory way to preserve 
the openness of the Internet. Moreover, nondiscrimination 
provisions are frequently employed throughout communications 
law, including many times elsewhere in the bill before us 
today.
    Telco opponents of net neutrality say that we need to act 
quickly to bring video competition to American consumers. I 
agree. But, rather than just promoting one more cable TV 
service, this one run by the phone company, Congress should 
also preserve nondiscriminatory consumer access to the myriad 
independent video sources online, which have the potential to 
become the ultimate in a la carte programming.
    Last, opponents of net neutrality say that policymakers 
should wait for a problem to arise before acting. I also eschew 
anticipatory regulation. But net neutrality is not new, but, 
rather, merely a reinstatement of the status quo. To ignore the 
FCC's actions last year, the network operators market power in 
their boldly announced intentions would be to disregard a clear 
and present danger.
    Mr. Chairman, in sum, the disagreement here is not 
philosophical, it's factual. And I respectfully ask that you 
and your colleagues recognize that despite how we wish it were 
otherwise, the market for broadband Internet access is not 
competitive, and that the network operators fully intend to 
extend their market power over Internet access to market power 
over Internet content in a way that was illegal until last 
summer. I, therefore, urge Congress to reinstate meaningful, 
enforceable, bright-line safeguards that preserve consumers' 
longstanding freedom of Internet content choice.
    Thank you, again, for inviting me to testify, and I look 
forward to your questions.
    [The prepared statement of Mr. Misener follows:]

          Prepared Statement of Paul Misener, Vice President, 
                    Global Public Policy, Amazon.com
    Good morning, Chairman Stevens, Co-Chairman Inouye, and members of 
the Committee. My name is Paul Misener. I am Amazon.com's Vice 
President for Global Public Policy. Amazon belongs to a coalition that 
includes eBay, Google, IAC/InterActiveCorp, Microsoft, and Yahoo!, that 
was formed to express our shared concerns about the topic of this 
hearing. Thank you very much for inviting me to testify on this 
important matter. I respectfully request that my entire written 
statement be included in the record.
I. Introduction
    Mr. Chairman, the phone and cable companies will fundamentally 
alter the Internet in America unless Congress acts to stop them. They 
have the market power, and regulatory permission to restrict American 
consumers' access to broadband Internet content, including music and 
movies, and have announced their plans to do so.
    Amazon.com is an Internet-based retailer and retail platform with 
over fifty million customers worldwide. We believe the open paradigm of 
the Internet is important for society and innovation. More 
specifically, we want to ensure that consumers, including our 
customers, retain their longstanding freedom to access the broadband 
Internet content of their choice, including that content available from 
Amazon.com. Currently, consumers pay network operators for Internet 
access, and have the freedom to select lawful content from providers 
like Amazon, who pay network operators millions of dollars a year for 
Internet access.
    In essence, we fear circumstances in which broadband network 
operators with market power are permitted--based on payments, political 
or religious viewpoints, or any other non-technical discriminatory 
factors--to prefer some content and thereby restrict consumer access to 
other content.
    As already noted, many large Internet content companies including 
Amazon.com, eBay, Google, IAC/InterActiveCorp, Intel, Microsoft, and 
Yahoo! are very concerned about network operators' ability and plans to 
restrict content choice. A few weeks ago, the chief executive officers 
of these companies, Jeff Bezos, Meg Whitman, Eric Schmidt, Barry 
Diller, Paul Otellini, Steve Ballmer, and Terry Semel, wrote the 
Chairman and Co-Chairman of this committee to say that:

        [t]he open marketplace of the Internet, or what has become 
        known as ``network neutrality,'' empowers America's citizenry, 
        fuels our engine of innovation and is central to our global 
        leadership in Internet technology and services. The rules of 
        the road that preserved openness were eliminated last summer by 
        the Federal Communications Commission, and it is critical that 
        Congress moves quickly to reinstate them.

        The Internet has succeeded precisely because of these rules, 
        which have prevented network operators from using their control 
        over Internet access to dictate consumers' Internet experience. 
        Likewise, innovators large and small, as well as investors, 
        have relied on market and regulatory certainty coupled with 
        their own ingenuity to develop new and better online offerings. 
        This ``innovation without permission'' is, from our 
        perspective, the essence of the Internet.

    These seven CEOs then urged the Committee ``to enact legislation 
preventing discrimination against the content and services of those not 
affiliated with network operators and thereby preserve network 
neutrality,'' and cautioned that:

        ``[a]bsent such safeguards, the fundamental paradigm of the 
        Internet will be irreparably altered and that most worthy of 
        preservation will be lost. American consumers will lose basic 
        Internet freedoms, the engine of innovation will be hobbled, 
        and our global competitiveness will be compromised.''

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

   For the next five to ten years, phone and cable companies 
        will maintain their duopoly market power over consumer 
        broadband Internet access.

   The phone and cable companies also will continue to invest 
        and deploy broadband, as they have for many years under 
        nondiscrimination rules, and they will continue to realize 
        returns on their investments by being handsomely paid for 
        access by consumers and content providers alike.

   Although the network operators will continue to promise that 
        they won't, ``block'' access to websites, they will firm up 
        their plans to degrade access to some websites as a consequence 
        of giving priority, ``fast lane'' access to others.

   The telcos also will start providing proprietary video 
        service, and will continue to seek accelerated franchise grants 
        without build-out requirements, based in part on the existence 
        of Internet video competition which, simultaneously, they are 
        moving to quash.

   At some point, the phone and cable companies will present a 
        simple ultimatum to major Internet content providers: pay us 
        for prioritization or, if you don't pay, your content will be 
        degraded relative to those who do pay.

   Similar deals may be struck based on political or religious 
        viewpoints, or other non-technical discriminatory factors.

   In this way, the network operators will extend their market 
        power over access to market power over content. They will use 
        their monopolies to monopolize.

   A bidding war will quickly ensue. The top-tier Internet 
        content companies will bid up the price of prioritization on 
        each of the half dozen or so major Internet access networks.

   Smaller companies will recognize that they have no hope of 
        competing in this bidding war, and independent venture capital 
        for new online businesses will dry up. The new way for an 
        entrepreneur to take a business online will be to seek 
        permission from the phone and cable companies.

   A flurry of antitrust actions will then be filed against the 
        network operators, but even if the courts don't find that the 
        plaintiffs fail to state a claim, these actions will take far 
        too long to be effective.

   Meanwhile, the foreign network operators, such as Deutsche 
        Telekom, almost all of which are wholly or partially owned by a 
        foreign government, will follow through on their already-
        announced plans to use discrimination as a great way to make 
        more money off the world-leading American Internet content 
        companies. In effect, foreign network operators will restrict 
        access of American Internet companies to foreign markets.

   Congress or the FCC will soon thereafter realize that it was 
        a mistake to allow the network operators to control Internet 
        content, and will rush to pass remedial legislation.

   Unfortunately, it will be too late, because the lost years 
        of innovation will be forever lost: the network operators will 
        have wastefully invested in equipment designed for 
        discrimination instead of speed; and the foreign governments 
        certainly won't reverse themselves just because America 
        reconsidered.

   So, the result of Congress's unwillingness to address this 
        clear and present danger will be to leave American consumers 
        with dramatically reduced content choice; to stall American 
        online innovation; and to wound U.S. global Internet 
        competitiveness.

    Mr. Chairman, this sorry tale is eminently avoidable. I urge you 
and your colleagues to recognize that, despite how we wish it were 
otherwise, the market for broadband Internet access is not competitive, 
and that the network operators--both domestic and foreign--fully intend 
to extend their market power over access to market power over content. 
I, therefore, urge that Congress act now to reinstate meaningful, 
enforceable, bright-line safeguards that preserve consumers' 
longstanding freedom of Internet content choice.
VI. Any Legislation Granting Video Franchising Relief Must Also 
        Affirmatively Preserve Consumer Freedom of Choice Of Internet 
        Content
    Mr. Chairman, the preservation of American consumers' longstanding 
freedom of choice of Internet content should be addressed in the 
context of national video franchising relief. The reason for granting 
such relief is, of course, the introduction of additional video 
competition for consumers, so it would be counterproductive to 
facilitate the delivery of content of one additional competitor (the 
phone company), while limiting the availability of thousands of other 
competitors via the Internet.
    Moreover, in support of their opposition to requirements for system 
build-out and service to rural areas, the telcos recently have 
repeatedly cited the competition from Internet content providers 
(``Internet-streaming video'' and ``Internet-downloaded video,'' in 
AT&T's words). As Verizon reported to the Commission in opposition to 
video build-out requirements, there is ``significant competition in 
access to video programming through myriad means, including Internet 
and satellite sources. . . .'' BellSouth went so far as to tell the FCC 
that Internet content competition would diminish unless telcos were 
given video franchising relief: ``[i]f LFAs [local franchising 
authorities] are permitted to delay or prevent broadband providers from 
also [in addition to cable] offering video service, then competition 
will be greatly (and probably permanently) impeded. This is 
particularly true given the plethora of new [Internet-based] video 
offerings that require robust broadband networks.''
    So the network operators have the temerity to cite the presence of 
competitive Internet-based video programming as justification for 
preempting local government rules, and dodging reasonable build-out 
obligations, all while planning to quash that competition by 
restricting consumer access to Internet content.
    In the interests of competition and consumer choice, therefore, 
video franchising relief must not be granted without meaningful 
broadband Internet content safeguards; otherwise, consumers will 
receive less, not more, choice of content.
    These safeguards must keep the network operators from cutting 
``paid police escort'' deals that would adversely affect the traffic of 
other content providers who can't or don't pay. And they also should 
keep the operators from insisting upon unreasonable or discriminatory 
terms for leasing ``local on-ramps.'' In short, the most likely and 
dangerous anti-consumer discriminatory behaviors of broadband network 
operators must be thwarted in advance by legislation and regulation.
    Mr. Chairman, we appreciate that S. 2686 includes a title on 
``Internet Neutrality.'' Unfortunately, its provisions do not confront 
the clear and present danger facing the Internet as a platform for 
consumer choice. Rather, this title would direct the FCC to study the 
issue and report annually to Congress, while limiting the Commission's 
ability to recommend how to address any problems the agency finds. As 
the FCC recognized in its final broadband reclassification order last 
August, the Agency has the authority to act in this area. So I 
respectfully submit that Congress either needs to direct the Commission 
to act under its current authority, or to enact other meaningful 
safeguards for protecting American consumers and competition.
VII. Congress Should Reinstate Longstanding Regulatory Safeguards To 
        Preserve Consumer Freedom of Choice of Internet Content
    Mr. Chairman, we respectfully ask that Congress enact modest but 
effective safeguards to reinstate limited protections that the FCC 
recently abandoned, and thereby preserve American consumers' 
longstanding freedom of choice of Internet content. Without much 
effort, these regulatory safeguards can be narrowly drawn so that 
operators' private networks are not invaded, and so that operators are 
appropriately compensated for the services they provide.
    Two essential consumer safeguards we seek can be summarized as 
follows:

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

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

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

    Senator Inouye [presiding]. Well, thank you very much, Mr. 
Misener.
    Mr. Tauke?

                 STATEMENT OF HON. TOM TAUKE, 
               EXECUTIVE VICE PRESIDENT, VERIZON

    Mr. Tauke. Senator Inouye and members of the Committee, 
thank you very much for the opportunity to testify.
    Let me set aside my written statement to offer some 
observations about what has changed in the world, and why the 
proposals for net neutrality may not make sense in today's 
world.
    I think it is fair to say that this is the third round of 
this debate. We had the first round of this debate in 1999. At 
that time, when it came to broadband access, the cable industry 
had the biggest portion of the market, and the issue was open 
access. Should they have to take any ISP that wanted to ride on 
their network? Cable companies, at that time, owned ISPs, like 
RoadRunner, for example, and they were only offering one ISP 
service to many of their customers. Other ISPs, like AOL and 
EarthLink, weren't able to get on.
    At that time, we supported open access. We had over 400 
ISPs riding on our network, but we said the cable--or the cable 
approach cannot survive in the marketplace. Their customers 
will insist that they open up.
    Bill Kennard was then Chairman of the FCC. With the backing 
of the Clinton administration, they said, ``We aren't going to 
regulate access to the Internet. We think that's moving in the 
wrong direction.'' They didn't. The market worked. Cable was 
forced to open up. They've abandoned their own ISPs. They 
opened up to all of the ISPs.
    The second round of debate came when there was an attempt 
to move the--to define where broadband was regulated. Was it 
going to be regulated under Title II as a telecom service, or 
under Title VI as a cable service, or under Title I as an 
information service?
    When the high-tech broadband coalition came together, when 
the FCC was considering that issue, and they said, ``Look, we 
don't want regulation of the Internet, or Internet access. 
Instead, we put forward these connectivity principles, which is 
sort of a standard of good conduct for the industry.'' And, 
indeed, the companies who were playing in the industry signed 
up for that standard of good conduct. Again, the FCC, this time 
under different leadership, Chairman Powell and Chairman 
Martin, decided not to regulate the Internet, or Internet 
access, but, instead, moved Internet--broadband Internet access 
under Title II--or Title I. They differentiated between the old 
network, copper wires, and the new network, broadband wires.
    Today, we have much the same debate occurring again. But 
today we have more competition. We have 1,100 ISPs who are 
using networks. We have 50 VoIP providers. We have two dozen 
Internet backbones, and we have 80 million websites. And 
consumers are using all of these things. There are no barriers 
to them. But there is a fear. There is a fear that, as we move 
into this new world of new networks, that somehow something bad 
is going to happen.
    Let me explain the fiber network which we are deploying 
today, and which, obviously, we are the forerunner in the 
industry on this. But that fiber network is virtually unlimited 
capacity, 100 megabits of capacity to the home now, and it will 
expand almost unlimitedly beyond that. On that network, we have 
three different paths. We call them lasers. One laser carries 
the video path. So, we'll have a video service.
    A second laser carries Internet access. And what we do on 
video, or any other laser does not effect the Internet access 
service. So, if a consumer buys 30 megabits of Internet access 
service from us, or 15 megabits of Internet access service, 
whatever else we have on the network is not affected by that 
access service.
    The third laser would carry what we call virtual-private 
networks. Virtual private networks are something that companies 
have done for business customers for two decades. Essentially, 
a business may decide it doesn't want to put its services over 
the Internet, where there is no carrier who has end-to-end 
responsibility; instead, they want a carrier to build a network 
and provide a service where a carrier has end-to-end 
accountability, and, therefore, is--must be accountable for 
service, quality, security, privacy, and so on.
    As we look to the new world, there will be virtual private 
networks that hook up with consumers. For example, if you want 
to do medical monitoring of a patient, you don't want that to 
go over the Internet. You probably--a medical center will want 
a virtual private network with a carrier who will have end-to-
end accountability for delivering that service, ensuring that 
it's secure, ensuring that there are no glitches in the 
healthcare monitoring. We couldn't do that kind of thing with 
the net neutrality proposals that have been put forward.
    Bottom line is this: The consumers are in charge today in 
the Internet space. We have new networks with new capabilities, 
and the consumers will be in charge tomorrow in that space. We 
oppose any blocking or degrading of any access to the Internet. 
We think that's totally unacceptable. But we should be able to 
offer new services that don't affect Internet access over that 
same fiber connection.
    Thank you very much.
    [The prepared statement of Mr. Tauke follows:]

Prepared Statement of Hon. Tom Tauke, Executive Vice President, Verizon
    Thank you for the invitation to testify today. We appreciate the 
opportunity to discuss how to spur broadband deployment, promote 
competition, and provide new services and lower prices to consumers.
    The Communications, Consumer's Choice and Broadband Act of 2006 is 
an important step in creating a comprehensive framework for the 
communications industry of tomorrow. We believe that this market-
focused approach to telecom reform will result in direct, tangible 
benefits to customers. I'll be happy to share Verizon's views on any of 
the provisions of the Act, but I'll focus my testimony on two specific 
areas: video franchising and net neutrality.
    Verizon is the single largest investor in broadband technology in 
America. In addition to providing high-speed DSL and wireless 
broadband, we are investing in an advanced fiber network that will pass 
6 million homes by the end of this year, with a reach of as many as 20 
million customers by 2010.
    While our network is upgraded, Verizon's commitment to giving 
customers full access to any lawful content on the Internet is 
unchanged. We remain committed to providing full Internet access to our 
customers today and in the future.
    What has changed is the capacity of our network. Our fiber-to-the-
home network, called FiOS, is delivering the fastest Internet access in 
the marketplace. Today, for example, FiOS customers access the Internet 
at speeds of 10, 20 and 30 megabits per second upstream, and up to 5 
megabits downstream on a network capable of delivering speeds of 100 
megabits and beyond.
    FiOS is unlike anything being deployed today, and we all have 
trouble envisioning just what fiber to the home means in terms of speed 
and capacity. Simply put, FiOS is not your grandfather's Oldsmobile. 
It's not even today's Lamborghini. It's an entirely different mode of 
transportation operating at never before seen speeds. And the network 
itself is not like yesteryear's Route 66, or today's New Jersey 
Turnpike. It's 10 decks, each with 100 lanes, with the capability to 
easily add more lanes as necessary.
    With consumer demand for more capacity, speed and services online, 
fiber networks are where the broadband world is going--giving consumers 
much more. This empowering technology will enable the widespread 
availability of such innovations as home healthcare monitoring and 
diagnosis, online education, telecommuting, and communications services 
for the disabled.
    More immediately, FiOS gives us the ability to deliver a tangible 
and long-awaited benefit to consumers: a superior video service to 
compete with cable. For consumers this is important, because the lack 
of widespread video competition is costing them money. A recent study 
by the Phoenix Center determined that every year franchise reform is 
delayed takes more than $8 billion out of consumers' pocketbooks.
    Last September Verizon began offering its video service in several 
communities where we gained franchise authority. Beyond getting a great 
product, consumers are saving money . . . even if they stick with their 
cable company. That's because, where FiOS TV competes with cable, 
consumers' cable bills go down, sometimes as much as 40 percent, 
according to an analysis by the Banc of America.
    Verizon wants to bring video competition to as many consumers as we 
can, and we are investing many billions of dollars to deploy the 
broadband network to do so.
    But today's local franchise process represents a big impediment to 
our rapid entry in the video marketplace. The required negotiations 
with localities are time-consuming, sometimes taking as much as 24 
months to complete, and they interject an element of uncertainty that 
casts a long shadow over our capital investment plans.
    A streamlined, national franchise process is a fast and fair route 
to bringing much-needed choice and competition to the video market. 
Citizens and their communities will see tangible benefits in the form 
of new services, competitive prices, new jobs, and greater 
entrepreneurial innovation and high-tech business expansion.
    These benefits should not be delayed while we define and debate 
other issues. This is why we applaud the sensible approach you have 
taken in this legislation on the subject of net neutrality. Common 
sense is needed, because, simply put, net neutrality legislation 
endangers both the future of video choice, and the accelerated 
broadband investment that is just beginning to gain traction. In our 
view, the proposals put forward by the more extreme and aggressive 
proponents of net neutrality really come down to one thing: government 
regulation of the Internet.
    This call for government intervention into the Internet world 
represents a sharp departure from the free-market policies that have 
permitted the Internet to develop as it has. This proposed U-turn on 
Internet policy is based on hypothetical and imagined Internet ills, as 
opposed to actual harm to actual consumers.
    Such attempts to anticipate potential problems in the market and 
establish rules to prevent them create bad regulations that usually are 
in conflict with the orderly development of the market. The broadband 
marketplace is changing rapidly, It is providing great benefits to 
consumers. The consumers are in charge in an ever-more competitive 
marketplace. Now is not the time to fear the consumer-driven innovation 
and change that is occurring. Now is not the time to adopt new 
regulations that will throw sand into the gears of the fast-growing and 
changing broadband marketplace.
    Today we are experiencing the world we hoped for just a few years 
ago. Networks with huge capacity are being deployed; a plethora of new 
services are now available to consumers. Right now doctors in one city 
are examining patients in another, using diagnostic tools over 
broadband networks. Securities firms are constantly upgrading and 
offering their clients new investment tools to manage their portfolios 
safely and with speed. Today, it seems everyone is offering streaming 
or downloadable videos--YouTube, Disney, CBS, Google, the neighborhood 
kid with a video blog.
    If enacted, net neutrality regulation will potentially prohibit us 
from offering customers the unique and secure platform required for 
these next-generation services. It will potentially prohibit us from 
offering a competing video service to consumers. Put another way, 
radical net neutrality proposals would chill the investment climate for 
broadband networks, deter and delay broadband rollout, and lock in 
today's Internet architecture and levels of performance. That isn't 
good for consumers, and it isn't good for the Nation.
    Last year the FCC adopted a policy statement with four principles 
designed to ensure that broadband networks are widely deployed, and 
that consumers are able to access the content of their choice. The 
Commission noted that it was not adopting anticipatory rules, but 
rather would incorporate these guiding principles into its policymaking 
activities. The FCC appropriately recognized that in such a dynamic 
market, it would be premature to impose specific rules in the absence 
of any problem.
    The Communications, Consumer's Choice and Broadband Act of 2006 
instructs the FCC to provide meaningful information to Congress and 
consumers concerning the need, if any, for imposing regulation on the 
Internet. This approach will allow policymakers to address any market 
failures, if they were to occur, but without the adoption of broad, 
anticipatory regulations that would curb innovation and broadband 
deployment.
    We need to refocus our sights not on hypothetical problems, but on 
real consumer benefits. Consumers have made it clear that they want 
more choices in video services, more broadband, and more innovation. By 
removing the impediments to video choice--and not introducing new 
roadblocks in the guise of Net Neutrality--this legislation will go a 
long way toward bringing the tangible benefits of next-generation 
broadband to all Americans.
    Thank you.

    Senator Inouye. Thank you very much.
    Mr. Regan?

     STATEMENT OF TIMOTHY J. REGAN, SENIOR VICE PRESIDENT,

        GLOBAL GOVERNMENT AFFAIRS, CORNING INCORPORATED;

            ON BEHALF OF TELECOMMUNICATIONS INDUSTRY

                          ASSOCIATION

    Mr. Regan. Thank you, Mr. Chairman.
    Am I on now? OK, thank you.
    I'm here today representing Corning Incorporated and the 
Telecommunications Industry Association. We are the guys that 
develop the technology. We invest in the R&D to make these 
network works--these networks work. It's not only the edge guys 
that do innovation; it's us, as well. We are in a world of 
essentially a circle, innovation circle, where we invent 
technology, we sell it to the carriers, they put it into a 
system, and then the applications providers, which Paul talked 
about, ride on that system to give it value. All three of us 
contribute. All three of us innovate. But all you hear in this 
debate is about the things that the guys on the ends do. Well, 
the guys in the equipment industry do an awful lot, too, invest 
a lot of money.
    Now, Corning is the inventor of optical fiber. We've 
invested hundreds and hundreds of millions of dollars to prove 
to the world that you can pass literally on unlimited amount of 
information over a piece of fiber as thin as your hair. That 
was an amazing feat. And, fortunately, because of the things 
that the FCC has done, the deregulation and the pro-competitive 
policies that they have pursued, with support from many of you 
on the Committee, the response has been incredible. They have 
moved from common-carrier regulation. They have moved to a 
different mode of regulation, which has had an incredible 
impact.
    In the case of fiberoptics, for example, before the FCC did 
what it did, the fiber to the home, as a technology, which as a 
phenomenal technology, languished. It was going nowhere. There 
were 180,000 homes in this country that were passed by optical 
fiber. After the FCC's decision, the number increased by a 
factor of five. Today, there are 4.1 million homes passed by 
optical fiber. That's a 2,000 percent--2,000 percent--increase 
above what it was before the FCC acted. So, there has been a 
response. And it's been a good response.
    We all talk about being 16th in the world in deployment of 
broadband. We've got to do something about it. A lot of you 
have said we've got to do something about it. We're starting to 
do something about it.
    The concern we have about these--this Internet, or this net 
neutrality issue--and we're not unsympathetic to Paul and the 
concerns that his people have--we, in fact, were the ones that 
came up with the connectivity principles that protect consumers 
today. We developed it in the high-tech broadband coalition. We 
brought it to the FCC before they did the TRO. We said, 
``You've got to be concerned about consumers here. Nobody can 
be blocked. Consumers ought to be able to get what they pay for 
on the Internet. They ought to be able to run the applications 
they want to run. They ought to be able to connect equipment 
onto the network that they want to connect.'' And that's 
exactly what the FCC has done. And the FCC has said, ``We have 
all the power, under Title I, to make sure that this thing 
operates in a neutral way.''
    So, now we move forward, and we say, ``Well, should we do 
something else?'' And, again, we're not unsympathetic to Paul. 
We're very sympathetic, but we're concerned. We're trying to 
solve a problem that's not well defined. And if we go too far, 
if we introduce too much regulation, you're going to kill the 
golden goose, because this thing is very tenuous. Tom's company 
takes a beating on Wall Street for investing in optical fiber. 
They say, ``Where's the payoff? This is very expensive.'' And 
it is. So, we don't want to disrupt these business models that, 
in fact, may pay for it, because it's unclear on how we're 
going to pay for it.
    So, I asked my friends in the unaffiliated-applications 
world three questions:
    Number one, what, specifically, do you want? OK, Verizon's 
doing 30 million megabits to all their customers. Do they want 
a dedicated 30-million-bit capability to all their customers? 
If they do, it's going to cost a bundle.
    Number two, how much is it going to cost? The more you 
build into the network, the more expensive it is. And some of 
these proposals are calling for some very, very expensive 
provisioning in the network.
    And, number three, who's going to pay for it? If you build 
all this into the network, and they decide they don't want to 
buy it, who's going to pay for it? The consumers?
    So, we're concerned, we're a little nervous about this. 
Because we--we think you've made a lot of progress. Video 
franchise reform is going to get telephone companies into the 
video business. The cable companies are going after the 
telephone business. They're both competing--notwithstanding 
what Paul said, they're both competing now in the broadband 
Internet access business. I'll be glad to share pricing data to 
show you that it's a very competitive market. If it weren't, 
prices wouldn't be falling.
    And we don't want to kill the goose. Now we want to get 
video franchising relief, so telephone companies can enter into 
the video market. We can continue to move next-generation 
broadband forward. Consumers can capture the benefit of 
competition in the video marketplace today. Cable TV rates will 
go down.
    Let's get this done. Let's not get embroiled in this net 
neutrality debate. Let's move forward on the things we can 
agree on. Let's move forward on Universal Service. Let's get 
things done and worry about this other issue later on. It's not 
as if there's not a concern in this town about this issue. We 
believe that action will be taken--by the FCC, by the Congress, 
by the courts--if someone misbehaves.
    So, we'd encourage you to be very, very careful as you move 
into this space.
    [The prepared statement of Mr. Regan follows:]

    Prepared Statement of Timothy J. Regan, Senior Vice President, 
     Global Government Affairs, Corning Incorporated; on Behalf of 
                Telecommunications Industry Association
    Mr. Chairman, I'm pleased to accept your invitation to testify 
today on behalf of both Corning Incorporated and the Telecommunications 
Industry Association.
    As you know, Corning is the inventor of low-loss optical fiber. We 
invested hundreds of millions of dollars to prove to the world that 
data can be transmitted over extremely long distances using glass 
fibers as thin as hair.
    Corning is also a member of the Telecommunications Industry 
Association (TIA). TIA provides a forum for over 600 member companies, 
the manufacturers and suppliers of products, and services used in 
global communications. Many TIA members manufacture and supply products 
and services used in the deployment of the broadband infrastructure 
that enables the distribution of information in all its forms including 
video programming.
    We approach telecommunications policy from a very simple 
perspective. The question for us is: What policies will facilitate 
investment in network technologies to promote facilities-based 
competition in the interest of both producers and consumers?
    Contrary to popular view, we do not see the issue before Congress 
as a matter of choosing sides among the titans. Rather, we see the 
challenge as one of encouraging and allowing all parties to do their 
part in developing the most robust broadband communications network in 
the world. This is the outcome that will provide the greatest benefit 
to all Americans.
    Mr. Chairman, I know that this hearing is about net neutrality. But 
I think it is important to see the issue in the context of one of the 
primary objectives of the Stevens-Inouye bill--accelerating deployment 
of next-generation broadband capacity, and capturing the consumer 
welfare benefits of competition in the cable television market. With 
this in mind, I will take a few moments to discuss our views on these 
important matters.
The First and Second Broadband Technology Shifts
    We think it is helpful to review the recent history of broadband 
technology. Essentially, we believe there are two technology shifts 
occurring in broadband.
    The first broadband technology shift is from dial-up Internet 
access to current-generation broadband access. This is characterized as 
a shift from 56 kilobit-per-second narrowband capability to around 1.5 
megabit-per-second (Mbps) broadband capability--roughly a 20-fold 
capacity expansion.
    The second broadband technology shift is from current-generation to 
next-generation broadband access, characterized by yet another 20-fold 
capacity, from 1.5 Mbps to as much as 25-30 Mbps.
    To give you an example of the effect of these two shifts, let me 
use the analogy of a highway. The first broadband technology shift is 
like going from a two-lane highway to a 40-lane highway. The second 
shift is like from going from 40 lanes to 800 lanes. Just imagine I-95 
going from 2 to 40 to 800 lanes.
    The good news is that the first shift is well on its way. Progress 
in technology deployment is often measured by the substitution of the 
new for the old. By this measurement, tremendous progress has been made 
in the deployment of broadband. Broadband subscribership has increased 
by more than 800 percent from 4.5 million in 2000 to 40.9 million in 
2005, while dial-up subscribership peaked at 47.3 million in 2002, and 
has since declined to about 40 million subscribers, the level that 
existed in 2000.\1\
---------------------------------------------------------------------------
    \1\ See Telecommunications Industry Association, Telecommunications 
Market Review and Forecast,  2005.


    The second broadband technology shift has just begun and involves a 
number of different technologies, including fiber to the premises 
(FTTP), fiber to the node (FTTN), fiber to the curb (FTTC), VDSL, 
DOCSIS 2x and DOCSIS 3.0, satellite and various wireless technologies, 
all of which hold great promise and are in various stages of 
development and deployment.
    Although TIA companies are involved in all of these technologies, I 
am most familiar with FTTP and will confine my remarks regarding the 
second broadband shift to that technology. With respect to FTTP, the 
second stage shift, although in its infancy, has been profound. From 
September 2001 to March 2006, FTTP deployment increased from 19,400 
homes passed to 4.1 million homes passed, a 20,000 percent increase in 
four and a half years. FTTP subscribership increased from 5,500 in 
September 2001 to 671,000 in March 2006, a 12,000 percent increase over 
that period.\2\
---------------------------------------------------------------------------
    \2\ See RVA Research, FTTH/FTTP Update, Jan. 2006.
    
    
    While Verizon accounts for much of the FTTP deployment in volume, 
the FTTP experience is broadly based. As of March 2006, FTTP had been 
deployed in 936 communities across 47 states, with only a third of 
those communities served by Verizon.\3\
---------------------------------------------------------------------------
    \3\ See RVA Research, FTTH/FTTP Update, Oct. 2005.
---------------------------------------------------------------------------
The Importance of Pro-Competitive, Deregulatory Telecommunications 
        Policy
    The first broadband technology shift was driven by four forces: 
competition, deregulation, consumer demand for bandwidth, and 
technology advancement. The Federal Government played a positive and 
significant role in the first two of those factors--competition and 
deregulation. In fact, significant Congressional support for 
deregulation spurred three major decisions by the FCC, which created a 
favorable environment for broadband investment: the cable modem 
decision of 2002,\4\ the Triennial Review Order of 2003,\5\ and, most 
recently, the DSL decision of 2005.\6\ Thus, the pro-competitive, 
deregulatory actions by the FCC and supported by Congress, have worked 
to encourage the first broadband technology shift.
---------------------------------------------------------------------------
    \4\ See FCC GN Docket No. 00-185, CS Docket No. 02-52, (rel. March 
15, 2002).
    \5\ See FCC CC Docket No. 01-338, (rel. Aug. 21, 2003).
    \6\ See FCC CC Docket No. 02-33. (rel. Sept. 23, 2005).
---------------------------------------------------------------------------
    To best facilitate the second technology shift, Congress should 
continue its pro-competitive, deregulatory stance. And indeed, Congress 
has already taken steps in this direction. Most recently, Congress 
adopted a ``hard date'' for the DTV transition \7\ which will release 
prime spectrum for the development of new wireless solutions. Congress 
has also encouraged the FCC to facilitate competition in the wireline 
voice market by applying the light hand of regulation for VoIP, which 
will enable cable companies and new entrants to compete with incumbent 
telephone companies.\8\
---------------------------------------------------------------------------
    \7\ See Deficit Reduction Act of 2005, Pub. L. 109-171, Title III 
Digital Television Transition and Public Safety.
    \8\ See FCC CC Docket No. 04-267. (adopted Nov. 9, 2004).
---------------------------------------------------------------------------
    Promoting competition through deregulation in the video realm is 
the next logical step. Video is the application driver for the 
deployment of next generation broadband because video uses an enormous 
amount of bandwidth. Even with the latest compression techniques, a 
high-definition television signal uses approximately 8 to 9 Mbps, 
several times faster than current generation broadband. Therefore, a 
public policy facilitating entry of new video providers will result in 
the deployment of more robust infrastructure, increased competition, 
and consequent consumer benefit.
Specific Problems With The Current Video Franchise Process
    We have spent a significant amount of time analyzing the effects of 
various local franchise requirements on next generation broadband 
deployment. For the sake of brevity, we will merely summarize our 
thoughts in that regard here and provide a more detailed discussion 
later in an annex to this testimony.
Problem 1: Delay
    The franchise-by-franchise negotiating process established under 
the old monopoly framework is simply too slow, and unwieldy, to 
encourage the speedy entry of new providers. In recent filings at the 
FCC, large companies like Verizon and BellSouth, as well as smaller 
companies like Knology, Grande Communications, Guadeloupe Valley 
Telecommunications Cooperative and the Merton Group, have all provided 
examples of very protracted franchise negotiations, in some cases 
lasting years. The delayed entry of these competitive video providers 
results in less competition, less consumer welfare benefit, and delay 
in the second broadband technology shift. The solution is to 
automatically issue a franchise within a set period of time.
Problem 2: Build-Out
    The second major problem with the current video franchise process 
is the practice of requiring new entrants to build out facilities 
beyond the area which they find economical. For example, in the case of 
a telephone company entering the video market, video deployment 
logically follows the existing wire-center footprint, which typically 
does not follow franchise area boundaries. If a telephone company wants 
to offer video service throughout a wire-center which covers, say, 30 
percent of a local franchise area, the requirement to build out to the 
entire franchise area might well make it economically infeasible to 
provide video service at all within that franchise area. The solution, 
we believe, is to establish a franchise process which does not require 
such counterproductive build out requirements.
Problem 3: Extraneous Obligations
    The Congress has already indicated its intent to limit payments for 
franchises by establishing in Title VI of the Communications Act that 
the 5 percent statutory franchise fee is a ceiling for payments ``of 
any kind.'' \9\ Yet, franchise authorities often seek payments that far 
exceed the 5 percent fee. These extraneous requirements increase costs 
and discourage the investment in next-generation broadband capability, 
thereby delaying the second technology shift. The solution, we believe, 
is to prohibit the imposition of extraneous cost beyond 1 percent of 
gross revenues.
---------------------------------------------------------------------------
    \9\ See U.S.C. Sec. 542(g)(1).
---------------------------------------------------------------------------
    Title III of the Stevens-Inouye bill addresses these issues. If it 
is enacted this year, we believe it will significantly accelerate 
deployment of next-generation broadband capability, and capture the 
consumer welfare benefits of competition in the cable TV space.
Treatment of Existing Video Providers
    We are also pleased that the Stevens-Inouye bill would make its 
streamlined franchise process available to existing cable TV providers. 
We think this is very important in order to encourage investment by all 
providers and to spur healthy competition.
Municipal Broadband
    To promote competition, Congress also should enable municipalities 
to deploy next generation broadband capability. Particularly regarding 
fiber to the premises, municipalities were among the early leaders, 
even though recent court decisions have slowed deployments in a number 
of states. Although we believe municipalities should consider all 
options before entering the telecom field, if municipal leaders feel 
that they must build their own networks in order to provide 
satisfactory broadband services to their constituents, they should have 
the freedom to make that decision.
    The draft bill before you includes the statutory clarification to 
allow municipal entry, subject to a right-of-first-refusal provision 
requiring consideration of private sector offers to provide desired 
services. While we encourage private sector deployment where possible, 
we are concerned that the right-of-first-refusal requirement could 
create opportunities for litigation that delay broadband deployment for 
protracted periods.
Net Neutrality
    With the foregoing as background, I will now turn to the topic of 
net neutrality. We believe strongly that Congress should be very 
careful to avoid taking action which could, in fact, do harm. This 
principle must be applied to net neutrality.
    As leading manufacturers of network equipment, we have a great 
interest in ensuring that broadband networks are not only built, but 
also used. Although consumers typically do not come in direct contact 
with network equipment, it is still the consumer that determines the 
success or failure of our technology. If consumers are satisfied with 
the broadband experience, our technology is in demand. If not, our 
technology is not deployed. For that reason, consumer satisfaction is 
extremely important to us.
    Accordingly, TIA and other members of the High-Tech Broadband 
Coalition (HTBC) were the first to adopt network Connectivity 
Principles. We urged their adoption by Federal policymakers and were 
delighted when the FCC did so last year. Pursuing this matter further, 
TIA recently released its Broadband Internet Access Connectivity 
Principles, which reaffirms and adds to the above-mentioned principles. 
We attach a copy hereto for your use.
    TIA's Connectivity Principles support the interests of both 
consumers and unaffiliated content providers. In short, they state that 
subscribers should get the capacity they pay for to connect to the 
Internet, access any content they want on the Internet as long as such 
content is lawful, use any applications they chose as long as such use 
does not hurt the network or other users, and attach to the network any 
device they choose as long as it does not harm the network.
    Let me emphasize that we believe unaffiliated content providers, as 
consumers of bandwidth, should benefit from the Connectivity Principles 
just like retail subscribers.
    But going beyond these Connectivity Principles gives us great pause 
because it is unclear what problem the legislation is designed to 
address. We have yet to see significant evidence of an actual problem. 
Rather, net neutrality advocates appear to be concerned about potential 
misdeeds rather than actual misdeeds.
    We find this troubling because legislating against potential 
misdeeds can have very bad, unintended consequences. We experienced 
this following passage of the 1996 Telecom Act and the FCC's use of an 
unbundling regime, which retarded investment in local broadband access 
by incumbent local exchange carriers. This was an unintended negative 
consequence.
    The goal of the 1996 Act--fostering competition in local telephone 
service--was laudable. But, the impact on investment in local broadband 
access was very negative.
    The lesson of unbundling is instructive. If policymakers take 
action which disturb the business models of the companies deploying 
next generation networks, the result may well be to delay or stop 
deployment. Then we all will suffer--the carriers, equipment vendors, 
content providers, and consumers.
    Let me dig into that statement for a moment. To analyze what the 
carriers will do, it is important to consider three threshold questions 
they must ask:

        1. What specifically do unaffiliated-applications providers 
        want from carriers? Do they want carriers to offer to them the 
        same bandwidth, speed, and other capabilities that carriers 
        offer to retail subscribers? For example, Verizon offers retail 
        subscribers an Internet access service on their fiber network 
        at a tremendous speed of 30 mbps downstream and 5 mbps 
        upstream. Do unaffiliated providers want Verizon to make the 
        same offer to them so that they can have a 30 mbps connection 
        to all their customers? Similarly, we understand that AT&T 
        plans to build a network that can provide IPTV and Internet 
        access using Internet protocol at a speed of 24 mbps 
        downstream. Do unaffiliated providers want AT&T to provide them 
        with a 24 mbps connection to all their customers? It is simply 
        not enough to say we want ``nondiscrimination.'' This is a 
        vague notion. We need clarity in order to make sound policy.

        2.  How much will it cost to build a network that is capable of 
        giving unaffiliated applications providers what they want? 
        Obviously, the more robust the network is in terms of 
        bandwidth, speed, features, and functions; the more expensive 
        it will be to build. In my previous example, if Verizon and 
        AT&T are required to provision a network to provide every 
        unaffiliated applications provider with a 30 mbps or a 24 mbps 
        connection to all their customers, the cost to build the 
        network would increase substantially. We need to understand the 
        cost implications of the obligations unaffiliated providers 
        want to impose on carriers. Again, we need clarity to make good 
        policy.

        3.  Who will pay for the network capability that unaffiliated 
        providers want from carriers? As I said, there is a cost 
        involved in provisioning the network to meet the demands of 
        unaffiliated providers. And, the cost may indeed be very, very 
        high. If carriers build excess capacity to meet the needs of 
        unaffiliated providers and they don't buy it, who pays? The 
        consumer? The shareholder? It is simply unreasonable to require 
        a carrier to build capacity without knowing who will pay for 
        it. Otherwise, it is an open-ended commitment that will simply 
        discourage investment or, worse yet, stop it. Again, we need 
        clarity to make good policy.

    For Congress, the third question is probably the most critical. 
Certainly, Congress does not want to require carriers to build excess 
capacity into their networks and pass the cost on to retail consumers. 
If this were to occur, most Americans who use Internet access for 
simple applications like e-mail will carry an enormous, unfair burden. 
Clearly, if unaffiliated applications providers want network 
capability--bandwidth, speed, quality of service, and content--they 
must pay for it.
    We are unaware of any analysis that answers the three questions 
cited above--what, how, and who. So, we support the study element of 
the approach taken in the Stevens-Inouye bill to answer these and other 
questions before legislating.
Conclusion
    In conclusion, let me suggest that Congress should proceed where 
there is consensus, and continue to work on issues where consensus does 
not exist. You have an opportunity to achieve real success this year 
which will accelerate deployment of next generation networks and 
benefit consumers through lower prices and improved services. Franchise 
reform, for example, is an issue which is long overdue and where there 
is great consensus. Net neutrality, on the other hand, is an issue 
where there is little consensus, and even less clarity. I would propose 
that Congress continue to examine the net neutrality issue until it is 
clear what the problem is, and what the solution should be.
    We feel that it is crucial for the Congress to build on the pro-
competitive, deregulatory Federal broadband policy actions that have 
been implemented since 2002. I am pleased that the Stevens-Inouye bill 
builds on these successful policy actions. I urge the Committee to act 
quickly on franchise reform and other issues where there is a consensus 
so we can enact them this year. With such action, we can capture the 
benefits of accelerated broadband deployment and the consumer welfare 
benefits of competition now.
Annex 1: Detailed Discussion of Specific Problems With the Current 
        Video Franchise Process
Problem 1: Delay
    Unfortunately, the current video franchise process does not 
facilitate the entry of new video providers in a timely fashion. The 
franchise-by-franchise negotiation process established under the old 
monopoly framework is simply too slow and unwieldy to encourage the 
speedy entry of new providers. Verizon has filed documents with the FCC 
establishing that, to serve its entire target area with video service, 
it must negotiate between 2,000 and 3,500 franchises, excluding those 
in Texas.\10\ Verizon began negotiations with 320 franchise authorities 
in November 2004, and, as of February 2005, had only 26 franchises 
other than those that were automatically issued in Texas.\11\ For those 
franchises that have been successfully negotiated, negotiation time has 
ranged between two months and 17 months, with an average of 7.65 
months.\12\ The more important focus, however, are the negotiations in 
which Verizon has not been successful: in over 80 percent of the 
franchise negotiations Verizon initiated in November 2004, a franchise 
still has not been granted.\13\
---------------------------------------------------------------------------
    \10\ See FCC MB Docket No. 05-311, Comments of Verizon on Video 
Franchising, Feb. 13, 2006, Attachment A at 5.
    \11\ See FCC MB Docket No. 05-311, Comments of Verizon on Video 
Franchising, Feb. 13, 2006, Attachment A at 4.
    \12\ See FCC MB Docket No. 05-311, Comments of Verizon on Video 
Franchising, Feb. 13, 2006, Attachment A, Exhibit 1.
    \13\ See supra footnote 11.
---------------------------------------------------------------------------
    A similar situation has been experienced by BellSouth, which needs 
to negotiate 1,000 franchises. As of last month, it had received only 
20 franchises, requiring between 1.5 months and 32 months of 
negotiation time for each, at an average of 10 months.\14\
---------------------------------------------------------------------------
    \14\ See FCC MB Docket No. 05-311, Comments of BellSouth 
Corporation and BellSouth Entertainment, LLC, Feb. 13, 2006, at 10, 11.
---------------------------------------------------------------------------
    Moreover, this is not just a problem for the Regional Bell 
Operating Companies. Smaller companies such as Knology, Grande 
Communications, Guadeloupe Valley Telecommunications Cooperative, and 
the Merton Group have all reported a similarly protracted period of 
franchise negotiations, ranging between 9 months and 30 months.\15\
---------------------------------------------------------------------------
    \15\ See FCC MB Docket No. 05-311, Comments of the Fiber-to-the-
Home Council, Declarations of Felix Boccucci, Andy Sarwal, Jeff Mnick, 
Terrence McGarty.
---------------------------------------------------------------------------
    The delayed entry of these competitive video providers results in 
less competition, less consumer welfare benefit, and delay in the 
second broadband technology shift.
Problem 2: Build-Out
    The second major problem with the current video franchise process 
is the practice of requiring new entrants to build out facilities 
beyond the area which they find economical. For example, in the case of 
a telephone company entering the video market, video deployment 
logically follows the existing wire center footprint, which typically 
does not follow franchise area boundaries.\16\ If a telephone company 
wants to offer video service throughout a wire center which covers, 
say, 30 percent of a local franchise area, the requirement to build out 
to the entire franchise area might well make it economically infeasible 
to provide video service at all, within that franchise area.
---------------------------------------------------------------------------
    \16\ See FCC MB Docket No. 05-311, Comments of Verizon on Video 
Franchising, Feb. 13, 2006, at 40.
---------------------------------------------------------------------------
    This is not merely a whimsical example. We recently analyzed 
telephone company wire centers in Texas--where the characteristics of 
wire center deployment are typical of the Nation on average--and found 
that only 3 percent of the wire centers completely overlap the 
geographic area of franchise areas.
    Therefore, the requirement that new entrants build out to an entire 
franchise area will result, in many instances, in potential competitors 
delaying or even abandoning plans to enter new video markets.
    Again, this is not just a Bell Company problem. The National 
Telecommunications Cooperative Association has reported that many of 
its members, which tend to be small rural telephone companies, want to 
get into the cable business but have reported problems with local 
franchising authorities--particularly unreasonably short build-out 
periods, or requirements to build outside the carrier's own service 
territory.\17\
---------------------------------------------------------------------------
    \17\ See FCC MB Docket No. 05-311, Comments of the National 
Telecommunications Cooperative Association, Feb. 13, 2006, at 4, 5.
---------------------------------------------------------------------------
    The solution, we believe, is to establish a franchise process which 
does not require such counterproductive build out requirements.
Problem 3: Extraneous Obligations
    The third major problem with the current video franchise process is 
the imposition of extraneous obligations that exceed 1 percent of 
revenues.
    The Congress has already indicated its intent to limit payments for 
franchises by establishing in Title VI of the Communications Act that 
the 5 percent statutory franchise fee is a ceiling for payments ``of 
any kind.'' \18\ Yet, franchise authorities often seek payments that 
far exceed the 5 percent fee by imposing requirements like the 
assumption of all Public, Education and Government (PEG) costs incurred 
by the incumbent cable operator over the entire span of its service, 
the installation of institutional networks (I-Nets), the requirement to 
bury aerial plant, the assumption of applications and acceptance fees, 
etc.\19\ These extraneous requirements increase costs and discourage 
the investment in next generation broadband capability thereby delaying 
the second technology shift. The solution, we believe, is to prohibit 
the imposition of extraneous cost beyond 1 percent of gross revenues.
---------------------------------------------------------------------------
    \18\ See U.S.C. Sec. 542(g)(1).
    \19\ See FCC MB Docket No. 05-311, Comments of Verizon on Video 
Franchising, Feb. 13, 2006, at 57-75.
---------------------------------------------------------------------------
                                Appendix
Broadband Internet Access Connectivity Principles
    TIA has long supported the rights of broadband Internet access 
service consumers to connect to and utilize their choice of legal 
Internet content, applications, and devices, while also recognizing the 
needs of service providers in a competitive market to manage the 
security and functionality of their networks. TIA reaffirms its pro-
consumer principles, as outlined below, while continuing to observe 
that the lack of significant evidence of these principles being abused 
in the marketplace means there is no need at this time for the Federal 
Communications Commission to craft rules in this area.
    1. A competitive broadband Internet access market offers consumers 
choices with respect to ``connectivity''--that is, the ability to 
access any lawful Internet content, and use any device, application, or 
service over the public Internet--so long as they do not harm the 
network. In particular:

        1.1. Consumers should receive meaningful information regarding 
        their broadband Internet access service plans.

        1.2. Broadband Internet access consumers should have access to 
        their choice of legal Internet content within the bandwidth 
        limits and quality of service of their service plan.

        1.3. Broadband Internet access consumers should be able to run 
        applications of their choice, within the bandwidth limits and 
        quality of service of their service plans, as long as they do 
        not harm the provider's network.

        1.4. Consumers should be permitted to attach any devices they 
        choose to their broadband Internet access connection, so long 
        as they operate within the bandwidth limits and quality of 
        service of their service plans, and do not harm the provider's 
        network or enable theft of services.

    2. A competitive broadband Internet access market also gives 
facilities-based broadband Internet access providers competitive 
incentives to undertake risky, new investments, while precluding 
anticompetitive behavior against unaffiliated businesses. In 
particular:

        2.1. Broadband Internet access service providers should remain 
        free to engage in pro-competitive network management techniques 
        to alleviate congestion, ameliorate capacity constraints, and 
        enable new services, consistent with the technical 
        characteristics and requirements of the particular broadband 
        platform.

        2.2. Broadband Internet access service providers should remain 
        free to offer additional services to supplement broadband 
        Internet access, including speed tiers, quality of service 
        tiers, security and spam services, network management services, 
        as well as to enter into commercially negotiated agreements 
        with unaffiliated parties for the provision of such additional 
        services.

        2.3. Such network management tools would enable operators to 
        continue to optimize network efficiency, enable new services, 
        and create incentives for continued build-out to meet 
        increasing capacity demands.

        2.4. Broadband service providers should also remain free to 
        innovate in the deployment of managed services, such as 
        packaged video programming, which utilize the same networks but 
        are distinct from public Internet access services.

    TIA believes that the FCC has jurisdiction to vigilantly monitor 
the broadband Internet access service market and expeditiously review 
any complaint of anticompetitive activity. However, as no significant 
evidence of a problem exists at this time, it is not now necessary for 
the FCC to promulgate detailed rules in this area. Rather, the FCC 
should address any such problems on a case-by-case basis in the event 
they arise.

    Senator Inouye. Thank you very much.
    Mr. Scott?

  STATEMENT OF BEN SCOTT, POLICY DIRECTOR, FREE PRESS; AND ON 
  BEHALF OF CONSUMERS UNION AND CONSUMER FEDERATION OF AMERICA

    Mr. Scott. Mr. Chairman and members of the Committee, I 
thank you for the opportunity to testify today.
    I am the Policy Director for Free Press. We're a public-
interest organization dedicated to public education and 
consumer advocacy on communications policy.
    Like my members, I bring to the table a public-interest 
conviction that bears no burden of special interest. We simply 
believe that the future of a nondiscriminatory Internet is 
vital to our economy and our democracy.
    In the last few months, Free Press has had the privilege of 
being in the center of an explosive grassroots coalition that 
includes almost three-quarters of a million citizens and 700 
organizations, all of which you can visit at 
SaveTheInternet.com. All of these folks are focused on the 
unlikely issue of network neutrality.
    The list grows every day, largely because of the prolific 
efforts of Internet citizen journalists. Together, the audience 
of the net neutrality bloggers exceeds the readership of the 
New York Times, the Wall Street Journal, and the Washington 
Post combined. This is the online democratic public sphere in 
potent action. It is the creation of the neutral platform on 
the Internet that embodies the very principles that we are now 
fighting to protect. The coalition is left and right, it is 
commercial and noncommercial, public and private. Supporters of 
the network neutrality issue now include the Christian 
Coalition and MoveOn.org, the National Religious Broadcasters, 
SEIU, the American Library Association, AARP, and every major 
consumer organization working on communications policy in the 
country. It includes the founders of the Internet, the brand 
names of Silicon Valley, and a block of retailers, innovators, 
and entrepreneurs.
    Coalitions of such breadth and depth and purpose are 
extremely rare in contemporary politics, and I encourage the 
Committee to take careful note.
    We share a fundamental belief that network neutrality is 
nondiscrimination. Network neutrality is what keeps the market 
power of the few from distorting the free market of the many. 
It is a simple concept running through a century of American 
public policy.
    At its base, the bill now being considered before the 
Committee poses a decision about who will control the Internet: 
consumers and producers in the competitive marketplace, or 
network owners in a noncompetitive marketplace. The Internet 
has become a positive economic and social force in our society 
because of the principles of nondiscrimination. To restructure 
communications law without including fundamental protections of 
nondiscrimination would undermine the primary reason for our 
success. Net neutrality, let's be clear, has existed in the law 
for the entire history of the Internet. We are not asking for 
anything new. We're asking for the preservation of tried and 
tested consumer protections that have made the Internet the 
greatest engine of economic growth and democratic communication 
in modern memory.
    Network discrimination through a so-called ``tiered 
Internet'' will severely curtail consumer choice. We're not 
dealing with a hypothetical situation. Since August of 2005, 
when discrimination first became legal, the network owners have 
very publicly announced their intentions to set up gatekeepers 
on the Internet. This is unacceptable. Consumers, not network 
operators, must choose winners and losers in the market. It is 
impossible to ignore that the cozy duopoly of telecom and cable 
companies that control residential broadband markets will not 
use that power to discriminate against the content and 
applications providers. Absent network neutrality protections, 
consumers will experience higher costs and fewer choices. There 
is no free ride on the network. The higher cost of a tiered 
Internet will simply be passed through to consumers. And, 
frankly, there are no economic incentives for telephone 
companies, who are already the recipients of billions in public 
subsidies, that are worth sacrificing the consumers' free 
market of Internet content and services. Network discrimination 
will stifle innovation and cripple investment at the edge, as 
well as in the center.
    This is how--how many venture capitalists will embrace a 
business plan if the first line of that business plan is, 
``strike a favorable deal with AT&T''? That is simply a 
nonstarter for entrepreneurs, and especially in the case of the 
online marketplace. The best ideas do not always come from the 
deepest pockets. Therefore, we believe that network neutrality 
must be a central component of the bill before the Committee. 
We urge you to put net neutrality back in where it belongs, as 
the cornerstone of communications policy. We believe the 
current bill must be revised to include far more than an FCC 
study of the issue. If we just study the issue, we will very 
likely have the effect of losing net neutrality altogether.
    We highly recommend adopting the Internet Freedom 
Preservation Act recently introduced by Senators Snowe, Dorgan, 
and Inouye. The bill would not only prevent network operators 
from blocking and impairing access, but also appropriately 
prohibit discrimination and preferential pricing. It is a 
straightforward mechanism for guaranteeing nondiscrimination. 
The future of the Internet should be handled just like the 
birth of the Internet, by maximizing innovation, consumer 
choice, and democratic opportunity.
    I thank you for your time and attention.
    [The prepared statement of Mr. Scott follows:]

 Prepared Statement of Ben Scott, Policy Director, Free Press; and on 
         Behalf of Consumers and Consuder Federation of America
Summary
    Free Press,\1\ Consumers Union,\2\ and Consumer Federation of 
America,\3\ appreciate the opportunity to testify on the 
Communications, Consumer's Choice, and Broadband Deployment Act of 
2006. As consumer advocates, we strongly support policies that will 
bring more broadband competition to American households. However, we 
believe any legislation that reshapes critical elements of 
telecommunications law, such as video franchising and the Universal 
Service Fund, must necessarily reaffirm the commitment of the Congress 
to the principle of nondiscrimination on the Internet.
    Meaningful, enforceable network neutrality provisions must be a 
central element in the Communications, Consumer's Choice, and Broadband 
Deployment Act of 2006. We strongly urge the adoption of The Internet 
Freedom Act, introduced by Senators Snowe and Dorgan, as part of S. 
2686. Without it, S. 2686 cannot deliver on its promise for more 
competition and enhanced broadband access.
    Network neutrality protections have existed for the entire history 
of the Internet. Consumer advocates are not promoting new regulations. 
We are asking the Congress to preserve tried and tested consumer 
protections, and network operating principles that have made the 
Internet the greatest engine of economic growth and democratic 
communication in modern memory.
    Network neutrality must continue to be a central component of 21st 
century communications policy. This committee faces a clear policy 
choice. At its base, this is a decision about who will control the 
Internet--consumers and producers in a competitive marketplace where 
innovators and entrepreneurs are rewarded by consumers, or network 
owners in a non-competitive, gatekeeper-controlled marketplace 
dominated by the cable-telephone duopoly who have both the incentive 
and now the ability to exclude competitors. The Internet has become a 
powerful economic and social force because long-standing principles of 
nondiscrimination have maintained the Internet as a neutral platform, 
protecting the free market and the democratic public sphere of online 
commerce and communication. To restructure communications law without 
restoring fundamental protections of network neutrality would stifle 
the tremendous economic growth and innovation that nondiscrimination 
rules have fostered.
    Network discrimination through a ``tiered Internet'' will severely 
curtail consumer choice. In the wake of flawed FCC rulings deregulating 
broadband in 2005, network owners have very publicly announced their 
intentions to scrap the neutral Internet and position themselves as 
gatekeepers of content, applications, and services. This has been, and 
should remain, the exclusive purview of consumers.
    Consumers, not network operators, must be allowed to continue to 
choose winners and losers in the content and applications marketplace. 
Consumers can be offered a choice of different levels of network 
service, as they always have been, but then any content, application, 
or service that can be delivered at the consumers chosen network 
service level should be allowed to without interference or additional 
charges imposed by the network operator. Without network neutrality, 
telephone and cable companies will have a strong financial incentive to 
distort the free market in favor of their own content and services. 
This activity will stifle entrepreneurship and abolish ``innovation 
without permission.''
    Absent network neutrality protections, consumers will experience 
higher costs and fewer choices for broadband. The higher costs of a 
``tiered Internet'' levied on millions of online content providers will 
simply be passed on to consumers, directly or indirectly. There is no 
``free ride'' on the network, and consumers will bear the costs of 
network development through higher access charges and higher prices for 
online goods and services. Moreover, a ``tiered Internet'' will further 
concentrate the market power of the cable modem and DSL duopoly, 
eliminating competition in the conduits, and leaving consumers with no 
escape from content discrimination. Alternative approaches to broadband 
policy and infrastructure development are both more competitive and 
economically efficient. There exists no compelling economic reason to 
eliminate consumer choice with a ``tiered Internet.''
    Consumer support for network neutrality represents an unprecedented 
level of public involvement in communications policy. Supporters of 
network neutrality represent a broad, nonpartisan coalition that joins 
both the right and left, and commercial and noncommercial interests. 
The campaign to preserve network neutrality protections is perhaps the 
most diverse set of public and private interests backing any single 
policy issue in Washington today. Hundreds of groups, and hundreds of 
thousands of individuals from across the political spectrum are joining 
together to save this cornerstone principle of consumer choice and 
Internet freedom. For consumers, this debate should not be about 
whether we should have nondiscrimination in 21st century communications 
policy. This debate should be about how best to accomplish this 
essential and long-standing policy principle of nondiscrimination.
Network Neutrality Protections Have Existed Since the Birth of the 
        Internet
    Network neutrality boils down to the principle of 
nondiscrimination, which has been foundational in communications law 
for generations. It is a central reason why the Internet has proven to 
be the greatest engine of economic growth and democratic communication 
in modern memory. The development of the Internet and the online 
marketplace did not occur by accident. It happened with the help of 
sound public policies. Nondiscrimination and the structural separation 
of content and conduit in telecommunications networks were chiefly 
responsible for the dynamic growth of the Internet environment. The 
architects of the Internet were acutely aware of the centrality of 
regulatory protections that would guarantee standardized protocols, and 
a neutral platform. The Internet's emerging promise in the mid-1990s as 
a platform for commerce, information sharing, and democratic cultural 
discourse were premised upon keeping the network open, 
nondiscriminatory, and operating as a pure free market. 
Nondiscrimination rules simply guarantee equal treatment for every 
online speaker--from large corporations to small businesses to citizen 
websites. Conceptually, it is the First Amendment for the Internet.
    Tim Berners-Lee, the inventor of the World Wide Web, reflects:

        ``When seventeen years ago, I designed the Web, I did not have 
        to ask anyone's permission . . . The Internet is increasingly 
        becoming the dominant medium binding us. The neutral 
        communications medium is essential to our society. It is the 
        basis of a fair competitive market economy. It is the basis of 
        democracy, by which a community should decide what to do. Let 
        us protect the neutrality of the net.'' \4\

    Consumers take for granted that every website and application on 
the Internet is treated equally. That is largely because we have had 
fundamental protections in the law that guarantee nondiscrimination 
since the birth of the Internet. Nondiscrimination is a basic 
obligation of all network operators under Title II of the 
Communications Act. Almost 40 years ago, the Federal Communications 
Commission was confronted with the question of how to handle the 
transmission of data over the telephone network. In a series of 
proceedings beginning in 1968 known as the Computer Inquiries, the FCC 
decided that the companies providing communications services would not 
be allowed to interfere with or discriminate against information 
services. \5\ When the courts broke up Ma Bell in 1982, it required the 
Baby Bells to provide nondiscriminatory interconnection and access to 
their networks. \6\ These decisions to require the communications 
network to treat information services in a nondiscriminatory manner 
established one of the key building blocks of the Internet.
    The idea is simple. Under the law, the physical wires over which 
data and information flow are treated differently than the data and 
information themselves. The number of physical networks to transmit 
data and information is very small and non-competitive (at best, most 
consumers have a choice of only cable or DSL). Public policy keeps the 
owners of these networks from using their monopoly (or duopoly) market 
power over the wires to discriminate against the information providers 
on their networks. If the network owners' non-competitive, 
discriminatory practices are held in check, the content market remains 
free and vigorously competitive. If they are not, it will be distorted. 
The separation of the physical communications layer from the content 
and applications layers is a cornerstone of telecommunications law. It 
established an ``end-to-end'' network, putting control of the Internet 
in the hands of the users at the edges. \7\
    But in the summer of 2005, the FCC removed the cornerstone of 
nondiscrimination. This decision was the culmination of several years 
of litigation. After years of bombardment by lobbyists and lawyers from 
the cable and telephone giants, the FCC first tried to take away 
nondiscrimination protections in 2002. The courts reversed them. \8\ 
But the cable companies and the FCC kept appealing, and eventually the 
Supreme Court heard the matter in July 2005. In the case of NCTA v. 
Brand X, the Court ruled simply that the FCC had the authority to make 
the decision, good or bad. It did not rule on the merits. As a result, 
last August, in the midst of the Internet revolution, the FCC handed 
total control over broadband networks to the telephone and cable 
companies to do as they please, removing broadband from the protections 
of Title II of the Communications Act. Among the many protections lost 
was the principle of nondiscrimination. \9\ It must not be allowed to 
lapse permanently.
    In the months since then, cable and telephone network owners have 
openly declared that they intend to build a business model based on 
discrimination, extorting money from every online content and 
applications provider. This plan violates the fundamental principle of 
nondiscrimination that has been law for generations and which gave us 
the Internet. It would have been prohibited less than a year ago. And 
it threatens to end the Internet as we know it. The only barriers 
standing in the way of this scenario are temporary extensions of 
nondiscrimination protections resulting from a one year ``sunset'' 
period that applies to the FCC's August 2005 ruling and merger 
conditions applied to MCI-Verizon and SBC-AT&T.
    Advocates of network neutrality are not promoting new regulations. 
We are preserving tried and tested consumer protections and network 
operating principles that ensure Internet freedom and which are 
responsible for the Internet as it exists today.
Network Neutrality Must Be a Central Component of 21st Century 
        Communications Policy
    This committee faces a clear policy choice with the treatment of 
network neutrality in the Communications, Consumer's Choice, and 
Broadband Deployment Act of 2006. At its base, this is a decision about 
who will control the Internet--consumers and producers in a competitive 
marketplace, or network owners in an anticompetitive marketplace. The 
destruction of nondiscrimination principles would mean fundamental, 
devastating changes to the Internet as we know it.
    In our view, this cannot be a debate about whether we should have 
network neutrality. It is about what network neutrality protections 
will look like now that broadband is no longer governed under Title II 
of the Communications Act. This issue is fundamental to the legislation 
currently under consideration. The Communications, Consumer's Choice, 
and Broadband Deployment Act of 2006 is a broad reform of 
communications law. Major changes to video franchising and the 
Universal Service Fund are designed to transition the Nation into the 
broadband era. This committee recognizes that the Internet is the 
dominant communications medium in our society. But it has become 
dominant economically, socially, and politically because of the 
principles of nondiscrimination that have protected the free market and 
the democratic public sphere of online commerce and communication. To 
restructure communications law without including fundamental 
protections of network neutrality would be to undermine the primary 
reason for our success.
    The future of the Internet should be handled just like the birth of 
the Internet--by maximizing consumer choice. Unequivocally, consumer 
advocates have argued successfully for well over a decade that the 
baseline protection of network neutrality must be preserved to 
guarantee a free and competitive online marketplace.\10\ The genius of 
the Internet, the catalyst of economic growth, democratic discourse, 
and social opportunity it has become, is based on the foundation of 
nondiscrimination. The market has worked beautifully because the 
barriers to entry were low and the status of every actor in the 
marketplace remained equal. This is a competitive market at its finest, 
but it is premised on that neutral platform. Remove the neutral 
footing, and the market tips in favor of the network owners.
Network Discrimination Through a ``Tiered'' Internet Will Severely 
        Curtail Consumer Choice
    The removal of network neutrality as a consumer protection will 
fundamentally change the Internet for the worse. Among the first 
casualties will be the free market for content, services and 
applications, and the Internet's innovation engine.
Content Discrimination
    When consumers log onto the Internet, they take for granted the 
ability to access content however and whenever they like. They assume 
the availability of any online feature they choose--watching online 
video, listening to podcasts, searching, e-mailing, and instant 
messaging. What they are assuming is the practical reality of 
nondiscrimination, or network neutrality. From the consumer 
perspective, network neutrality is the idea that the Internet should be 
open and free, unrestricted by anyone.
    The network owners--cable and telephone companies--would like to 
charge extra tolls (beyond access charges that online content and 
service providers already pay) for smooth access to websites and 
sufficient speed to run applications and devices. The goal is the 
creation of a ``tiered'' Internet. The executives of these companies 
have repeatedly announced their intentions in the mainstream press, 
including the Wall Street Journal and the Washington Post.\11\
    The idea of a discriminatory or ``tiered'' Internet is based on a 
simple concept: the network owner intervenes between the consumer and 
the content provider to charge fees for delivery to the consumer. Under 
neutrality rules, the network owners charge the customer for 
communications services, and any application or content that works 
within that level of service must be allowed to flow--no questions (or 
additional fees) asked.
    The network operators also charge content, applications, and 
service providers to send their wares through the network; but they 
must offer nondiscriminatory rates, terms, and conditions to everyone. 
The network operator has nothing to say about the transaction between 
customers and the service providers once both have paid their fee to 
access the network. Consumers make their own choices, and application 
developers have a fair chance to win the customer without interference 
from the network operator.
    Without network neutrality, the network operator has total control. 
Different fees can be charged based on the type of service (voice, 
video, or data); different fees can be charged based on the type of 
provider (individual, small business, or big business); different fees 
can be charged based on the affiliation of the provider with the 
network operator; different fees can be charged to guarantee delivery 
at a particular rate of speed or quality; different fees can be charged 
based on political affiliation or the day of the week. In fact, without 
neutrality rules, the network owners can charge whatever they want, to 
whomever they want, for any reason they choose.
    They can create ``fast lanes'' and ``slow lanes'' and decide who 
gets to be in each. There is nothing to stop AT&T from pushing content 
providers into exclusive deals denied to Comcast or Time Warner 
subscribers. There is nothing to stop Verizon from slowing down 
websites they dislike and speeding up others with impunity. There is no 
reason why BellSouth could not make a deal with Amazon to make it the 
preferred online book retailer on its network. There is nothing to stop 
discrimination for social, economic, or political reasons. This has 
been dubbed the ``Tony Soprano'' business model: Stand between content 
and consumers; demand a cut from strangers; let your friends go for 
free. Naturally, the network owners promise that they will commit none 
of the more egregious acts of extortion available to them. But they 
will not be prohibited by law from doing so.
    Network neutrality keeps telephone companies off of consumers' 
backs and out of their wallets. Consumers should choose winners and 
losers in the content marketplace based on the merits of a website or 
service; network owners with strong financial incentive to distort the 
free market should be prevented from doing so.
Stifling Innovation
    In the words of Internet architect Vint Cerf, the Internet is 
``innovation without permission.'' That is the genius of the network 
that has proven to be a wonderland for entrepreneurs. It is critical to 
remember that the Internet's name brands of today were just a good idea 
in a garage a decade ago. College kids created Google. A hobbyist 
conceived the idea for eBay. A teenager wrote the code for Instant 
Messaging. Some of the most popular sites on the Internet today--
MySpace, FaceBook, and YouTube--did not exist three years ago. This 
technological revolution keeps turning because the Internet is an 
unrestricted free marketplace of ideas where innovators rise and fall 
on their merits.
    The laws that protect this free market are network neutrality 
rules. Without the rules, innovators are at the mercy of the network 
owners to say who can and cannot succeed. We are back in the Tony 
Soprano model, where building a new online business requires paying 
protection money to the boss. Any entrepreneur that lacks the money to 
make a deal, or the ability to draw the interest and privilege of a 
network operator, is out of luck.
    The repercussions of simply raising money from investors in a world 
without network neutrality will be devastating to innovators. How many 
venture capitalists will embrace a business plan if the first line 
reads: ``Strike a favorable deal with AT&T?'' That is simply a non-
starter for entrepreneurs that will stifle innovation. The best ideas 
do not always come from the deepest pockets.
    Or, assume that a new business does beat the odds and gains a 
foothold in the online marketplace. What happens when it begins to 
compete with a service that is partially owned by the network operator? 
What happens when the fees for the fast lane are tripled? What happens 
when service is degraded at a prime time for business, like the holiday 
shopping season? Will investors continue to sink money into a company 
with these kinds of market uncertainties?
    Is this scenario hypothetical? Not at all. Hardware manufacturers 
currently advertise routers that have the ability to investigate the 
packets flowing onto a network to determine the origin of the content 
or application. If the content comes from a ``preferred'' provider that 
has made a deal with the network, it is guaranteed quality of 
service.\12\ If the content is from an unaffiliated source, the router 
can de-prioritize the content and degrade the service. Network 
operators are already planning to manage bandwidth to maximize revenue 
streams through discriminatory deals with third-party providers. This 
distorts the market, undermines competition, and smothers innovation.
    Up to this point, the consumer has been the ultimate decision-maker 
on the network. The network owner simply transmitted data over wires, 
regardless of the source of that content. A ``tiered'' Internet 
installs the network owner as the gatekeeper of Internet content and 
applications. The result will be a cartel of super-fast websites that 
pay for the privilege of speedy consumer downloads, relegating the 
equal-opportunity Internet to the dustbin of history.
    The Internet will begin to look more and more like cable TV. The 
owner of the network will pick content from a handful of other 
corporate media producers, and those will make up a limited menu of 
featured services with guaranteed quality. Everyone else will be a 
second-class citizen on the Internet. Instead of a thousand flowers 
blooming--including the independent voices that are now virtually 
absent from the mainstream media--we will have the channels that the 
network owners decide to deliver. Without network neutrality, we give 
network owners the power to become the gatekeepers of the Internet. 
This is terrifically bad news for the most democratic communications 
medium we've ever known.
Absent Network Neutrality Protections, Consumers Will Experience Higher 
        Costs and Fewer Choices for Broadband
    The network operators are fond of telling consumers that by 
stripping consumer protections like network neutrality, they will be 
saving money on their monthly bills. The notion is that the new 
discriminatory fees laid on Internet content and service providers for 
guaranteed delivery will subsidize some of the freight consumers once 
carried alone. They argue that consumers will pay the same (or less!) 
and get better service from the selected content providers that choose 
to buy their way into the fast lane.
    Economics 101 suggests a different storyline. In reality, consumers 
will pay the tab, one way or another--either by paying transparent 
monthly rates for access (with net neutrality left on the books) based 
on the level of service they demand, or through higher prices for 
consumer goods and Internet services (with net neutrality stripped 
out). Moreover, to the extent that the network operators are successful 
in undermining their competition, they will be able to raise prices.
    Popular Internet content providers like Google, Amazon, Yahoo!, and 
eBay are not going to simply swallow those extra costs levied on them 
by AT&T and Verizon. They will pass them along to consumers one way or 
another. Companies (like Google and Yahoo!) that have built their 
franchise on free services supported by ad revenue will simply raise 
their advertising rates. Higher advertising rates will result in higher 
consumer prices on all the goods that advertise on these sites. Other 
companies (from Amazon to eBay vendors) who sell goods and services 
online will have to raise their rates to account for the extra charges. 
In other words, Amazon, eBay, and every small business that sells on 
the Web will have to charge more. I-Tunes and all the pay-per-download 
content sites will have to charge higher rates as well, just to send 
their cut to AT&T and Verizon. Content sites like YouTube, MySpace, and 
video blogs may have to start charging for access to sustain their 
quality of service. Consumers are going to get hit in the wallet either 
way. But they're likely to do better in a transparent, competitive 
market with unlimited choices than by hoping AT&T, Verizon, or Comcast 
will keep their promises.
Network Discrimination Is Not Necessary To Promote the Deployment of 
        Broadband Networks
    Network operators will build out their high-speed networks whether 
there are network neutrality rules or not. The cable companies have 
largely built out their networks already. One way or another, telephone 
companies will upgrade their copper wires to compete with cable. They 
would have done so even if they had lost the Brand X case and the 
nondiscrimination rules still existed. The only reason they are 
claiming they need discriminatory pricing is because they see an 
opportunity to extract monopoly rents from a new source.
    There is no economic reason why nondiscrimination must be 
sacrificed to develop infrastructure. The pipe companies will generate 
the revenue to build networks in the same way they always have--from 
three sources. First, they will continue to receive billions of dollars 
every year from the monthly subscription fees paid by retail and 
enterprise consumers. Second, they will continue to receive billions of 
dollars every year from the access charges they receive from Internet 
content producers whose goods and services travel over their networks. 
(That's right--Internet companies already pay big bucks to be on the 
Internet. Any network operator who feels shortchanged can raise the 
rates, provided they do so a nondiscriminatory basis.) Finally, network 
operators will generate revenues by entering the content and 
applications market and competing for consumer dollars the old-
fashioned way--earning them in the free market.
    It is worth noting that the recent financial history of the large 
telephone companies suggests they have not been particularly serious 
about infrastructure investment. Since 2000, the annual reports of SBC 
and Verizon indicate that they have depreciated billions of dollars 
more than they have spent on their networks.\13\ Instead, they have 
laid out capital to purchase other telephone companies--reducing 
competition and increasing market power. In effect, these companies 
have been disinvesting in their infrastructure. If they now project 
increases in infrastructure spending, that reflects the fact that they 
are working from years of deficit. AT&T, which is making the most noise 
about charging discriminatory fees, has the worst track record of 
investment, having taken $9 billion more in depreciation expenses than 
it has laid out in capital expenditures in the past four years.\14\
    Approaching the situation through a slightly different lens, AT&T's 
path back to Ma Bell status involved the conglomeration of SBC, 
Ameritech, PacBell, SNET, and AT&T Wireless, at a cost of roughly $140 
billion. In the process, their market capitalization increased only $40 
billion. Ironically, the $100 billion that disappeared is roughly what 
it would cost to run fiber to every American household.\15\
    Now AT&T is lining up to spend another $67 billion on BellSouth, 
while Verizon has a $38 billion offer on the table to buy out its 
partner in Verizon Wireless. And yet they expect consumers to believe 
that they are short on capital and cannot afford to build their network 
without the elimination of consumer protection rules. Even in a world 
of Enron accounting, the idea that there is no revenue in the industry 
to upgrade the networks is a tall tale.
Facilities-Based Competition Is Far Too Weak To Protect Consumers From 
        Anti-Competitive, Anti-Consumer Discrimination
    The network owners have argued that network neutrality is an 
unnecessary protection because there is sufficient competition in the 
broadband market to deter bad behavior. Put simply, they argue that if 
Verizon degraded access to a site or created a discriminatory ``fast 
lane'' that consumers disliked--they would lose customers to the other 
network operators in the area.
    But consumers must have robust competition and multiple choices of 
broadband providers for this theory to work.\16\ Such competition does 
not exist, and it isn't likely to exist in the foreseeable future. Most 
Americans have access, at best, to two broadband providers--cable and 
DSL. That's it. These two companies dominate over 98 percent of the 
broadband market. The share of the market held by all the other 
broadband technologies combined--satellite, fixed wireless, mobile 
wireless, and broadband-over-power-lines--actually decreased over the 
last few years.\17\
    A significant chunk of the country has only one broadband provider, 
and around 10 percent of households have none at all.\18\ This is 
hardly a competitive market. Certainly there is insufficient 
competition between different technologies to produce any kind of 
deterrent. If both the local cable and telephone companies are using 
their networks to discriminate, the consumer is trapped. There is 
nowhere to go. That's why nondiscrimination through network neutrality 
is so critical for the content and application layer of the Internet. 
Without network neutrality, the telephone and cable duopoly will 
leverage their market power over the network to gain control over the 
content and application markets, establishing a handful of wireline 
companies as the gatekeepers of the Internet.
Conclusions and Recommendations
    Civic engagement on network neutrality represents the most diverse 
public response to a communications policy issues in recent history. A 
grassroots effort led by the ``Save the Internet'' Coalition 
(www.savetheInternet.com) includes nearly 700 organizations, from small 
community groups to large national organizations. Banded together in 
this coalition are the Gun Owners of America, Feminist Majority, 
Parents Television Council, American Library Association, Consumers 
Union, and Educause. Network neutrality is also supported by AARP, the 
ACLU, the Christian Coalition, and the National Religious Broadcasters.
    More than 700,000 individuals have signed a petition to Congress 
demanding Internet freedom through meaningful network neutrality. 
Thousands of bloggers of all political stripes and interests, from 
Daily Kos and Instapundit to video gamers, musicians, and educators, 
have championed the issue and encouraged public involvement in the 
campaign. The world's most renowned experts on Internet technology, 
law, and policy have written prominently on the issue. This massive 
civic coalition stands next to a similarly large and unprecedented 
coalition in the commercial sector, joining together the Internet 
content and technology industries. Google, Amazon, Intel, Microsoft, 
and eBay, are joined by hundreds of smaller online retailers and 
technology firms. The campaign to preserve network neutrality 
protections is perhaps the most diverse set of public and private 
interests backing any single issue in Washington today.
Recommendations
    We urge the Committee to replace the current language in the Title 
X of the Communications, Consumer's Choice, and Broadband Deployment 
Act of 2006 with the provisions of The Internet Freedom Preservation 
Act, introduced by Senators Snowe and Dorgan. Merely directing the FCC 
to study the issue of network neutrality is insufficient to address 
this important policy priority. Once network operators begin to re-
engineer the Internet to create a discriminatory system, it will be too 
late. The genie cannot return to the bottle. On the contrary, Congress 
must pass legislation that articulates a clear and enforceable 
affirmation of the principle of nondiscrimination. This will eliminate 
regulatory uncertainty and allow competition in the physical and 
applications layers of the Internet to resume a natural course. The 
consequences of inaction or half-measures will be severe.
    We recommend against simply adopting the FCC's four vague ``policy 
principles''--concepts that were never designed to be codified into 
regulation. The principles read as follows:

   Consumers are entitled to access the lawful Internet content 
        of their choice.

   Consumers are entitled to run applications and services of 
        their choice, subject to the needs of law enforcement.

   Consumers are entitled to connect their choice of legal 
        devices that do not harm the network.

   Consumers are entitled to competition among network 
        providers, application and service providers, and content 
        providers. \19\

    That sounds good, but the interpretation and implementation of such 
vague concepts will be almost impossible. FCC Chairman Kevin Martin has 
already indicated publicly that he does not believe these principles 
prohibit a network owner from setting up ``tiers'' and creating fast 
and slow lanes of service. \20\ These principles do not say anything 
about how and whether a network owner must disclose to its subscribers 
that discriminatory terms of service have been established on the 
network. And nowhere in the policy statement does the word 
``nondiscrimination'' appear. Nondiscrimination is the core of network 
neutrality. Without it, the provision is toothless.
    We strongly recommend adopting the legislation put forward by 
Senators Snowe and Dorgan. The Internet Freedom Preservation Act not 
only prevents broadband network owners from blocking and impairing 
consumer access to content, services and applications on the Internet, 
but also appropriately prohibits preferential pricing for access 
tiers--a poorly disguised form of discrimination. Importantly, the bill 
also creates a meaningful enforcement mechanism to deter network 
discrimination. It would ensure that telephone and cable companies are 
not allowed to transform the Internet from an open, innovative, 
competitive environment to one in which they control what consumers can 
buy, see, and use on the Internet.
    The choice before the Committee is clear: allow consumers through 
an unfettered online marketplace to decide which businesses succeed or 
fail; or allow the dominant telephone and cable duopoly to use its 
marketplace power to exclude the entrepreneurs who offer consumers 
affordable and innovative communications products and services. We urge 
you to adopt the former direction. The future of the Internet, the 
health of the communications marketplace, and the well-being of 
consumers depends on it.
ENDNOTES
    \1\ Free Press is a national, nonpartisan organization with over 
225,000 members working to increase informed public participation in 
crucial media and communications policy debates.
    \2\ Consumers Union is a nonprofit membership organization 
chartered in 1936 under the laws of the state of New York to provide 
consumers with information, education, and counsel about good, 
services, health, and personal finance, and to initiate and cooperate 
with individual and group efforts to maintain and enhance the quality 
of life for consumers. Consumers Union's income is solely derived from 
the sale of Consumer Reports, its other publications, and from 
noncommercial contributions, grants, and fees. In addition to reports 
on Consumers Union's own product testing, Consumer Reports with more 
than 5 million paid circulation, regularly, carries articles on health, 
product safety, marketplace economics and legislative, judicial, and 
regulatory actions which affect consumer welfare. Consumers Union's 
publications carry no advertising and receive no commercial support.
    \3\ The Consumer Federation of America is the Nation's largest 
consumer advocacy group, composed of over 280 State and local 
affiliates representing consumer, senior citizen, low-income, labor, 
farm, public power, and cooperative organizations, with more than 50 
million individual members.
    \4\ Tim Berners-Lee ``Neutrality of the Net,'' Decentralized 
Information Group, May 2, 2006.
    \5\ See Earl Comstock and John W. Butler, ``Access Denied'' in Mark 
Cooper (Ed.), Open Architecture as Communications Policy (Stanford: 
Center For Internet and Society, 2004).
    \6\ ``Modification of Final Judgment,'' United States of America v. 
Western Electric Company and American Telephone and Telegraph Company, 
Civil Action No. 82-019, August 24, 1982.
    \7\ See: 47 U.S.C. Sec. 202; For a legislative, legal, and 
regulatory history, see: Steven Aronowitz, ``Brand X Internet Services 
vs. FCC: The Case of the Missing Policy Argument,'' Berkeley Technology 
Law Journal, Annual Review 2005; For a legal ruling consistent with 
nondiscrimination, see also: AT&T v. City of Portland, (9th Cir. 2000).
    \8\ Brand X v. FCC (9th Cir. 2003).
    \9\ ``FCC Eliminates Mandated Sharing on Incumbents' Wireline 
Broadband Internet Access Services,'' Federal Communications 
Commission, August 5, 2005. See http://hraunfoss.fcc.gov/edocs_public/
attachmatch/DOC-260433A1.pdf.
    \10\ See for example: Expanding the Information Age for the 1990s: 
A Pragmatic Consumer Analysis (Consumer Federation of America and 
American Association of Retired Persons, January 11, 1990); Developing 
the Information Age in the 1990s: A Pragmatic Consumer View (Consumer 
Federation of America and Consumers Union, June 8, 1992); ``Petition to 
Deny of Consumers Union, Consumer Federation of America, and Office of 
Communications, Inc. of the United Church of Christ,'' Federal 
Communications Commission, CS Docket No. 98-178, October 29, 1998; 
``Reply Comments of Center for Media Education, Office of 
Communications, Inc., United Church of Christ, Minority Media and 
Telecommunications Council, Civil Right Forum, and Consumer Federation 
of America, Federal Communications Commission, CC Docket No. 98-146, 
October 10, 1998.
    \11\ See for example: ``At SBC, It's All About `Scale and Scope','' 
BusinessWeek Online, November 7, 2005; Jonathan Krim, ``Executive Wants 
to Charge for Web Speed,'' Washington Post, December 1, 2005; Dionne 
Searcey and Amy Schatz, ``Phone Companies Set Off a Battle Over 
Internet Fees,'' January 6, 2006.
    \12\ These technologies and their implications are discussed in 
Mark Cooper, ``Open Access to the Broadband Internet: Technical And 
Economic Discrimination In Closed, Proprietary Networks,'' University 
of Colorado Law Review, Vol. 69, Fall 2000.
    \13\ Annual Reports of AT&T, Verizon, and Bell South.
    \14\ AT&T Annual Report, 2005, SBC Annual Report, various years.
    \15\ ``Broadband: Bringing Home the Bits,'' Committee on Broadband 
Last Mile Technology, Computer Science and Telecommunications Board, 
Division on Engineering and Physical Sciences, National Research 
Council, National Academy Press, Washington, D.C.
    \16\ Trevor R. Roycroft, ``Network Diversity--A Misguided Policy. A 
Response to Christopher S. Yoo's `Promoting Broadband Through Network 
Diversity' '' March 1 2006. Available at http://
www.roycroftconsulting.org/response_to_Yoo.pdf.
    \17\ ``High-Speed Services for Internet Access,'' Federal 
Communications Commission, Data from Form 477 Filings, April 2006.
    \18\ ``Broadband Deployment Is Extensive throughout the United 
States, but it is Difficult to Assess the Extent of Deployment Gaps in 
Rural Areas,'' United States Government Accountability Office, Report 
to Congressional Committees, GAO-06-426, May 2006. See also, 
``Presentation by Kevin J. Martin at the 22nd Annual Institute on 
Telecommunications Policy & Regulation,'' December 3, 2004.
    \19\ ``Appropriate Framework for Broadband Access to the Internet 
over Wireline Facilities,'' CC Docket No. 0233, Policy Statement, FCC 
05-151, September 23, 2005.
    \20\ See Patrick Barnard, ``Whitacre, Martin, Don't See a Need for 
Net Neutrality Legislation,'' TMCNet, March 24, 2006.

    Senator Inouye. Thank you very much.
    I'd just note that there is a vote on at the present time. 
Senator Allen just came in.
    Would you like to make your statement?
    Senator Allen. If I could, yes. Yes, sir.
    Senator Inouye. Please.

                STATEMENT OF HON. GEORGE ALLEN, 
                   U.S. SENATOR FROM VIRGINIA

    Senator Allen. Thank you, Mr. Chairman--and thank all our 
witnesses--for this hearing on discussing Consumer Choice and 
the Broadband Deployment Act of 2006.
    There's a clear need for telecommunications reform in this 
country, and we, for a variety of reasons, need to pass a bill. 
I believe that thoughtful telecommunications reform legislation 
will enhance and increase competition. Increased competition's 
great for the consumer and their choices, as well as new 
opportunities in voice and data and broadband and video.
    The issue of net neutrality, though, has now come into 
this. This has become a central, major focus of debate on this 
very broad telecommunications reform measure. I'm concerned 
that this issue alone is going to bog this whole thing down, 
one way or the other, stopping all the other aspects of it.
    I think--and you all have heard me say--I consider the 
Internet the greatest invention since the Gutenberg press for 
the dissemination of information and ideas. It is an 
individualized empowerment zone. It should remain so. We have 
kept the government out of the Internet. Other than DARPA 
helping create it, it has been free market and freedom and let 
individuals make decisions on it. And government involvement 
has been minimal. I've obviously tried to stop taxation of it, 
by State, Federal, or local governments. And so, this growth, 
this economic growth, the innovation and empowerment, must 
continue.
    America is transitioning, though, from dialup to broadband. 
There is less competition, there is less choice now with 
broadband than there was with dialup service. So, there isn't--
right now, you have--you get cable or DSL. The FCC indicated 94 
percent of Americans purchase broadband from cable or from a 
telephone company, and--but, still, there are a good number of 
people who only have a choice of one; it's either DSL or it's 
cable modem or none at all. The lack of competition then brings 
up a question of policy, Mr. Chairman, for what we should do 
and whether any legislative steps at all ought to be taken to 
ensure the Internet remains open and the innovator that has 
affected us so profoundly. If it is--if it is determined that 
legislation is necessary, I think we need to take very, very 
close and great care to refrain from imposing overly burdensome 
regulations that stifle investment and innovation on the 
network.
    Now, I think that the best solution is a competitive 
broadband-access market, and that competition will discipline 
the behavior of network operators, and prevent practices that 
would be harmful to the Internet and also consumers. I've--and 
I'm glad the Chairman incorporated it in a measure I 
introduced, the Wireless Innovation Act, that'll use this 
unused spectrum from analog to digital transition, and that 
will provide way more competition, way more opportunities for 
individuals to get broadband. And that's what we should want, 
and that will help preserve the Internet.
    Now, I suggest this, Mr. Chairman, that we get all--and I 
was listening to Mr. Regan, whose views are kind of close to 
mine in the way that you are looking at this. I actually agree 
with all of you all in a variety of ways, but you're kind of 
like an impartial--you're more of a referee, you've got a 
striped tie on there. He's not like a zebra, but you're more 
like a referee in this whole matter. And you're asking these 
three very probative questions.
    I would suggest, Mr. Chairman, you get all these relevant 
stakeholders together in a room, lock them in that room, and 
find if they can get a consensus on how we can protect the 
Internet while, at the same time, making sure there is a 
fertile investment climate for network operators. I don't want 
to stifle the buildout. And if that--but I see--unless you all 
can come together and make sure that all the relevant 
stakeholders can be in agreement with it, I'm really concerned 
about the unintended consequences of hasty government action, 
worrying about a perceived problem that has not yet occurred, 
and then doing something that ends up being untoward. On the 
other hand, I understand that, ``Well, you can't wait, the 
genie won't be let back out of the bottle again,'' and so 
forth.
    But I thank you, Mr. Chairman, for holding this hearing. 
And I really do encourage all of you, all of y'all and others, 
to get together in a room, figure this out. Because I think if 
you get government action, it probably will end up being more 
harmful than good. Inaction may not be the worst thing in the 
world, but I also look at the legislative reality that if we do 
not address this network--or this net neutrality issue, there 
are so many other great provisions of this bill that are going 
to be held up, and that is ultimately, the bottom line, the 
worst thing for this country.
    And I thank you, Mr. Chairman, for allowing me to share 
these views out of order.
    Thank you.
    Senator Inouye. Thank you very much.
    At the direction of the Chair, we will be standing in 
recess for 15 minutes. But, before we do, the Chair will 
recognize Senator DeMint.

                 STATEMENT OF HON. JIM DeMINT, 
                U.S. SENATOR FROM SOUTH CAROLINA

    Senator DeMint. Thank you, Senator.
    I would just ask unanimous consent----
    Senator Inouye. Will you hold? May I suggest that the other 
members go to vote?
    Senator DeMint. I want to hear from the witnesses, but just 
a couple of quick comments.
    As a person who has been in business most of his life and 
not in the Senate, or in politics--I've worked with a lot of 
different products and distribution centers, and there are a 
lot of parallels here that we need to recognize. Alot of my 
years were spent trying to get products and distribution in 
grocery stores so those grocery stores could sell them to 
millions of consumers. And we have that type of dynamic 
competition now that exists in telecommunications and on the 
Internet. And I think what we're talking about doing today is 
telling Kroger or Safeway how they need to manage their shelves 
and what products they need to put on their shelves, and to 
mandate by government that every product that is presented have 
a place on the shelf in an equal way.
    That's not good for consumers, because, as someone who sold 
products for years, we had to make a good case that we were 
going to develop a consumer market with consumer demand. We 
were going to spend the money on advertising. We were going to 
spend the money on developing the best product we could so that 
if that grocery store did not have our product, it was their 
loss, not just ours.
    What we're talking about is telling Whole Foods, who's 
spending millions of dollars developing new stores across the 
country, that they have to take all the different kinds of 
products. They no longer control their shelves. And what would 
happen with them, as well as with the Internet, if we come in 
and try to regulate their business and tell them what products, 
what content, as we call it in this industry, that they have to 
have, and how they have to display it, or put it on their 
shelves, or in their pipes, we're going to make a huge mistake, 
because this government cannot possibly keep up with the 
dynamic and growing market that we have in the Internet. It's 
one of the things that's working well in this country today, 
and it's working well because the government has yet to get its 
hands on it. Let's wait until we have a problem before we try 
to anticipate those problems and regulate for them.
    Thank you, Mr. Chairman. I yield back. And I'll be glad to 
listen while you go vote, if you haven't voted.
    Senator Inouye. No, we'd like to listen to them, too.
    Senator DeMint. OK, good.
    Senator Inouye. So, if I may, I'll call a recess for the 
next 15 minutes, and, at that time, the Chair will recognize 
Mr. Cochetti.
    [Recess.]
    Senator McCain. [presiding] We'll reconvene the hearing. 
Tell you what we'll do--because Senator Inouye wants to make 
sure he hears the testimony of the last two witnesses, I'll 
begin with some questions, and then others will be filtering 
back. And when Senator Inouye comes back, then we will hear 
testimony from the last two witnesses, showing the incredible 
flexibility of the Commerce Committee.
    [Laughter.]
    Senator McCain. Mr. Misener--and we'll just go down the 
panel--Mr. Misener, on May 11 the Wall Street Journal 
publicized an--published an op-ed--by Leo Hindery, who is a 
former cable company executive--which states, and I quote, 
``Operators of all stripes should be allowed to charge 
consumers different prices for different--for Internet access. 
Differentiated Internet access is just another form of consumer 
choice, and an extremely positive one at that, but 
discriminating against selected Internet content flies in the 
face of the choice. Parsing the net neutrality debate in this 
manner would let broadband companies earn appropriate returns 
on their significant investments in distribution plant, while 
giving consumers, without gatekeepers in the middle, all the 
benefits of the abundant content of the Internet.''
    Do you agree or disagree with Mr. Hindery's statement on 
parsing the definition of net neutrality? And is there any 
agreement at the table on whether there are any aspects of net 
neutrality that could, and should, be enacted into law?
    Mr. Misener? And we'll just go down the list of witnesses.
    Mr. Misener. Yes, Senator McCain----
    Senator McCain. One, do you agree or disagree with Mr. 
Hindery?
    Mr. Misener. Agree.
    Senator McCain. Second, is there any aspect of this issue 
that could, and should, be enacted into law?
    Mr. Misener. Agree with Mr. Hindery. Certainly companies 
like my own already are paying that kind of tiered approach for 
access. We use more capacity in our connection to the Internet 
than a small online shopping site, and, thus, we pay more for 
it. It makes perfect sense that a gamer using the Internet 24/7 
should pay more than someone who sends e-mails twice a month. 
We support that.
    The point that we ought to all agree on is that the content 
that the--the network operators, with market power over the 
networks, should not be able to extend that market power to 
control of content in a way that discriminates among the 
sources or ownership of content.
    Senator McCain. Mr. Tauke? And, by the way, do you believe 
there are any aspects--did you answer whether there should be--
anything should be acted into law, Mr. Misener?
    Mr. Misener. Yes, sir. We fully support the legislation 
introduced by Senator Snowe and Senator Dorgan. And so, we 
think that's a great approach.
    Senator McCain. Mr. Tauke?
    Mr. Tauke. Senator, first, I personally agree with Mr. 
Hindery, in the sense that consumers have much--many different 
choices for access. From our company alone they can purchase 
dialup, you know, DSL, they can purchase fiber capacity at 5, 
15, or 30 megabits per second. And, of course, there are 
different pricing structures. So, there are more and more 
options coming to--being made available to consumers from 
individual companies. But then, we have many more players also 
entering the access marketplace.
    When it comes to the content side of the house, I want to 
differentiate between Internet access and access, generally. 
Our view is that there should be--that consumers should have 
access to any website they want to get to with the capacity 
that they purchase for that access. And we don't think there 
should be any blocking, degrading, or any other attempt to in 
any way interfere with the consumer's access to any website.
    But we also--as we build the new network with much more 
capacity and different lasers doing different things, we'd also 
like to have the ability to be able to enter into a health-
monitoring arrangement with Johns Hopkins so that they are able 
to monitor their heart-care patients. We would like to be able 
to enter into an arrangement, let's say, with a credit card 
company, or bank, or financial institution that wants to 
provide special services, where they want one network provider 
to have end-to-end connectivity and managing authority over 
that network, so they can provide special financial services 
online to their customers. We don't know exactly what will 
happen, but we think that there is a whole new space for 
innovation as you build these networks with huge amounts of 
capacity, and we'd like to do that.
    In answer to your last question, as to what we do with 
the--with legislation, our view is that legislation is--on net 
neutrality is not now needed because of the steps the FCC has 
taken to ensure open Internet access for consumers. But if 
there were, if the Committee decided it wanted to do 
legislation, we think there are specific things, like in the 
no-blocking/no-degrading area, where there is potentially room 
for a belt and suspenders, if you will, from Congress, to 
essentially go down the path the FCC has already taken.
    Senator McCain. But certainly not laws that would mandate 
certain access to the Internet.
    Mr. Tauke. I think what I'm more concerned about, Senator, 
is access, generally. We have--in the network we're providing, 
we have one path that goes video, we have one path that goes 
Internet access, we have another path that will have virtual 
private networks, and there are more paths that can be created 
with new lasers on this fiber. There is one thing talking about 
access to the Internet, it's another thing talking about 
access, generally. We don't think there's a problem with access 
to the Internet. There shouldn't be any blocking. If Congress 
wants to ensure that doesn't happen, we'd be delighted to work 
with you on that, but don't----
    Senator McCain. Mr. Regan?
    Mr. Tauke.--prohibit us from doing other things on that 
same access network.
    Senator McCain. I gotcha.
    Mr. Regan?
    Mr. Regan. I agree with Mr. Hindery, number one. And, 
number two, I would prefer that you not legislate in this space 
until we understand exactly what it is we're trying to do and 
exactly the nature of the problem. But if you're compelled to 
do it, then I would urge you to do something along the lines of 
what the FCC has done, and that is a consumer protection 
provision that basically says, ``You get what you pay for, and 
we guarantee that,'' number one. Number two, ``You can go on 
the Internet where you want to go, as long as it's lawful.'' 
Number three, ``You can run any applications you want, as long 
as you don't hurt anybody else or hurt the network.'' And, 
number four, ``You can connect any device you want to the 
network, as long as you don't hurt anybody or the network 
itself.''
    So, I'd keep it focused on the consumer, and I would be 
very worried about introducing these notions of 
nondiscrimination, because I think they bring you down a path 
that is very ill-defined.
    Senator McCain. Well, Mr. Regan, what signs would you say 
that you could see that may say, ``OK, we need to pass some 
kind of legislation to ensure net neutrality''?
    Mr. Regan. I think if we find----
    Senator McCain. What signs would trouble you?
    Mr. Regan. OK. I think if we--first of all, we think that 
these--as problems arise, they ought to be brought to the FCC 
for resolution, because they've said that they can do it. 
They've said they have the authority to do it. It says right 
here, ``We can make sure that the network is operated in a 
neutral manner.''
    Senator McCain. Yes, but what signs would bother you?
    Mr. Regan. What would bother me is if someone is actually 
blocked, if someone is denied access to content, if someone is 
told, you know, ``If you get on the Internet, and you have a 
home office, and you're trying to put a lot of data on the 
Internet within your service plan, and you're being blocked, 
because you're using so much bandwidth,'' those kinds of things 
would trouble me. And then I would say there's a need to step 
in. But I think we ought to exhaust the FCC authority first.
    Senator McCain. Mr. Scott?
    Mr. Scott. To start, I think, you know, the bottom line for 
consumers is that any functionality made available on the 
network now, and henceforth, should be made available on a 
nondiscriminatory basis. That is to say, the consumer should be 
in charge of selecting the providers of the content and 
services that they desire. What we are concerned about is a 
situation where functionality is made available on the network 
and access to that functionality is determined exclusively by 
the network operator.
    We believe, second, that----
    Senator McCain. Do you see any signs that that may happen?
    Mr. Scott. I read it, the executives of all of the network 
owners in the Wall Street Journal and the Washington Post and 
in Business Week telling us that that's exactly what they plan 
to do. So, I take them at their word.
    I think--you know, I disagree with Mr. Regan, in that I 
think nondiscrimination is actually a very well-defined term. 
We have had nondiscrimination in the Communications Act for 
many, many years. Nondiscrimination has been applied to the 
telephone network for decades. We've had nondiscrimination in 
the program access rules in cable for many years. This is an 
issue that Congress knows well, the FCC knows well, and the 
consumers have benefited from for decades. We'd like to see it 
continue.
    Senator McCain. Legislation?
    Mr. Scott. We strongly support the legislation put forward 
by Senators Snowe and Dorgan.
    Senator McCain. Mr. Cochetti?
    Mr. Cochetti. Thank you, Mr. Chairman. As my testimony will 
explain a little later, our perspective is that of a computer 
industry trade association that is made up primarily of small 
computer companies; about 20,000 small computer companies 
around the country. That gives us a slightly different 
perspective than some of the other witnesses at this hearing.
    The main comment I'd offer with regard to the Wall Street 
Journal article is that our members are primarily concerned 
about the adverse impact of government regulation. They are 
concerned that premature government regulation could stifle 
investment and stifle the flexibility that they need for their 
use of, and their customers' use of, the Internet. Regulation 
should enter the equation if, and when, problems arise that 
cannot be addressed, and have not been addressed, by the 
market, end-user education, technology tools, and other 
approaches. So, I think that the general conclusion we would 
reach would be a little bit different than that presented in 
the Wall Street Journal article; namely, that we don't believe 
that the conditions are ripe for government regulation.
    As to your second question, about legislation today, our 
response would really rely pretty much on the same framework. 
The question is one of whether the conditions are evident and 
ripe for government regulation of Internet access services.
    Senator McCain. Are the conditions evident, in your view?
    Mr. Cochetti. We don't believe that the conditions have 
arisen that would justify government regulation, or wholesale 
government regulation, at this time. And, you know, I think 
that the issue----
    Senator McCain. Are you worried there might be?
    Mr. Cochetti. I think it's a matter that we are concerned 
with, obviously, and one that anybody who's concerned about the 
Internet should pay attention to. But the Internet is a lively 
and dynamic medium that has managed to work its way around many 
issues without the help of government, so we are firmly one of 
those who believes that government regulation should not be the 
first resort when facing a problem, or an issue on the 
Internet.
    Senator McCain. You say you have a slightly different 
perspective. One of the things that I keep hearing is, ``Well, 
if we wait, and some of these things happen, it would be very 
difficult for Congress to act to repeal activities that are 
taking place that would harm,'' quote, `` `net neutrality.' '' 
Does that concern you?
    Mr. Cochetti. Mr. Chairman, it does--it is an issue of 
concern, obviously. It's not evident to us that the government 
could not take corrective action if the situation proved 
adverse after it became evident that market forces, technology 
tools, and end-user education couldn't adequately address the 
problem.
    Senator McCain. Mr. Comstock?
    Mr. Comstock. Thank you, Mr. Chairman.
    I think it's actually quite interesting that Mr. Hindery, a 
cable operator, would make that analysis. And I think it's a 
very accurate one. He's dividing the difference between----
    Senator McCain. He's a former----
    Mr. Comstock. Cable----
    Senator McCain.--cable operator.
    Mr. Comstock.--former cable operator, yes, which means he 
knows well the circumstance of which he speaks, because 
everybody keeps talking as if we've never seen this before. In 
fact, we have 10 years of experience with the cable industry 
about this. And it's not true, as Mr. Tauke said, that you can 
get any ISP you want. Sure, you can reach any ISP over a cable 
network, but you have to buy their ISP as part of the package 
when you sign up, just as you have to buy Verizon's ISP when 
you sign up for video. So----
    Senator McCain. Sort of like----
    Mr. Comstock.--he's----
    Senator McCain.--sort of like I have to buy a package of 
programs for when I--from my cable company when I subscribe to 
them--sort of like along those lines--rather than the ones that 
I want, pretty much, right?
    Mr. Comstock. That's exactly right.
    Senator McCain. Good. Oh, thank you.
    [Laughter.]
    Mr. Comstock. The--I think the point to make--and maybe 
this will help illustrate it--we are really talking about a 
distinction between transmission and content. And it is 
transmission that has always been regulated, and that's what 
made the Internet possible. The development of packet-switched 
networking would not have occurred if we didn't have those 
nondiscrimination rules. Why? Because the companies that 
brought you packet-switching were not the incumbents; it was 
the other folks.
    And I think the example that might help identify this is--
Mr. Tauke talked about his three lasers-to-the-home--well, 
think about your local exchange network. You could buy a second 
phone line if you wanted, and do with it what you wanted. What 
he's essentially suggesting is, ``Gee, there may be four phone 
lines running into your house, and we'll sell you one of them 
to do with what you want, but the others we get to decide who 
will use those, what services will be offered. Even if you want 
to buy that capacity, it's not available to you.'' So, he keeps 
talking about, ``Gee, there will be these other business 
arrangements that somehow don't adversely impact the 
consumer.'' What if I want to go to one of those other 
providers, or somebody who's not in a special deal, and I want 
to buy that capacity to do it, buy the second phone line for my 
fax machine? They're going to say no. Why? Because that 
protects the value of their content and services, vis-a-vis the 
people they're trying to compete with.
    So, Mr. Hindery's absolutely right, you need to separate 
transmission from content and prevent a monopoly in 
transmission, which any network operator has with respect to 
the homes and businesses they serve, from being used to 
leverage an advantage in content and services. So----
    Senator McCain. I think I know your----
    Mr. Comstock.--we do need----
    Senator McCain.--answer.
    Mr. Comstock.--answer.
    Senator McCain. Mr. Tauke, you have 30-second rebuttal 
time, since your name was mentioned frequently.
    Mr. Tauke. Thank you, Senator.
    Senator McCain. Welcome back, Mr. Comstock.
    Mr. Tauke. The notion that we have an interest in 
restricting content on the network is just laughable, from our 
business perspective. We want Google, and Microsoft, and eBay, 
and every other provider of content to do as much selling as 
they can to consumers, and to get consumers to use our network 
to get to those providers. When we talk about special 
arrangements, these are special arrangements with people--which 
people don't want to deliver over the Internet. We've been 
doing this in the business market for 20 years. We have a lot 
of people who do business over the Internet----
    Senator McCain. You're nearing the end of your 30 seconds.
    [Laughter.]
    Mr. Tauke. OK. I'll stop.
    Senator McCain. All right. Thank you very much.
    Not astonishingly, the vote was three to three----
    [Laughter.]
    Senator McCain.--on legislation. I thank the witnesses. 
This is extremely helpful. It's a very difficult issue, one 
that I think has aroused as much interest as any issue recently 
before this committee, and I thank the witnesses who are here 
today.
    Senator Dorgan?
    Senator Dorgan. Mr. Chairman, thank you very much.
    And let me thank all of the witnesses. These witnesses have 
offered some very interesting and provocative testimony.
    I have to say that Senator Allen, when he was here, talked 
about--as we all have--talked about freedom, and then suggested 
we lock all of you in a room.
    [Laughter.]
    Senator Dorgan. I was thinking, there's a counterpoint 
there somewhere.
    Let me ask--Mr. Tauke, a Senior VP/General Counsel from 
your company says--and I'm going to do this, because this is 
what got me interested in this issue--``Google is providing a 
free lunch that should, by any rational account, be the lunch 
of the facilities providers--or Google is enjoying a free 
lunch, rather, that should, by any rational account, be the 
lunch of facilities providers.''
    Just prior to that, AT&T now-CEO Whitacre says, ``They 
don't have any fiber out there. They don't have any wires. They 
don't have anything. They use my wires for free, and that's 
bull. For a Google, or a Yahoo!, or a Vonage, or anybody to 
expect to use these pipes for free is nuts.''
    Can you understand, when I read this, I say, ``Uh-oh, 
somebody's got a gate, somebody's going to have a toll, and 
somebody's going to figure out what's going to come into my 
home and how much they're going to charge for it? '' I pay to 
have Google come into my home. I pay, as I said, the equivalent 
of a small used car every month for cable to provide broadband 
to my home. So, that toll is already paid. Why is it that the 
provider here is saying they're getting a free ride, and the 
implication is that you and AT&T want to charge them?
    Mr. Tauke. Senator, yes, I can understand why you would be 
concerned, and let me try to explain the different contexts in 
which people think about these things.
    If you are in, frankly, the ``old world,'' where there is 
limited capacity--you had copper wires, and so, therefore, 
there is a real premium on space--then you have one kind of 
regulatory structure, which we still have for dialup service, 
which is the nondiscriminatory common-carrier structure, but, 
as you move into a ``new world,'' where you have fiber with 
virtually unlimited capacity, and you are talking about doing 
things beyond Internet access, then I think that's something 
different.
    Senator Dorgan. But----
    Mr. Tauke. So, we want to sell people 30 megabits or 50 
megabits of Internet access, where they--which they can use 
however they please, going to whatever website they want, but--
--
    Senator Dorgan. Let me--don't eat up my 5 minutes, there--
--
    Mr. Tauke. Right.
    Senator Dorgan.--Mr. Tauke. I just asked you a short 
question. Is there reason for me to be concerned when I read 
these sort of things? The answer is yes. I think you started 
with that answer. But----
    Mr. Tauke. But not--no, not if you understand that in the 
new network the consumer will have full and robust access to 
the Internet, but there should be an ability to also offer them 
other services.
    Senator Dorgan. Mr. Misener--thank you, Mr. Tauke--Mr. 
Misener, you indicated that the proposal that we have offered 
in a piece of legislation is not, in fact, new regulation at 
all, it simply reinstates the nondiscriminatory provisions that 
had already existed. Can you amplify on that?
    Mr. Misener. That's correct. It's one of the major myths in 
this whole debate, Senator Dorgan, that the Internet has been 
unregulated. And that's not correct. Internet access has been 
regulated under these nondiscriminatory rules since its 
inception, until last year. So, we see this as a reinstatement 
of the longstanding consumer protections that were dismantled 
by the FCC last year.
    Senator Dorgan. I don't view this, Mr. Chairman, as a 
contest between good guys and bad guys. I mean, that's not what 
this is. But these are big interests with very significant 
investments, significant risks, and they want to shape the 
future in their image, to the extent they possibly can. That's 
the purpose of being in business, wanting to do well.
    My interest is in having an open Internet, and what I call 
``Internet freedom.'' The open architecture of the Internet is 
the dynamic that I think has allowed us to have breathtaking 
changes in our lives. I can access the biggest library in the 
world, the greatest museums in the world, sitting at home, on a 
keyboard. And that's the purpose of all of this, to make sure 
the Internet remains open and free.
    Mr. Scott, your organization has accumulated a pretty 
impressive group of interested parties and organizations. Tell 
me what your intention is with those groups.
    Mr. Scott. Well, our intention is to keep them up to speed 
as to the decisionmaking progress here in the Congress, keep 
them informed about what the issues mean to them--as consumers, 
and as small business providers, and as organizations who have 
millions of members across the Nation--how the future of the 
Internet will affect them.
    Senator Dorgan. And what are the consequences if the 
Congress says, ``You know what? Let's do nothing, and whatever 
happens, happens out there?'' What are the----
    Mr. Scott. Well----
    Senator Dorgan.--consequences for all those interests?
    Mr. Scott. I think they'll be universally negative, and I 
think that the hundreds of thousands of people that are 
currently engaged will become tens of millions, and we'll 
suddenly see a revolt on the Internet, the likes of which has 
never occurred before.
    Senator Dorgan. Mr. Chairman, my time is up, but I--and 
it's really too short a time, but this panel is really an 
extraordinarily good panel. I shut you off, Mr. Tauke, and yet 
your testimony was good testimony. And I think we have to think 
this through carefully. No one--Senator Snowe, myself, Senator 
Inouye--none of us want to do something that's precipitous, 
that's going to cause problems that are unintended 
consequences, that injure the Internet. That's not my interest 
at all. My interest is to make sure we have a dynamic Internet 
that works the way it has always worked, that accommodates 
innovation, creativity, and has free and open architecture for 
the future. So, you know, our committee is going to work 
through this, and I hope--and we'll do it in a bipartisan way 
and a thoughtful way. And I think the contribution you all have 
made today is a good contribution. But I think much more 
information is needed, Mr. Chairman.
    Senator McCain. Thank you very much, Senator Dorgan.
    And, in the spirit of nondiscrimination, we will allow Mr. 
Cochetti, and then Mr. Comstock to make their opening 
statements.
    Please proceed, Mr. Cochetti.

STATEMENT OF ROGER J. COCHETTI, GROUP DIRECTOR FOR U.S. PUBLIC 
  POLICY, COMPUTING TECHNOLOGY INDUSTRY ASSOCIATION (CompTIA)

    Mr. Cochetti. Thank you, Mr. Chairman and members of the 
Committee.
    My name is Roger Cochetti, and I'm here today on behalf of 
the Computing Technology Industry Association, CompTIA. Having 
spent much of my own career in both the telecommunications and 
computer industries, I have some perspective on the importance 
of the issues before the Committee today.
    CompTIA is the largest computer industry trade association 
in the United States. While our 20,000 members include most of 
the largest computer hardware, software, and service vendors in 
the industry, we are perhaps best known for the many thousands 
of so-called value-added resellers, or VARs, who make up 75 
percent of our membership. These typically small computer 
companies are the backbone of America's information economy. 
VARs are the principal source of computer support for America's 
small businesses. An average VAR might have six employees and 
manage the computer systems for 100 small businesses. VARs are, 
in this respect, the IT departments of America's small 
businesses; and, as such, they, and we, in CompTIA, have a very 
strong interest in communications policy reform.
    As this committee well knows, the technologies that enable 
telecommunications, computing, broadcasting, and cable 
television are rapidly converging. At the heart of this 
convergence lie the broadband services that enable our members, 
and their small-business customers, to do everything from web-
surfing for price quotations to instant video conferences with 
business partners. Broadband is an inherent part of the 
services that our members offer to their small-business 
customers today.
    Mr. Chairman, I'd like to comment on three broadband-
related issues addressed in this bill. Our perspective on all 
three is very much tempered by the fact that small-business use 
of information technology today looks very different than it 
did when the Congress last updated the Telecom Act. Much has 
changed in the technology and the marketplace, and the rate of 
change is now accelerating. Three issues stand out for us.
    First, S. 2686 includes what we think are important 
provisions to carefully increase the amount of desirable radio 
spectrum for wireless services. The bill would enable spectrum 
that is now used as white space separating broadcast bands to 
be used for new wireless services. These new services will 
include many that will be used by small businesses to improve 
their productivity, not least of which will be new wireless-
broadband services. We support this provision. It will help 
spur new wireless-broadband services and extend wireless 
broadband services to areas that may not be fully served today.
    Second, while we have seen gains in the availability of 
broadband to small businesses since 1996, much more needs to be 
done. We need more suppliers, more competition, and wider reach 
for broadband services. This will, in turn, drive innovation 
and investment in small business.
    When we took an informal poll of our VAR members earlier 
this year, 67 percent of those VARs participating indicated 
that they had only one choice for broadband, and 78 percent 
said they wanted more competition in broadband.
    This bill would significantly help increase the supply of 
broadband by very carefully creating new procedures for video 
franchising, which is intimately linked to broadband. This new 
procedure would address one of the major barriers to an 
increase in the supply of broadband services, the patchwork of 
local franchise procedures that has grown up for cable 
television. We support this reform and are convinced that its 
enactment will significantly enhance the availability and the 
competitiveness of broadband services to our members and their 
small-business customers.
    Third, since the inception of the Internet, Internet access 
and content services have generally not been federally 
regulated. This hands-off approach to the Internet has been 
important to our members and to small-business use of, and 
investment in, the Internet. And this approach has been a major 
contributor to the success of the Internet.
    Government regulation is particularly ill-suited to a 
medium like the Internet, which is extremely dynamic; whereas, 
government regulations normally take quite a while to formulate 
and revise. Moreover, since the United States has been the 
principal advocate around the world against government 
interference with the Internet, any regulation of the Internet 
by the United States will be used to justify more extensive, 
and often misguided, regulations by other governments.
    For these reasons, our members have felt that government 
regulation should be the last resort in any effort to address 
problems that have arisen in the Internet. Marketplace 
competition, technology tools, end-user education, and industry 
best practices are far more likely to be effective. And if they 
fail, then government regulation should be actively considered.
    For these reason, Mr. Chairman, we believe that wholesale 
Federal regulation of Internet access services is not justified 
at this time.
    In sum, Mr. Chairman, we believe that new spectrum for 
wireless services, a new Federal procedure for broadband, and 
government restraint in regulating Internet access will 
contribute to major improvements in broadband for our members 
and for the small businesses whom they support.
    I'd be happy to answer any questions you may have.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Cochetti follows:]

Prepared Statement of Roger J. Cochetti, Group Director for U.S. Public 
      Policy, Computing Technology Industry Association (CompTIA)
    Good morning, Chairman Stevens, Ranking Member Inouye, and 
distinguished members of the Committee. My name is Roger Cochetti. I am 
Group Director for U.S. Public Policy of the Computing Technology 
Industry Association (CompTIA), and I am here today on behalf of our 
20,000 member companies.
    Mr. Chairman and Ranking Member, I want to thank you and the 
members of your committee for holding this important hearing on S. 
2686, the ``Communications, Consumer's Choice, and Broadband Deployment 
Act of 2006.'' We believe that this bill, as well as other efforts in 
the U.S. Senate and House, represents a good starting point in the 
legislative discussion surrounding the update of our Nation's 
communications laws.
    It has been roughly ten years since the last comprehensive overhaul 
of these laws. Clearly, technology, as exemplified in the explosive 
growth of the Internet, has pushed the current law to its edges. Thus, 
the Congress now faces a unique opportunity to simultaneously 
strengthen America's information infrastructure and stimulate our 
economy, both of which will make the United States more globally 
competitive.
    Mr. Chairman and Ranking Member, the Computing Technology Industry 
Association is the largest computer industry trade association in the 
United States. We represent the business interests of virtually every 
segment of the information technology (IT) industry. For 24 years, 
CompTIA has been well known for the services that it provides to the IT 
industry. These include research, non-technical industry standards, 
educational materials and programs, networking and partnering 
opportunities and, perhaps most notably, skills certifications for 
professionals in the computer industry. Roughly 20,000 mostly American 
businesses are members of CompTIA and each month over 10,000 people 
around the world take one of our exams in order to earn one of our 
dozen CompTIA professional certifications.
    And while we represent nearly every major IT hardware, software or 
services company, Mr. Chairman, we distinctly represent the Nation's 
tens of thousands of so-called value-added resellers, or VARs. In fact, 
about 75 percent of our membership is comprised of VARs. These small 
system integrators--typically having about six employees per 
establishment--set up and maintain computer systems and networks for 
America's small businesses. An estimated 32,000 American VARs computer-
enable small business today, selling some $43 billion worth of computer 
hardware, software, and services; mostly to America's small businesses. 
This means that over one-third of the computer hardware sold in the 
U.S. today is sold by VARs, again mostly to small businesses.
    VARs are the IT departments of small businesses and without them, 
small businesses in the United States today could not function. Your 
dentist, travel agent, local retailer, or dry cleaner typically 
contracts with their local VAR to install, maintain and service their 
IT needs. For example, the local area network in your dentist's office 
was almost certainly not installed, nor is it maintained by the dentist 
him or herself; nor was it installed or maintained by a large vendor 
company. It was almost certainly designed, installed, and is maintained 
by one of our Nation's VARs. This is true for virtually all small 
businesses in the United States.
    In addition to representing the interests of the small IT 
companies, called VARs, through our public policy offices in 
Washington, Brussels, Hong Kong, and Sao Paulo, CompTIA works to 
provide global policy leadership for the IT industry, addressing a wide 
range of issues, including e-Skills capacity-building, the promotion of 
R&D, protecting intellectual property, and many others.
    Communications policies and regulations are of central importance 
to our members, Mr. Chairman, particularly as the technologies of 
telecommunications and information processing converge between 
themselves and with other technologies. IT today is viewed by our 
member companies, and more importantly by their customers, as a 
seamless stream of services and products that cover what may in the 
past have been labeled telecommunications, computation, broadcasting 
and other activities. Consequently, as this committee considers changes 
in the Nation's communications laws and regulations, it is important to 
bear in mind that any such changes will have an enormous effect on the 
IT industry in general and on the small IT businesses who are the IT 
departments of the Nation's small businesses.
Communications, Consumer's Choice, and Broadband Deployment Act of 2006
    With the passage of a decade since the enactment of the Nation's 
last major telecommunications laws, much has changed--in the 
marketplace, in the technology environment and in the convergence of 
once separate industries and markets. A decade ago, the Internet--and 
all of the rich content and access facilities that have led almost 80 
percent of all Americans to describe themselves as Internet users--was 
in its infancy; wireless services were in their toddler years; digital 
video services were in their childhood; and broadband services for 
small businesses were not even born. When the Telecommunications Act of 
1996 (1996 Act) was passed, American small businesses stood at the 
precipice of the digital communications revolution. By deregulating the 
local telephone monopoly, fostering facilities-based competition, and 
setting up the present competitive dynamic between local cable and 
telephone companies, among other things, the 1996 Act set in motion 
market forces that would change our lives, and the lives of American 
small businesses, forever. In short, as IT became more deeply embedded 
into the daily work of small business, the proliferation of networked 
broadband technologies opened up new opportunities never previously 
imagined.
    Consequently, S. 2686 is a truly sweeping piece of legislation, 
reflecting important efforts to update the laws governing America's 
communications landscape. While it seeks to reform and/or address such 
critically important matters as the Universal Service Fund, cable 
program access and ``broadcast flags,'' to name but a few issues, for 
our primarily VAR membership, three core areas of S. 2686 hold 
particular interest: The availability of radio spectrum for new data 
services in general, and the allocation of so-called ``white space'' 
broadcast spectrum for new wireless services in particular; streamlined 
and national franchising procedures for broadband services; and the 
regulation by the government of the terms and rates for Internet 
access.
Unlicensed ``White Space'' Spectrum
    The use of radio spectrum for data services is an absolutely 
essential part of our industry today, Mr. Chairman. While wireless 
networks were considered rare and exotic in 1996, today they are a 
common element in the networks used by small businesses. And while 
local area wireless networks, often called WiFi, are standard for many 
small businesses today, wide-area broadband networks are clearly the 
next major element of the American small business IT environment. This 
growth--and the growth driven by the introduction of many other new 
wireless applications--requires additional spectrum at the low 
frequencies whose propagation characteristics permit signals to 
penetrate structures.
    Earlier this year, the Congress acted decisively to ensure that 
spectrum that could be used for wireless services was freed up from 
broadcast television in connection with the transition from analog to 
digital television broadcasting. Section 602 of S. 2686 would build on 
that step forward by mandating that the FCC carefully proceed to ensure 
that other unutilized or under-utilized spectrum that is currently 
licensed for television broadcasting--the so-called ``white spaces'' 
that lie between broadcast television channels--be freed up for 
unlicensed wireless services. The careful allocation of this spectrum 
for unlicensed wireless services will help introduce new competition in 
the provision of broadband services to small businesses and consumers 
alike.
    In addition, Mr. Chairman, we believe that the opening up of 
spectrum from these ``white spaces'' to new wireless applications 
offers an opportunity for new broadband services in areas that may not 
be fully served by other services today. This is of particular 
importance to VARs and small businesses in rural areas.
    The allocation of ``white space'' spectrum for new wireless 
services will both contribute to the competitive mix of broadband 
services in areas already served by other broadband technologies and 
help extend broadband services to new areas that may not be fully 
served today. Underscoring the benefits of broadband technologies for 
small businesses, the U.S. Small Business Administration recently 
noted:

        ``Broadband investment (and more generally investment in 
        information technology) appears to provide substantial benefits 
        to both consumers and the overall economy. . . . [Broadband] 
        services permit faster downloading and uploading of bandwidth-
        rich applications, video, music, pictures and data. As 
        producers and consumers of these services and applications, 
        small businesses stand to benefit from broadband deployment and 
        use.''

    According to the SBA, 48 percent of American small businesses use 
some type of broadband service to conduct business. Of this, 26 percent 
use cable-provided broadband; 21 percent use DSL; 4 percent use high-
speed satellite; 4 percent use T-1; and 3 percent use wireless 
broadband. Our members believe that the percentage of small businesses 
that use broadband should and will increase as new wireless and 
wireline broadband services become available.
    ``White space'' frequencies represent prime, largely unused 
wireless ``real estate.'' With their excellent signal propagation 
characteristics, low-cost broadband deployment using this spectrum 
should be readily achieved, jumpstarting significant new business 
opportunities and improvements in the productivity and competitiveness 
of small businesses, urban and rural. Such wireless broadband services 
will enable small businesses to more easily and cost-effectively employ 
and network IT, especially in sparsely populated, underserved areas 
where the economics of broadband deployment sometimes make it 
impractical for providers to serve. In doing so, ``white space'' 
technology will give America's small businesses a better foot-up in the 
globally-competitive economy.
    Currently, unlicensed devices may not operate in the ``white 
spaces'' between broadcast bands. Section 602 of S. 2686 seeks to 
change this, calling on the FCC to very carefully ``certify'' devices 
that do not interfere with working TV stations. This will open the 
spigot of research and development, ultimately creating a whole new 
market for wireless products and services, including many that are 
related to broadband.
    We believe that a U.S. spectrum policy that recognizes the enormous 
importance of wireless services to the IT and the small business 
sectors, efficiently allocates spectrum, protects against interference 
to licensed services, and provides market flexibility will promote 
innovation and competition. In so doing, such a policy will contribute 
to American productivity, and to our global competitiveness. For small 
businesses--who on average spend about $545 per month for all 
communications services, a disproportionate amount compared to a large 
business--S. 2686 would work to provide more competitive broadband 
options for them. As such, we applaud this part of the bill.
Video Franchising
    Mr. Chairman, 35 million of the approximately 40 million high-speed 
lines in America serve residences and small businesses. Converged 
services (i.e., data-video-voice, VoIP, video conferencing, data 
transfers, etc.) drive much of this growth, making small businesses 
more productive, efficient, and competitive. Cable-provided broadband 
and telco-provided DSL represent the two leading choices to enable 
converged services. To illustrate the prevalence of these two choices, 
of the 48 percent of all U.S. small businesses that use broadband, 
according to the Small Business Administration, nearly 47 percent used 
either cable-provided high-speed services or DSL, with cable services 
being the clear leader.
    It is no accident that these two choices command the market. Cable 
and telephone companies represent substantial--presently available--
facilities-based offerings. In a very large number of local areas in 
America, there exists a cable and a telephone company, with at least 
one of them offering broadband/high-speed services. In fact, although 
the FCC concludes that low population density has an ``inverse 
association'' with high-speed service availability, even in U.S. 
locales with densities lower than six persons per square mile, 92 
percent of the populace in those zip codes can be served by high-speed 
services.
    No doubt, other ``intermodal'' (i.e., wireline, wireless, 
satellite, and broadband-over-power-line) forms of broadband or high-
speed services exist or are planned, but S. 2686 exploits a proven 
model--i.e., the competitive zeal between cable and telephone 
providers--to ignite present and future broadband deployment. 
(Parenthetically, this may be one of the most successful aspects of the 
1996 Act. Congress egged-on the dynamic tension between the two largest 
communications providers in most American markets and explicitly 
abstained from the regulation of information services, which fueled the 
growth of cable and telco-provided high-speed services.)
    To further encourage competition between the two major modes of 
communications competition, and encourage the wider roll-out of 
broadband services, Title III of the bill would grant an expedited 
national entry procedure for network operators who want to offer 
converged broadband services to small businesses and consumers alike. 
To accomplish this, S. 2686 seeks to limit some of the restraints on 
the growth of broadband that were previously imposed by local 
franchising authorities, while at the same time ensuring that local 
franchise authorities continue to receive comparable revenues and 
public access channels.
    Our members want more broadband competition, and more broadband 
choices for use with their customers. In an informal 2006 survey of 
CompTIA member VARs about the provision of broadband services to their 
small business customers, 67 percent of our members noted they had no 
competitive choice for broadband offerings in their locality. Seventy-
eight percent of the participating VARs believed that telephone 
companies should be allowed to offer cable-like broadband services to 
compete with the local cable provider. And similarly, 78 percent would 
pay more for faster services from their broadband provider.
    While this survey is not scientifically representative, it clearly 
confirms what our members have been telling us: competition in 
converged broadband services needs a nudge. We believe that S. 2686 
works to reduce one of the main obstacles to that deployment--the 
multiple and sometimes arbitrary rules of local franchising 
authorities, which have heretofore limited competition to the detriment 
of American VARs and their small business customers.
    Mr. Chairman, similar proposals exist in counterpart House 
legislation, which we also encourage. National franchising of broadband 
services, with safeguards for local franchise authorities and for 
consumers, will enhance broadband competition and in so doing 
significantly benefit America's small IT businesses, the VARs, and 
their customers, America's small businesses. The result will be further 
improvements in productivity and American competitiveness.
Government Regulation of Internet Access Services
    Much has been said on the topic of so-called ``net neutrality,'' 
yet few practical details have surfaced. What we can gather from the 
debate is that net neutrality resembles the four principles issued in 
2005 by the Federal Communications Commission, which would work to 
``ensure access'' to incumbent broadband facilities by competitors for 
the provision of their Internet content, run applications, and 
connection devices. Still, details are sparse.
    S. 2686 seeks to fill this void, urging the FCC to study net 
neutrality for the next five years, and then prescribe answers should 
it find that something is ``broken.'' Importantly, the bill eschews the 
immediate regulation of Internet access services that have been 
advocated by some.
    Throughout a variety of debates in this committee and in chambers 
around the world, the issue of government regulation of the Internet 
has been debated for a decade. Our members have consistently told us 
that new government regulations should be the last, not the first, 
resort in addressing problems that arise on the Internet. The medium is 
extremely dynamic and regulations are--by definition--slow to develop 
and update; and government regulations--no matter how well intended in 
the United States--are only used to justify more and different 
regulations in other countries. Moreover, CompTIA has consistently 
cautioned governments to avoid regulating against theoretical problems 
that do not yet exist and to focus on problems that do exist.
    Mr. Chairman, we believe that when problems arise in connection 
with the Internet, the most effective tools to address them are market 
forces, technology, end-user education and industry best practices. 
These techniques are flexible, global, and every bit as powerful as the 
Internet itself. If these tools fail, then government regulations 
should be sought as a last resort.
    While we respect the concerns of those who have advocated the 
immediate regulation of Internet access services in the U.S. in 
anticipation that a problem might emerge--which could not then be 
successfully addressed through the private sector tools that I 
described above--we can not conclude that the time has come for 
wholesale government regulation of Internet access services in the U.S.
Conclusion
    In closing, Mr. Chairman and members of the Committee, thank you 
for the opportunity to testify before you today. CompTIA believes that 
S. 2686 represents an important departure point in the update of U.S. 
communications law. For CompTIA and our largely VAR membership, this 
legislation would free-up needed spectrum; promote more competition for 
converged video, broadband services between local cable and telco 
providers; and ensure the Internet remains a vibrantly competitive 
place--however it evolves--for America's small businesses and consumers 
alike.
    Mr. Chairman, I would be happy to respond to any questions you may 
have.

    Senator Inouye. [presiding] Thank you very much.
    Mr. Comstock?

     STATEMENT OF EARL W. COMSTOCK, PRESIDENT/CEO, COMPTEL

    Mr. Comstock. Thank you, Mr. Chairman.
    You all have my prepared remarks, and I assume they'll be 
included in the record. Let me just touch briefly on three 
points that those remarks address. And it--they all, actually, 
in the end of the day, relate back to net neutrality and what 
we've been talking about.
    I represent COMPTEL, and we're an association of 
competitive network providers and competitive content and 
service providers. We are in the business of providing not only 
transmission, but also content and services, so we are very 
much like the Bells, in many ways, shapes, and forms. We're not 
concerned about the imposition, or reimposition, of the basic 
nondiscrimination requirements that were the foundation of the 
Communications Act since 1934. The reason for that is very 
simple. We know full well from experience in the marketplace 
how difficult it is to negotiate with an incumbent who doesn't 
want to sell you service. We do it every day.
    So, the reality is, some government rules are going to be 
needed if there's going to be competition. And the reality that 
the Committee has to deal with is the fact that the FCC has 
essentially pulled the rug out without a whole lot of 
consideration of the ultimate impacts.
    They're doing this all in the name of, supposedly, 
broadband deployment, spurring broadband deployment. The 
reality is, today we have broadband facilities that pass over 
90 percent of American homes, and practically 100 percent of 
American businesses. The issue is, are we going to build a 
second, third, or fourth set of networks? My companies are in 
the market every day trying to get money to raise capital to 
build networks. It's very difficult to do when you have to 
convince someone to finance you, because you're facing an 
entrenched incumbent, and it takes time to build these things, 
and then you have to get customers--again, from an entrenched 
incumbent.
    So, I think the reality is that we're going to be sharing 
networks for quite some time, and that's what the Committee 
should focus on. This is about transmission. It's not about 
regulation of content and services; it's about regulation of 
transmission networks to ensure what? Nondiscriminatory 
behavior.
    Network operators should make money by selling you 
transmission. They are also free under the law to sell you any 
other content and services they wish, whether it's video, or 
it's information services, or something else. There's nothing 
in the law today that prevents a Bell company from offering you 
any suite of services they care to choose. The issue is, can 
they use their transmission network ownership to benefit their 
content and services, and lever that into an unfair advantage 
against other people who would like to provide those content 
and services?
    Let me go back to the example of the two phone lines. This 
is a very simple case. When you buy a second phone line in your 
house, you get to decide what you do with it. Do you hook your 
computer up to it? Do you put a fax machine on it?
    As you've heard from testimony from Verizon, they would 
like to now say, in the ``new world,'' as if it's somehow 
radically different from the ``old world,'' that this new 
transmission network they're going to build to you, they'll--
they will guarantee you they'll give you some capacity, but the 
rest of the capacity, they want to reserve for their exclusive 
use to provide you video services or whatever other services 
they can cut deals with. They, sort of, suggest that, ``Gee, we 
can't do these medical services over the Internet.'' Well, I 
beg to differ. They're being done today, and they're being done 
today for 4 and a half million users in 208 different 
universities all across the country. You can do a VPN over the 
Internet. My companies do it all the time.
    So, it doesn't have to be a single person owning that 
transmission line for you to do these exclusive services. What 
you have to have is some agreement on the standards and 
protocols.
    What they're proposing will undo the Internet. Why? Because 
they will be able to impose different protocols to protect 
their content and services. Think about it. If I'm getting 
revenue from a set of video packaging, why would I allow 
someone else enough capacity to offer a competing package of 
video? That's why the cable companies don't give additional 
capacity on their network. They claim it's for management 
reasons and other things, but the new convergence allows you to 
be much more efficient. You can get more capacity over a 
smaller transmission pipe.
    So, yes, they're building a big, fat pipe to the home, but 
then they're flipping it all on its head and saying, ``Because 
we have that big pipe, now we should be able to reserve all of 
this space for ourselves.''
    So, if you want a broadband Internet, I think this 
committee has to take a hard look at what the real clash is, 
which is a clash between legal regimes. The cable rules in 
Title VI which give the network operator exclusive control over 
the distribution--and, by the way, the provisions in this bill 
would further enhance that by eliminating some leased access--
or the common-carrier model--and, again, I'm not talking about 
price regulation or anything else, but the basic idea of 
nondiscriminatory access to content--to the transmission for 
the provision of content services, which is the way the 
Internet grew up. You're picking a different model by not 
adopting a net neutrality standard, by not adopting 
interconnection standards, by not adopting special access 
rules, which we firmly urge the Committee to support.
    I really think you have to step back and say, how do these 
two models interface? And if you want a broadband pipe to the 
home, where the business or residence that's buying that 
transmission--and, by the way, yes, they should pay more for 
more capacity, absolutely--how are they going to be able to use 
that? So, you have to step back, look at the big picture. It is 
the difference. It's transmission networks, versus content and 
services. You need some rules for the transmission networks. 
You don't need to regulate the content and services. And I 
don't think anyone on this panel is suggesting that you do.
    Thank you very much.
    [The prepared statement of Mr. Comstock follows:]

     Prepared Statement of Earl W. Comstock, President/CEO, COMPTEL
    Mr. Chairman and members of the Committee, my name is Earl 
Comstock. I am the President and CEO of COMPTEL, the communications 
association of choice, which represents all types of competitive 
communications providers. COMPTEL has more than 180 members and is 
celebrating its 25th year representing competitors in the 
communications marketplace.
    COMPTEL thanks the Committee for holding this hearing on S. 2686, 
the Communications, Consumer Choice, and Broadband Deployment Act of 
2006. The introduction of this bill has helped to focus the debate on 
communications reform, and the bill provides a good starting point for 
further deliberations and action by this committee, to enact 
legislation this year.
    COMPTEL would also like to commend the Committee for the process 
through which it is considering communications reform. The numerous 
hearings held earlier this year helped provide a foundation for this 
bill, and these hearings on the bill, as well as another hearing that 
is already announced that will be held on a revised draft of the bill 
that will be issued shortly, all provide a sound record on which the 
Committee can base its deliberations at mark-up. By not rushing the 
process, the Committee is ensuring that the public will have an 
opportunity to comment, and COMPTEL applauds that process.
    S. 2686 contains numerous provisions that are needed to promote 
competition and protect consumers, including Universal Service reform, 
competitive access to programming, and implementation of the transition 
to digital television, and COMPTEL supports those provisions. The bill 
also contains provisions, for example, video franchise reform and 
restrictions on municipal broadband, that are sought by certain players 
to enhance their competitive position, and it is in this area that the 
Committee should focus its efforts on ensuring the playing field does 
not become tilted in favor of one industry segment over the others. 
COMPTEL is concerned that the bill, as introduced, is skewed heavily in 
favor of one industry segment, namely the incumbent Bell Operating 
Companies, at the expense of many other players. It is neither fair, 
nor good public policy for the Committee to include changes in law 
sought by the Bells to improve their ability to compete in new markets, 
without also including provisions to ensure that others can enter and 
compete in the Bells' core markets. It is to rectify this imbalance 
that COMPTEL suggests the following changes or additions to the bill.
    The three areas that my testimony will focus on are the need for: 
(1) reinstatement of interconnection requirements and local competition 
rules, (2) special access reform, and (3) strong, enforceable net 
neutrality rules. The bill already includes provisions on Net 
neutrality and interconnection, and COMPTEL proposes to significantly 
strengthen those provisions. The bill does not currently include 
language on special access reform, and COMPTEL urges the Committee to 
add language to address this issue.
Reinstatement of Interconnection and Local Competition Rules
    S. 2686 currently includes a provision, section 214, that would 
extend to ``IP-enabled voice service'' providers the same ``rights, 
duties, and obligations'' as a requesting telecommunications carrier 
under section 251 and 252 of the Communications Act. COMPTEL is pleased 
that the sponsors of the bill recognized that VoIP service providers 
are experiencing interconnection problems; however, the provision does 
not go nearly far enough. First and foremost, the FCC has nearly 
eliminated the rights that Congress granted to requesting 
telecommunications carriers in sections 251 and 252 through a series of 
decisions over the past several years that have virtually gutted the 
effectiveness of those provisions. As a result, it is not clear that 
IP-enabled voice service providers, any more than requesting 
telecommunications carriers, will be able to get the interconnection 
and collocation that the bill seems to intend.
    Second, COMPTEL is concerned that by defining ``IP-enabled voice 
services'' and treating them separately from voice services delivered 
using other technologies, Congress would be further balkanizing the 
legal regime that applies to communications services. Does Congress 
intend, for example, that cable operators should be given more 
favorable rates for the use of poles, ducts, conduits that other 
competitive carriers offering IP-enabled or any other voice services--
because that would be one of the effects of separating out IP-enabled 
voice service from all other voice telecommunications. Likewise, does 
Congress intend that IP-enabled voice services will not be subject to 
the customer privacy rules of section 222 of the Communications Act--
because that would be another likely effect of classifying IP-enabled 
voice services separately.
    The reality is that all competitors--CLECs, cable operators, 
wireless carriers, and even rural carriers who adjoin the service 
territories of larger incumbent carriers--all depend on specific 
provisions of law in the Communications Act for their interconnection 
to incumbent carriers. COMPTEL recommends that the Committee adopt a 
broader interconnection section that would reinstate the pro-
competitive requirements that Congress has adopted and reaffirmed 
numerous times in the 70 plus years since the Communications Act was 
adopted.
    Attached in the appendix is COMPTEL's recommended language to 
restore interconnection and other requirements needed to ensure a 
competitive communications marketplace. It would ensure that existing 
provisions of the Communications Act continue to apply to the Bell 
companies and other incumbent local exchange carriers, and also that 
incumbent cable operators are treated as CLECs when they chose to enter 
the voice or data communications markets.
    Congress adopted the Telecommunications Act of 1996, after nearly 
four years of hearings and debate over how best to promote competition 
in the provision of voice, video, and data services. In particular, 
Congress spent considerable time and effort on crafting rules to open 
the local markets controlled by incumbent local exchange carriers, and 
in particular, the Bells, to competition. They also crafted rules to 
promote competition in the video marketplace, in the full expectation 
that the Bells would enter video, and the cable companies would enter 
the local phone and data markets. Congress enacted the 1996 Act because 
promoting competition is the least regulatory, and most effective, way 
to force consumer prices down. The alternative is retail price 
regulation, something that has been tried before in both the telephone 
and cable markets with unsatisfactory results.
    Ten years later, many consumers and businesses are still waiting 
for the competitive benefits promised by the 1996 Act. Despite numerous 
public statements and commitments to both State legislatures and the 
FCC, the Bells did not enter the video market to any significant 
degree, and also made no effort to compete outside their established 
service territories. Cable did enter the residential data marketplace 
by offering cable modem service, and is now finally starting to offer 
competitive residential voice services on a large scale. And 
competitors entered the local market to provide competing voice and 
data services to both business and residential consumers, which allowed 
the Bell companies to enter the long distance market. For a brief 
period, many consumers actually started to get competitive choices in 
local voice and Internet access services, but then the FCC started 
removing the rules that had made the competition possible. And now 
Congressional action is once again needed to ensure that consumers do 
not lose what they started to gain under the 1996 Act.
    Today, four facts dictate the options Congress has to promote 
competition, and bring down consumer prices for all communications 
services. The first fact is that the incumbent telephone companies are 
the only entities with a wireline network that reaches all business and 
residential customers in any given area. The second is that the 
incumbent cable operators have the only wireline alternative network 
that reaches nearly all of the residential consumers in a particular 
area, though that same network reaches very few business customers. The 
third, and perhaps most important, fact is that both the incumbent 
telephone companies and the incumbent cable operators were each allowed 
to build their network over the course of a decade or more while 
protected from competition, with the assurance that they would get all 
of the customers that chose to purchase their respective phone or cable 
service in that area. Finally, it is clear, both here and elsewhere in 
the world that wireless services are a higher-priced complement to, and 
not a substitute for, wireline network data services. As a result, 
incumbent telephone companies and incumbent cable operators retain at 
least 70 percent market share in their core service more than 10 years 
after passage of the 1996 Act.
    The reality is that, in both the residential and business markets, 
the construction of additional ubiquitous wireline networks will not 
occur. No competitor can get the financing for such an undertaking, and 
consumers do not want to pay for yet another network. Even in the 
wireless marketplace, where incumbent cellular operators had much less 
of a head start, there is consolidation and dominance by the two 
incumbents.
    In light of these facts, which preclude the FCC's model of ``inter-
modal'' competition (i.e. each competitor can reach the end user by 
building its own wired or wireless network), Congress needs to adopt 
rules which require network operators, and in particular the two 
wireline network operators that were allowed to build their networks, 
and establish a customer base while protected from competition, to 
provide reasonable and non-discriminatory access to those networks. The 
scarce resource in communications markets is the transmission network. 
By requiring network operators to allow everyone to use these essential 
facilities to reach consumers, consumers will receive the benefits of 
competition--lower prices, better service, and greater innovation.
    The key measures needed to ensure reasonable and non-discriminatory 
access by competitors include (1) access to elements of the network so 
that competitors can create their own services; (2) interconnection at 
any technically feasible point; (3) the ability to collocate equipment; 
(4) the ability to attach devices to the network; (5) the right to 
resell transmission between or among points on the network as part of 
their own voice, video, and data offerings to consumers; (6) the right 
to use any technology and offer any service that does not harm the 
network; (7) non-discriminatory allocation of all transmission capacity 
on the network (i.e., elimination of cable rules that allow network 
operators to reserve capacity for their exclusive use); (8) reasonable 
terms and conditions for each of these measures; (9) a neutral 
arbitrator to resolve disputes; and (10) efficient enforcement 
mechanisms to execute these rights. All of these provisions were 
included in the requirements Congress adopted in the 1996 Act, and 
Congress needs to reinstate those requirements now if it wants to 
ensure competition for voice, video, and data services.
Special Access
    Special access is a dedicated transmission link between two places. 
It is provided, almost exclusively, by the Bell companies and other 
local exchange carriers (LECs) as a critical input for wireless, long 
distance, and Internet services providers for ``last mile'' voice and 
data connections. Wireless carriers depend on special access service to 
connect thousands of cell sites to their switching centers that carry 
millions of calls and messages. Special access differs from ``switched 
access,'' which is the per-minute fee charged by LECs for use of their 
facilities to switch and transmit ordinary voice traffic. Switched 
access also connects two different carrier networks, rather than two 
points on the same carrier network as special access does.
    In 2004, the Bell companies received more than $15 billion in 
special access fees from wireless, long distance, Internet, and other 
communication's carriers. By charging exorbitant special access fees, 
or ``last mile connection'' fees, the largest three Bells earned 
returns of 32 percent (Verizon), 67 percent (AT&T), and 82 percent 
(BellSouth) on these special access connections. The largest three Bell 
companies (which will become two if the AT&T-BellSouth merger is 
approved) control 82.9 percent of the special access revenue in the 
U.S.
    Because the incumbent LECs own the only wireline facilities that 
reach the vast majority of businesses in the country (cable companies 
do not serve most business customers), competitive carriers have no 
choice but to purchase special access service from the incumbents. 
Prior to their acquisition by the Bell companies, AT&T and MCI offered 
the nationwide alternative to incumbent LEC special access services, 
but those alternatives disappeared as soon as SBC and Verizon bought 
these two competitive giants. Because they own and control the 
connections to almost all business customers in their respective 
business territories, the Bell companies, in particular, are now able 
to raise wholesale rates for special access services sold to competing 
carriers, as well as retail special access rates sold directly to 
business customers, resulting in price increases for those customers.
    Special access rates impact not only competitive LECs, but also 
wireless carriers and cable companies as well. In the absence of access 
to these special access services, for example, wireless companies 
cannot interconnect their services with the wireline network. 
Competitive providers of broadband services, including cable companies 
and competitive data providers, that depend on special access lines to 
connect their facilities to the Internet backbone will also be 
adversely affected. Special access services are vital inputs to many of 
the services that COMPTEL members offer to consumers, and small and 
medium-sized businesses. As a result, price increases in special access 
service are passed on directly to consumers, increasing the cost for 
all services.
    To address this problem, COMPTEL proposes that the Committee 
include language to prohibit anti-competitive provisions in special-
access contracts and reinstate the FCC's rules that ensured that 
special access services are not sold at prohibitive, monopoly rates. We 
are currently finalizing language with other interested parties, and 
will submit that language to the Committee shortly.
Net Neutrality
    COMPTEL testified previously on the importance of including strong 
Net neutrality safeguards, and we are pleased to see that Title IX of 
the bill is devoted to Net neutrality. However, a reporting requirement 
alone will not address the problems that COMPTEL and many others have 
outlined at length. Since S. 2686 was introduced, Senators Snowe and 
Dorgan, along with several other Senators, have introduced S. 2917 to 
address Net neutrality concerns. COMPTEL supports the inclusion of S. 
2917 in S. 2686, and hopes the Committee will act expeditiously to 
include it.
Conclusion
    Taken together, the addition of the three amendments COMPTEL 
proposes will significantly improve the bill, and will correct the 
competitive imbalance created by some of the current provisions in the 
bill. COMPTEL looks forward to working with the members of this 
committee as you continue your deliberations on S. 2686, and I would be 
happy to answer any questions.
                                Appendix
    Title I of the Communications Act of 1934 (47 U.S.C. 151-161) is 
amended by adding at the end of such Title the following new 
subsection:
``SEC. 12. CONTINUED INTEROPERABILITY OF COMMUNICATIONS.
    ``(a) In General.--In order to ensure the continued 
interoperability of the Nation's communications networks for emergency 
communications and enable the competitive provision of wireline and 
wireless telecommunications services and information services, any 
entity that was or is an incumbent local exchange carrier, and any 
affiliate of such carrier, shall be treated as a common carrier, 
telecommunications carrier, local exchange carrier, and incumbent local 
exchange carrier with respect to all wire communications facilities 
owned or controlled by such carrier or affiliate, regardless of the--

        ``(1) classification of the services offered by such carrier or 
        affiliate using such facilities,

        ``(2) transmission and switching technology used, or

        ``(3) physical composition of such facilities,

and such carrier or affiliate shall comply with the requirements of 
sections 201, 202, 224, 332(c)(1)(B), 251, 252, 259, and 271 with 
respect to any request by a telecommunications carrier for access to 
such wire communications facilities, or for transmission provided using 
such facilities, for the provision of any telecommunications, 
telecommunications service, video programming, or information service, 
regardless of the transmission or switching technology used by such 
requesting telecommunications carrier to provide such services. A Bell 
Operating Company and any affiliate of such company shall provide 
transmission capacity between or among points on its wire 
communications facilities to any requesting telecommunications carrier 
at cost-based rates.
    ``(b) Incumbent Cable Operators.--In order to ensure the continued 
interoperability of the Nation's communications networks for emergency 
communications and enable the competitive provision of wireline and 
wireless telecommunications services and information services, any 
entity that is an incumbent cable operator that provides information 
services, telecommunications, or telecommunications services to 
subscribers using the facilities of its cable system, and any affiliate 
of such operator, shall be treated as a common carrier, 
telecommunications carrier, and local exchange carrier, with respect to 
all wire communications facilities owned or controlled by such operator 
or affiliate, regardless of the--

        ``(1) classification of the services offered by such operator 
        or affiliate using such facilities,

        ``(2) transmission and switching technology used, or

        ``(3) physical composition of such facilities,

and such operator or affiliate shall comply with the requirements of 
sections 201, 202, 224, 332(c)(1)(B), 251, and 252 with respect to any 
request by a telecommunications carrier for access to such wire 
communications facilities, or for transmission provided using such 
facilities, for the provision of any telecommunications, 
telecommunications service, video programming, or information service, 
regardless of the transmission or switching technology used by such 
requesting telecommunications carrier to provide such services.
    ``(c) Waiver of Section 10 Forbearance.--The requirements of 
subsection (a) shall apply to a Bell Operating Company and any 
affiliate notwithstanding any prior or future forbearance decision by 
the Commission under section 10 with respect to any such company or 
affiliate or any service provided by such company or affiliate.
    ``(d) Definitions.--For the purposes of this section--

        ``(1) Incumbent Local Exchange Carrier.--The term `incumbent 
        local exchange carrier' shall have the same meaning as that 
        term has in section 251(h).

        ``(2) Incumbent Cable Operator.--The term `incumbent cable 
        operator' means, with respect to an area, the cable operator 
        that--

           ``(A) on the date of enactment of the Telecommunications Act 
        of 1996, provided cable service in such area; or

           ``(B) is the successor or assign of the cable operator 
        described in subparagraph (A).

        ``(3) Cable Operator, Cable System, and Video Programming.--The 
        terms `cable operator,' `cable system,' and `video programming' 
        shall have the same meaning as those terms are given in section 
        602.''

    Senator Inouye. Thank you very much, Mr. Comstock.
    Before I lose my voice completely, I wish to thank all of 
you for your presence this morning. The testimony this morning 
has been extraordinary, and my only regret is that the other 
members of the Committee are not here. But I'm certain they'll 
read your full statement, and you may be assured that your full 
statement, and all your exhibits, will be made part of the 
record.
    Mrs. Boxer?

               STATEMENT OF HON. BARBARA BOXER, 
                  U.S. SENATOR FROM CALIFORNIA

    Senator Boxer. Thank you so much, Senator.
    And with the indulgence of the Chair, I wanted to mention 
that--I wanted to thank this committee for its past work on 
revealing the scam--the Enron scam. We worked long and hard on 
that. Today, Ken Lay and Jeff Skilling were convicted on a 
number of charges, including fraud, and this hits home to my 
heart. My people paid a heavy price, billions of dollars, for 
their greed, and I just--I feel this committee has worked in a 
bipartisan way on so many issues, and that one, in particular, 
I wanted to say thank you to my colleagues on it.
    I wanted to say, if Senator Stevens was here, to thank him 
for this second hearing on his bill, and for saying he's open 
to change. And I think there are some areas we can work 
together on. And since the last hearing, Senators Snowe and 
Dorgan introduced the Internet Freedom Preservation Act. I 
think it's a very good bill, and I'm happy to be a cosponsor.
    As we know, this bill would prohibit broadband service 
providers from discriminating based on the content, 
application, or service being used by a consumer. I think it's 
important legislation, it should be part of any telecom reform 
bill. And my understanding is, the House is marking up a piece 
of legislation today, and I don't know what shape it will take, 
but I'm very interested to see what our colleagues in the House 
are doing on this.
    The Internet has transformed the economic and social lives 
of Americans. And coming from California, I can tell you, the 
whole world, in many ways--in California, the whole 
communications world--revolves around the Internet. And much of 
its success could be traced back to the openness of the network 
design. Anyone can get on the web and offer a service, or post 
ideas, that can reach any other interested party with access to 
the net.
    Now, traditionally, network operators have not interfered 
with their customers' access to the Internet. Instead, they've 
provided an open door, and allowed the customer to decide what 
comes in and goes out of their home. In exchange, we customers 
pay a pretty hefty fee for broadband access. If consumers want 
faster access, they pay more for higher speeds. I have no 
problem with that. In fact, it's the most transparent and fair 
way to compensate network operators.
    And, Mr. Regan, you said it's important to focus on the 
consumer. I couldn't agree with you more. We just have a little 
bit of a different view. I look at the FCC guidelines, I think 
they're vague. They're vague. So, just going with those, I 
don't think that's the trick. I think if you focus on the 
consumer, you need to build net neutrality into our laws.
    We know, because Senator Dorgan has read us what some of 
the providers have suggested in terms of fees, that would hurt 
consumers, at the end of the day, because it would discriminate 
against where they can go to get their information, and also 
the new Googles and the new Yahoo!s of the future are going to 
be greatly disadvantaged. So, at the end of the day, I think, 
if we want to keep fostering democracy, give individuals the 
power to reach more people and share their views, we do need to 
do something on net neutrality.
    And in the remainder of my time, I--can I ask a question of 
Mr. Tauke? Is that how I say your name? Is that right? If you 
were to decide to charge a fee to the Googles and the others, 
would you then no longer charge a fee to consumers?
    Mr. Tauke. Well, Senator, we have no interest in charging a 
fee for Internet access to Google. If Google, however, would 
approach us, and they wanted to provide another service that 
didn't travel over the Internet, yes, then we would charge 
them. We would charge them for that, just as we charge other 
companies for special network arrangements.
    Senator Boxer. OK.
    Mr. Tauke. So, if it's access to the Internet, we have no 
interest in charging them a fee.
    Senator Boxer. And you would--and you have--and you have no 
interest in charging anyone a fee at all.
    Mr. Tauke. For Internet access, we charge the consumer the 
fee.
    Senator Boxer. And they would be--so, why would you object 
to putting net neutrality in the law?
    Mr. Tauke. Because, as I've been attempting to explain this 
morning, the net neutrality legislation that has been 
considered applies not just to Internet access, but it applies 
to all network access. And, while we--the--for--I think that 
you've got to understand that we've had a change, a real 
change, in paradigm. When we had dialup Internet access, we had 
common-carriage or nondiscrimination provisions applied to 
that. When broadband Internet access was applied to--was 
introduced by cable companies, they never had a 
nondiscrimination provision. Then the FCC said, ``What we 
offer''----
    Senator Boxer. Wait a minute. You're just getting into a 
history book here. I'm looking at what your problem is with our 
legislation. I just----
    In closing, Mr. Scott, could you comment on this? What 
would the Internet look like today if telephone companies in 
the 1990s had been given the right to control the traffic on 
the net?
    Mr. Scott. It would look like the cable TV system. 
Basically, the operator would choose a suite of services from 
which the consumer could select. It--the idea of innovation 
without permission that the Internet has so, you know, boldly 
and revolutionary, as a concept, embodied would be completely 
unknown to us.
    Senator Boxer. Thank you, Mr. Chairman.
    Senator Inouye. Thank you.
    Senator Burns?
    Senator Burns. I must have missed something here somewhere. 
I must have missed something. I'm--a link dropped out.
    I've got a couple of questions here before--Mr. Tauke, 
you're going to take fiber to the home.
    Mr. Tauke. Correct.
    Senator Burns. What's going to be your--what's your 
bandwidth there, and what's your speed? Do you know what will 
go into each home?
    Mr. Tauke. Well, we'll have--today, we offer speeds of 5, 
15, and 30 megabits per second over the fiber for Internet 
access. That will increase in the future, depending on what 
consumer demand is.
    Senator Burns. Now--and you also--do you--you also offer 
the plan--you plan to offer your own voice, data, and video 
services, is that correct?
    Mr. Tauke. We do offer our own voice, data, and video 
services, but you don't need to take any of our voice, video, 
or data services.
    Senator Burns. But do--but even if you do not, does that 
affect the capacity of that pipe that's coming into the home?
    Mr. Tauke. No.
    Senator Burns. After your own services, how much capacity 
will you have on your network, do you figure?
    Mr. Tauke. The beauty of fiber----
    Senator Burns. If I took your voice, video, and all the 
services that you're going to offer over your pipe, how much 
capacity would I have left over of--to allow traffic to come in 
and out of my house?
    Mr. Tauke. It would depend on what you purchased in the way 
of Internet access. If you purchased a 30-megabit Internet 
access, you'd have 30 megabits. If you purchase 50 or 70, as 
we'll offer down the road, you'd have that. The beauty of fiber 
is that it's----
    Senator Burns. What's the basic, then? What would be the 
basic? Five?
    Mr. Tauke. The basic? I suppose 5 megabits----
    Senator Burns. OK.
    Mr. Tauke.--is the least you buy today----
    Senator Burns. OK.
    Mr. Tauke.--the cheapest price, on fiber.
    Senator Burns. All right, now go ahead with----
    Mr. Tauke. Yes, I was going to say, the beauty of fiber is, 
you have virtually unlimited capacity. And I think that that's 
why this is a new world that has a different paradigm than the 
old world. In the old world, when you had restricted capacity, 
there was concern about discrimination. Where you have--where 
you're moving to a world of almost unlimited capacity, there--
it should not be a concern about discrimination.
    So, we will give you as much Internet access as you want. 
We'd also like to be able to offer you other services that 
don't go through the Internet.
    Senator Burns. And who pays for that?
    Mr. Tauke. Well, the consumer would be paying for some of 
those services, but it also could be that a company that is 
offering the services buys it. So, for example, suppose you are 
a heart patient coming out of a medical center, and they want a 
heart--do your heart monitoring at home, or you're a diabetes 
patient, and they want monitoring, and suppose they don't want 
to use the Internet, because there is no carrier who has 
accountability for the end-to-end services. Presumably, the 
medical center would purchase the service from us--the network 
service from us--to do the monitoring, and they would probably 
charge the patient something for that service. So--but it would 
be part of the way that new services could be delivered to 
consumers.
    Senator Burns. And you could add new capacity, should you 
need more capacity, is that correct?
    Mr. Tauke. Yes, but----
    Senator Burns. Almost immediately?
    Mr. Tauke.--you put additional electronics on the fiber, 
and you add more capacity.
    Senator Burns. Thank you.
    Thank you, Mr. Chairman.
    Senator Inouye. Thank you.
    Senator Snowe?
    Senator Snowe. Thank you, Mr. Chairman.
    And thank you all for your testimony. And obviously it 
reflects a cross-section of views that we'll obviously have to 
sort out. And my bill obviously, with Senator Dorgan, Senator 
Boxer, and Co-Chair Inouye, takes an approach, because we do 
fear what people have described as the unintended consequences. 
And, frankly, sometimes it's very difficult for Congress to 
forecast the future, but I think we can anticipate that there 
will be some, you know, consequences as a result of what has, 
you know, been decided by the FCC.
    I mean, even some of the CEOs of the large network 
operators have already indicated that their plan--they've 
stated publicly their intentions to charge, you know, fees for 
content and so on. So, we do have a problem on the horizon, and 
the question is, wow do we wrestle with it? Because my greatest 
fear is that you will have the ``cable-ization'' of the 
Internet. I mean, I think that that is abundantly clear that 
ultimately, whether intended or not, that's where it's going to 
go. And it'll be much of a surprise to the consumer--has a very 
different experience with the Internet today.
    So, I'd like to ask each of you to address this question, 
you know, on the realism of this fear, because otherwise I'm 
very concerned that we're going to deny people the access. It's 
not so much to have the means by which you get there, the 
question is what you get once you get there. And that's the 
problem. So, you'll have the upgrades on the broadband, very 
little competition in that market nationally. We know that. 
There will be no competition, virtually speaking. There is 
none. And then, second, they're going to be denied the access 
to the unlimited information, based on content and other 
services that cable today currently provides under the 
Internet.
    So, I'd like to start with you, Mr. Misener and go down the 
panel. I'd like--because this is the greatest concern of all 
once you start tiering-up the access. It's not a question that 
people aren't going to be paying more for access, it has got to 
be in a nondiscriminatory fashion. Once you get there, you 
know, is it going to be an empty pipe, or is it going to be a 
full pipe that, you know, opens the world in the realm to 
unlimited information and services? And that's what this issue 
is all about. And it is going to fundamentally change, and 
radically alter the Internet as the public knows it today.
    Mr. Misener?
    Mr. Misener. Thank you, Senator Snowe. And thank you, 
again, for your leadership on this issue.
    We are here--Amazon.com and the coalition of companies that 
I represent--are here because--precisely because things have 
changed. The technology has changed to allow discrimination 
easily, in a way that was not possible before, by the network 
operators. The market has changed radically. We've gone from 
dozens of ISPs available to any consumer, down to two or fewer. 
That's not going to change anytime soon.
    We've seen these regulatory changes, where the 
nondiscrimination rules that had governed Internet access from 
the inception have been removed prematurely, based on the hope 
of competition.
    And, last, we've heard what you've talked about, Senator, 
the announced plans of the CEOs, who have said, forthrightly 
and, you know, refreshingly honestly, that they intend to 
discriminate the way we fear. So, it would really be, you know, 
in my view, to turn a blind eye to the very obvious and real, 
clear and present danger to consumers.
    Senator Snowe. Thank you.
    Mr. Tauke, welcome. A former colleague. We served in the 
House of Representatives together. We won't say how long ago.
    [Laughter.]
    Senator Snowe. But I know you stated the intention of 
Verizon not, you know, to go down that path. But the fact is, 
there are others who do, and that is going to be the dilemma.
    Mr. Tauke. Senator, I'm not aware of any company CEO, or 
other leader in the company, who has said that they intend to 
discriminate for Internet access. They have indicated that, for 
access to various other services, they may provide some unique 
arrangements for providers of those services, but I don't think 
there is anybody who intends to discriminate on access.
    Let me just observe that in the last 2 years we have had an 
increase in the number of ISPs and an increase in the number of 
zip codes with four carriers of broadband service. A few years 
ago, we didn't have many zip codes with four broadband 
providers. In the latest FCC study, 60 percent of zip codes 
have four broadband providers. The amount of increase in 
competition in the access market is truly astonishing over a 
short period of time. And we're on the verge of having WiMAX 
and WiFi and so many other types of technology for the Internet 
over broadband--or over powerlines, which is coming in 
Manassas. All that's happening in the marketplace.
    Senator Snowe. But in----
    Mr. Tauke. So, let me just say one other--make one other 
point. You know, we've also had an explosion of ISPs. Paul just 
said there are just a few left. There are 1,100 ISPs, the 
Internet Industry Association just reported. The number is 
going up. websites are going up. There is robust competition in 
the market.
    Senator Snowe. Do you want to respond to that, Mr. Misener? 
I see you----
    Mr. Misener. Thanks----
    Senator Snowe.--shaking your head.
    Mr. Misener.--Senator Snowe. We--the fact of the matter is, 
any consumer, in his or her home around the country, has, at 
best, two choices for broadband Internet access, the phone or 
the cable company. 99.5 percent of American consumers today get 
their broadband and Internet access from either the phone or 
the cable company. So, there may be many in a zip code, but 
there is no such thing as a cable or a telco overbuild. It 
just--the hopes of the 1996 Act failed, in that respect.
    Senator Snowe. But didn't a lot of the broadband 
deployment--wasn't it already underway, by your company, for 
example, and other companies, back in 2003, as with others, 
before the FCC made their decision? So, that was the stated 
intention. In many companies, it already was underway to begin 
with?
    Mr. Tauke. Senator, we were offering DSL service over the 
copper line. Now we're replacing the copper with fiber to the 
home. That project got underway after the FCC acted. There 
simply is not a business case that I know of for deploying 
fiber if we are unable to do more with the fiber than just 
provide Internet access.
    Senator Snowe. What is the problem--and I'll go down the 
line and continue--what is the problem for the Congress to pass 
this legislation if, in fact, the intent isn't what it is? I 
mean, this legislation is not dealing with television services. 
It's dealing with just a slight portion, which is the Internet, 
so that we preserve what we have today. I mean, that's what 
it's all about. And people say, ``Well, you know, we're 
regulating.'' Well, that's an interesting juxtaposition, 
considering the fact these nondiscrimination standards were 
already in place, they were already protecting the Internet. 
Decisions were made by the FCC, very different ones, very 
deliberate, in the sense of not setting that standard anymore, 
and changing the definition of services. So, Mr. Regan, do you 
think that this--you know, what do you think? Do you think 
we're--are these unrealistic fears on our part?
    Mr. Regan. Senator, thank you. And, you know, I appreciate 
your leadership on this issue, and I certainly do appreciate 
your concerns, and I appreciate the concerns of Paul and his 
colleagues. But, quite frankly, I think that if any carrier--
any carrier--restricted a consumer's access to the Internet, 
they'd be clobbered. They'd be clobbered by the FCC, and they'd 
be clobbered in the Congress. And they should be, bottom line. 
So, I don't share that concern.
    I think that the--in the--there's a history here in which 
we've established a standard behavior based upon the 
connectivity principles that we developed, and the FCC adopted, 
in which people simply realize that this doesn't make any 
sense. And so, they're not doing it. And I think if they did, 
the FCC, and you, would be in--certainly in a strong position--
and, frankly, I'd support you in your effort to try to deal 
with it.
    Senator Snowe. But it may well----
    Mr. Regan. I should also like to point out another thing. 
Paul keeps saying that this--all this was developed around the 
nondiscriminatory principles of Title II, which is common-
carrier regulation. Well, that's just plain wrong. In fact, the 
first people to provide broadband Internet access were cable 
companies, you know, that are regulated under Title VI. They're 
not common carriers. So, that business took off. And then Tom 
and his colleagues responded with DSL. And then Tom and his 
colleagues decided they wanted to get into video, so they put 
even more robust capacity in.
    Senator Snowe. Yes, but cable--you have to pay a 
substantial sum of money now in even your access, so you don't 
get what you want, I mean, at times. So, that's the issue here. 
I mean, that's--the same is going to be true of the Internet. 
That's the problem we're going to be facing. And, ultimately, 
if that comes to pass, it does restructure the Internet, and 
certainly the public's experience with the Internet. And that's 
going to come as a major surprise, not to mention expense. So, 
they can have the access. That's not the question, the access. 
You can pay for that access. That's not changing. What's 
changing is what you get when you get there, and who's going go 
be able to get it, if they can afford to pay those charges. 
That's the point. And that is going to create a distinction, 
two different worlds.
    Mr. Scott, would you like to respond?
    Mr. Scott. Yes, Senator. I find the rhetoric of absolute 
denial that there will never be any blocking, there will never 
be any impairment, there will never be any discrimination, 
slightly disingenuous, because if we were to operate on the 
logic that we need not pass any consumer protections if the 
operator in the market promised not to do bad things, we 
wouldn't need any consumer protection rules at all. I'm sure if 
you went to the cable operators and said, ``Do we really need 
program access rules on a nondiscriminatory basis, or will you 
just promise us that you won't do it?'' they would say, ``Sure, 
strip the rules away. We won't do that.'' We have rules in 
place to protect consumers, we have rules in place to protect 
competition, for a reason, and for a very good reason, and that 
is that when a monopoly provider or a duopoly provider sees an 
opportunity in the market to extract revenues, they will do so. 
That is simple economics that I think are unavoidable as you 
look at this issue.
    Senator Snowe. Thank you.
    Thank you, Mr. Chairman, for also giving your time. Thank 
you.
    Senator Inouye. Thank you.
    Senator Pryor?
    Senator Pryor. Thank you, Mr. Chairman.
    And what I'd like to do, if it's OK with the panel, is, I'd 
like to pick on Mr. Scott and then allow the other panelists, 
if they would like, to comment on my questions and also on his 
answers, if that's OK.
    Mr. Scott, intuitively, to me, when I hear of someone 
saying they're going to prioritize one service, that implies to 
me that they unprioritize other services. Is that--is my 
intuition correct on that?
    Mr. Scott. That's right. It's a zero-sum game.
    Senator Pryor. And if you unprioritize some services, you 
may degrade those services? Is that your concern?
    Mr. Scott. Yes, sir.
    Senator Pryor. And I know one thing that we've commented 
on, here and there, throughout the hearing today is this clash, 
really, between the Internet and Wall Street. Wall Street 
obviously looks at profits, they look at investments, they look 
at returns, they look at all these factors, and they want 
companies to provide--to behave certain ways in order to be 
profitable, but, at the same time, that culture may clash with 
so-called Internet culture, if there is such a thing, that it 
be, you know, open and equal access for all. Would you like to 
comment on that? Is that a fair statement?
    Mr. Scott. Well, I think what Wall Street is interested in 
is seeing the opportunity for a new revenue stream to tax the 
content, and service and applications providers to be 
capitalized on. And, from a consumer perspective, I have a 
great sensitivity to that, that--will the consumer have to bear 
the full cost of the network? I think that's an important 
point. But the reality is that if you set up toll booths, and 
you levy taxes on all of the millions of Internet content 
providers, they're not just going to eat those costs. You know, 
my friend Paul at Amazon is going to raise the prices of his 
books.
    Senator Pryor. Right.
    Mr. Scott. So, ultimately, the consumer is going to pick up 
the tab for the network. So, if we're going to pay the tab 
anyway, I'd like to hang onto that nondiscrimination that puts 
the choice in the hands of each and every household, as opposed 
to the network operator.
    Senator Pryor. And you heard Mr.--and, I'm sorry, is it 
Tauke? I'm not sure--is that how you pronounce it? I'm sorry. 
You heard Mr. Tauke, a few moments ago, say that the industry, 
as far as he knows, does not intend to discriminate on access. 
Do you have a concern that they will discriminate on access?
    Mr. Scott. Well, I read in the papers that they intend to 
discriminate on access. And I feel that if they have no 
intention of discriminating on access, they would have no 
problem with net neutrality being in the law.
    Senator Pryor. All right. Now, let me ask this one final 
question. I think it'll be my final question, and that is--when 
I look at Senator Stevens' bill that he's filed, and when you 
look at the provision in there on USF, he uses a phrase--and 
I'm not sure I have the phrase exactly right, because I don't 
have it in front of me--but, basically, when it comes to the 
Universal Service Fund, things need to be technology-neutral 
and competitively-neutral. And I know that's a different 
concept with USF than what we're talking about today, but I 
think there are some similarities there. And I think one thing 
that is confusing, or a little bit hard for us to think through 
is, it seems to me that we really should, maybe, break down net 
neutrality, maybe along those two lines. It seems to me that 
there is some genuine legitimate technology reasons why things 
should be neutral, in a sense, but it's okay in the technology 
world to prioritize certain things over others. I don't 
understand all the technology, but that's the way I understand 
things working, because it only makes sense in the technology 
world. But, at the same time, my sense is, what most people 
fear is when the Internet is not competitively-neutral--in 
other words, when one company, an ISP or--you know, whatever it 
may be--gives some sort of competitive advantage or 
disadvantage to consumers on the Internet. And I--if I 
understand it, that's really the rub, in your mind. It's not so 
much the technology in the sense that in the technology world 
it's okay--I don't want to say ``to discriminate,'' but 
neutrality would include the fact that some things need to be 
prioritized over others, for technical reasons. But what you're 
concerned about is more on competitive neutrality. Is that fair 
to say?
    Mr. Scott. Well, I think the simple answer is, you can 
prioritize without discriminating.
    Senator Pryor. Right.
    Mr. Scott. And that is in the Snowe-Dorgan bill explicitly.
    Senator Pryor. OK. And the last thing I was going to say--
and I would love to hear from the panelists--just, Mr. 
Chairman, I'm reminded of a interview I read years ago from Bob 
Dylan, where they asked him about how rock-and-roll music went 
from, sort of, concert venues in theaters, et cetera, into big 
football stadiums. And his comment was, ``Well, it's just big 
business moving in.'' And I sense that, really, what we're 
looking at now is a whole different business climate that may 
be about to develop with the Internet, which is not all bad, 
but I think we just need to be careful with it.
    So, I'd love to have any comments from the panel, if that's 
okay.
    Mr. Comstock. Senator Pryor, if I might, I think you 
pointed out, with respect to the Universal Service provisions, 
that it's competitive neutrality, which we obviously all 
support. I think it's also worth noting that, within the bill 
that you're considering, S. 2686, there are provisions that the 
Bell companies have actively sought for their new entry into 
the video market which establish dispute resolution processes, 
require interconnection of video providers, and even allow the 
FCC, in resolving disputes, to set prices. So, their--they view 
the cable operator's control over content much as we view the 
network operator's control over transmission. It's a scarce 
resource, in some senses. And if you can lock it up and reserve 
it for yourself, then competitors are going to have a very 
difficult time entering the market.
    So, we're--that's one of the points we would make, is, 
without some rules--and they even admit it for the entry into 
video, which, by the way, they've been allowed to do since the 
1996 Act, they've just chosen not to--they see a very strong 
need for strong program-access rules, and these similar types 
of rules that are over in the House side, they were in Senator 
Ensign's bill. So, I mean, it's clear that they understand that 
certain rules and regulations are required to facilitate their 
entry into business. And I think what the competitive community 
finds so difficult to understand is, why, then, are there--are 
they--is it so difficult to understand why we need 
interconnection rules, and other things to prevent 
discriminatory behavior, which, by the way, is going on today 
even in the face of Communications Act rules that say you 
can't, things like tying arrangements in special-access 
contracts, that make it very difficult for competitors to 
operate, that require you to buy additional services that you 
don't need, or service in areas that you don't want, or, better 
yet, don't buy from the competitor at all. They've actually got 
contracts that restrict you from doing that.
    So, even in the face of rules, you run into these problems. 
And what we're really concerned about is, in the absence of any 
rules whatsoever, we realize exactly what we're going to face, 
and that will be the cable-ization of the Internet.
    Mr. Tauke. Senator, thank you for the opportunity.
    Senator, here's the way I look at this. Today, we are 
building a network, which gives to consumers all the Internet 
access they have today, plus much, much more Internet access. 
And we are in no way hindering that Internet access; we're 
facilitating it and giving them much more capacity to get to 
the Internet with full and open access than we've had before.
    In addition, because of the capacity of this network, we 
can offer video services to compete with cable, which will 
drive down prices and, the Phoenix study just said, will save 
consumers $8 billion a year. Then, beyond that, we have the 
ability to offer new other services that we don't even know 
what they are yet.
    If you say there is nondiscrimination on that last piece of 
the network, in essence what you are saying is that we can't 
differentiate. If you can't differentiate, you can't innovate. 
It'll become a commodity, and everything becomes the same. If 
all network providers are commodities, then I don't think you 
are going to be able to get a business case to build fiber to 
the home, nor will you be able to offer--get the business case 
to build other networks.
    The key to getting a competitive market moving is to be 
able to differentiate and get a leg up on the competitor in the 
marketplace. So, whether you're WiMAX, Wi-Fi, the power 
companies trying to deliver broadband over the powerlines, or 
whatever it happens to be, all those network providers need to 
differentiate and offer different kinds of services, and 
nondiscrimination means commoditization and no innovation for 
consumers.
    Senator Pryor. Senator Boxer?
    Senator Boxer. Thanks, Mr. Chairman.
    Mr. Tauke, you've been getting most of the questions. There 
are some more quotes I wanted to read to you. Now I can't find 
where they are. Oh, here they are. OK.
    January 6, CEO of Verizon, Ivan Seidenberg, addressed a 
consumer electronics show, quote, ``We have to make sure 
content providers don't sit on our network and chew up our 
capacity.''
    February 7, 2006, Senior VP and Deputy Verizon General 
Counsel, John Thorne, comments, in the Washington Post, 
``Google is enjoying a free lunch that should, by any rational 
account, be the lunch of the facilities providers.''
    Look, I don't want to take anybody's lunch away. I 
certainly don't want to take away the lunch of the consumers. 
That's what I care about. And so, what I'm trying to get at, at 
this hearing, is what your problem is here. And I think I've 
figured this thing out, but I'm going to ask Mr. Misener to 
help me in this, because I missed your presentation, and I want 
to give you a chance. So, I'm going to ask you this.
    Now, what--the Verizon people are saying that the ISPs have 
no intention of adding any new charges to access the net. And 
when I said, ``Great. Then why do you have a problem with net 
neutrality,'' they said, ``Well, there are new services and 
there are new things, and, for those new things, that's 
different.''
    So, I guess my point is, I'm confused, because I've got a 
little--a wonderful chart here, drawn by my staff, about why 
you get paid, Mr. Tauke. What do you do that's so great that 
you get paid? Well, you got the public rights-of-way. 
Congratulations. But you have a definite, I think, 
responsibility, because you've got a lot of those rights-of-
way. And then, you built the ability to transfer this 
information. For that, we thank you. That's important to us, 
that you did that. And that's what you get paid for.
    So, I guess I'm confused why, when we say, ``What's the 
problem with net neutrality,'' ``Well, we have a problem, 
because--the other part of it, sure, that we won't 
discriminate, but this new''--the idea of taking different 
things and putting it on that same--you know, that same pipe--
so, I mean, I'm confused about that. Why would they 
discriminate against the content? That's what I get--they're 
going to discriminate against the content and say, ``One, we'll 
leave you alone, but the other one, we're going to have new 
charges.'' Something's wrong there, and I just wonder, Mr. 
Misener, what--how you see this.
    Mr. Misener. Thank you, Senator Boxer. I'll give it a shot. 
And I am sorry you missed my testimony. I did----
    Senator Boxer. I know.
    Mr. Misener.--go through several myths--or, actually, 
misperceptions of fact.
    Senator Boxer. Well, get to this one.
    Mr. Misener. Well, this one, Senator----
    Senator Boxer. I think this is the nub of it. Because if--
--
    Mr. Misener. Thank you.
    Senator Boxer.--they don't have a problem on people--that 
everyone's going to be treated the same if they just go to--try 
and access the Internet, but if it's a new service, then 
they're going to charge, how do they make this distinction? I 
don't get the distinction. If they're being paid for one thing, 
now why, all of a sudden, are they going to have different, you 
know, prices to do different things? That's what I want you to 
hone in on.
    Mr. Misener. I'll try, Senator.
    When the CEOs talk about one or another content provider 
sitting on their pipes, it's a misperception of how the 
Internet works. Unlike cable and satellite, and broadcast and 
newspapers, all the other media that came before, which 
involves pushing the content out to the consumers, and then the 
consumer can choose what to read, which channel to select, all 
that content was in the pipeline already, and the consumer, at 
the end of the day, chose what they wanted to see.
    The Internet is radically different, in that it is a pull 
technology. When the consumer gets online, they pull the 
information down. The Google home web page, the Amazon pages, 
don't ever enter the network unless a consumer asks it to be 
sent.
    Senator Boxer. Very good point. That's a huge difference. 
And so, take it to the next step. Verizon tells us, today, they 
are now going to charge for that consumer making that decision 
to pull down other kinds of content. Is that right? That's what 
I heard.
    Mr. Comstock. Senator, if I might?
    Senator Boxer. Yes.
    Mr. Tauke. Senator, no, that's not right.
    Senator Boxer. So, you're not going to charge, no matter--
you're not going to charge based on content, or what the 
content is.
    Mr. Tauke. If somebody's pulling down a website, no matter 
what it is--video, voice, data, whatever--via the Internet, we 
aren't planning to charge.
    Senator Boxer. So, what are you going to charge for? What 
are you worried about that we're going to stop you from doing? 
Tell me, in plain English, so I understand.
    Mr. Tauke. OK. Let me use the example I used earlier, but I 
don't think you were here. You are a patient at Johns Hopkins 
University. You have heart surgery. When you leave the 
hospital, Johns Hopkins would like to monitor you at home. Or 
you are a diabetic patient, and they--and you have a medical 
center that wants to monitor you at home. What they want, 
oftentimes, is a managed network, or what we call a virtual 
private network, which we have many of today. That--and what 
the difference is between the Internet and a virtual private 
network is, the Internet is a network of networks, where there 
is no carrier----
    Senator Boxer. OK, wait, wait. Just--I get you. You want to 
charge--when the guy when the guy goes home from the hospital, 
and the hospital wants to monitor him from home, you want to--
--
    Mr. Tauke. No.
    Senator Boxer.--charge who for that?
    Mr. Tauke. The hospital. If the hospital wants to enter 
into an arrangement with us, not for Internet access, but for 
an end-to-end managed network, we would like to be able to 
offer that. Consumers can't get that today.
    Senator Boxer. OK. And you will take the capacity, then, 
away from these other----
    Mr. Tauke. No.
    Senator Boxer.--services? Or you're going to build new 
pipes----
    Mr. Tauke. Because we----
    Senator Boxer.--for that?
    Mr. Tauke. Because we are putting fiber into the ground--
this is the new network we're building--when you put fiber into 
the ground, you have virtually unlimited----
    Senator Boxer. OK.
    Mr. Tauke.--capacity.
    Senator Boxer. Well, could you do me the--could you--
because we don't have time today----
    Mr. Tauke. Right.
    Senator Boxer. I wish we had more time. It's so hard. This 
is so big. Write me the ten things you want to charge for. Let 
me take a look at that.
    Mr. Tauke. Well, it's really----
    Senator Boxer. Maybe we don't----
    Mr. Tauke.--it's really----
    Senator Boxer.--even have a fight. Maybe----
    Mr. Tauke. Yes, it's----
    Senator Boxer.--maybe we can write a net neutrality bill 
that gives you the ability to do certain things. So, let's 
let--come forward and, instead of making these kind of 
statements that I read that I think get--raise a lot of 
questions in our mind, and, you know, sometimes these comments, 
maybe they were taken out of context. But they give me another 
message. Let me know, what are the things that you think you 
want to be able to charge for, additional charges. Let me take 
a look at what that is.
    And I'd ask anybody else if they'd like to respond to--Mr. 
Misener, you want to----
    Mr. Misener. Yes, thank you, Senator. And one other 
question they might answer in this response is whether or not, 
for those kinds of services, they would be offered on 
reasonable and nondiscriminatory terms. It's one thing to want 
to provide Johns Hopkins a specialized-private service, but 
it's another thing to exclude, for example, the Mayo Clinic 
from the same terms. That would put Verizon in the position of 
being the new HMO.
    Senator Boxer. We don't need that. That's a--we have too 
many HMOs.
    Could I ask anybody else if they--Mr. Scott, could you--and 
Mr. Comstock, if you could--you see what I'm getting at. I'm 
trying to find some common ground here.
    Mr. Scott. I, frankly, share your confusion when I hear, 
``We're not going to block, we're not going to degrade, we're 
not going to''----
    Senator Boxer. Yes.
    Mr. Scott.--``discriminate,'' but, ``We don't want you to 
pass a law that would prevent us from blocking, degrading, and 
discriminating.'' Something is missing----
    Senator Boxer. Agreed.
    Mr. Scott.--between A and B.
    Senator Boxer. Yes.
    Mr. Scott. And I agree with Paul that it's great if we have 
new services on the Internet, provided that they are offered to 
everyone on the same terms.
    Mr. Comstock. I think, Senator, what it comes down to is, 
it's a fight over reserving capacity for their exclusive use. 
As Paul Misener was saying, they will decide which hospitals, 
or which other services get this special treatment, and----
    Senator Boxer. Based on the bucks that are paid----
    Mr. Comstock. That's right.
    Senator Boxer.--probably.
    Mr. Comstock. And they will always--I mean, this is how 
they can say both things and not be caught out--they will 
always make available some capacity that will be available on 
an unrestricted basis, but that's sort of like saying, ``OK, 
with 395, we've got 8 lanes. We'll make one of those lanes 
available for everybody to exit Washington that wants to do it. 
You know, it's first come, first serve, best efforts. You all 
crowd your way down that. But we've got these other eight. And, 
by the way, we're taking five of those, and they're going to be 
our exclusive video content offering. So, it's all taken up 
with our video. Nobody else can put their video on it. And then 
we've got another two lanes that we're going to offer to people 
who want to pay more money, and we'll decide which of those 
people willing to pay more money will get to run on those extra 
two lanes.'' So, you know, you've got your----
    Senator Boxer. It's like waiting to get on a highway, and--
--
    Mr. Comstock. Right.
    Senator Boxer.--having the highway blocked.
    Mr. Comstock. There's a public road and a toll road----
    Senator Boxer. Yes.
    Mr. Comstock.--and they--and it----
    Senator Boxer. Right.
    Mr. Comstock.--it really comes down to--the difference with 
the common-carrier model was, whatever capacity was available--
you couldn't force somebody to build new capacity, but whatever 
capacity was available, you had to make available on a 
nondiscriminatory basis. So, if somebody wanted to come--a 
hospital or somebody else--and say, ``Hey, I need this''--my 
companies provide VPNs every day. And so, it doesn't have to be 
Verizon that does that. But we can only do those VPNs if we can 
get capacity that we need and resell it to the consumers----
    Senator Boxer. Yes, I mean, I think there would be a huge 
outcry if somebody goes to a certain hospital, able to get a 
certain deal, and they--I mean, it's a good point.
    Did you want to say something, Mr. Tauke? Mr. Regan?
    Mr. Tauke. Yes. The fundamental issue here is, Are there--
is there a limit on capacity? And I think it's hard for us to 
grasp that in this new world there is really not a limit on 
capacity. If you purchase 30 or 50 or 70 megabits of Internet 
access from us, and we offer other services, that doesn't cut 
down on the 30 megabits of service you have purchased as a 
consumer, or your ability to use that to get to the Internet. 
In the fiber world, you add electronics to the fiber in order 
to create additional capacity. So, whatever the consumer 
purchases from us in the way of capacity for access to the 
Internet, we want to sell them.
    Senator Boxer. Well, the FCC says cable and phone companies 
have a 98 percent share of the broadband access market. So, we 
are dealing with a duopoly. And, in some cases in rural areas, 
only a monopoly. So, you're--so, in terms of the capacity, it 
could be ever-increasing, but in--it's who's controlling the 
capacity, is what we're coming down----
    Mr. Tauke. Well----
    Senator Boxer.--to, at the end of the day. I don't want to 
take up any more time, unless there's someone who has a 
brilliant thing to say.
    Mr. Regan, you have a brilliant thing to----
    Mr. Regan. I don't think I have a brilliant thing to say--
--
    Senator Boxer. Well, be brilliant----
    Mr. Regan.--Senator, but----
    Senator Boxer. Think of the consumer.
    Mr. Regan.--I think you're onto something, actually. I 
think you're onto separating these things into two baskets. One 
is the consumer, the guy who buys Internet access from a 
carrier. What can they do? And I think what you'll find here is 
a lot of consensus that they should be able to know what 
they're buying, in terms of bandwidth and speed. They should be 
able to go wherever they want on the Internet, as long as it's 
lawful. They should be able to apply the applications they want 
on the network, as long they don't hurt anybody or hurt the 
network. And they should apply--be able to attach any devices 
to the network. Those are really good ideas, and I think you're 
going to find everybody in agreement with them. And if you want 
to put them into law, we could talk about that.
    Now, the next question is, What rights does a big company, 
who wants to buy--wants to buy a communications connection--not 
an Internet connection, but a communications connection--from 
their point-of-presence to something--to Mr. Tauke, and then 
from Mr. Tauke to someone else. These are two big companies 
talking to each other about a transaction. That's a wholly 
different kettle of fish. So, let's set up--separate them into 
two different baskets, because I think you're going to find a 
lot of consensus around consumers.
    Senator Boxer. Yes, well, I don't see it as a different 
kettle of fish.
    Mr. Regan. OK.
    Senator Boxer. I think you're making up a different kettle. 
But I'm willing to work with you on this.
    Mr. Chairman, you've been so generous with the time. Thank 
you very much.
    Senator Inouye. Thank you very much.
    My only regret is that I've not been able to participate in 
this exchange in dialogue. But, if I may, I'd like to submit, 
to all of you, questions. And I hope you'll favor me with your 
responses.
    Because of the importance of this issue before us--I think 
this is the most important issue; we have franchise and 
Universal Service Fund, but this is it--I would offer you an 
opportunity, if you wish to, to submit addendums, other 
statements, because you've heard your competitors come forth 
with their allegations and statements, and this may complete 
your presentation better.
    So, with that, I thank all of you for joining us today, and 
the hearing will be in recess.
    [Whereupon, at 1:25 p.m., the hearing was adjourned.]
                            A P P E N D I X

  Prepared Statement of Hon. Gordon H. Smith, U.S. Senator from Oregon
    Thank you, Ranking Member Inouye and Senator McCain, for convening 
these hearings on telecommunications law reform and facilitating such a 
robust debate on what ails the Internet.
    I have expressed before my concern over this net neutrality debate 
and its place in the broader consideration of telecommunications law 
reform. And I think it is important at this juncture for all of us to 
stop and reconsider our primary objectives in taking up telecom reform 
legislation.
    In prioritizing the issues, I begin with the proposition that while 
there are many items included in the telecom reform bill there is one 
recurring theme that is present throughout--to enact legislation that 
will promote the expeditious deployment of affordable broadband 
services to all Americans.
    Whether we are talking about updating our Universal Service rules 
to encourage deployment of these services to rural communities, 
allowing for the deployment of unlicensed broadband devices in spectrum 
not being used by television broadcasters, or updating our video 
franchising laws to accommodate the speedy entry of broadband-based 
video services to the marketplace--this legislation is purposefully and 
rightfully directed towards opening new markets for broadband services 
and encouraging competition in the marketplace to ensure that consumers 
pay a reasonable price for access to these new services.
    Modernizing our telecom laws in ways that encourage the deployment 
of new telecommunications services to the marketplace also strengthens 
the long-term competitiveness and economic well-being of the United 
States.
    We must therefore measure every proposed provision in telecom 
reform legislation against this backdrop and in so doing ask ourselves 
two questions. First, does the proposal at issue encourage or impede 
the deployment of broadband service. Second, how will the proposal at 
issue affect the cost of consumer broadband access.
    I have heard again and again that any legislation that regulates 
the Internet at this point risks slowing broadband deployment and 
increasing the cost of consumer broadband access. I find it telling 
that I have not come across one salient argument that rebuts these 
suppositions.
    The fact that we are spending what precious little time we have 
left this session discussing possible legislation that may, in fact, 
operate to frustrate the underlying objectives of telecom reform alarms 
me.
    I urge my colleagues to think about what we are trying to 
accomplish with our telecom reform legislation, measure each proposal 
against this backdrop, and to keep their eyes on the ball when 
considering these important issues.
                                 ______
                                 
Prepared Statement of Daniel Brenner, Senior Vice President of Law and 
   Regulatory Policy, National Cable & Telecommunications Association
    Chairman Stevens and Co-Chairman Inouye and members of the 
Committee, my name is Daniel Brenner and I serve as Senior Vice 
President of Law and Regulatory Policy at the National Cable & 
Telecommunications Association (NCTA), which is the principal trade 
association representing the cable industry in the United States. Its 
members include cable operators serving more than 90 percent of the 
Nation's cable television subscribers, as well as more than 200 cable 
programming networks. NCTA's members also include suppliers of 
equipment and services to the cable industry. The cable industry is the 
Nation's largest broadband provider of high-speed Internet access after 
investing $100 billion over ten years to build out a two-way 
interactive network with fiber optic technology. Cable companies also 
provide state-of-the-art digital telephone service to millions of 
American consumers.
    Thank you for inviting me to participate in this hearing in order 
to share the cable industry's view on legislation pending before this 
committee. The cable industry today fully embraces, and thrives in, a 
robust, competitive marketplace and our consistent policy over several 
decades has been to minimize regulation on us and our competitors. The 
cable industry has never asked Congress for a handout and we don't seek 
to obtain regulatory advantages over our competitors. Nor have we 
opposed efforts designed to lighten regulatory burdens on our 
competitors in order to foster fair competition on a level playing 
field.
    I would like to start this morning by addressing the so called 
``network neutrality'' issue by making three key points.
    First, Congress's policy of leaving the Internet unregulated has 
been a resounding success. The resulting network flexibility has 
encouraged billions of dollars in investment. Companies that include 
high speed Internet services among their offerings have the freedom to 
experiment with multiple business models, producing more choices and 
competition in content and providers for consumers, and more innovation 
than ever before.
    Second, any change to this policy could have serious repercussions 
to continued network innovation and investment. Government, by its 
nature, is ill-equipped to make judgments about the best business 
models for an industry. This is especially true for a business as 
dynamic as the provision of high speed Internet services. It is clear 
that how those business models develop will directly affect the level 
of investment and innovation we can expect over the next few decades, 
but no one today can predict which business models will most 
effectively promote those goals.
    Finally, in the absence of any problem calling for a legislative 
solution--and since the broadband services marketplace is characterized 
by robust competition--Congress should refrain from premature 
legislative action and allow the marketplace to continue to grow and 
change so network and applications providers can offer consumers the 
fullest range of innovative service options.
Congress's Decision To Leave the Internet Unregulated Is an 
        Unquestioned Success
    Keeping the Internet free of regulation has helped to spur 
tremendous investment and competition in broadband networks and 
services. Left free to create new business opportunities and services, 
broadband providers (including cable operators, DSL, satellite, and 
wireless operators) have invested billions of dollars to bring high-
speed Internet access services to consumers across the Nation. With 
bandwidth usage growing at a rapid pace, continued investment will be 
needed to keep broadband services robust.
    If broadband providers are to continue to make these investments, 
and if consumers are going to be given the levels of services and 
innovative new products and features they desire, all at prices they 
can afford, broadband providers need to have continuing flexibility to 
innovate in the business models and pricing plans they employ. 
Likewise, websites and content providers also need the flexibility to 
experiment with business models, and to partner with broadband 
providers in doing so.
    Many so called ``net neutrality'' proposals, however, would seek to 
specify today which business models are permissible, and which ones are 
not, both for broadband providers and for website owners and content 
providers. They would impose by government fiat outcomes that are 
better left to the marketplace. This is especially so where that 
marketplace is highly competitive, where no real world problems needing 
a solution have been identified, and where the pace of technological 
development is breathtaking. There can be no better circumstances than 
these to leave it to the marketplace rather than government to be the 
regulator.
    It is far too early for us--or you--to predict which business 
approaches will succeed in the long run. Any attempt to do so runs the 
unintended, but high, risk of promoting an approach that fails in the 
market. By the time the law catches up to the market, it will be too 
late to recapture the momentum that characterizes broadband today. The 
hands-off policy has given us the flexibility to innovate and respond 
to consumer demand. Abandonment of that policy will undermine--not 
promote--consumer choice.
Internet Regulation Will Direct Resources to Litigation, Not Innovation
    Attempts to impose such requirements on broadband network providers 
also would lead to endless and expensive litigation. Even assuming 
appropriate regulations could be written--and because this is an area 
of rapid technological change, we do not think that assumption is 
warranted--they would still lead to uncertainty as to their actual 
application. They would also lead to the creation of a new bureaucracy 
to apply such rules and add layers of additional costs for dealing with 
the regulations and bureaucracy.
    Such costs might be undertaken were there real world problems that 
needed government intervention to remedy. But again, where no one has 
yet identified such problems, where such regulations would likely 
increase costs and stifle innovation, and where there is a vigorously 
competitive marketplace, there is no justification for taking such an 
enormous risk--and every reason not to.
S. 2686 Embodies the Right Approach
    Cable strongly supports the approach of S. 2686, which requires the 
FCC to report annually to Congress on what is actually taking place in 
an extremely dynamic and evolving marketplace. The grave risks to 
innovation and investment posed by premature action in this field 
counsel strongly in favor of investigating before legislating, and 
regulating only in the face of real rather than speculative market 
failure. We believe that FCC oversight of the Internet access 
marketplace will confirm that there is no evidence of harm or market 
failure to justify what amounts to imposing common-carrier regulation 
on broadband service.
Interconnection Rules Must Be Retained and Applied on a Technology- 
        Neutral Basis
    I'd also like to take the opportunity today to address 
interconnection issues. Any bill that seeks to promote competition must 
address voice, as well as video, in order to ensure a true level 
playing field and sustainable competition. Cable today offers real, 
facilities-based competition to local telephone companies. Our 
competitive voice services, however, cannot survive without physical 
interconnection to the Bell-controlled public-switched telephone 
network (PSTN) at a fair and reasonable rate. Despite their claims that 
the phone market is ``competitive,'' the Bells still serve the vast 
majority of Americans and still enjoy near-monopoly power in most 
markets in this country. In stark contrast to the purely speculative 
concerns raised by proponents of ``net neutrality,'' there is decades 
worth of real evidence that the Bells will use their market power to 
stifle competitors in the markets for long distance, local, and 
telephone equipment.
    Congress, in 1996, correctly recognized that the Bells' monopoly 
control over the PSTN, a network funded by rate payers, gave them the 
incentive and the ability to frustrate competition by impeding 
interconnection with other voice providers. This committee played a 
critical role in establishing a process to ensure that the Bell 
companies would interconnect with competitive local exchange carriers 
(CLECs), so that competitors could exchange traffic with the Bells on 
an economic basis, without glitches or delays, in order to promote 
local voice competition. These rights are critical to all competitors, 
including facilities-based competitors such as cable and cellular 
companies, because consumers simply won't buy a telephone service if 
they can't easily speak to friends and acquaintances served by the 
Bells.
    Despite the interconnection rules enacted in 1996, ten years later 
the Bells still own the only ubiquitous phone network--serving 85 
percent of the residential/small business market--and they still serve 
as the ``hub'' to which all other carriers must connect in order to 
reach each others' customers. And the Bells' continuing consolidation 
increases the need for interconnection protections. When the two 
largest CLECs in the market (AT&T and MCI) merged with the two largest 
Bells (SBC and Verizon), the most experienced and well-funded 
negotiators of interconnection agreements were removed from the 
competitive voice market. The proposed AT&T/BellSouth merger would only 
solidify the Bells' monopoly market power and make it more difficult 
for competitors to get a fair shake in interconnection negotiations.
    Even as they buy their largest competitors and consolidate their 
market power, the Bells argue that these rules governing competition 
are no longer necessary and that their voice competitors should instead 
have to rely on commercial negotiations. In addition, some states and 
incumbent telephone companies are seeking to limit interconnection 
rights based only on the technology used by a voice provider. The Bells 
and incumbent telephone companies, however, have no incentive to enter 
reasonable commercial interconnection agreements with any potential 
competitor. Elimination of these rules or limiting them to providers of 
voice services using traditional technology will severely hamper the 
introduction of IP-enabled voice services--the best hope for 
competition in the voice market.
    Just as the Bells continue to dominate the voice marketplace, they 
are often the only suppliers of the links that cable operators, 
wireless companies, and competitive local exchange carriers use to 
interconnect their networks with other providers. Wireless carriers 
also rely on the Bells for the landline trunks that tie cell sites to 
mobile switching offices. Whether these links are denominated as 
special access or transit services, they are critical inputs for Bell 
competitors. Unless there are effective measures to ensure cost-based 
pricing of these inputs, the Bells will be in a position to raise their 
rivals' costs and undermine competition. Simply put, you can't have 
facilities-based competition if competitors cannot reach their 
facilities.
Specific Comments on S. 2686
    We support the technology-neutral intent of the interconnection 
provisions of the bill, which extend the rights, duties, and 
obligations of carriers under sections 251 and 252 of the 
Communications Act to VoIP service providers. However, we would suggest 
limiting these rights, duties, and obligations to facilities-based VoIP 
providers, who have made a commitment to deploying their own networks 
and infrastructure. A non-facilities-based provider should not have the 
right to order facilities-based entities on whose networks it rides to 
interconnect at a particular place or manner.
    There are several other interconnection-related issues that the 
Committee should consider addressing in order to ensure that 
facilities-based competitors can compete fairly with the entrenched 
Bell monopolists and other incumbent carriers. First, we strongly urge 
the Committee to address rural telephone carriers' recent refusals to 
exchange VoIP traffic with telecommunications carriers, even though 
they have existing interconnection agreements with those carriers. 
Rural carriers' resistance on this point is depriving rural consumers 
of competitive voice services.
    The bill should also ensure that incumbent local exchange carriers 
have a continuing responsibility to interconnect with other voice 
providers, regardless of whether the ILECs are reclassified as 
information service providers. Finally, as I explained above, the bill 
needs to include effective measures to ensure cost-based pricing for 
special access and transit services.
Conclusion
    As Congress reviews the Telecommunications Act of 1996, we urge you 
to treat like services alike, preferably in a deregulatory environment. 
We will do the rest by raising private risk capital, investing in new 
technology, offering better customer service, creating innovative new 
programming, and competing with other multichannel video providers in 
order to provide consumers with the best voice, video, and data 
services possible.
                                 ______
                                 
Prepared Statement of Staci L. Pies, Vice President of Governmental and 
         Regulatory Affairs, PointOne; President, VON Coalition
    Thank you, Chairman Stevens, Ranking Member Inouye, and members of 
the Committee. My name is Staci Pies. I am Vice President, Governmental 
and Regulatory Affairs of PointOne, a VoIP provider, and President of 
the Voice on The Net or VON Coalition--the voice for the VoIP industry. 
On behalf of the VON Coalition, I thank the Committee for the 
opportunity to testify on S. 2686, the Communications, Consumer's 
Choice and Broadband Deployment Act of 2006. This committee has led in 
facilitating the deployment of VoIP in recent years. Your actions to 
tread lightly when it comes to Internet regulation have helped enable 
the timely delivery of innovative, competitively-priced, voice services 
to Americans all over the country.
    We are pleased to be here today to encourage this committee to 
continue to help unleash the full promise of Internet voice 
communications. With the right legal and regulatory framework, the 
potential for VoIP-led innovation is immense. Consumers throughout the 
country will be able to use VoIP to do things never thought possible, 
businesses may increase efficiency and productivity and transform the 
way they operate, and IP can help the economy to become an engine for 
innovation and the creation of higher-paying Information Age jobs.
    Congress has an unparalleled opportunity to help launch a new era 
of broadband-enabled benefits. You can facilitate transformative 
improvements in the way we communicate that harness the power of the 
Internet. VoIP is not just another flavor of telephone service. In 
contrast to POTS, IP voice is an application, just like e-mail, 
streaming audio, streaming video, and web browsing. VoIP has the 
ability to decouple voice from the legacy copper telephone network, so 
that innovation can happen on Internet time, and consumers can connect 
from any broadband network. By transforming voice communications into a 
software application, VoIP can integrate communications and data in 
entirely new ways. Soon a voice component can be added to any type of 
device, application or service that uses a microprocessor or touches 
the Internet. Accelerating VoIP adoption can mean cost savings for 
consumers and businesses, reduced operational costs for providers, 
advanced features unavailable with traditional phones, increased 
competition among network and service providers, increased 
infrastructure investment, accelerated broadband deployment, 
improvements in emergency services, lower-cost communications for rural 
and government users, increased access for persons with disabilities, 
and increased worker productivity.
    To accelerate these benefits, I wish to make three points about S. 
2686 today. A more comprehensive response to your bill is submitted 
with our written testimony.

   First, rather than automatically applying yesterday's rules 
        to tomorrow's technologies, the Committee should adopt forward 
        looking approaches to VoIP that empower consumers, extend VoIP-
        driven benefits to rural Americans, and boost productivity in 
        the economy.

   Second, to help accelerate the transition to a Nationwide 
        broadband network, policymakers should adopt policies that 
        create incentives rather than disincentives for exchanging 
        traffic between Internet networks and the legacy phone 
        network--thus geometrically increasing the value of both of 
        America's communications networks. This means strengthening and 
        reforming both interconnection and intercarrier compensation 
        policies.

   And third, to ensure that every American can benefit from 
        broadband communications choices, the VON Coalition supports 
        modernizing our Universal Service system and encourages the 
        Committee to establish a contribution approach that will be 
        equitable, understandable, easy to administer and will ensure 
        the sustainability of the Fund.

    First, Congress should focus on accelerating VoIP-driven benefits 
to consumers, businesses, and the economy. Consumers and businesses are 
flocking to VoIP because it can do what Plain Old Telephone Service 
can--and much much more--at a competitive price. VoIP empowers 
consumers and businesses to manage proactively how they use 
communications services, including when and where they receive calls. 
With VoIP, a consumer can choose to direct work calls to their office 
or mobile phone, and personal calls to their home or mobile number, 
depending on the time of day. A VoIP consumer can specify in what order 
his several phones should be rung and can integrate voicemail, e-mail, 
instant messaging, and voice services in new ways--bringing the power 
of the Internet to voice communications. Indeed, VoIP is cutting phone 
bills by as much as 40 percent and enabling the kind of voice 
competition that this committee envisioned when it passed the 1996 
Telecom Act. In some cases VoIP can replace a home or business phone 
system, in many other cases it is integrated into existing software 
applications, video games, and voice-recognition systems.
    In the workplace, businesses, small and large, are tapping into 
VoIP for cost savings of 40 to 60 percent, and at the same time 
boosting productivity by as much as 15 percent through smarter 
communications systems. VoIP provides breakthrough new features that 
enable businesses to function more efficiently and respond more 
effectively to the needs of consumers. More Americans can now work from 
home, allowing businesses to home-source rather than outsource jobs. 
Importantly, the mobility features of VoIP empower businesses to 
maintain continuity in an outage or disaster where offices could be 
inaccessible, but employees will still need to communicate.
    The government itself has been a successful early adopter of VoIP. 
Whether you are an astronaut on the Space Station, a researcher in the 
Antarctic, or a commander in Iraq--VoIP is helping our government do 
its job. That is why we commend you in this bill for ensuring that our 
armed forces serving abroad have affordable communications, and for 
recognizing the important role that VoIP is playing in keeping our 
troops in touch with their families.
    Second, legislation enacted by Congress must help accelerate the 
transition to IP-enabled networks by removing interconnection barriers 
and modernizing old polices for the new world. We commend the Committee 
for ensuring that VoIP providers can interconnect with the PSTN to 
provide consumers with new voice alternatives. We suggest that language 
also be included to ensure that VoIP traffic can be exchanged with the 
PSTN regardless of the identity of the provider, or whether the VoIP 
provider partners with a CLEC to exchange the traffic. Such a provision 
would eliminate the threat to the competitive availability of VoIP 
services and avoid creation of a ``digital divide'' between those who 
can enjoy the benefits of VoIP and those who cannot.
    As this committee has recognized, attention is also needed to speed 
comprehensive intercarrier compensation reform. To ensure that 
consumers and businesses can take advantage of this global medium that 
spans geographic boundaries, intercarrier compensation reform must 
speed the transition to broadband-enabled communications. IP networks 
and the gateways that enable the transition between broadband 
communications and the PSTN are critical links for empowering consumers 
and driving economic benefits. By focusing on overall, complete reform, 
in a timely fashion, you will ensure continued investment in IP-enabled 
networks, and avoid piecemeal decisions that can stifle innovation, 
technology investment, and slow the transition to broadband 
communications. Piecemeal fixes and stand-alone decisions that only 
address a small subset of intercarrier compensation actually undermine 
the potential for comprehensive reform. For example, on the ``phantom 
traffic'' issue, we fully support the need to ensure that all providers 
pass without alteration the call identifying information they receive 
and that providers do not have to generate an originating telephone 
number if, due to technical infeasibility, there is not a traditional 
originating number used. This will facilitate the delivery of useful 
information to intermediate and terminating providers that may be used 
to determine the jurisdiction of calls. However, a broad range of 
parties have recognized that there is a difference between identifying 
traffic and deciding which intercarrier compensation charge applies. 
Addressing traffic identification by itself is only a half-measure. The 
only real solution is comprehensive intercarrier compensation reform 
that eliminates today's artificial distinctions between different types 
of traffic, and puts Universal Service on a more stable footing than 
implicit subsidies through access charges. Accordingly, we recommend 
you provide the FCC a 180-day deadline by which to complete their long-
pending intercarrier compensation item.
    Third, we believe every American should have the opportunity to 
benefit from broadband-enabled voice services and we support the 
Committee's efforts to expand broadband access nationwide as part of 
Universal Service. The VON Coalition has long supported modernization 
of the Universal Service Fund contribution methodology to move away 
from yesterday's revenue-based system, to a broader connection or 
working telephone number-based contribution mechanism that is 
competitively and technologically neutral. There is a growing consensus 
that a revenues-based contribution methodology will not be sufficiently 
durable to withstand the broad transition to VoIP and other 
technological change. A revenue-based contribution methodology is 
inconsistent with other provisions in the bill directing Universal 
Service support to be sufficient and predictable. The bill's provisions 
should also be modified to ensure the contribution mechanism is simple 
enough for the average consumer to understand, and to minimize 
transaction costs for consumers.
    Another critical step for ensuring all Americans can take advantage 
of broadband enabled voice services is to accelerate E-911 solutions 
for the roughly 98 million--mostly rural--Americans who today are not 
able to take advantage of the breakthrough advantages of nomadic VoIP 
due to the lack of E-911 availability in their areas. We commend this 
committee for unanimously adopting VoIP E-911 legislation last year, 
including a prohibition on technology mandates, and believe that full 
Senate passage of S. 1063 is one of the most important policy issues 
for enabling consumer adoption of VoIP, especially in rural and 
underserved areas of the country.
    In closing, the VON Coalition would again like to thank this 
committee for its leadership on VoIP. With continued leadership from 
this committee, we believe VoIP is positioned to help make 
communicating more affordable, businesses more productive, jobs more 
plentiful, the Internet more valuable, and Americans more safe and 
secure.
    Thank you very much. I am happy to answer questions.

      Von Feedback on S. 2686--Communications, Consumer's Choice, 
                  and Broadband Deployment Act of 2006
    [Additions to current language shown in brackets]
Title I War on Terrorism
SEC. 103. Telephone Rates for Members of Armed Forces Deployed Abroad
    We commend the Chairman for the focus on ensuring our armed forces 
serving abroad have affordable communications to call home with, and 
the critical role that VoIP already plays in ensuring that our families 
can affordably stay in touch when asked to serve their country. Because 
of the importance of this provision, and the important and growing role 
that VoIP plays, we have suggested further improvements to the language 
to maximize the success of the provision--including language to make 
clear that the Commission can also abstain from adding new fees for 
members of the armed forces, ensures ``implementation'' of the 
provision, and suggests definitions for ``calls'', and ``VoIP 
service.'' Language is suggested in the marked-up version of the bill.
SEC. 151. Interoperable Emergency Communications
    IP-Enabled Voice communications--used today by FEMA, the Red Cross, 
DoD, the Army Corps of Engineers, and several State mobile emergency 
command centers for emergency communications--should be added to the 
section in order to ensure robust, redundant, and mobile communications 
in an emergency. Language is suggested in the marked-up version of the 
bill.
Title II Universal Service
Contribution Methodology--Ensuring USF Sustainability, Efficiency, and 
        Clarity
    The VON Coalition has long supported modernization of the Universal 
Service Fund contribution methodology to move away from yesterday's 
revenue -based system, to a more modern and broader connections or 
working telephone number based contribution mechanism that is 
competitively and technologically neutral. There is a growing consensus 
that a revenues-based contribution methodology will not be sufficiently 
durable to withstand the broad transition to VoIP and other 
technological change. A revenue-based contribution methodology is 
inconsistent with other provisions in the bill directing Universal 
Service support to be sufficient and predictable. Thus, preference 
should be given to a numbers or connections based methodology over the 
non-sustainable revenues based approach.
    Section 211(d)(1)(B), should be further modified to ensure the 
contribution mechanism both minimizes transaction costs for consumers 
and is simple for consumers to understanding. Add new subsection (iii) 
as follows:

        [``(iii) designed to minimize transactions costs and facilitate 
        easy consumer understanding.]
Low Volume User Clarity To Help Low-Income And Elderly
    211(d)(1)(C)--Current language allows the Commission to ``adjust 
the contribution for providers for their low-volume residential 
customers.'' These low volume users are often more likely to be low-
income or elderly. Language should be amended to explicitly exclude 
providers that recover less than a specific amount of combined 
communications service revenue per month from a particular low volume 
customer.

        ``(C) Adjustments.--The Commission may adjust the contribution 
        for providers [that recover less than a specific low amount of 
        combined communications service revenue per month, as 
        determined by the Commission,] for their low volume residential 
        customers.''

De Minimus Exemption To Spur Entrepreneurial Endeavors
    211(d)(2)(A)--The current language contains a de minimus exemption. 
Providers should be exempted that have minimal to non-existent 
revenues, even if the contribution methodology is based on connections. 
For example, if a providers revenues are de minimus and less than 
$25,000 then subsection 54.708 of the CFR would be amended to exempt 
the provider. Such a change would enable start-ups, entrepreneurs, 
rural providers, and small businesses to enter the market without 
administrative burdens while trying to seed an early business.

        ``(A) if the services [or revenue from communications service] 
        of such a provider are limited to such an extent that the level 
        of its contributions would be de minimis; or

Other Identifier Protocol as Alternative to Working Numbers Is 
        Problematic
    211(d)(3)(A)(ii)--Remove ``or other identifier protocol'' from 
working numbers description. Such language would leave open the 
possibility that USF could be assessed on every IP, Instant Message, E-
mail, or other address. It could lead to double payments for the same 
service, and would be difficult if not impossible to collect USF for a 
free service, or for services that are offshore.
Group Plan Discount--Ensure Families Who Use Multiple Numbers Can Stay 
        in Touch
    211(d)(3)(D)--In order to better stay in touch with children away 
at college, parents on fixed-incomes, or families and friends spread 
around the globe, consumers who use VoIP are often able to utilize more 
than one working telephone phone number for the same service. In order 
to ensure a fair and equitable contribution mechanism, these families 
should not be penalized by having to pay multiple times for the same 
service if a working telephone-number system is adopted.

        ``(D) Group plan discount.--If the Commission utilizes a 
        methodology under subparagraph (A) based in whole or in part on 
        working phone numbers, it may provide a discount for up to 3 
        additional phones provided under a group or family pricing 
        plan, [or for a service that utilizes up to 3 working phone 
        numbers for a single voice service.]

SEC. 212(c)--Add VoIP to American Community Survey Questions
    Add IP-Enabled Voice Service to study of broadband usage. There are 
reasons to believe VoIP is broadly used by Native Americans, but 
regulatory barriers may have left rural Americans without access to 
digital voice service.
SEC. 715. Rights and Obligations of IP-Enabled Voice Service Providers
    Interconnection. We commend the Chairman for seeking to ensure that 
VoIP providers can interconnect and provide consumers with new voice 
competition. In order to avoid unintended consequences, the language 
should be focused on the same rights and obligations as a requesting 
telecommunications carrier under section 251(a)-(c) and 252--currently 
it is 251 and 252. Like the House COPE bill, the Committee should also 
include language to ensure that VoIP originated traffic can be 
exchanged with an incumbent local exchange carrier regardless of the 
classification of the provider originating such traffic or whether a 
competitive local exchange carrier is used to exchange the traffic.
    Disability Access. We commend the Chairman for seeking to ensure 
that all Americans, including those with disabilities, can take 
advantage of the lower prices, improved features, and new competition 
that VoIP can deliver. We note that (1) the FCC already has a 
regulatory proceeding underway (the IP-Enabled Services NPRM) to 
determine the appropriate disability rules for VoIP, and (2) the 
Commission already has authority under Title I to apply disability 
rules to information services like VoIP. To the extent that Congress 
wants to take action, we suggest edits to provide consistency with the 
House-passed version, and to ensure that both services and hardware 
meet disability needs.
    Definition of IP Enabled Voice Service. The definition should be 
updated to be consistent with the definition adopted in the House COPE 
bill by including line powered VoIP services. The definition should 
include the language: ``(including when the voice communication is 
converted to or from TCP/IP protocol by the VoIP service provider and 
transmitted to the subscriber without use of circuit switching).'' In 
addition, the definition should conform to other two-way IP-enabled 
voice service definitions--especially since the stated goal is to cover 
services ``marketed as a substitute for telecommunications service.''
    Add language supporting exclusive Federal jurisdiction for VoIP. 
Congress should embrace the unique nature of IP communications, by 
codifying the FCC's Vonage decision to assert exclusive but limited 
Federal jurisdiction over VoIP. It would merely continue the status 
quo. VoIP relies on technology that seamlessly spans international 
borders, and does not distinguish between geographic boundaries--making 
it impossible to determine geographic endpoints. This global technology 
is impossible to regulate at the State level and even challenging at 
the Federal level. Therefore, without a clear Federal policy framework 
for VoIP, future investment in this area is threatened, putting at 
unnecessary risk the reduced costs and greater functionality of VoIP-
based services that could otherwise be made available nationwide. For 
these very reasons, the FCC, in its landmark Vonage decision, wisely 
avoided the morass of 50 separate State regulatory frameworks, and 
asserted exclusive but limited Federal jurisdiction over VoIP.
Sec 251--Applaud the Bill's Commitment to Broadband Build-out and 
        Services
    The VON Coalition commends the Chairman for working to ensure that 
every American has access to broadband service. For Americans to 
benefit from the lower costs, news services, and advanced features that 
VoIP can deliver, they need access to affordable broadband service. 
VoIP itself may be the long awaited killer-app for increasing broadband 
demand and driving broadband deployment. VoIP will play an essential 
role in driving this deployment and helping the Committee reach its 
goal.
Sec 255--Phantom Traffic
    We have make several recommended changes to the language which:

        1. Eliminates broad unintended consequences that would have 
        occurred if broadband routers were required to be able to 
        identify calling and called parties.

        2. Clarifies that providers do not have to generate an 
        originating telephone number if, due to technical 
        infeasibility, there isn't a traditional originating number 
        used.

        3. Ensures that originating signaling information that is 
        received by provider is passed through without alteration. This 
        will facilitate the delivery of useful information to 
        intermediate and terminating providers that may be used to 
        determine the jurisdiction of calls.

        4. Enables the FCC to move quickly to enact clear and 
        enforceable labeling and routing rules for traffic exchanged on 
        the PSTN

        5. Avoids inadvertently addressing traffic containing correct 
        information, yet carriers dispute appropriate rate based on 
        differing interpretations of existing FCC rules, or traffic 
        without correct signaling because of limitations of the network 
        technology in use (USTA has suggested that both types of 
        traffic are not ``phantom traffic'' issues.)

    Congress should also encourage swift and comprehensive Intercarrier 
Compensation Reform. Rather than simply trying to impose yesterday's 
legacy rules on new IP-based technologies, Congress should promote 
swift and comprehensive reform to establish a uniform national 
intercarrier compensation regime that is geographically neutral and 
eliminates implicit subsidies. The current patchwork of compensation 
rules provides few incentives for providing services in the most 
economically efficient manner and prevents consumers from making 
economically rational purchasing decisions. Congress should require the 
FCC to act on intercarrier compensation reform within 180 days of 
enactment of a bill.
Title VI----Wireless Innovation Networks
    The VON Coalition commends the Chairman for working to ensure that 
every American has access to broadband service, and freeing spectrum in 
order to expand access to broadband. For Americans to benefit from the 
lower costs, news services, and advanced features that VoIP can 
deliver, they need access to affordable broadband service. VoIP itself 
may be the long-awaited killer-app for increasing broadband demand and 
driving broadband deployment. VoIP will play an essential role in 
driving this deployment and helping the Committee reach its goal.
                                 ______
                                 
       Response to Written Questions Submitted by Hon. Jim DeMint
    Question. Since many of the concerns raised by advocates of net 
neutrality are hypothetical, let me ask all of you a hypothetical 
question. Suppose that a new competitor who wanted to enter the 
broadband market to compete against the phone and cable companies and 
even satellite. And suppose that this new company made a deal with a 
VoIP provider and a video provider to let it be the exclusive provider 
in its category. And suppose that in exchange, the new competitor got 
large upfront payments that allowed it to widely deploy this new 
network. Would you ban these companies from making this deal and 
bringing a new broadband network to the market? Wouldn't banning these 
types of agreements be bad for consumers?
    Answer from Timothy J. Regan. I would not ban the hypothetical 
arrangement described in this question because the arrangement would 
promote both network investment and competition. I believe that banning 
such an arrangement would be harmful to the interest of consumers and 
to the public interest in general.
    Answer from Roger J. Cochetti. As we indicated in our testimony, 
CompTIA's members strongly believe that government policies should be 
designed to promote competition in the provision of broadband access 
services and this competition will both reduce the need for any 
governmental regulation and deliver important benefits to business and 
individual consumers alike. Although it is difficult to comment with 
exactness on this hypothetical example, since some important details 
are not provided, we can say that existing anti-trust and consumer 
protection rules should be applied to the provision of broadband 
services and that the Federal Government should adopt a posture that 
encourages new broadband service providers to enter the market.
    Answer from Paul Misener. We believe that the Internet has been an 
engine of economic growth and a vibrant platform for innovation and 
competition because of its open architecture.
    We are not opposed to exclusive arrangements in a competitive 
marketplace. But, as much as we wish it were otherwise, in the 
marketplace of today, consumers have little or no real choice of 
broadband Internet access and what exists for the vast majority of 
Americans is, at best, a duopoly of the local phone and cable 
companies.
    Absent strong network neutrality provisions, we fear that consumers 
will no longer have the freedom to choose content from thousands of 
sources on an open Internet. Instead, the Internet will move backwards 
significantly with fewer options and limited choices. Not only would 
that negatively impact consumer choice and competition for online 
services, but it would be a drag on American innovation and U.S. global 
Internet competitiveness.
    Answer from Ben Scott. As a consumer advocate, I take very 
seriously any opportunity to lower prices and improve the quality and 
quantity of choices in the communications marketplace. This 
hypothetical scenario, like many that have been imagined during the 
debate over network neutrality, holds a significant degree of appeal. 
However, in each case, the final analysis reveals that permitting this 
brand of discrimination yields a short-term benefit but causes long-
term harm.
    The nondiscrimination principles separating the physical layer of 
the network from the content layer of the network have long been the 
foundation of communications law. These fundamental marketplace 
protections have produced very favorable results for consumers--most 
notably the Internet, the greatest engine of economic growth and 
democratic communications in modern history. The VoIP market is an 
exciting one for consumers because it brings the possibility of 
numerous dial tone providers competing for their business over a single 
broadband connection. The appeal of choice and the power of the free 
market to discipline prices and drive quality of service improvements 
is a powerful endorsement of the network neutrality rules that have 
long governed the Internet.
    But nondiscrimination principles apply in many other areas. For 
example, access on equal terms is also the baseline guarantee of the 
program access rules that prohibit anti-competitive activity in the 
distribution of video programming by cable operators. Without these 
rules, no competitive cable or satellite operator would be able to 
attract a mass audience because the incumbent operator would have the 
power to make exclusive deals with programmers. Without the program 
access rules, satellite television would not have captured the market 
share that it has. Without these rules, the telephone companies could 
not successfully enter the multi-channel video market.
    In short, the temptation to permit exclusive deals to new entrants 
into the wireline triple play market may be attractive, but it is not 
worth jeopardizing level-playing field rules of nondiscrimination that 
protect competition in the realm of content and applications that flow 
over the networks. Further, I question whether this situation would 
actually be economically and legally feasible. Exclusive deals with a 
single VoIP and video programmer would not likely generate the kind of 
revenues necessary to over-build a new wireline infrastructure. That 
volume of revenues would need to come from a sizeable capture of market 
share. To capture those customers, the new entrant would need to 
maximize its available service and content choices. (Exclusive deals 
are only economically beneficial if a network operator already has 
market power.) If the premise of its entry in the market was exclusive 
programming deals that minimized competition and consumer choice in 
VoIP and video, that would mitigate against a successful marketing 
strategy to customers. Moreover, such a scenario would require not only 
violating network neutrality in the VoIP market, but also the program 
access rules in the video market. The impact on the incumbent providers 
would likely provoke a severe reaction, both in the marketplace and in 
the courts.
    At the end of the day, consumer benefit is greatest when each of 
the network providers in the voice and video market have the maximum 
number of consumer choices. Permitting exclusive deals would create 
private networks which offered a limited selection of content and 
services. This path does not appear to be in the economic interests of 
the consumer in the long term.
    Answer from Earl W. Comstock. First and foremost, let me state for 
the record that the concerns expressed by Net neutrality advocates, and 
in particular COMPTEL members, are not hypothetical. Protracted 
negotiations with the Bell companies and other incumbent local exchange 
carriers (ILECs) over interconnection and other services that ILECs are 
required to provide by law, as well as the anti-competitive contract 
provisions that Bell companies routinely include in their contracts for 
services like special access that the FCC has chosen to deregulate, 
demonstrate on an ongoing basis that the core Net neutrality concerns 
regarding discrimination and refusals-to-deal are well-founded and 
occurring today. Similar behavior by incumbent cable operators, and the 
draft bill's inclusion of language to require incumbent cable operators 
to provide access to video programming, confirm that discriminatory and 
exclusionary behavior is not limited to the Bells, or subject to 
correction by market forces.
    Turning now to the hypothetical question you pose. A fundamental, 
but unstated, premise of the proposed hypothetical must be that the new 
company and the phone, cable, and satellite operators are using some 
public property in order to construct and operate their networks. 
Today, virtually all network operators offering services to other 
parties use public rights-of-way, public spectrum, or some combination 
of both. This assumption is a critical predicate to the hypothetical, 
because it is only this premise that gives the hypothetical relevance 
for a public policy debate. Without recognition that network operators 
are using public property to provide their commercial services, there 
is no legitimate, corresponding expectation that the networks be used 
to provide some public benefit. Instead, the point of the hypothetical 
could easily become an abstract discussion of whether rules are 
necessary to prevent uneconomic investment by private parties using 
their own resources. In other words, without the use of public 
resources by network owners, the hypothetical is as meaningless as 
whether the public has an interest in whether a private citizen can 
allow anyone, or prevent anyone, from using a facility built on their 
private property. For example, if a person builds a golf course in his 
back yard, and then refuses to allow anyone to use the golf course, is 
the public interest affected? Of course not; it is only because every 
network operator uses public property to build its network and offer 
its services that the public is entitled to the expectation that the 
investment--using the public resources--should produce a public 
benefit. With this implicit assumption in mind, let us now turn to the 
hypothetical.
    The hypothetical assumes that at least two network operators (the 
phone and cable companies, and perhaps satellite) are already supplying 
the entire market with voice and video service. Regardless of how it is 
financed, a third network will not benefit consumers--or the new 
network operator--unless the new network provides better voice (using 
VoIP) and video services to enough consumers to justify the cost of 
building the new network. In other words, in order to benefit 
consumers, the new network operator must offer voice and video services 
in competition with the existing voice and video services offered by 
the other network operators.
    However, the owner of a new network would only benefit from 
offering a brand new voice or video product on an exclusive basis, if 
the new network owner could be certain that offering these voice and 
video products on an exclusive basis would increase its sales to a 
point sufficient to pay for the network. Without that certainty, then 
the new network operator would be increasing its risk by entering into 
exclusive agreements because those agreements would prevent the new 
network operator from signing up additional subscribers who wish to use 
other voice or video providers. As a result, a network operator would 
be unlikely to offer only one new voice and one new video product, 
unless these products were clearly superior to the voice (whether VoIP 
or traditional) and video products available from the other network 
operators. If the VoIP or video service is not superior to the 
competing products offered by the incumbents, then the new network 
operator has almost no chance of competing in the market. Thus, a 
network operator deciding to build a new network to offer only one 
voice and one video service is making a riskier bet, because the 
operator must now have (1) the most efficient network--starting with no 
customers, (2) a better voice product than its competitors, and (3) a 
better video product than its competitors.
    Consumers only benefit under the hypothetical if the exclusive VoIP 
and video services offered by the new company are better than those 
available on existing networks or result in more competitive pricing 
among similar services. If the VoIP or video services being offered 
under the exclusive arrangement are so superior to existing services 
that offering customers these services would increase the new network's 
profits faster than would otherwise be the case, it is difficult to 
understand why the VoIP or video service provider would pay the new 
network operator to carry these services, when the network operator 
already has an independent incentive to carry the services in order to 
increase subscribers faster than the new operator otherwise would be 
able to on its own. Further, unless the VoIP service provider or video 
service provider that is seeking the exclusive contract is seeking to 
protect its existing market share, it is not clear why the superior 
VoIP or video service provider would want to limit its own profits to 
those that they can generate on a new company network, when it could 
likely increase its profit far more--and faster--by selling its service 
to all network operators.
    It is much easier to understand why a VoIP or video service that is 
already the dominant voice or video service on the incumbent networks 
would pay for exclusivity on a hypothetical new network. The 
``payment'' for exclusivity--or the right to ensure that rivals cannot 
offer a competitive VoIP or video product--is only likely to be 
valuable to a VoIP or video provider that is already dominant. In this 
case, the ``payment'' to the new network builder to ensure that the 
dominant VoIP/video service provider does not face competition is 
simply a way of ensuring the monopoly profits that the dominant 
provider already enjoys, will not be threatened by the construction of 
the new network. In this case, competition in the VoIP and video 
markets is thwarted by the exclusivity contracts. This is precisely the 
concern that Net neutrality advocates are raising; consumers would be 
harmed by the reduction in competition (as well as being burdened with 
additional costs to pay for the new network), and, thus, it is hard to 
see how consumers would be harmed by making such conduct illegal.
    In summary, the hypothetical is unrealistic. In order to have the 
capital to make the ``large upfront payments'' to the new network 
operator to build its network, the VoIP or video service provider would 
have to already be well established in the VoIP or video market. If the 
VoIP or video service provider is dominant, then that provider would 
lose market share if they limit their service offering to the new 
network operator, who starts with no market share. If that is not the 
case (for example, if a well-funded company wants to enter the VoIP or 
video market), then that new entrant risks limiting their own growth 
and profit by limiting their service offering to one network--it is 
much less risky to offer their service over all networks. Since a 
dominant VoIP or video service provider will clearly not enter into a 
contract that would reduce its market share, and a new entrant in the 
VoIP or video service market is unlikely to be well-funded enough or 
willing to limit its own growth to that of the new network operator, 
then the hypothetical must assume that the real driver behind the 
exclusive contract is an action by the VoIP or video service provider 
to protect their existing dominant market share by excluding rival VoIP 
and video service providers. Allowing such contracts necessarily moots 
the consumer benefit--competition in the provision of services over 
that network to provide lower prices and greater choice--and in fact 
results in increased cost to the consumer, who must pay for the new 
network or see the public resource wasted. The hypothetical incorrectly 
suggests that there is a benefit to consumers simply by having another 
network constructed, even though that new network is unavailable to 
provide competitive choice to consumers because incumbent VoIP or video 
service providers can control the new network through the use of 
exclusive contracts to finance its construction. In that case, it is 
difficult to see how the existence of the new network benefits 
consumers at all.
    Answer from Hon. Tom Tauke. I agree that consumers would be harmed 
by prohibiting the new broadband provider from entering into these 
arrangements. As a general matter, broadband providers or any other 
providers in the competitive Internet space should be permitted to 
reach commercial agreements to offer differentiated services, so long 
as customers are adequately notified of the limitations and price of 
their service. If customers are dissatisfied with the service offering, 
they will choose a different provider.
Question for Earl W. Comstock
    Question. How many facilities based carriers does COMPTEL have? Do 
these facilities-based carriers support your position on Net 
neutrality?
    Answer. COMPTEL has 146 voting members who are facilities-based 
carriers. The COMPTEL membership supports the net neutrality position 
outlined in my testimony. Like all membership organizations, COMPTEL 
positions are arrived at through discussion among members. Each 
individual COMPTEL member is free to support or oppose any particular 
position adopted by the membership as a whole.
Questions for Hon. Tom Tauke
    Question 1. Mr. Tauke, in a previous hearing, we heard from a Wall 
Street analyst who said that imposing net neutrality regulations, 
similar to the ones contemplated by some of my colleagues, would 
further sour Wall Street's view of network providers. What is your 
reaction to this?
    Answer. Building the next generation of our Nation's communications 
infrastructure is risky business, as the analysts have told you, and 
continue to tell us. Verizon is investing our shareholders' and 
bondholders' capital in a massive deployment of fiber optic cable in 
order to bring our customers competitive choice in video services, 
blazingly fast high speed Internet access, and world class telephony 
service.
    We agree that intrusive government regulation aimed at hypothetical 
problems--such as many of the Internet regulation proposals being put 
forth in the name of ``net neutrality''--could impact investment in 
broadband. Government policies should be encouraging broadband network 
deployment and competition, not discouraging it. We need the freedom to 
provide the Internet of the future to best meet our customers' needs.

    Question 2. Mr. Tauke, we have heard a lot about the ``rights'' of 
companies like Microsoft and Google to have access to the fiber 
networks you are building. Isn't this essentially common carrier 
regulation? Can you tell me if there are any differences between the 
reasons local phone companies have traditionally been saddled with 
common carrier obligations and the obligation Google, Microsoft and 
others wish to foster on to the Internet through what they call ``net 
neutrality? ''
    Answer. Common carriage obligations--including nondiscrimination 
requirements--were originally imposed in a monopoly environment and 
have no place in the competitive marketplace for broadband services. 
Throughout the United States, there are multiple competitors providing 
broadband Internet access using different technological platforms: 
copper, fiber, coax, mobile wireless, fixed wireless (Wi-Fi and Wi-
Max), and powerlines. Imposing the ``old world'' rules on this dynamic 
marketplace will harm the very consumers such rules are ostensibly 
intended to protect.
    Although ``nondiscrimination'' obligations may at first blush sound 
unobjectionable, they are, for good reason, very much the exception 
rather than the rule in the context of commercial agreements. In fact, 
most forms of product or service differentiation or customization 
require some level of ``discrimination,'' but these innovations--and 
the consumer benefits they provide--may be prohibited by strict 
``nondiscrimination'' obligations. The nondiscrimination requirements 
proposed by Senators Snowe, Dorgan, and Wyden could be read to prohibit 
all broadband providers--regardless of their platform--from 
differentiating their service offerings to provide more bandwidth, or 
security, or speed for certain applications, such as telemedicine, 
distance learning, or online entertainment. For example, content or 
application providers, citing these obligations, could ask regulators 
to prohibit a network operator not only from offering higher quality-
of-service to a consortium of hospitals for the transfer of medical 
images than to an ISP to transmit e-mails, but also from charging for 
this higher quality-of-service.
    Even if nondiscrimination obligations are not interpreted to 
prohibit all differentiation of services, the existence of these or 
other common carrier obligations opens the door to intrusive regulation 
that denies providers flexibility, makes it more difficult for them to 
compete, and discourages innovation. For example, common carriage 
regulation on telecom services often imposed tariffing obligations on 
providers that required them to make cost-based justifications for 
their prices. These requirements also prohibited a provider from 
offering a service to anyone, unless it agreed to offer the service to 
all takers on the same terms--regardless of whether the takers were 
similarly situated. While these requirements might have been 
appropriate in a monopoly environment for a very limited set of static, 
voice services, they are completely inappropriate--and harmful--in the 
competitive, dynamic broadband environment.
    If such regulations were on the books, competing content or 
application providers would enlist regulators to tell broadband 
providers how to structure their broadband offerings, and what prices 
to charge, notwithstanding the existence of competitive alternatives 
for broadband services. Regulators could become engaged in endless 
proceedings to determine the extent to which broadband providers can 
differentiate their services and prices. There are simply too many 
broadband services, too many broadband platforms and networks, and too 
many network operators for the FCC to be able to efficiently determine 
what kind of differentiation is acceptable.

    Question 3. Mr. Tauke, if we established net neutrality regulations 
for all platforms--wireless, satellite as well as telephone and cable--
what would be the effect on these competitive platforms' development 
and what effect would it have on the emergence of competition for 
access to content from various platforms?
    Answer. ``Net neutrality'' legislation would significantly slow the 
investment in, and deployment of, all types of next-generation 
broadband networks needed to offer new, high-speed Internet access 
services and competitive video services to consumers.
    Regulators have long recognized that imposing nondiscrimination and 
other common-carriage regulation on entities lacking market power can 
harm consumers by slowing ``the introduction of new services, dampening 
competitive responses and ultimately encouraging price collusion 
through the forced publication of charges.'' \1\ That would certainly 
be the effect of imposing nondiscrimination rules on any broadband 
platform, whether copper, fiber, coax, mobile wireless, fixed wireless 
(Wi-Fi and Wi-Max), powerlines, or some future technology.
---------------------------------------------------------------------------
    \1\ Policy and Rules Concerning Rates for Competitive Common-
Carrier Services and Facilities Authorizations Therefor, Further Notice 
of Proposed Rulemaking, 84 F.C.C.2d 445, para. 68 (1981).
---------------------------------------------------------------------------
    Rather than attack hypothetical problems by imposing heavy-handed 
regulation on competitive broadband networks and services, government 
at all levels should be looking for ways to incent investment in our 
Nation's broadband infrastructure. The experience with wireless 
networks, which have gone from zero customers to hundreds of millions 
of users in twenty years, demonstrates that rapid growth and consumer 
value are created when government steps aside and lets the market work. 
The same light-touch approach to regulation of broadband networks will 
extend similar benefits to all Americans.

                                  
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