[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]


 
              WIRELESS INNOVATION AND CONSUMER PROTECTION 

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

                                HEARING

                               BEFORE THE

          SUBCOMMITTEE ON TELECOMMUNICATIONS AND THE INTERNET

                                 OF THE

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                             JULY 11, 2007

                               __________

                           Serial No. 110-61


      Printed for the use of the Committee on Energy and Commerce

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                    COMMITTEE ON ENERGY AND COMMERCE

                       JOHN D. DINGELL, Michigan, Chairman

HENRY A. WAXMAN, California              JOE BARTON, Texas      
EDWARD J. MARKEY, Massachusetts            Ranking Member
RICK BOUCHER, Virginia                   RALPH M. HALL, Texas
EDOLPHUS TOWNS, New York                 J. DENNIS HASTERT, Illinois
FRANK PALLONE, Jr., New Jersey           FRED UPTON, Michigan
BART GORDON, Tennessee                   CLIFF STEARNS, Florida
BOBBY L. RUSH, Illinois                  NATHAN DEAL, Georgia
ANNA G. ESHOO, California                ED WHITFIELD, Kentucky 
BART STUPAK, Michigan                    BARBARA CUBIN, Wyoming 
ELIOT L. ENGEL, New York                 JOHN SHIMKUS, Illinois 
ALBERT R. WYNN, Maryland                 HEATHER WILSON, New Mexico                                                                                            
GENE GREEN, Texas                        JOHN B. SHADEGG, Arizona 
DIANA DeGETTE, Colorado                  CHARLES W. ``CHIP'' PICKERING, 
  Vice Chairman                            Mississippi 
LOIS CAPPS, California                   VITO FOSSELLA, New York 
MIKE DOYLE, Pennsylvania                 STEVE BUYER, Indiana 
JANE HARMAN, California                  GEORGE RADANOVICH, California 
TOM ALLEN, Maine                         JOSEPH R. PITTS, Pennsylvania 
JAN SCHAKOWSKY, Illinois                 MARY BONO, California 
HILDA L. SOLIS, California               GREG WALDEN, Oregon 
CHARLES A. GONZALEZ, Texas               LEE TERRY, Nebraska 
JAY INSLEE, Washington                   MIKE FERGUSON, New Jersey 
TAMMY BALDWIN, Wisconsin                 MIKE ROGERS, Michigan 
MIKE ROSS, Arkansas                      SUE WILKINS MYRICK, North Carolina 
DARLENE HOOLEY, Oregon                   JOHN SULLIVAN, Oklahoma 
ANTHONY D. WEINER, New York              TIM MURPHY, Pennsylvania 
JIM MATHESON, Utah                       MICHAEL C. BURGESS, Texas 
G.K. BUTTERFIELD, North Carolina         MARSHA BLACKBURN, Tennessee 
CHARLIE MELANCON, Louisiana 
JOHN BARROW, Georgia 
BARON P. HILL, Indiana               

                               _____

                           Professional Staff

                     Dennis B. Fitzgibbons, Chief of Staff
                     Gregg A. Rothschild, Chief Counsel
                       Sharon E. Davis, Chief Clerk
                     Bud Albright, Minority Staff Director

                                  (ii)

          Subcommittee on Telecommunications and the Internet

               EDWARD J. MARKEY, Massachusetts, Chairman
MIKE DOYLE, Pennsylvania             FRED UPTON, Michigan
JANE HARMAN, California                  Ranking Member
CHARLES A. GONZALEZ, Texas           J. DENNIS HASTERT, Illinois
JAY INSLEE, Washington               CLIFF STEARNS, Florida
BARON P. HILL, Indiana               NATHAN DEAL, Georgia
RICK BOUCHER, Virginia               BARBARA CUBIN, Wyoming
EDOLPHUS TOWNS, New York             JOHN SHIMKUS, Illinois
FRANK PALLONE, Jr, New Jersey        HEATHER WILSON, New Mexico
BART GORDON, Tennessee               CHARLES W. ``CHIP'' PICKERING, 
BOBBY L. RUSH, Illinois                  Mississippi
ANNA G. ESHOO, California            VITO FOSELLA, New York
BART STUPAK, Michigan                GEORGE RADANOVICH, California
ELIOT L. ENGEL, New York             MARY BONO, California
GENE GREEN, Texas                    GREG WALDEN, Oregon
LOIS CAPPS, California               LEE TERRY, Nebraska
HILDA L. SOLIS, California           MIKE FERGUSON, New Jersey
  





























                             C O N T E N T S

                              ----------                              
                                                                   Page
 Hon. Edward J. Markey, a Representative in Congress from the 
  Commonwealth of Massachusetts, opening statement...............     1
Hon. Fred Upton, a Representative in Congress from the State of 
  Michigan, opening statement....................................     3
Hon. Mike Doyle, a Representative in Congress from the 
  Commonwealth of Pennsylvania, opening statement................     4
Hon. Charles W. ``Chip'' Pickering, a Representative in Congress 
  from the State of Mississippi, opening statement...............     6
Hon. Hilda L. Solis, a Representative in Congress from the State 
  of California, opening statement...............................     7
Hon. J. Dennis Hastert, a Representative in Congress from the 
  State of Illinois, opening statement...........................     8
Hon. Jay Inslee, a Representative in Congress from the State of 
  Washington, opening statement..................................     9
Hon. Cliff Stearns, a Representative in Congress from the State 
  of Florida, opening statement..................................     9
Hon. John D. Dingell, a Representative in Congress from the State 
  of Michigan, opening statement.................................    10
Hon. Bart Stupak, a Representative in Congress from the State of 
  Michigan, opening statement....................................    12
Hon. Gene Green, a Representative in Congress from the State of 
  Texas, opening statement.......................................    13
Hon. Jane Harman, a Representative in Congress from the State of 
  California, opening statement..................................    14

                               Witnesses

Tony Clark, commissioner, North Dakota Public Service Commission, 
  Bismarck, ND...................................................    15
    Prepared statement...........................................    17
Steven E. Zipperstein, general counsel, Verizon Wireless, 
  Washington, DC.................................................    28
    Prepared statement...........................................    30
    Answers to submitted questions...............................   156
Timothy Wu, professor of Law, Columbia Law School, Columbia 
  University, New York, NY.......................................    39
    Prepared statement...........................................    41
    Answers to submitted questions...............................   154
Philip L. Verveer, partner, Willkie Farr & Gallagher, Washington, 
  DC.............................................................    47
    Prepared statement...........................................    49
    Answers to submitted questions...............................   145
Jason Devitt, co-founder and former chief executive officer, 
  Skydeck; member Wireless Founders Coalition for Innovation.....    69
    Prepared statement...........................................    72
Edward Evans, chief executive officer, Stelera Wireless, Oklahoma 
  City, OK.......................................................    81
    Prepared statement...........................................    83
    Answers to submitted questions...............................   152
Chris Murray, senior counsel, Consumers Union....................    90
    Prepared statement...........................................    92

                           Submitted Material

Letter of June 29, 2007, from Mr. Barton, et al., to Mr. Martin..   127
Letter of July 9, 2007, from Mrs. Blackburn, et al. to Mr. Martin   131
Letter of June 27, 2006, from Dennis F. Strigl to Senator 
  Lautenberg.....................................................   134
Jessica E. Vascellaro, ``Air War, a Fight Over What You Can Do on 
  a Cellphone,'' Wall Street Journal, June 14, 2007..............   136
``Reed Hundt's Spectrum Play,'' Wall Street Journal, July 11, 
  2007...........................................................   140
 Robert W. Crandall and Hal J. Singer, ``Telecom Time Warp,'' 
  Wall Street Journal, July 11, 2007.............................   142


              WIRELESS INNOVATION AND CONSUMER PROTECTION

                              ----------                              


                        WEDNESDAY, JULY 11, 2007

              House of Representatives,    
         Subcommittee on Telecommunications
                                  and the Internet,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 10:05 a.m., in 
room 2123 of the Rayburn House Office Building, Hon. Edward 
Markey (chairman) presiding.
    Members present: Representatives Doyle, Harman, Gonzalez, 
Inslee, Rush, Eshoo, Stupak, Green, Capps, Solis, Dingell, 
Upton, Hastert, Stearns, Shimkus, Pickering, Radanovich, 
Walden, and Ferguson.
    Also present: Representative Blackburn.

OPENING STATEMENT OF HON. EDWARD J. MARKEY, A REPRESENTATIVE IN 
        CONGRESS FROM THE COMMONWEALTH OF MASSACHUSETTS

    Mr. Markey. Good morning. Today the subcommittee will 
explore several wireless issues, including the role of States 
in regulating the terms and conditions of wireless service, 
consumer protection, and enforcement issues, as well as how to 
promote greater innovation and consumer freedom in the 
marketplace for wireless devices and applications.
    The wireless industry has suggested that Congress should 
preempt States from regulating the terms and conditions of 
wireless services as it did over a decade ago with respect to 
prices for wireless services. Many States have initiated 
attempts to take action to provide consumer protection policies 
for their residents, particularly with respect to regulations 
aimed at wireless contract terms, early termination fees, 
privacy issues and several other issues.
    To the extent that wireless service is by nature an 
interstate service, this hearing will provide an opportunity 
for us to explore whether further preemption is advisable, how 
consumer protection can be enhanced if regulatory treatment is 
nationalized, and how best to ensure rigorous enforcement of 
consumer protection policies in such a regime.
    With respect to wireless innovation, just over a week ago, 
people stood in line, slept overnight, so that they could get 
one of these, an iPhone. The iPhone highlights both the promise 
and the problems of the wireless industry today. On the one 
hand, it demonstrates the sheer brilliance and wizardry of the 
new technologies which are available in wireless engineering 
today. This cutting-edge technology breaks new ground with 
regard to the technology that consumers can have in their 
pocket, and undoubtedly consumers will cherish this device as 
though it is a part of their family. But at the same time, the 
advent of the iPhone raises questions about the fact that a 
consumer cannot use this phone with other wireless carriers and 
that consumers in some areas of the country where AT&T doesn't 
provide service, that they can't use it actually in some 
neighborhoods at all. And that is because the iPhone is used 
exclusively with AT&T's wireless plan. Moreover, even though 
consumers must buy this iPhone for the full price of $500 or 
$600, AT&T wireless reportedly still charges an early 
termination fee of apparently $175 for ending the service 
contract early, even though the phone cost wasn't subsidized 
and a consumer can't even take it to use it with another 
network provider.
    This highlights the problems with the current marketplace 
structure where devices are provided by carriers, portability 
of devices to other carriers is limited or non-existent, and 
many consumers feel trapped having bought an expensive device 
or having been locked into a long-term contract with 
significant penalties for switching.
    I would note that a witness today, Verizon Wireless, 
remains an anomaly in the industry by prorating its early 
termination fees, and I applaud them for taking such a step.
    It is becoming increasingly clear, however, that wireless 
carriers are exerting far too much control over the features, 
the functions, and applications that wireless gadget-makers and 
content entrepreneurs can offer directly to consumers. I 
believe that this is stultifying innovation and unquestionably 
diminishes consumer choice. The freedom to innovate in the 
wireless marketplace for gadgets and applications could unleash 
hundreds of millions of dollars in investment and create new 
jobs. Consumers would see more phones with WiFi or WiMAX chips 
incorporated into wireless devices, and application providers 
could avail consumers of the opportunity to obtain new content 
and other technologies that enhance the consumer experience and 
provide additional competition.
    Policymakers should try to figure out how to explore and 
promote greater innovation in the wireless marketplace and 
empower entrepreneurs and consumers with greater freedom. This 
was the idea behind the so-called Carterfone decision in the 
late 1960s when the FCC broke the stranglehold that Ma Bell had 
over the black rotary dial phone that consumers used and 
allowed unaffiliated manufacturers to provide such devices in 
the marketplace. The result was incredible innovation and an 
unquestioned policy success.
    The FCC has a rare chance to foster similar innovation in 
the wireless marketplace in the upcoming auctions. As I have 
suggested previously, the FCC should seize this opportunity to 
create an open-access opportunity for wireless service in this 
auction and should insist upon Carterfone-like principles 
applying to a significant portion of the licenses to be 
offered. Recent comments by FCC Chairman Martin that he is 
poised to embrace these policies in a proposal for auction 
rules is a step forward and is welcomed news.
    I encourage the FCC chairman and his colleagues on the FCC 
to maximize the benefits these policies can bring to consumers 
and the high-tech economy in their upcoming decision.
    I look forward to hearing from our witnesses today.
     I now turn to recognize the ranking member of the 
subcommittee, the gentleman from Michigan, Mr. Upton.

   OPENING STATEMENT OF HON. FRED UPTON, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MICHIGAN

    Mr. Upton. Well, thank you, Mr. Chairman. As we listen to 
today's witnesses and as we debate the many issues confronting 
wireless, I think it's important that we keep our focus on what 
is indeed best for the consumer. We need to ensure that 
sufficient spectrum is made available so that the wireless 
industry can continue to innovate, like with the iPhone, 
thereby enhancing consumer choice through the operation of 
market forces.
    Unfortunately, many of the policy proposals that face us 
and the FCC could well have the opposite effect of stifling 
innovation, and it is the consumer that will ultimately lose. 
We need to take care so as to not adopt policies that would set 
back the highly competitive wireless market. I don't think that 
it would be productive to adopt a regulatory posture that in 
any way emulates policies that apply to the past to a monopoly. 
None of the nationwide wireless providers have the ability to 
control the market for wireless devices which is occupied by a 
wide variety of manufacturers. The wireless service market is 
vigorously competitive with four national wireless providers as 
well as several large regional providers. In fact, 98 percent 
of consumers in 2005 lived in counties served by at least three 
facilities-based providers and 94 percent lived in counties 
served by at least four, according to the FCC. Even more 
facilities-based competition is on the horizon from the winners 
of the recent advanced wireless services auction such as cable 
operators and possibly from winners of the 700 MHz auction as 
well. So no matter how you slice it, forced network neutrality 
smothers investment in a competitive market and in the end 
would leave consumers worse off and probably with fewer 
choices.
    The iPhone is a wonderful and innovative new product and 
may very well set a new industry standard for mobile devices, 
and its early success is an indication that the wireless market 
is indeed working. Competition in the wireless market spurs 
carriers to innovate. They're forced to constantly build a 
better mousetrap in order to attract customers to their 
services or to keep customers moving to other competitors. The 
iPhone is the newest mousetrap, and now other carriers will be 
working to top it. Each month it seems like a new state-of-the-
art device hits the store shelves. New products foster greater 
innovation and consumer choice. The winners are not just AT&T 
and Apple or the companies that come out with the next hot 
device to top the iPhone, the winners are American consumers. 
And if the FCC or Congress wanders down the wrong path and 
makes the wrong policy choices, the ability of the wireless to 
live up to its potential as the third pipe will be greatly 
hindered or eliminated altogether. There is an old saying that 
no good deed goes unpunished. Imposing Carterfone rules or 
other unnecessary burdensome regulations on the wireless 
industry would certainly punish the good deed that emanates 
from providing new, innovative services and devices to 
consumers. So we must tread carefully. And in my view the most 
important issue facing us is the need for the FCC to draft 
proper rules for the 700 MHz auction.
    Recently a group of my colleagues joined with Ranking 
Member Barton and myself in sending a bipartisan letter to FCC 
Chairman Martin. In our letter we noted that placing conditions 
on the spectrum will reduce the revenues that the 700 MHz 
auction would otherwise generate. More importantly, it would 
prevent us from realizing the spectrum's true potential for 
consumers. That is especially the case with regard to both 
network neutrality and device unbundling mandates. Keep in mind 
that anyone can bid on the spectrum, anyone; and if they pay a 
fair market price, they are free to follow an open-access model 
if they choose.
    Mr. Chairman, I ask that a copy of the letter that we 
signed be inserted into the record of today's hearing, and I 
would also finally note that the ITC, International Trade 
Commission, last month issued a decision that is likely to have 
a profoundly negative impact on the wireless industry and this 
country. This decision, part of a patent dispute between 
Broadcom and QUALCOMM, will prevent the introduction of new 
handsets that rely upon a chip that the ITC found infringed on 
Broadcom's patent. Thus, new wireless technologies may well be 
kept from the marketplace, effectively freezing wireless 
innovation. The U.S. Trade Representative, Ms. Schwab, has been 
given the authority to overturn the decision, and many of us 
are actively encouraging her to do exactly that. We are not 
taking a position on the merits of the patent case, but we are 
arguing that the remedies imposed in the ITC ruling will have 
an unnecessarily severe impact on consumers and innocent third 
parties, and it would be truly ironic that despite the best 
effort of those here in Congress and of the FCC that the ITC 
ruling could undermine policies that are designed to spur 
innovation and enhance consumer welfare.
    Mr. Chairman, I see my time is expired so I yield back.
    Mr. Markey. Before we close on the gentleman, without 
objection, the gentleman's letter will be included in the 
record at the appropriate point. The gentleman's time has 
expired. The Chair recognizes the gentleman from Pennsylvania, 
the vice chairman of the subcommittee, Mr. Doyle.

   OPENING STATEMENT OF HON. MIKE DOYLE, A REPRESENTATIVE IN 
         CONGRESS FROM THE COMMONWEALTH OF PENNSYLVANIA

    Mr. Doyle. Thank you, Mr. Chairman. Mr. Chairman, before I 
start, I understand today is your birthday, am I right? Well, I 
just want you to know that I saw you in line last night at the 
midnight premiere of the new Harry Potter movie, and I hear you 
are a really big fan. So I pulled some strings, and I have got 
to tell you, Eddie, K Street is falling all over themselves to 
make you happy. And I was able to get a copy of the new Harry 
Potter book before it comes out. Now, when they handed it over 
to me, I was kind of surprised by the title. It seems kind of 
wonky, and the cover, I had no idea that Harry Potter looks 
like Chairman Kevin Martin. The resemblance is really quite 
striking. And this wizard guy, I can't place who he looks like. 
But anyway, I want to present you with a brand new copy, hot 
off the presses, of Harry Potter and the Order of the DTV 
Spectrum Auction. Can you put that up on the television for us, 
please. I think we have some video of this, Eddie, for people 
to see.
    Mr. Markey. I have not aged well. No choice about it.
    Mr. Doyle. Now, Mr. Chairman, if you open up the book, and 
I can't get around why all the pages are blank, but the rumor 
is that Harry Potter just finished the first draft but it still 
has to go through some editing by other students at the 
Hogwarts eighth floor. So luckily, Harry has promised me you 
will get the pages just as soon as he is finished talking about 
it to the press. That being said, I am not sure you are going 
to like the story he has to tell. Well, happy birthday, Mr. 
Chairman.
    All silliness aside, I think this is a great hearing, and I 
look forward to the witnesses' testimony. In the latest 
Newsweek, Steven Levy writes about the iPhone and says that if 
1967 was all you need is love, then 2007 is all you need is 
AT&T activation, and therein lies the issue that we come to 
look at today.
    Over the months and the years to come, what will drive the 
most complaints about the iPhone, the lack of 3G speeds, no 
voice dialing, the risk of fingertip frostbite trying to make a 
call in winter, or will it be that the phone costs over $2,300 
over the life of the contract and runs on what Consumer Reports 
says is the worst or next-to-worst network in 19 of the top 20 
markets?
    The iPhone could still change the world and be available 
for any consumer on any network, but we won't know until 2012, 
the year that AT&T's American exclusivity reportedly runs out. 
Now, since the iPhone is going to run on T-Mobile's network in 
Germany, it could be tweaked to run on T-Mobile stateside, but 
to do so would require hacking and other tricks out of reach to 
the average user like me.
    There is a lot to talk about in Washington about who is 
really the decider. Well, I think it is time the consumer 
becomes the decider of what they want their phones to do, not 
the cell phone carriers. The draft 700 MHz auction order at the 
Commission is a good start, but as I read it, it's not enough 
to ensure that consumers have a new provider to enjoy strong 
competition. As it stands, grandma Bell has over half the 
wireless market using advantages like free spectrum in the 
1980s, the ability to get exclusives like access to tunnels in 
the Metro in DC and others. The Bells are back with vigor. As 
it stands now, our cell phone carriers buy the phones from the 
manufactures, and those carriers decide what features we get to 
enjoy. Instead in Europe, that isn't always the case. But how 
can we judge if that is the model Americans would prefer given 
the opportunity or the regulatory pressure? Do we know if 
consumers pay less per minute they actually use to talk verses 
what they get in a bucket of minutes? Do they pay less for a 
phone when they buy it up front or over time? All that being 
said, Mr. Chairman, and on the other issue coming before us 
today, I just want to say that I don't have any philosophical 
objections with a national framework for wireless consumer 
protection standards. In my State, the wireless industry 
lobbied successfully to prevent our PUC from stepping in, and 
our attorney general didn't sign a consent decree with the 
wireless industry and 30 some-odd other States to create a 
regulatory framework. So folks in my district could very well 
be better off with robust consumer protections available to all 
American consumers and businesses.
    I hope everyone can work together in good faith. A state-
by-state patchwork might most severely affect smaller wireless 
carriers which frankly have some of the most pro-consumer 
offerings including unlimited calling, no early termination 
fees, and affordable rates.
    Thanks, Mr. Chairman, and I yield back the balance of my 
time.
    Mr. Markey. I thank the gentleman, and I thank the 
gentleman. I will keep this forever. This is great, a lot of 
imagination. Thank you.
    The Chair recognizes the gentleman from Illinois, Mr. 
Shimkus.
    Mr. Shimkus. I will waive, Mr. Chairman.
    Mr. Markey. The Chair recognizes the gentleman from 
Mississippi.

  OPENING STATEMENT OF HON. CHARLES W. ``CHIP'' PICKERING, A 
    REPRESENTATIVE IN CONGRESS FROM THE STATE OF MISSISSIPPI

    Mr. Pickering. Mr. Chairman, thank you, and happy birthday. 
Let me first start by thanking you for this hearing. It is an 
important hearing addressing critical issues at a very pivotal 
time with the FCC coming out probably today with a draft order 
concerning many of these issues in the 700 MHz.
    As we look at the context of where we are today, I do 
think, Mr. Chairman, that it is appropriate that we move as we 
have in the rest of the telecom policy to a Federal framework 
on the consumer protections, and that is something that would 
eliminate the patchwork of regulations and gives consumers a 
safety net at a Federal level of what they should expect as far 
as consumer protections. And then as we look at the current 
context of the 700 MHz and the Carterfone questions, it is 
important to remember where we have come over the last 10 years 
as we went from a duopoly in cellular communications to a very 
robust, vibrant, and intensely competitive marketplace as we 
changed the policy through auctions. Instead of having two 
providers, having five to seven providers in a market, having 
both national and regional and niche providers creating a very 
vibrant competitive sector. And it has led to an explosion of 
innovation, of investment, of build out, of opportunities for 
consumers to choose. But we also find ourselves at a time as we 
have had that explosion of competition, we are now seeing the 
realignment in telecommunications and the convergence but also 
the consolidation. As we look at where we want to be in the 
future, I think that we have a great opportunity in the 700 MHz 
to create an open platform that will make sure that we have 
competition and choice and innovation in the future, not only 
in the past but for the future. And let me be very clear on 
what openness is and what openness is not. Openness is not net 
neutrality. Openness is creating the wholesale market, it is 
creating interoperability for devices so that you can use a 
device, whether it is an iPhone or another device, with 
whatever function you choose. If you want to go to a WiFi or 
WiMAX spot and use it or if you want to have the access to 
other networks, you can do so. That is openness in wholesale. 
We have done the same thing in energy, whether it is natural 
gas or electricity in creating wholesale markets and the 
ability for independent power producers to connect to the grid, 
to the system, to the network. And so that is all that we are 
doing here, actually, the best way to ensure a non-regulatory 
solution and a new space and a new opportunity with the 700 MHz 
to have the robust competition, innovation, and investment that 
we have had in the past.
    So I really commend Chairman Martin for taking this 
opportunity to address and to get a space in our spectrum that 
would be open, innovative, competitive. I also commend Chairman 
Martin for addressing the significant need for a public safety 
network that would drive interoperability and public safety and 
will for the first time since 9/11 and Katrina give us our best 
hope of having a national public safety network.
    As we look at the Carterfone issue, it is the equivalent of 
portability. I think that what we did in 1996 that a consumer 
could choose if I am going to go with a cable company, a 
telephone company, or any competitor and I can take my number 
with me. Now the question is in the wireless sector, can you 
take your phone with you as you choose which network, which 
carrier, which device that you want to. And as we look at the 
challenges and the threats of maintaining competitiveness, I 
believe having an open space and new space where you don't have 
to impose regulatory burdens on any incumbent carrier but you 
give a new network a chance with new opportunities, I think 
this is the best way to go, and this is the best time and 
opportunity.
    Mr. Chairman, I yield back.
    Mr. Markey. The gentleman's time has expired. The Chair 
recognizes the gentleman from Texas, Mr. Gonzalez.
    Mr. Gonzalez. I will waive my opening statement.
    Mr. Markey. The Chair recognizes the gentlelady from 
California, Ms. Solis.

 OPENING STATEMENT OF HON. HILDA L. SOLIS, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Ms. Solis. Thank you, Mr. Chairman, and happy birthday. And 
I also want to thank the ranking member, Mr. Upton, for holding 
this very important meeting today. I look forward to learning 
more about the advances in the wireless industry, which has 
over 200 million subscribers. Many of my constituents consider 
a cell phone a necessity now for their convenience and safety. 
According to a recent Pew Hispanic Center survey, 59 percent of 
all Hispanic adults in the U.S. consider the cell phone a 
necessity rather than a luxury compared with fewer than half of 
non-Hispanic whites at 46 percent and non-Hispanic blacks at 46 
percent. Even more consumers are now foregoing landline phone 
services in favor of cell phones. We have seen an incredible 
rise in broadband wireless Internet usage and a release of new, 
innovative products in recent years such as the new BlackBerry 
models and the iPhone. Consumers are relying even more on 
wireless devices and the networks that support them to meet 
their communications and entertainment needs. The increasing 
wireless usage by all Americans will be directly impacted by 
the innovation of the wireless industry and consumer protection 
regulations. I look forward to hearing from our witnesses about 
the positive and negative effects of State and Federal 
regulations on consumer services and innovation in the 
industry. I am also interested in the concept of wireless net 
neutrality, and I hope our witnesses can tell us more about 
whether they think the industry is moving toward an increased 
portability of devices on different networks. And I yield back 
the balance of my time.
    Mr. Markey. The gentlelady's time has expired. The Chair 
recognizes the gentleman from Illinois, Mr. Hastert.
    Mr. Hastert. I thank the chairman, and I too want to 
congratulate the chairman on his long, long life and great 
seniority on this committee. And I understand you are now third 
in line geriatrically on this committee, so I congratulate you.
    Mr. Markey. Thirty-one years on this committee and I am 
still considered a young man still waiting for my----
    Mr. Hastert. That is a long, long time.
    Mr. Markey. That is a long, long time.

 OPENING STATEMENT OF HON. J. DENNIS HASTERT, A REPRESENTATIVE 
             IN CONGRESS FROM THE STATE OF ILLINOIS

    Mr. Hastert. Mr. Chairman, I want to thank you for holding 
this hearing today, and I would like to certainly welcome the 
panel and look forward to hearing about the new innovations in 
the wireless industry.
    When I got my ears wet, I guess, on this issue was back in 
the early 1980s when I wrote the Public Utility Act in Illinois 
and the Telephone Act. Back then there was twisted wire and 
copper wire and a little black thing that you dialed, and 
people picked it up and really didn't know how to use the punch 
buttons yet, but things have changed so much. You couldn't even 
begin in the 1980s to try to think about smart buildings, PCs, 
and handheld telephones and the things that we have today. This 
has happened partly because there is competition. Competition 
in the wireless marketplace has dramatically changed since 1993 
when Congress created the classification of commercial mobile 
services. In the early 1990s there were only 25 million cell 
phone users, and now the number has grown to over 225 million 
according to the FCC. The number of mobile telephone 
subscribers have increased penetration rates of approximately 
71 percent. The amount of time mobile subscribers spend talking 
and texting on their mobile phones has also increased. The 
volume of text message traffic has grown to 48.7 billion 
messages in the second half of 2005, nearly double the 24.7 
billion messages in the same period of 2004. Revenue per minute 
fell 22 percent during 2005 from 9 cents in 2004 to 7 cents in 
2005. These numbers speak volumes of an industry that is 
clearly shown to be extremely competitive and able to provide 
for its consumers. Wireless companies such as AT&T, Sprint, 
Verizon, and T-Mobile offer a menu of other services along with 
the traditional mobile and voice services, including text 
messages, data transferring, Internet and television access on 
their mobile devices. These various capabilities have given 
consumers plenty of choices.
    With as many options and plans as we have to choose from 
today, it is certainly questionable to impose Government 
regulation and net neutrality mandates on an industry that is 
already aggressive. Government should not dictate how a current 
successful industry should run, and the Carterfone principles 
should not be extended to today's competitive wireless 
industry. Congress must continue to promote policies that 
foster innovation in wireless technologies and not allow States 
to set policies that will stifle competition. It is critical 
that we do not enact regulatory burdens that hinder an industry 
responsible for providing consumers choice in telephony.
    I thank you, Mr. Chairman, and look forward to hearing from 
our witnesses today, and I yield back my time.
    Mr. Markey. The gentleman's time has expired. The Chair 
recognizes the gentleman from Washington State, Mr. Inslee.

   OPENING STATEMENT OF HON. JAY INSLEE, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF WASHINGTON

    Mr. Inslee. Thank you. I look forward to this hearing. I 
just wanted to comment on two things that have fundamental 
ramifications for the development of this service, one is the 
development of white spaces, and we won't be talking about that 
much today, but I think it is an important issue that all of us 
keep in mind that we try to develop these technologies. The 
other, I want to reiterate Mr. Upton's comments about the 
injunction that really does threaten the industry of Broadcom 
and QUALCOMM issue, and I will be active in talking to the 
Ambassador in attempting to find a remedy that doesn't 
potentially significantly affect services for millions of 
Americans, and I look forward to working with others in this 
room on that. Thank you.
    Mr. Markey. The gentleman's time has expired. The Chair 
recognizes the gentleman from California, Mr. Radanovich.
    Mr. Radanovich. Thank you, Mr. Chairman. Happy birthday, 
and I pass.
    Mr. Markey. Thank you. I appreciate it. The gentleman will 
receive extra time for that. The Chair recognizes the gentleman 
from Florida, Mr. Stearns.
    Mr. Stearns. Mr. Chairman, happy birthday several times.
    Mr. Markey. Unlimited.

 OPENING STATEMENT OF HON. CLIFF STEARNS, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF FLORIDA

    Mr. Stearns. Obviously thank you for holding this important 
hearing. We welcome the witnesses. It is interesting to go 
through the witnesses and where they are from and so forth, so 
it is quite diverse, and I compliment the majority for getting, 
I think, a very balanced list of witnesses here.
    I think of course as many on this side will say, we are 
interested in focusing on the consumers' welfare. It is a true 
American success story, this wireless industry story. It was 
once thought to be perhaps a niche market appealing to maybe 
900,000 people maybe by the year 2000. Despite these 
predictions, the wireless industry has become one of the 
fastest-growing and most competitive sectors of the U.S. 
economy because Congress has more or less allowed the consumers 
to rule the market. Many of us obviously feel the consumers are 
the best judges here, and we work for them, and so we look 
forward to more competition.
    Since Congress laid the groundwork in 1993 to create a 
competitive wireless industry, the number of wireless 
subscribers has leaped from about 16 million to 230 million 
people today. In addition, the wireless penetration is now more 
than 76 percent of total U.S. population. Competition in the 
wireless industry continues to grow beyond what many of us 
could even imagine. The FCC recently reported that 97 percent 
of the United States' population lives in counties with at 
least three service providers, up from 88 percent in 2000. That 
is a huge success story we all should be proud of. Consumers 
are also getting a great deal. In 1993 the average wireless 
bill was about $61.50, and consumers used their devices an 
average of 140 minutes per month. In 2005, the average wireless 
bill of $50 was nearly 20 percent less, and the average minutes 
of use was 708 minutes, a more than 400 percent increase.
    The purpose of this hearing is to examine the relationship 
between wireless consumers and wireless service providers. As 
we have seen, the wireless industry exists in a highly 
competitive environment. The best protection consumers can have 
is a competitive marketplace. Wireless has four national 
competitors today. Congress needs to ensure a national 
framework for wireless so that one or two renegade States don't 
disrupt the status quo and harm wireless competition. In the 
event of market failure, the FCC should have the exclusive 
responsibility of adopting consumer protection regulations. The 
FCC is the most appropriate agency to do this because the 
wireless industry is a national service, and the Commission 
already licenses and regulates this industry.
    So in closing, Mr. Chairman, the best consumer protection 
is competition, and Congress must fight the urge to impose 
burdensome regulation on this industry. And I thank you, Mr. 
Chairman. I yield back the balance of my time.
    Mr. Markey. The gentleman's time has expired. The Chair 
recognizes the gentleman from Michigan, Mr. Dingell.

OPENING STATEMENT OF HON. JOHN D. DINGELL, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MICHIGAN

    Mr. Dingell. The chairman thanks the chairman for holding 
this important and timely hearing on your birthday. And by the 
way, happy birthday.
    Today, Mr. Chairman, we turn our attention to how consumers 
are treated by the wireless industry and what consumers may 
expect in the future. We also consider the wireless industry's 
call for greater Federal control of consumer protection 
measures. Important questions.
    I am pleased that so many American consumers have elected 
to purchase wireless devices. Like many, I have come to rely on 
my BlackBerry, and I am now enjoying a brand new iPhone. I am 
pleased that the wireless industry has adopted a consumer code 
whereby carriers have pledged to make certain information 
available to consumers and to follow certain pro-consumer 
practices. I remain, however, concerned about some lingering 
consumer protection issues and how these issues will relate to 
the licensing of new spectrum shortly to be up for auction.
    The first issue is the imposition of early termination fees 
on consumers who choose to terminate a wireless contract. I 
fully appreciate the need of carriers to recover the costs of 
providing consumers with new devices at low prices. 
Unfortunately, there are reports that this practice has been 
abused. In some cases, consumers have been forced to pay the 
fee even if their service never worked and they were not 
properly served. It is puzzling to me that the amount of the 
fee is not tied to the cost of the phone. Carriers typically 
charge the same fee for subscribers with the cheapest handsets 
as they charge for those with the most expensive handsets.
    I am also concerned about the bills that consumers receive 
from their carriers. These are almost always difficult to 
understand and in some instances impossible to understand. 
Proper billing practices have long been a problem for all 
telecommunications customers, and this is a matter into which 
this committee must inquire I think now. The Federal 
Communications Commission received more than 12,000 consumer 
inquiries and complaints related to wireless services in 2006. 
Many of these concerned billing issues. This consumer 
protection issue clearly must be addressed and vigorously so.
    Finally, I am concerned about the complaints of some small 
carriers that they have difficulty in obtaining roaming 
agreements with large, national carriers. Clearly consumers are 
in need of protection in this matter so that they may receive 
the optimum amount of choice in the service that they are 
afforded by the different suppliers. Technological limitations 
and increased consolidation sometimes leave small carriers with 
only one large carrier with whom they may enter into a roaming 
agreement. This dynamic may produce abnormally high roaming 
rates for customers of small carriers. It may also limit the 
area in which consumers may expect to be served properly.
    The major wireless carriers are asking Congress to preempt 
the States on wireless consumer protection matters. In 
exchange, the carriers ask to reestablish a national set of 
consumer protection rules. This committee has carefully 
established the current regulatory framework for the wireless 
industry, and precluding a State from protecting its citizens 
is not a matter that should be undertaken lightly. Many 
wireless carriers, however, operate national businesses, and it 
is possible that consumers might gain more under a federalized 
regime. I look forward to the testimony on this topic, and I 
think it is again a matter for inquiry by this committee.
    Finally, I expect to hear more about the controversy 
surrounding the so-called Carterfone rules and wireless 
networks. This issue has taken on a new urgency since USA Today 
reported that the FCC may apply some form of Carterfone to new 
licenses in the 700 MHz band. When considering these 
developments, we should always seek to ensure that the 
Commission's actions benefit consumers, because it is they to 
whom we have the greatest responsibility. In the past, even the 
FCC's most well-intentioned initiatives have not always 
resulted in solid consumer benefits, some even operating to the 
detriment of the consumer.
    I look forward to learning more about the witnesses' views 
on this matter and also to finding out what the FCC intends to 
do and how it will impact upon the consumer. I welcome the 
distinguished panel of witnesses who appear before the 
committee today, and members of the panel, I express my thanks 
to you for your assistance and for the testimony that you will 
present in the hearing. I thank you, Mr. Chairman.
    Mr. Markey. The gentleman's time has expired. The Chair 
recognizes the gentleman from Oregon, Mr. Walden.
    Mr. Walden. Thank you, Mr. Chairman, and happy birthday, 
and I am going to waive my opening statement in honor of your 
birthday.
    Mr. Markey. Thank you. I appreciate that. The Chair 
recognizes the gentleman from Michigan, Mr. Stupak.

  OPENING STATEMENT OF HON. BART STUPAK, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MICHIGAN

    Mr. Stupak. Thank you, Wizard Markey, and happy birthday. I 
look forward to hearing the testimony of our distinguished 
panel today. The home page of CTIA, the wireless association, 
poses the question, who doesn't have a cell phone these days. 
It is a rhetorical question as there are 260 million wireless 
customers today. Innovation and competition have been the 
hallmarks of the wireless industry. Consumers have benefited 
tremendously, and the industry has grown rapidly. However, a 
different question in my neck of the woods is often asked, who 
has cell phone coverage? Unfortunately, too often in rural 
America consumers lack dependable, affordable cell phone 
service that works for them at home, at work, and everywhere in 
between. I know when I travel my huge district, I have long 
periods of time when I cannot be reached. That is not to say 
that the wireless industry has not made great strides in rural 
America; it has. It is just that rural America continues to 
face fewer choices and less coverage.
     Today's hearing is about taking stock of the marketplace 
and examining whether consumers would benefit from changes to 
our nation's wireless policy. I look forward to a good debate 
on the issues on the role of State regulators in requiring open 
access rules on wireless. Consumers, especially those who live 
and work in rural America, deserve accurate coverage maps when 
they are choosing a plan. Rural consumers should be able to 
know if their coverage is going to work when they travel out of 
the carrier's service area. Smaller, rural, and regional 
wireless carriers have raised concerns about their ability to 
negotiate fair and reasonable roaming agreements with national 
carriers. The FCC first opened a proceeding on this issue in 
1999 and reopened it in 2005. I look forward to hearing the 
panelists' thoughts on these concerns.
    I would be remiss if I did not mention the upcoming auction 
of the 700 MHz spectrum and the Federal-State Universal Service 
Fund joint board's proposal for an interim cap on wireless. 
This committee held a hearing earlier this year on the upcoming 
700 MHz auction. It was pronounced over and over, including by 
myself, that the spectrum is ideally suited to provide 
broadband to rural America. As such, I was pleased that 
Chairman Martin proposed strong build-out requirements for the 
spectrum to be auctioned. I am hopeful that the chairman and 
the Commission remain committed to this proposal as the rules 
are finalized.
    Finally, I believe this committee needs to begin some real 
oversight and work on universal service reform. A good place to 
start is with wireless. The joint board recently proposed an 
interim cap on USF support for wireless. While I agree that the 
growth in wireless deserves the Commission's immediate 
attention, I have serious concerns with the cap proposal. 
Interim policies at the FCC tend to become permanent. 
Furthermore, the cap may freeze in place the problems with the 
current system and effectively stall deployment of wireless in 
areas of the country that are still lacking coverage.
    Mr. Chairman, I am hopeful the committee will turn to these 
issues as you continue your series of hearings on wireless 
technology. Thank you, and I yield back.
    Mr. Markey. The gentleman's time has expired. The Chair 
recognizes the gentlelady from California, Mrs. Capps.
    Mrs. Capps. Thank you, Mr. Chairman. I waive my opening 
remarks except to welcome the witnesses and try to figure out 
why we are having this hearing on your birthday or vice versa.
    Mr. Markey. I thank the gentlelady very much. The gentleman 
from Texas, Mr. Green.

   OPENING STATEMENT OF HON. GENE GREEN, A REPRESENTATIVE IN 
                CONGRESS FROM THE STATE OF TEXAS

    Mr. Green. Thank you, Mr. Chairman, and happy birthday. 
When you get to be our age, we are just happy to have them, but 
we don't want to count them. I would like to put my opening 
statement into the record, but I will give you an example about 
how wireless has expanded so much in our country.
    In 1999 I brought a very old car up here from Texas. I 
drove it, and there were so many places between Texas and 
Washington, DC that I lost cell phone service. That was prior 
to BlackBerries. But I brought another one up this last week, 
and I was amazed that driving in very rural areas all through 
the south, Mississippi, Alabama, Tennessee, and even in 
southern Virginia how the service was never a problem at all 
with the BlackBerry or cell with two different large carriers. 
So obviously from the consumer side we know that, and it is 
great to experience it, because coming from the very urban area 
in Houston and working in Washington, DC, some of us don't 
realize in the rural areas, like my colleague from Michigan 
said, that there are still gaps in it. And that is what I would 
hope that we would look forward to. I know the coverage 
nationwide is good. 98 percent of the U.S. population lives in 
counties with three or more wireless operators, and 51 percent 
of the population lives in counties with five or more wireless 
operators. So Mr. Chairman, I would like to again place the 
whole statement in the record, but thank you for holding the 
hearing, even if it is on your birthday, but it is also 
Wednesday.
    Mr. Markey. Thank you, Mr. Green, very much. And the 
gentlelady from California, Ms. Harman.

  OPENING STATEMENT OF HON. JANE HARMAN, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Ms. Harman. Thank you, Mr. Chairman. On behalf of 
California grandmothers, I join with Mrs. Capps in wishing you 
a happy birthday.
    To our witnesses and to the committee, I realize that the 
scope of this hearing goes beyond just spectrum, but the 
biggest spectrum in U.S. history is on the horizon. After the 
DTV transition, the importance of the consumer issues under 
consideration today will grow exponentially. I am confident 
that the wireless industry, including the companies represented 
by our witnesses today, is doing its best to offer cutting-edge 
services at competitive rates, but the upcoming 700 MHz 
auction, the iPhone, and the QUALCOMM/Broadcom patent dispute 
all show how quickly the wireless industry is changing. On the 
open access question, greater freedom for wireless devices and 
applications can bring down the cost of handsets and spur 
innovation in the industry. We should look hard at this idea as 
the FCC is because wireless technology in the U.S. is years 
behind other parts of the world.
    But my priority, Mr. Chairman, and I think everyone on the 
committee is getting a little tired of this rant, is to assure 
that we don't blow it with respect to the 700 MHz auction for 
the public safety spectrum. Mr. Pickering and I wrote again 
yesterday, and I am sure he mentioned this, to the FCC urging 
that the auction include open access, wholesaling, and a 
national not regional approach. I believe he did speak to this 
earlier. I hope the FCC is listening.
    On television yesterday, and actually in the press today, 
is information from the Department of Homeland Security 
Secretary Michael Chertoff and others that chatter is up and an 
attack on U.S. soil by some terror group or terror groups or 
terror cells is likely this summer. This is mid-July, so we 
have 6 anxious weeks to go. I worry that when it comes, I 
didn't say if it comes, we still may lack the interoperable 
communications so necessary for first responders to respond 
adequately, especially if there are near-simultaneous attacks 
in different parts of the country, which is absolutely 
possible. This problem has to be fixed. This problem won't be 
fixed if we do business as usual. The clock is ticking. I am 
glad that the FCC is acting promptly, but it is now necessary 
for the FCC to make the right decisions; and I would urge this 
committee, I would urge you, Mr. Chairman, and I would 
certainly urge others listening in to get this right with 
respect to open access, wholesaling, and a national approach to 
this emergency spectrum. I yield back the balance of my time.
    Mr. Markey. The gentlelady's time has expired. The 
gentlelady from Tennessee, Mrs. Blackburn, is not a member of 
the subcommittee, but by unanimous consent, we would invite her 
to make an opening statement if she would like.
    Mrs. Blackburn. Thank you, Mr. Chairman. I will waive. I 
look forward to the witnesses and opportunity for questions.
    Mr. Markey. OK
    Mrs. Blackburn. I yield back.
    Mr. Markey. The gentlelady's opportunity will be preserved, 
and I do not see any other members of the subcommittee wishing 
to be recognized for the purpose of making any opening 
statements. We will turn to our very distinguished panel and 
will begin by recognizing Commissioner Tony Clark. Mr. Clark is 
commissioner of the North Dakota Public Service Commission. He 
also serves as the president of the Telecommunications 
Committee of the National Association of Regulatory Utility 
Commissioners. Welcome, Mr. Clark. You have 5 minutes to 
deliver your testimony.

  STATEMENT OF TONY CLARK, COMMISSIONER, NORTH DAKOTA PUBLIC 
                SERVICE COMMISSION, BISMARCK, ND

    Mr. Clark. Thank you, Mr. Chairman, and Ranking Member 
Upton and members of the subcommittee. I appreciate the 
opportunity to testify today. I am Tony Clark, commissioner 
with the North Dakota Public Service Commission and a member of 
the National Association of Regulatory Utility Commissioners 
and chairman of its Telecommunications Committee. We commend 
you for holding this hearing on protecting consumers, and it is 
a goal that is shared by both the States and Congress.
    Under current law, State commissions handle thousands of 
consumer complaints every year and generally provide individual 
relief to each complaint, often resolving complaints in a 
matter of weeks or even days through informal processes. In 
addition, we are able to address new and novel concerns as they 
arise.
    We are concerned because the wireless industry in 
particular has lobbied to create a technology-specific 
preemption standard for their telecommunications service. As a 
response to concerns that we have raised with regard to this 
approach, industry representatives have said that they still 
support State attorneys general having authority to enforce 
general laws of applicability over the industry. We 
respectfully argue that this sounds a whole lot more impressive 
than it actually is; and in fact, 41 State attorneys general as 
well as NGA agree with us, signing a letter to Congress last 
year urging a defeat of the kind of preemption that we are 
discussing.
    The point is that while fraud enforcement actions have 
their place in jurisprudence, it is a pitifully poor way to 
police a market like telecommunications. Take, for example, the 
issue of bill slamming and cramming. Now, it is clearly a wrong 
practice, and laws prohibiting it on the State level are 
clearly telecom specific. And yet Federal legislation that 
would only permit State laws of general applicability in the 
wireless arena would wipe these laws from the books of 50 
States as they pertain to the wireless providers. Is this 
really good public policy? Do we want to have to bring a full 
fraud case for every wireless bill dispute that arises, while 
handling wireline landline complaints through an administrative 
process? It makes no sense and illustrates the problem with 
broad Federal preemption based on a specific technology.
    In addition, we believe that a law change at this juncture 
would add significant legal confusion over a Federal act that 
is only now beginning to see some legal stability after years 
of litigation.
    In November 2004, NARUC convened a Task Force to examine 
our own role and our view of the telecommunications marketplace 
and federalism. The outcome of that and other NARUC efforts we 
believe sets NARUC on a very pragmatic, moderate path in 
dealing with the wireless jurisdictional relationship; and 
while we do not believe that limiting States to laws of general 
applicability is a feasible path forward, neither do we argue 
for a return to rallying around old jurisdictional flags and 
crying States rights. Instead, we believe we offer a 
constructive way of viewing the Federal-State wireless 
relationship. In the end, we came to two important conclusions.
    First of all, with the pace of innovation, all Government 
policies must strive to be as technologically neutral as 
possible. And the second conclusion was the development of our 
functional federalism concept, which is the idea that if 
Congress is going to write portions of the Telecom Act, it 
doesn't have to be bound by traditional distinctions of 
interstate versus intrastate or try to figure out ways to 
isolate the intrastate component of each service. Instead, a 
Federal framework should look to the core competencies of each 
level of government and decide what it wants to regulate and 
then just decide who does what best. Now, some have argued for 
the FCC to set national standards for consumer protection. 
NARUC is very willing to explore Federal standards for consumer 
protection, and we believe that it may be one way to address 
carrier concerns over potentially conflicting State 
regulations. However, we also wish to be clear that Federal 
standards must be accompanied by a State enforcement mechanism. 
Experience has taught us that relying solely on the Federal 
Government for enforcement of a mass market like this would be 
folly. Take for example, the Do Not Call list experience. While 
both States and the Federal Government have enacted these laws, 
in practice, enforcement has fallen overwhelmingly to the 
States, in fact, almost exclusively.
    Finally, we believe that States must retain the ability to 
enact new consumer protections to then address potential 
abuses. To limit the ability of States to address emerging 
concerns will in effect handcuff cops on the beat protecting 
consumers.
    The bottom line is that State regulators are seeking a 
middle ground that relies on each level of government doing 
what it does best: the Federal Government setting standards 
that apply to all and the States enforcing those rules and 
tailoring them to emerging specific issues. It is a 
partnership, not preemption. If the industry finds State rules 
burdensome and contradictory, we believe appropriate remedies 
should rest with the FCC conducting individual case-by-case 
reviews of the disputed rules.
    Finally, Mr. Chairman, I would note that NARUC has 
committed itself to ongoing dialog with the industry and other 
policy makers to ensure that the benefits of wireless 
innovation are preserved while ensuring that consumers are 
served in the best possible way.
    Again, I thank you for the opportunity to testify. I look 
forward to any questions you may have.
    [The prepared statement of Mr. Clark follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Markey. Thank you, Mr. Clark, very much. Our next 
witness is Mr. Steven Zipperstein. He is the vice president and 
general counsel of Verizon Wireless. Welcome, sir.

 STATEMENT OF STEVEN E. ZIPPERSTEIN, GENERAL COUNSEL, VERIZON 
                    WIRELESS, WASHINGTON, DC

    Mr. Zipperstein. Good morning, Mr. Chairman. Thank you very 
much, and happy birthday. Mr. Chairman, Ranking Member Upton, 
and other members of the subcommittee, it is a pleasure and a 
privilege to be here with you today to talk about the issues 
that have been raised in the opening statements and other 
issues that I am sure will come up in the hearing, and I will 
do my best to answer all of your questions as forthrightly and 
as candidly as I possibly can.
    A number of the members have referred to the recent 
developments particularly yesterday and this morning in the 
press regarding the upcoming spectrum auction, and I thought I 
would begin by offering a few comments from the perspective of 
Verizon Wireless on these developments.
     First, so far all we have, I think it is important to 
emphasize is a proposal. Mr. Chairman, you refer to the fact 
that the chairman of the FCC is poised to take action but that 
no final action has occurred; and I just want to make the point 
that we have a proposal. We haven't even seen the language yet. 
It hasn't been released publicly. All we can do is speculate at 
this point about what the specifics are, and of course, the 
process at the FCC will continue over the next few weeks as 
people discuss the proposal with the FCC that will lead 
eventually to final rules.
    I think it is also important to note that based on what we 
have seen emerge in the press last night and this morning, it 
appears that the proposal may be somewhat narrower in scope 
than originally appeared to be the case yesterday morning. For 
example, it now appears based on what we are reading and 
hearing that the proposal affects about one-third of the 
spectrum to be auctioned, about 22 MHz or so out of the 60 MHz 
to be auctioned, and it appears that the so-called open access 
component that would apply to that one-third or so of the 
spectrum appears to be focused on a couple of issues. The first 
issue involves what some of the members have referred to here 
this morning as device portability, namely allowing consumers 
to bring devices of their choosing onto a carrier's network, 
and second, it appears that there may be some focus on enabling 
so-called WiFi access, and I wanted to talk about both of those 
two for a moment if I may.
    With regard to device portability, the first thing I wanted 
to mention, Mr. Chairman, is Verizon Wireless has over 60 
million customers. Every day we receive thousands of phone 
calls into our centers from those customers who have questions 
about various items. We receive e-mails at our headquarters, we 
receive letters from customers with complaints, with 
suggestions, with ideas. We have, quite frankly Mr. Chairman, 
not heard from our customers very much about a desire to bring 
other devices onto our network or a desire to enable WiFi. We 
just have not been hearing that from our customers. We 
understand it is a concern. I don't want to in any way downplay 
the concern, I just wanted to report to the subcommittee that 
it is not something that we are seeing a lot of from our 
customers. It is also important to remember that the FCC 
initially, under Chairman Hundt, and then continuing through 
the present, set the wireless industry in this country on the 
path to developing dual technologies that would compete against 
each other, CDMA technology which my company uses, which Sprint 
uses, which Alltel uses is one path. The other path is the GSM 
technology which T-Mobile uses and AT&T uses. And those two 
technologies are not easily compatible with each other in a 
device sense. What we have been hearing from customers of ours, 
for example, is that when they go to Europe or to countries 
that have GSM, they would like a device that works over in 
Europe, and if I could just show the committee, we do have a 
BlackBerry that we began selling recently, the 8830, which 
works in Europe on the GSM mode and works here in this country 
on our network on the CDMA mode.
    So as the market informs us of their desire for those sorts 
of devices, of course, we've responded to the market as have 
other carriers.
    I would also then, turning to WiFi, mention that the market 
is responding there as well. T-Mobile as recently as last week 
announced a phone that will work on their network as well as 
WiFi. We are also looking at such a device, but I would caution 
that there are a lot of very, very important technical issues 
here. Our engineers tell me that, for example, a device working 
on WiFi has to search, it has to use power to get on the WiFi 
network, and battery life could be a real issue, and consumers 
could see some degradation in battery performance. And as a 
result, I would just echo what Chairman Dingell said and what 
the FTC, Federal Trade Commission, staff said recently. It is 
important before we plunge headlong into this that we do take a 
very, very careful look to make sure that we don't 
inadvertently do things that can be counterproductive for 
consumers.
    I think it is also worth mentioning that the market has 
been able to respond to conditions such as new innovations in 
the iPhone in a way that has been very, very favorable to 
consumers. The example I would use, Mr. Chairman, is the RAZR. 
Cingular introduced the RAZR phone, which was the hot device at 
the time, November 1, 2004. It was exclusive to Cingular, GSM 
only, and it was $500. But ultimately the market demanded a 
RAZR that could work on CDMA networks, too. They are now 
ubiquitously available as cheap as $49.99. Some carriers even 
give them away for free. We didn't need Government to tell us 
to do that, we didn't need open access to tell us to do that, 
the market took care of it as other members have indicated.
    Finally, Mr. Chairman, I had mentioned that there was an 
auction last year of 4G spectrum, the so-called AWS auction. We 
didn't hear calls at that time for open access in that auction. 
It was an extremely successful auction. $14.5 billion came into 
the Treasury, new entrants, cable company joint venture bought 
spectrum, and I am sure that if there is a business plan for 
open access as the ranking member said, a new entrant or an 
entrepreneur would certainly embrace such a plan. Thank you, 
Mr. Chairman.
    [The prepared statement of Mr. Zipperstein follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Markey. The gentleman's time has expired. Now, we 
recognize Professor Timothy Wu. Professor Wu is a professor of 
law at Columbia University Law School, and he served as a clerk 
for Justice Breyer on the United States Supreme Court. We 
welcome you, Professor Wu. Whenever you are comfortable, please 
begin.

STATEMENT OF TIMOTHY WU, PROFESSOR OF LAW, COLUMBIA LAW SCHOOL, 
               COLUMBIA UNIVERSITY, NEW YORK, NY

    Mr. Wu. Thank you, Mr. Chairman, Ranking Member Upton. I am 
here today as a person who is an academic. I am not paid by any 
member of this industry. I am not in this industry, and I 
present my views simply as someone who has studied this 
industry in great depth and has come to the conclusion that 
there are reasons to be concerned about the direction this 
industry is headed and reasons to think that policy changes 
might be very important to continue the strength of America in 
technological leadership.
    The United States, if we look comparatively at the rest of 
the world, leads the world in a lot of high-tech areas. We are 
the entrepreneurs, the innovators; this is our comparative 
advantage. Yet, it is often felt by American people, consumers, 
by people in the industry, by the world at large that one area 
that America really is not the technological leader is in the 
wireless space. We lead in the Internet applications, we lead 
in consumer electronics, we lead in computers and computer 
software, and I suggest the only different variable between 
these different industries is policy, that we have allowed, and 
although there have been a lot of positive developments in 
wireless, we have allowed one way or another for there to be a 
spectrum-based oligopoly in wireless that is controlling 
innovation, and it is controlling the development of devices 
and new devices in the wireless sector. And I suggest to you 
that that is the state of affairs that is not going to change 
overnight but that which this Government, this Congress, and 
the FCC has a duty to set us back to a direction towards an 
open market, toward a leave-in market, towards the kind of 
competitive innovative market that we have seen in computers, 
we have seen in consumer electronics, we have seen in the 
Internet that has made this one of the richest countries on 
Earth that we are lacking in the wireless sector.
    Now, what I want to do and spend my time on today is trying 
to explain and make clear the difference between two what I 
think are very different issues. The wireless Carterfone issues 
which I have seen as the primary focus of our discussion here 
and the, I think, very different issues of what should be done 
with the spectrum that is coming available with the termination 
of broadcast television UHF, the 700 MHz auction. I want to 
make clear what the difference is between these two things 
because I think they are getting a little bit confused, and we 
have different policy options here that will deliver different 
results, and we need to understand what is going on between 
them.
    So let me explain first of all what exactly wireless 
Carterfone means and why it is important not just in the 700 
MHz context but important period for setting this country on 
the right path to becoming a world leader, the world leader, in 
wireless innovation.
    Right now today, as some of the members have already noted, 
we have a very unusual situation when it comes to buying 
wireless devices. Over 90 percent of retail is controlled by 
the four carriers. You can't go to any old store and buy a cell 
phone. Most of it goes through the bottleneck of the carriers 
and devices the carriers think are the right phones for 
Americans. This is a very unusual situation, and moreover, when 
you buy these phones, there are two things that tend to happen. 
First of all, they tend to be locked to the particular network 
you buy them from, one way or another; and second of all, it 
can be very difficult and very complicated to bring your phone 
with you when you leave one service and move to another 
service. I mean, these phones are property. They are supposed 
to belong to Americans. You pay for them. You pay for them in 
higher monthly charges. I mean, this idea that you get these 
free, subsidized telephones, don't be fooled. You pay $50 up 
front, but the money is collected on a buy now, pay later 
basis. This money is paid by American consumers. These 
telephones are their property, yet they are not allowed to do 
with these telephones what they want. Imagine a situation where 
you bought a television set, you had cable service. You decide, 
I am done with cable, I am moving to satellite. The next thing 
you know, your television stopped working. That would be 
completely unacceptable. When people buy a television, they 
think, this is my television, I own it. If I want to move to 
broadcast, fine. If I want to move to cable, fine, satellite, 
fine. This is my property, I can do with it what I want. 
Telephones are nothing like that. They are locked to carriers, 
they are disabled from switching, and it is a situation which 
is unacceptable and will become increasingly unacceptable when 
we see companies like Apple trying to enter this market but 
being forced to be hamstrung and disable their devices from the 
full kind of compatibility that they should have.
    And so the point of wireless Carterfone is addressing these 
issues, and the most important rule in addressing these issues 
is rules against locking and rules against blocking. Device 
portability must be allowed, and these phone companies should 
not be allowed to block applications that people want to use.
    Now, I am running out of time. I want to say why these are 
different than 700 MHz.
    Mr. Markey. I apologize to you, but you are over right now; 
but I think you are going to get plenty of questions, and I 
think the discussion might begin with our next witness.
    [The prepared statement of Mr. Wu follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Markey. The next witness is Mr. Phil Verveer, who has 
been a frequent visitor to this committee over the years. He is 
a partner at the law firm of Willkie Farr & Gallagher and is 
chair of its telecommunications practice. He was also the lead 
attorney for the Department of Justice in the lawsuit to break 
up the old AT&T. The way things are going, we may need his 
talents again. We welcome you, Mr. Verveer. Whenever you are 
comfortable, please begin.

    STATEMENT OF PHILIP L. VERVEER, PARTNER, WILLKIE FARR & 
                   GALLAGHER, WASHINGTON, DC

    Mr. Verveer. Thank you very much, Mr. Chairman. I 
appreciate the opportunity to testify before the subcommittee 
today. I think the proper question to be asked in terms of any 
of the issues that you are addressing is not whether or not we 
can do better. Of course we can do better, we always can do 
better. The real question is one of ways and means. What are 
the best ways and means to move forward?
    Mr. Markey. That is a phrase we actually don't use in this 
committee. If you could find another way of describing.
    Mr. Verveer. So let me describe in terms of the best 
methods then in terms of moving forward. The received wisdom 
which is embodied in the Communications Act is that we should 
rely upon competition wherever we can, and the mobile wireless 
industry is indisputably workably competitive. You can see that 
in terms of the four national carriers and the regional 
carriers that are available. You can see it in terms of the 
statistics that have been mentioned by many members of the 
subcommittee this morning. That is both the reflection of and a 
consequence of section 332 of the Communications Act again as 
mentioned by many members of the subcommittee this morning.
    Now, I suppose to paraphrase Senator Bentsen, I know 
Carterfone, I have made extensive use of Carterfone as an anti-
trust prosecutor and as an FCC official in the 1970s, and this 
is not Carterfone. Carterfone is not a precedent for Government 
intervention into product and service design in today's mobile 
wireless industry, and I will try to explain a couple of 
reasons why I believe that to be true. But first I think it may 
be worthwhile to briefly describe why it is that product and 
service design is something that both Congress and the FCC have 
normally sought to avoid, three pretty obvious reasons.
    One, the Government has as much knowledge about issues of 
product and service design as industry does, and there is an 
inevitability both for Government and industry when we are 
talking about product and service design. The decisions have to 
be made in the face of uncertainty. In general, we are much 
better off if we let those decisions be made by the people in 
industry who have risen to the top of their respective 
companies.
    Two, the Government requirements with respect to product 
and service design tend to inhibit product evolution and the 
ability to respond to new opportunities and changing demand as 
they arise. And three, Government due process requirements 
inevitably slow the entire process. The Part 68 terminal 
equipment connection arrangements that have been cited today 
and cited in the context of the Carterfone debate took as I 
well remember almost 10 years to perfect from the time of the 
Carterfone decision, and that example, I think, is an 
instructive example.
    Now, why is it that Carterfone isn't really an appropriate 
precedent with respect to today's wireless industry? First, the 
old Bell system as you mentioned, Mr. Chairman, was a 
thoroughgoing monopoly. It was vertically integrated, it 
occupied about 85 percent of the telecommunications industry 
broadly defined. As it happens today, the four national 
wireless carriers occupy about 85 percent of their industry. 
The difference between one having an 85 percent market share 
and four having an 85 percent market share is a very large 
difference; and with deference to Professor Wu, whose work I 
admire greatly, I think the term oligopoly really may be a 
misnomer with respect to the wireless industry today, again, an 
industry with four national carriers and many regional 
carriers.
    The second reason is arcane but is one I know the 
subcommittee is well familiar with and that is incentive 
structures arising from regulation today are entirely different 
from the ones that apply to the 1968 Bell system. Rate of 
return produced perverse incentives with respect to the 
activities of the old Bell system. The ability to discriminate, 
or in fact, the incentive to discriminate, even if it meant 
diminished use of the network, was something that was a 
function of that kind of regulation. Today's wireless companies 
are not subject to rate of return regulations. They are not 
subject to that set of incentives.
    This entire dispute at a kind of abstract level is 
reminiscent of a lot of the disputes of the past. It can be 
characterized I think as one between static efficiency on the 
one hand and dynamic efficiency on the other. The difference 
between trying to achieve a lower point on a static cost curve 
versus the creation of new and lower cost curves. The Bell 
system was broken up in part, I am convinced, when it was and 
the way it was because of the work of this subcommittee. And 
some of the deregulatory activities in which I was involved, 
including the deregulation of terminal equipment and the 
determination there should be more than one cell phone company, 
were both commonly a judgment that dynamic efficiency and 
competition was the better way to go, and I believe it still 
is.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Verveer follows:]

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    Mr. Markey. Thank you, Mr. Verveer. Our next witness is Mr. 
Jason Devitt. He is the founder and CEO of Skydeck and the 
founder and former CEO of Vindigo. Both Skydeck and Vindigo 
develop software applications for use on mobile devices. 
Welcome, Mr. Devitt.

STATEMENT OF JASON DEVITT, CO-FOUNDER AND FORMER CEO, VINDIGO, 
    CO-FOUNDER AND CEO, SKYDECK, MEMBER, WIRELESS FOUNDERS 
                    COALITION FOR INNOVATION

    Mr. Devitt. Thank you and happy birthday, Mr. Markey, 
ranking member Mr. Upton, and members of the subcommittee. 
Thank you for the opportunity to come and testify before you 
today.
    I am a small business owner. I don't like regulators, no 
offense. I am here today because I don't have a choice with 
respect to wireless.
    Mr. Markey. Yes, you wouldn't exist without us.
    Mr. Verveer. Precisely. That is precisely the point. In the 
context of wireless spectrum, I do not have a choice. We do not 
have a choice between no regulations and regulations. We have a 
choice between badly written regulations and regulations that 
work; but I put on a suit today for the first time in 18 months 
and flew here from Silicon Valley to tell you that we have a 
regulatory system that doesn't work, and the only way that you 
are going to be able to fix it is to implement some form of 
open access.
    Thomas Carter was not a judge who broke apart a monopoly by 
fiat. Thomas Carter was an entrepreneur who wanted to bring an 
interesting product to market and was furious, mad as hell, to 
discover that he required permission to innovate. I am an 
entrepreneur, and I am mad as hell that I require permission to 
innovate in the wireless market. I don't have to go to the 
great companies that build our public highways and ask them for 
their views on what kind of cars that I can put on those roads. 
I don't have to ask ConEd for permission when I want to put a 
refrigerator on the electricity network. I don't have to ask 
Verizon, thanks be to Thomas Carter, for permission to attach a 
computer to their network or to launch a Web site. But for some 
reason I have never been able to understand, I have to ask 
permission of Verizon wireless to attach a computer or the 
computers that they now call phones to their wireless network, 
and I have to ask their permission to run applications and 
services on those phones. Worse, I have to ask the permission 
of my competitors, because they are competing with me to 
provide services to consumers.
    There are three ways that you can fix this problem. The 
first is you can go on selling spectrum indefinitely, but 
unfortunately, it is a scarce national resource, and we are 
going to run out of it. I would be happy to purchase spectrum 
and launch a national network and so would my 14 colleagues in 
Wireless Founders Coalition for Innovation who wrote to the FCC 
on this issue a couple of weeks ago. But you don't have enough 
spectrum to sell us, and you aren't going to allow us to do 
that for the same reason that you are not going to allow us to 
dig up the roads and streets of America to lay 15 sets of 
cables to everybody's homes no matter what the consumer 
benefits might be.
    So the second solution that you could take is regulation, 
and that means some form of open access, and by open access, it 
essentially is what Mr. Pickering said it is, the opportunity 
to attach any device to the network. It's the opportunity to 
run any service on the network, provided of course that no harm 
is caused to the network and that it is for a lawful purpose. 
And that is the solution that I recommend.
    And the only other solution is competition, pure action of 
market forces. And I have to tell you, however, that despite 
the fact that as the CTIA and the FCC keep telling us, wireless 
sector is the most competitive telecommunications sector in 
this country, and that is unquestionably true, nevertheless, 
there are hundreds of interesting applications and services 
that are not getting in front of consumers because of the 
current structure of the market; and that is a problem that we 
can only address through regulation. And in my written 
testimony, I set out extensive examples of the services and 
applications that are not possible. They fall into four broad 
categories. First of all, there are applications and services 
that require the permission of all of the carriers in order for 
me to launch them. I gave the example of, say, an xPhone. 
Imagine a phone that worked across every network in the United 
States so that no matter where you were in the U.S. you could 
get coverage because the phone would automatically activate on 
whatever network offered the strongest signal. Now, it is 
actually technically easy to build such a phone, and Mr. 
Zipperstein just showed you one because Verizon is already 
selling it. But they have crippled that phone so that it won't 
work on any GSM networks in the United States. They sell it 
only to their customers who want to be able to use it in GSM 
networks abroad. And frankly, I don't blame him because even if 
he tried to do that, he would probably fall afoul of antitrust 
provisions if he tried to negotiate relationship with all of 
the U.S. networks in order to sell such a device, but I could 
sell such a device, and any consumer in the country--and 
remember 27 percent of consumers change carriers solely in 
order to get better coverage--27 percent of consumers would 
surely be interested in buying a device that worked across any 
network, and I could intermediate a relationship with all of 
the networks in order to ensure that they had a single billing 
relationship. That is a straightforward thing to do.
    The second category--and remember, that is just one 
category of devices--the second category of applications and 
services are those that compete with the carriers' own 
initiatives, and there are hundreds of examples of those. I 
will give you a trivial one. Ringtones. Why are your kids' 
ringtones so expensive? It is not because there aren't people 
who don't want to sell them to you for less money, it is 
because the people who want to sell them to you for less money 
are not allowed to get onto the carriers' handsets because the 
carriers are supporting the price of those services.
    Here is the third example. Legal risk. If I want to launch 
a service that has any legal risk associated with it 
whatsoever, it is highly unlikely to happen because the 
carriers have thrown out the baby with the common carrier 
bathwater. By no longer being regulated under the terms of 
title II, they no longer have any immunity for any of the 
services that they carry over networks, so they will take a 
very conservative approach.
    I have plenty more to say, but I am sure I will have 
further opportunities to speak.
    [The prepared statement of Mr. Devitt follows:]

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    Mr. Markey. Thank you, Mr. Devitt, very much. Mr. Ed Evans. 
He is the chief executive officer of Stelera Wireless, a start-
up wireless broadband company. He is also here representing the 
Board of Directors of the CTIA. Welcome, sir. Whenever you are 
ready, please begin.

  STATEMENT OF EDWARD EVANS, CHIEF EXECUTIVE OFFICER, STELERA 
                  WIRELESS, OKLAHOMA CITY, OK

    Mr. Evans. Thank you, Mr. Chairman, Ranking Member Upton, 
distinguished members of the House subcommittee. Thank you for 
inviting me to discuss wireless innovation and consumer 
protection today. My name is Ed Evans, and I am the founder and 
CEO of Stelera Wireless.
    The emergence of Stelera Wireless provides fresh evidence 
that the current light-touch regulatory environment is the best 
means of fostering innovation and competition in the wireless 
industry. The choices made possible by this innovation and 
competition protect consumers far more effectively than any 
regulations could. I am here today to urge you to do two 
things, to avoid calls to impose particular business models on 
the wireless industry as well as to extend the well-established 
benefits of the national wireless framework to encompass all 
the terms and conditions of wireless service and not just rates 
and entry.
    Let me address both of these issues, but first, since you 
may not be familiar with Stelera Wireless, allow me to provide 
you with a little background. Stelera is a start-up company. We 
were formed in 2006 to participate in the FCC's AWS auction. 
That auction concluded last September with winning bidders 
paying almost $14 billion for the rights to the AWS spectrum. 
We were a successful bidder. The towns in our 42 markets range 
in size from just a few hundred, places like Umatilla, OR, to 
almost 200,000 people in Lubbock, TX. Three-fourths of the 
towns in our footprint have a population of less than 10,000 
people. In some of those towns, Stelera will be the first 
company to provide any type of broadband service. Our plan is 
to provide competitively priced broadband wireless services 
both on a month-to-month basis and under longer term contracts. 
We will be using third generation wireless technology with 
transmission speeds of up to 6 megabits per second. While we 
plan to provide a voice over IP solutions competitive offering 
in late 2008, we will allow the consumer to choose another 
voice over IP provider if they so choose. We will not restrict 
customers from accessing any Web site or running any 
applications, although we will monitor total usage and reserve 
the right to charge a premium or take action against abusive 
subscribers. This is critical in a wireless network, since one 
subscriber abusing the network can adversely affect many other 
subscribers on the same network.
    Stelera's experience in deploying a new broadband service 
gives us a valuable perspective on how the Government can best 
promote wireless innovation.
    Our conclusion is simple and straightforward. Congress and 
the FCC should continue to rely on market forces instead of 
prescriptive regulation to determine how new wireless services 
are deployed. The ability to invest with confidence allows us 
to give consumers a wider choice of wireless services and 
providers. This competition and choice protects consumers far 
better than prescriptive regulations that are subject to 
interpretation, misrepresentation, and manipulation. Whether 
you call it Carterfone or open access, command and control 
regulatory mandates will harm rather than promote the interest 
of consumers. The decision to allow market forces to drive 
wireless innovation has its roots in this committee's 
determination, enacted by Congress in 1993, to establish a 
national deregulatory framework for wireless services. This 
market-proven approach abandoned the notion that wireless 
providers must be regulated as if they were monopoly utilities, 
a wise policy choice that has only been confirmed with the 
passage of time.
    Wireless consumers today have a choice among numerous 
national, regional, and local carriers offering a broad range 
of rates and plans to suit every need and every budget. Free 
from State rate and entry regulation, wireless providers can 
structure their products and plans without regard to State 
boundaries. The result has been aggressive competition for 
price, features, and customer service. Notwithstanding the 
obvious benefits of Congress's 1993 decision, national 
treatment does not extend to all terms and conditions of 
wireless offerings. Seeking to exploit this gap, some States 
have proposed wireless-specific rules and regulations that 
could put at risk the national framework that has fostered a 
vibrant, competitive wireless marketplace. Given that today's 
wireless industry affords consumers the ultimate consumer 
protection of competition and choice, there is simply no need 
for a new layer of rules, especially not mandates that vary 
from State to State. Congress should act now to ensure that the 
benefits of the uniform deregulatory wireless framework 
originated by this committee 14 years ago are not compromised 
by aggressive and unneeded State regulation. While the FCC has 
already declared wireless broadband services to be interstate 
information services, clarity on this point will establish a 
common framework for all wireless services and help avoid 
disputes going forward.
    Thank you again for inviting me today.
    [The prepared statement of Mr. Evans follows:]

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    Mr. Markey. The gentleman's time has expired. And now to 
our final witness, Mr. Chris Murray. Mr. Murray is the senior 
counsel at the Consumers Union, and he testifies today on 
behalf of Consumers Union, the Consumer Federation of America, 
and Free Press, thank you, Mr. Murray.

   STATEMENT OF CHRIS MURRAY, SENIOR COUNSEL, CONSUMERS UNION

    Mr. Murray. Happy birthday, Mr. Chairman. Good morning 
Ranking Member Upton, Vice Chairman Doyle, and other esteemed 
members of the committee. I do appreciate the opportunity to 
testify again for you today.
    I am here because I am concerned that the wireless industry 
is gouging consumers with hefty early termination fees and 
impeding innovation by stopping applications and devices from 
reaching consumers. I would like to associate my remarks with 
the panelists that share these concerns, and I really want to 
underscore some things that are going on in this marketplace. 
First of all, let us remind ourselves briefly of what this 
market really looks like. We do have two dominant providers 
that have more than half the market for wireless services, and 
those two providers are also the dominant landline phone 
providers in their service territory. They are going to have 
more than 90 percent of the customers in their service 
territories. They are also the broadband providers in that 
area. They have the leading brand recognition in the service 
territories, and there is nobody else in their territory that 
can offer that bundle. So while this is a more competitive 
market than say landline, which is virtually a monopoly, and 
broadband, where we have got two choices, it still doesn't 
preclude tight oligopoly behavior from occurring in this 
marketplace, and Economics 101 tells us a little bit about what 
can happen in those situations.
    First let me talk briefly about early termination fees. 
These are ubiquitous, with carriers charging $175, $200, as 
much as $240 if a customer wants to leave before their often 2-
year contract is up. While Verizon has adopted a prorating 
policy, which I think is a good step, the other carriers have 
not even taken this minimal pro-consumer step. ETFs are a 
pocketbook issue, but they also affect the preemption 
discussion that we have taking place, and the reason for that 
is because if you have got any kind of a suit against the 
wireless carriers, whether it is because their maps weren't 
accurate, whether it was because they didn't disclose fully the 
terms of service, the damages in every instance are going to 
involve the early termination fee. So if we preempt those early 
termination fees, it is not--from having some sort of State 
purview, we are not just talking about just the early 
termination fee. We are talking about stopping policing of a 
lot of anti-consumer behavior.
    Some examples of problematic ETFs is if let us say I locked 
into the family share plan where I can add an additional member 
of my family for $10. If I have got a family of five with five 
lines, if I want to leave, it is going to cost me nearly $1,000 
in some instances. Would we expect competition to work very 
well in that market? I don't think we should. The carriers are 
also extending early termination fees for any change in service 
plan, whether it benefits the carrier or not. In other words, 
if I increase my bucket of minutes, they are actually going to 
lock me into another 2-year contract. That is astounding to me. 
The justifications that we hear for early termination fees 
first of all is subsidy, subsidy, subsidy. I think the release 
of the iPhone shows this to be transparently false. Consumers 
are not getting one dime of subsidy for that device, yet they 
still get locked into a 2-year contract with a $175 termination 
fee.
    Having lost that fig leaf of subsidies, I then hear them 
talking about other costs associated such as the cost of 
maintaining a network and the cost of acquiring consumers. 
Well, welcome to capitalism. These are the same costs borne by 
every other company in America, yet somehow they manage to 
recover them from the rate base. The other reason I am 
skeptical this is just purely about consumer welfare is because 
I see applications that they are stopping from reaching 
consumers. BlackBerry created a mapping program that they 
wanted to give people for free. AT&T turned around and said no 
because we have got a program that we want to charge them $10 
for. I see the BlackBerry 8800 that Mr. Zipperstein noted. That 
is a phone that does both CDMA and GSM; but if I take that to 
Europe, it is not going to work. If I take that to another GSM 
carrier, it is not going to work. The manufacturer designed 
this phone with a chip set that works on all these different 
networks. They have actually taken affirmative steps to disable 
those electronics. This is outrageous to me. I am paying $600 
for a phone, and they have gone out of their way to make it not 
work because they want to reach into my pocket again to charge 
me for an expensive international plan.
    Why is it that we see better choices in Europe and in Asia 
for consumers? I submit that it is precisely because they have 
not allowed manufacturers to lock down these devices.
    I have three challenges for the industry today. Number 1, 
stop charging consumers undue early termination fees. I can get 
out of a lease for an apartment or a home with one month's 
rent, yet I get about the cost of a half-a-year's service to 
end my wireless contract. Number 2, stop crippling these mobile 
phones. If I spend $600, it is reasonable to expect that that 
device works exactly as it should. And third, stop preventing 
new applications from reaching consumers.
    I will end there since my time is up. I appreciate the time 
today.
    [The prepared statement of Mr. Murray follows:]

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    Mr. Markey. The gentleman's time has expired, and all time 
for opening statements from the witnesses has expired, and we 
will now turn to questions from the subcommittee members, and 
the Chair will recognize himself.
    Mr. Wu, you spend $500 for an iPhone, but the problem with 
the iPhone is that the iPhone with AT&T is kind of a Hotel 
California service. You can check out any time you like but you 
can never leave. You are stuck with your iPhone forever, and 
you can't take it anywhere. And that it seems to me is the 
heart of this problem, and you pointed to the fact when people 
buy a television set for $500, if they want to switch from 
service to service, they can do so. It is their television set. 
Can you just take that point and elaborate on it a little bit 
more so the members can understand how tied these consumers 
are? Even if they are not complaining, sometimes they don't 
understand that there are other options. People were very happy 
with their black rotary dial phone. I am sure there weren't a 
lot of people calling in because they just thought that they 
were stuck with it for the rest of their lives. Once they had 
other options, they went to them en masse.
    Mr. Wu. I think that is exactly right, Mr. Chairman. It is 
just unusual. This industry, there is something strange about 
this industry in the sense that even the basic rules of 
personal property of Americans owning what they buy seem to be 
suspended in this industry. That is why I don't know if it is 
iPhone or iPhoney. As you said, televisions, Americans spend a 
lot of money on televisions and don't expect when they switch 
services the television stops working. If you spend a lot of 
money on a toaster or refrigerator and suddenly you decide you 
want to switch to ConEd or Potomac Power or something, it would 
be outrageous if suddenly your refrigerator stopped working or 
died or wasn't allowed to work on more than one network. You 
have cars that could only drive on some roads. It would be very 
unusual. There is something strange about this industry.
    Now, this is a Government-created industry in a lot of 
ways. It is reliant on public spectrum, and it was born of 
public spectrum, and I think that is one of the major reasons 
why we have such a strange state of affairs where personal 
property is not transferable or usable with more than one 
service provider.
    Mr. Markey. All right. Let me turn to Mr. Devitt. Let us go 
to this question of innovation. Let us turn to this area, where 
the United States should be No. 1 looking over their shoulders 
at Nos. 2 and 3 in the world in this area, these wireless 
applications. Talk to us about what you think could happen if 
entrepreneurs knew that they could get their services carried 
and that consumers could have access to them.
    Mr. Devitt. The challenge we face in answering that 
question is what former Secretary of Defense Rumsfeld described 
as unknown unknowns. We don't know what we don't know about the 
applications that might be unleashed if entrepreneurs had the 
freedom to innovate. We could only argue by analogy, and I 
would say imagine what it would have been like in 1995 if Jeff 
Bezos had to persuade a mid-level manager at Sprint that he 
could do a better job of selling books online than Barnes & 
Noble could. Or what it would have been like if the founder of 
eBay had to persuade Verizon that selling stamps and coins and 
dolls online could actually make both of them a lot of money. 
Or what it would have been like if the founders of Google in 
1999 had to persuade the telcos that it was time to launch yet 
another search engine. This is the daily reality of life for 
those of us who are trying to innovate in the wireless space, 
and it is created by this inability to innovate without asking 
permission.
    With regard to the device market, if I wanted to bring an 
interesting device to the U.S. market or even bring a Japanese 
device to the U.S. market, theoretically, I could build a GSM 
handset and sell it directly to consumers, but the reality is 
that because AT&T and T-Mobile, the GSM providers who do allow 
consumers to put foreign devices on their network, claim that 
this is simply a policy that they could change at any time, no 
device manufacturer is going to take the risk of coming out 
with a device that actually challenges their business model 
because AT&T Mobile could simply block that device overnight. 
So that is why we don't see innovative ideas. That is why you 
don't see a flurry of entrepreneurs coming to you saying we 
can't get on the market, because a Thomas Carter is very rare. 
A Thomas Carter has to be a person who is smart enough to come 
up with a really compelling idea and dumb enough to try and 
execute it in this market given the power of the carriers and 
then crazy enough to try and sue somebody over it. And those 
people don't come up very often because we have got plenty of 
smart people in the Valley, but most of the ones who are dumb 
enough to try and do something in the wireless market get 
blocked in the VC stage because the VCs are smart enough not to 
invest in them; and so far we haven't seen anybody else come 
through who is crazy enough to sue.
    Mr. Markey. Well, at least we have somebody crazy enough to 
testify before our committee, and we thank you for doing that.
    Mr. Devitt. Thank you.
    Mr. Markey. And through us, I think you are talking to the 
Federal Communications Commission as they are deliberating, 
because ultimately it was the Federal Communications 
Commission, not Mr. Carter, and that takes courage itself in an 
atmosphere that is created where competition and the potential 
of new devices are then recognized as a valuable goal for 
public policymakers. Thank you for being here, Mr. Devitt.
    Let me turn now and recognize the ranking member, Mr. 
Upton.
    Mr. Upton. Thank you, Mr. Chairman. And for those in the 
audience, we have a series of votes on the House floor. I do 
have a couple questions before I need to skip over and vote. 
Mr. Verveer, it is my understanding that nearly a million of 
these iPhones have been sold already literally in the first 2 
weeks of their offering, and it is my understanding that nearly 
400,000 of those million or so actually switched carriers from 
one of the competition to what is available now to get the new 
exciting--did you wait in line to get that phone, by the way? 
Your iPhone, did you wait in line? I was in Chicago when they 
came out, and the line was blocks long to get in.
    Mr. Markey. Actually, Mrs. Capps asked what is the point of 
having this hearing today, and it is actually just to hint to 
my wife as to what I do want for my birthday.
    Mr. Upton. So it is not really yours? That iPhone is not 
really yours yet, is that what you are saying?
    Mr. Markey. It is a hint.
    Mr. Upton. All right. Well, anyway, that many folks are 
actually switching. Doesn't this mean that in fact other 
carriers who lost their market share, aren't they going to come 
back with some competition that is going to bring people there?
    Mr. Verveer. I think that is exactly right. That is exactly 
what we would anticipate, that the normal thrust and parry that 
one sees in and among competitive firms is going to continue to 
produce the kinds of things that consumers want, and the iPhone 
obviously has attracted an enormous amount of attention and 
consumer interest and as you suggest has caused some people to 
change from their prior carriers to AT&T. No doubt those 
carriers and the others in the business are going to be very 
anxious to come forward with innovative products of their own 
that people are going to want. And that process is one that has 
brought us to what I think is a very good set of circumstances 
today, and it is one I think we should continue to rely on.
    Mr. Upton. And Mr. Zipperstein, I know that you can't 
comment on proprietary information, but wouldn't you agree? I 
mean, you have got to have something that is coming soon, 
right?
    Mr. Zipperstein. Absolutely. And I again raise the example 
of the Motorola RAZR. After the RAZR came out----
    Mr. Upton. I waited until they were $49.95. I couldn't 
believe it. I said, son, we are going there.
    Mr. Zipperstein. Other manufacturers, LG, Samsung, Nokia, 
put their designers to work to build a better RAZR; and they 
all came out with competing products before long that operated 
on different networks, CDMA, GSM. The market really addressed 
that problem in a very, very quick and efficient way.
    Mr. Upton. I am running out of time because I am watching 
the clock here on the little TV screen. The comment has been 
made about different networks and being able to have devices 
that work on all of them. How much would that add to the cost 
to the consumer? I was in Europe not too long ago, and I made 
sure that in fact my BlackBerry did work in Europe; but I know 
that my previous one did not work there. In other words, there 
was an added cost. What would the added cost be to some of 
these devices if they had to work on every network that is out 
there for the consumer?
    Mr. Zipperstein. You would definitely see higher priced 
devices. You would see as I mentioned with respect to WiFi 
devices that may see degraded battery life. You would also see 
the FCC being concerned about whether devices would be GPS 
compliant, whether they could work to receive E911 Phase II 
connectivity at the PSAPs, whether they would meet the FCC's 
hearing aid compatibility requirements, whether they would meet 
the FCC's RF, radio frequency, emissions requirements also.
    Mr. Upton. Thank you.
    Mr. Markey. The gentleman's time has expired. Again, as the 
gentleman just noted, there are four roll calls on the House 
floor. It should take about a half-an-hour. There is intense 
interest in this subject material, so I think you are going to 
have a lot of members coming back to ask you questions. At this 
point the subcommittee stands in recess.
    [Recess]
    Mrs. Capps [presiding]. All right. You can tell I am doing 
this in part because I am sitting way down at the bottom end. 
By getting here, running over very fast after the last vote, I 
will be able to ask my questions first and move onto something 
else I need to do now, and I have already cleared with my 
colleague from Texas. He knows what I am doing, and it is OK 
with him. He has got seniority over me on this committee.
    But I have found this to be such an informative hearing and 
am thanking my chairman for gathering us all together.
     I am going to start with Mr. Verveer with a question for 
you. I want to ask a lot of questions. I have 8 minutes or now 
less than that, but I want to cover as much territory as I can. 
Your testimony today argues that the wireless market is very 
competitive in imposing open-access requirements, and you 
consider it to be similar to the Carterfone decision, that a 
decision imposing open-access requirements would be a mistake 
if we did something similar to the Carterfone. Would you 
briefly describe what parallels and differences you see, Mr. 
Verveer, you were there then, between today's wireless market 
and the telephone market of 1968?
    Mr. Verveer. Yes, I would be pleased to do that. In 1968, 
the telephone industry was dominated by a single company that 
was a thoroughgoing monopoly. The old Bell system was 
integrated between and among local telephone service, long 
distance service, and telecommunications equipment 
manufacturers. It was also regulated in a particular way 
involving rate of return regulation which it turns out creates 
a well-known set of incentives that involve again as it turns 
out--it provides them with rational incentives to discriminate 
even if the discrimination involves less use of the network 
over which they preside. In other words, they had rational 
economic reasons to refuse the deal.
    Mrs. Capps. Could you get to the contrast really quickly 
because I want to move to some other issues, too.
    Mr. Verveer. That is obviously very different from the 
world today of wireless.
    Mrs. Capps. Right.
    Mr. Verveer. There are numerous wireless carriers, and they 
are not subject to rate of return regulation.
    Mrs. Capps. So you think there is no monopoly today. And 
Professor Wu, I think you might have a little different 
opinion. I want you to----
    Mr. Wu. I think that things don't really change that much 
in telecommunications markets. They have a well-known tendency 
to go towards monopoly, and that is exactly what we have seen 
over the last 10 years. This is a new market, and we started 
with a lot of companies. We are down to four, two dominant, and 
it is not surprising. It is economics.
    Mrs. Capps. Right.
    Mr. Wu. It is more efficient to have a single company.
    Mrs. Capps. So even though we are not there yet, you 
envision us getting more toward a monopoly?
    Mr. Wu. Well, that is the direction we are going.
    Mrs. Capps. A little bit different tack on that, Mr. 
Zipperstein. As you know, Vodafone, the world's largest 
wireless phone company, owns almost half of Verizon Wireless. 
And in Europe, where Vodafone is particularly strong, many 
phones have functionality that has come to the United States 
very slowly, like Bluetooth capability and call timers. 
Vodafone in Britain and Verizon Wireless in the U.S. offer many 
of the same models of handsets. Do you think Verizon Wireless 
offers fewer features on any of these handsets than Vodafone 
does?
    Mr. Zipperstein. No.
    Mrs. Capps. They don't?
    Mr. Zipperstein. We offer different features than Vodafone 
does in Europe.
    Mrs. Capps. Would you say that it is identical, the service 
here, than Europe?
    Mr. Zipperstein. No, it is not identical. The features are 
different, the networks operate differently there. The service 
providers there offer a different range of options to 
customers, some of which we have here and some of which we 
don't. Some of the offerings that we have here are not as 
available in Europe.
    Mrs. Capps. So there are differences, and we have heard 
other people make the statement that it is a little difficult 
to go--so many people travel so frequently, and it is still 
somewhat of a hang-up. What do you think is making the 
difference?
    Mr. Zipperstein. Well, certainly the BlackBerry device I 
showed earlier is a device that we deploy to respond to demand 
from our customers to be able to use a BlackBerry if they go to 
London or Paris on vacation. Also we offer two regular cell 
phones that work here and in Europe as well.
    Mrs. Capps. OK. Thank you. Well, are there particular 
features that we don't have here that they do have in Europe?
    Mr. Zipperstein. I am not fully familiar with all of the 
offerings that the European carriers have.
    Mrs. Capps. Maybe you would get back to me in writing with 
some of those things because I want to now ask Mr. Devitt, and 
then if there is time, Mr. Wu, I will get back to you to 
comment on the effect of open access on innovation and maybe 
even finish up this one description about Vodafone.
    Mr. Devitt. Thanks for the question. Let me put it this 
way. There are I think 30 devices that I can purchase today to 
use on Verizon Wireless's network. There are approximately 800 
devices that I can purchase to use on Vodafone's network. I 
would call that a significant difference in terms of consumer 
choice.
    Mrs. Capps. And you want to repeat what you think are the 
barriers here?
    Mr. Devitt. The barrier is that if I want to produce a GSM 
device that will work on Vodafone's network, I don't have to 
ask Vodafone's permission. If I want to produce a CDMA device 
that works on Verizon's network, I have to ask Verizon's 
permission. That is the only difference.
    Mrs. Capps. I guess I am also concerned because you made 
your opening statement about that you don't like regulations, 
and I know Mr. Stupak when he comes with his very rural 
district in Michigan and parts of my district are very rural, 
too, and I am always concerned about the private sector's 
willingness to get into places that aren't so lucrative for it. 
What do you propose in that area?
    Mr. Devitt. The solution there--well, there is actually a 
number of things that you could do under those circumstances 
because I could envisage producing devices that were solely 
designed to increase network coverage in rural areas.
    Mrs. Capps. What would the incentive be?
    Mr. Devitt. My incentive would be that I would be selling 
those devices to your constituents.
    Mrs. Capps. But not as many as you would in some other 
glamorous areas.
    Mr. Devitt. Certainly not. That is why I personally 
wouldn't choose to go into business in the rural markets, but I 
know that there are plenty of other entrepreneurs who would.
    Mrs. Capps. How about Mr. Wu? You want to finish that off?
    Mr. Wu. I am sorry, which topic exactly?
    Mrs. Capps. The way that we could open up access on 
innovation.
    Mr. Wu. Right. Well, I think it is, to get back to that 
rural issue you were just talking about, I think that is why 
the subcommittee and Congress and the FCC have to think 
carefully about the 700 MHz auctions as a solution to a 
different set of problems. I mean, we have a series of problems 
that have to do with device interoperability and that we have 
been talking mostly about. But I think we can't solve these 
problems. You are concerned about rural broadband, rural access 
solely with device operability rules. They are just different 
problems. The solution to that lies in the 700 MHz option, and 
I think we have to understand that that is a different tool for 
solving that problem.
    Mrs. Capps. Is that a way to solve that problem?
    Mr. Wu. I think that is the best way to solve that problem. 
There is spectrum coming available in an auction that can be 
used to solve the rural broadband, the rural access problem. 
Right now we are not necessarily headed in that direction, and 
I think it is very important that we make sure that this 
historic opportunity to have the last options be used to solve 
the most serious problem, which is rural coverage.
    Mrs. Capps. And if my colleague----
    Mr. Wu. I think it is important to talk about Carterfone 
and all these issues, but understand that this conversation is 
not going to solve those coverage issues at all. That is a 
completely different conversation.
    Mrs. Capps. And some interoperability national security 
issues could also need that kind of direct involvement from the 
Federal Government, you would think?
    Mr. Wu. Right. I mean, we are talking about two issues in 
this hearing. One is the issue of device interoperability and 
freedom to innovate. These are Mr. Devitt's positions, and they 
are all very important. The other issue is we shouldn't think 
that those rules will solve the problem of rural broadband, 
public safety. Those are the 700 MHz options, and those have to 
be done correctly or we are going to miss this historical 
opportunity to really change these things. I mean, I like 
Carterfone, but don't be fooled to think that Carterfone solves 
any of these rural issues or any of these public safety issues.
    Mrs. Capps. Thank you. This is my first time here. I 
certainly don't want to run over time and make the chairman 
unhappy. In lieu of the next person, Mr. Shimkus, your turn now 
for 5 minutes.
    Mr. Shimkus. Yes, ma'am. I think I have 8 minutes because--
--
    Mrs. Capps. Eight minutes.
    Mr. Shimkus. No, that's all right. I would invite you to 
southern Illinois. It is very glamorous, Lois, in southern 
Illinois, maybe not very populated, but it is very glamorous.
    Mrs. Capps. I hear you.
    Mr. Shimkus. And I wish Chairman Markey was here because I 
know Rush Limbaugh gave away 10 iPhones, and I thought maybe 
you got that as a loyal listener to Rush Limbaugh. I guess he 
is not commenting.
    A couple things. The good thing about to listen to your 
testimony is that you are all very smart, you are involved in 
looking at the industry and consumer protections, is that you 
hear things that it makes you want to ask a few questions. I 
know a colleague of mine, this is Mr. Murray, who is trying to 
get out of a 12-year lease on an apartment, or Mr. Devitt may 
have mentioned it. Guess what. He is not going to get out base 
paying 1 month's rent. I have an issue with people who don't 
read contracts, understand contractual obligations. And for us 
just to say, well, let us just have no contractual obligations, 
let us don't have people read and understand the 
responsibilities. I bought three phones for my kids, didn't buy 
the service contract. My choice. My son dropped it in water, 
zapped one of them. Guess who was responsible? Me. What did I 
do? Well, I called the provider, and they helped me find a 
used, turned-in phone, so I got the cheapest one I could, and I 
went on with my contractual obligations because there is always 
an issue of raising the capital, assumption of risk and trying 
to get a return on that investment. And when we micromanage, 
when we regulate, we discourage capital flow.
    And when we talk about the rural debate, the rural debate 
is we want service. We don't have service in all parts of my 
district, and who is going to provide the service? It is going 
to be guys like Mr. Evans who are going to be new entrants into 
this market, who are going to say there is a market out there 
that I can invest capital, I can assume risk, and I am going to 
get a return. One of the questions will be if we move to a net 
neutrality debate in the new MHz, will that incentivize 
competitors to bid or will that discourage? And I want to ask 
Mr. Evans and Mr. Zipperstein real quick on that question.
    Mr. Evans. Well, from my perspective, it is going to 
discourage my participation in it because I am effectively 
buying a piece of spectrum now that is more encumbered than any 
other spectrum that I own. Therefore, that spectrum should be 
sold to me at a discount. Where I envision this going in the 
long term frankly is if we put that type of regulation in place 
today, we will lose a lot of money in the Treasury. Sell that 
spectrum at a discount and once those individuals who have 
never run wireless networks before go out and understand that 
you can't just attach anything to a wireless network and make 
it work, they are going to come back up here wanting those 
encumbers released. So then you are going to have to take those 
laws down, and you are going to have lost the money that you 
would have raised by having a fair and open market competition. 
People believe that they can go and make an open access model 
work. I think they have every right to go out and bid in the 
700 MHz auction like any other auction and go make it work.
    Mr. Shimkus. And there are people in the tech community 
that have multi-billion dollars of capital to be able to bid on 
these things. I know one in particular. So they should be able. 
If they want to provide all of this great service, if they want 
to have net neutrality over the airwaves, let them come through 
the market.
    Mr. Zipperstein, you want to answer that question?
    Mr. Zipperstein. Yes, sir. I would agree with everything 
that Mr. Evans said, and I would simply add as I mentioned 
earlier that Mr. Evans had a business plan that he put 
together. He participated in open, fair, transparent auction 
for a 4G spectrum last year, the AWS auction. There were no 
encumbrances such as those that are being suggested should be 
applied to the next 4G auction, the 700 MHz auction; and yet, 
here we have an example, Mr. Evans, of a businessman who felt 
that there was a reasonable case to be made for investing 
capital and for building out a network to serve his rural 
customers.
    Mr. Shimkus. Thanks. So many questions, so little time. I 
am glad to see my friend Anna Eshoo is here; and we penned a 
letter on this ITC ruling, and obviously our concern is first-
line responders and stuff. Maybe I will go back to Mr. 
Zipperstein first. If the President does not disapprove the 
ITC's decision, what will be the impact on the wireless 
industry's ability to deliver cutting-edge products to enhance 
public safety and enable the United States to achieve its goal 
of ubiquitous, affordable broadband deployment by the end of 
2007? Kind of the same type of question, but it really 
addresses the ITC also.
    Mr. Zipperstein. Congressman, the impact will be 
devastating. Essentially, as you know, this is a patent dispute 
between QUALCOMM and Broadcom. QUALCOMM was found to have 
infringed a single Broadcom patent that Broadcom bought second-
hand. They didn't invest in or didn't invent this particular 
technology. Broadcom is enforcing its patent that it bought 
second-hand against QUALCOMM. It is really up to QUALCOMM to 
resolve this issue. But the impact as you mentioned, 
Congressman, on public safety, on innovation in the wireless 
sector, would be devastating; and I think that every single 
person appearing on this panel and every Member of Congress 
should be very concerned about that.
    Mr. Shimkus. And I think some of us are, and I appreciate 
those comments. Mr. Evans, and if we have time, Mr. Clark, we 
may want you to respond, because we are referring to NARUC. 
They opposed the 1993 preemption of States on matters related 
to entry and rates, yet between 1993 and 2005 the number of 
subscribers grew. This is the argument. You all are saying that 
this is a highly competitive market. This is probably the most 
competitive market in our country, and it is the most diverse, 
energetic and exciting. And one of the reasons I always say 
before this committee is because we do not try to regulate. In 
fact, it moves quicker, and we can actually regulate. And these 
are the stats. The numbers of subscribers grew nearly 13-fold 
to 207.9 million. The average local monthly bill dropped nearly 
20 percent to $49.98. Minutes of use per subscriber jumped more 
than five-fold to 740 per month, and the cost per minute 
dropped more than six-fold to 7 cents from 44 cents. That is a 
success story. And in 2005, there were only 25 FCC complaints 
per million wireless subscribers. Is there any reason to think 
that NARUC would not be similarly wrong in opposing a national 
framework for wireless terms and conditions? Go ahead, Mr. 
Evans.
    Mr. Evans. Well, I am certainly in favor of that. My 
concern as an entrepreneur that is going out to start a 
business in call it seven or eight different States around the 
country is that we are going to be somewhat resource limited, 
and we have to try to comply with several different sets of 
State regulations in order to get up and running. It is going 
to severely delay our ability to get out into a competitive 
marketplace and to bring a product out that is severely 
underserved today. So we certainly support the idea of a 
national framework extending beyond rates and entry today and 
encompassing all elements of wireless as we see fit. We think 
that makes the most sense. This is a national product that is 
out there. It is not a regional product, it is not a local 
product, it is national; and therefore, it should be regulated 
from that perspective nationally.
    Mr. Shimkus. Thank you, Mr. Chairman. I know my time is 
short, but because I referred to NARUC, if Mr. Clark could 
respond to that question? It is your call, Mr. Chairman.
    Mr. Markey. No, that is fine. A brief answer, Mr. Clark.
    Mr. Clark. Certainly, Mr. Chairman and Congressman. I am 
not aware of NARUC's position in 1993.
    Mr. Shimkus. Well, check it out. That is the point.
    Mr. Clark. Clearly the market has had beneficial impacts 
for consumers, and frankly, no one is a bigger supporter of the 
market than myself. But there are certain issues that come up, 
even in the fully functioning market, things like slamming, 
cramming, specific issues like this that still need somewhere 
in Government for individuals to turn to. We are arguing that 
even if you have Federal standards, it is inappropriate to 
force consumers across America to call Washington, DC, to 
enforce those standards, that you need some point of local 
contact. We suggest that PUCs and attorneys general are the 
ones who can most effectively enforce those rules.
    Mr. Shimkus. Thank you, Mr. Chairman. I appreciate it.
    Mr. Markey. The gentleman's time has expired. The Chair 
recognizes the gentleman from Pennsylvania, Mr. Doyle.
    Mr. Doyle. Thank you, Mr. Chairman. Mr. Zipperstein, just 
briefly, I am curious. Press reports say that Verizon had first 
dibs on Apple's iPhone, but your company turned them down. I am 
just curious, was it because they wanted features on the phone 
that you weren't comfortable with, or I am just curious why you 
turned down the chance to be the provider for the Apple iPhone.
    Mr. Zipperstein. I have to be careful about disclosing 
confidential discussions, but I think it is fair to say that we 
didn't view it as the right opportunity for us at that time.
    Mr. Doyle. Fair enough. I thought it was maybe because you 
couldn't get the Verizon logo on the phone.
    Mr. Zipperstein. Probably. I should say that despite the 
hype about the iPhone in the media over the last couple of 
weeks and the press attention, the product has only been out in 
the market for 10 days or so; and I think it is fair to say the 
jury is probably still out. We will just have to wait and see 
how the market reacts, just like we did with the RAZR.
    Mr. Doyle. Fair enough. Professor Wu, Google told the FCC 
that incumbents have big advantages going into the DTV auction. 
Could you explain the wholesaling that they and Frontline 
sought, and how that might benefit consumers?
    Mr. Wu. Sure, I would be pleased to. In the 700 MHz, one of 
the big proposals that is out there is the wholesaling 
proposal; and the idea is to create a creature, to create an 
entity whose interest is giving the most amount of bandwidth to 
Americans as possible and a corporate entity whose only mission 
in life is not retail but simply making available bandwidth and 
selling it to as many people who want it as possible. That is 
why people often discuss the wholesale model as one of the best 
solutions of the problem of coverage in this country in the 
sense that when you have a wholesale model, you have an entity 
which does not retail but relies on everyone else, anyone who 
wants to retail or try to sell to Americans bandwidth that 
opportunity. And so you create a creature that by its nature 
wants to do nothing but put wireless bandwidth out there for 
Americans to use. And so I think that is why it is important to 
seize this opportunity and adopt a different model for 700 MHz 
than we have adopted for the rest of the spectrum and see what 
the results may be.
    Mr. Doyle. Mr. Devitt, how do you feel about that?
    Mr. Devitt. Well, there are at least two separate issues 
here, and one is how do we create more competition in broadband 
wireless and broadband services for consumers? And the only way 
to do that it would appear is to mandate that there be new 
entrants into the market. One way to ensure that is to create a 
wholesale market in the 700 MHz auction. I think that is an 
exciting opportunity. I don't have a view one way or the other 
on the merits of the specific Frontline proposal or the 
specific Google proposal, but as I said at the outset of my 
comments, what frustrates me is this idea that I require 
permission to innovate and for someone else who wants to bring 
you services to market and wants to provide services say to 
rural America. The fact that they are in the death grip of a 
number of incumbent providers makes it very difficult for them 
to do so, and a wholesale submodel would be one that would 
solve that.
    The issue that I am more focused on because I am a 
developer of content and applications and services for the end 
consumer is again the death grip that the carriers have on the 
device market, and on the applications and services that I can 
deliver to consumers through those devices. And what I 
recommend the solution to that is is some implementation of 
Carterfone which I do not see laying more regulation upon the 
industry. I see that as deregulating it.
    Mr. Doyle. Right.
    Mr. Devitt. I think creating open access, creating more 
choices for consumers, creating more opportunities for 
innovators is a reversal of regulations, a rollback of control, 
and that is why I am passionate about that issue. As a 
consumer, I support calls for additional services in the 700 
MHz.
    Mr. Doyle. Well, what about that, Mr. Zipperstein? Let's 
talk about the Motorola RAZR. I mean, that is a very popular 
phone, and Verizon sells one, and Cricket also sells one, and 
Alltel sells one. Now, your phone, the Verizon model, you can't 
download MP3 files which are the most popular--I think Windows 
Media is yours and then you also have an online music store 
that sells songs in the Windows Media format. Why would you 
disable a popular feature that would allow people to play MP3s 
from your phone?
    Mr. Zipperstein. When we entered the music business January 
2006, Congressman, we made the determination at the time that 
we would use a model that in some respects was similar to the 
iTunes model that Apple used and in some respects similar to 
some of the other models out there. So we needed to acquire 
from the music publishers, from the recording industry, the 
right to legally sell their music over the air or through a Web 
site. We needed to be very, very cautious and careful to 
protect the digital rights associated with the music that we 
sell. Our music business has been very, very successful. I 
believe that the Verizon wireless music Web site, based upon 
recent information I heard, is just No. 2 to Apple's iTunes.
    Mr. Doyle. Well, what about the MP3s that a consumer 
already owns and gets off their CD? I mean, why wouldn't you 
allow them to have both? Why does it have to be either or?
    Mr. Zipperstein. Actually, with our music product it is 
possible for a consumer to acquire music to their phone in two 
ways. First, they can download it over the air, or they can 
move music that is in their personal collection. For example, 
if they take a CD and burn the CD music or upload the CD music, 
transfer it from their CD that they buy in the store to the 
computer, they can side load that music onto their phone.
    Mr. Doyle. But Mac users can't, just PC users?
    Mr. Zipperstein. Any computer user, Mac or PC, is able to 
take--if they go to the record store, buy a CD then upload that 
music to their computer, they can transfer it to their phone.
    Mr. Doyle. I am sorry, Mr. Chairman. Thanks.
    Mr. Markey. The gentleman's time has expired. The Chair 
recognizes the gentleman from Mississippi, Mr. Pickering.
    Mr. Pickering. Mr. Chairman, thank you again. What I would 
like to do is ask questions that will put things in the context 
of the decision before the FCC today, because I think it 
addresses all the issues that we have discussed, and that is 
the decisions on 700 that the FCC is about to do.
    But I would also like to put their decisions in context as 
we talk about whether we have adequately competitive markets, 
and I think as you look at a monopoly, what we had before 1996, 
and we have seen a growing competition on the wireline side, 
voice, video, data. Then you look at wireless, and it is more 
robust competition. So as you move along the competitive 
spectrum, you would have wireline, wireless, and then you have 
the Internet model; and if we had the two ends of the spectrum, 
Internet being the most open, most competitive, most 
innovative, the question we have before us on the 700, can you 
take a portion, just a portion, you don't have to do anything 
to regulate Mr. Evans or Mr. Zipperstein or any of the 
incumbents, create an open space to see if you can create the 
fully competitive, fully vibrant, innovative space within 
wireless by having interoperability of devices and a wholesale 
market. Now, we are not talking about regulating content or net 
neutrality. Net neutrality is a different debate. Now, 
sometimes people will bring in net neutrality to try to taint 
what we are talking about in this case, and we want to keep 
that separate. It is wholesale and it is device portability is 
what we are talking about. And in that context, can a portion 
of the spectrum leaven the entire wireless sector so that it is 
more competitive on price, on service, and on devices? And so 
my question, Mr. Zipperstein, you do not have to do Carterfone 
and 700, you don't have to bid on that spectrum if it is 
conditioned in that way, you do not have to change your 
business model, neither does Mr. Evans. But if there are those 
who want to invest in a new business model that will create a 
more dynamic, vibrant, healthy, competitive wireless sector, 
what is wrong with that?
    Mr. Zipperstein. There is nothing wrong with someone 
voluntarily participating in an open and fair, transparent 
auction, and if they decide that the business model that they 
want to use is along the lines that you have discussed, 
Congressman, they are free to do that. I think that was the 
point that the ranking member made, and we agree with that 
analysis. But we don't think that a business model should be 
hardwired into the auction by regulatory fiat in advance. I 
would also mention that there are a number of concerns in the 
real world that can result from a mandate in this area. We 
could have, for example, devices that come onto the network 
that are not GPS enabled. Therefore we would have problems 
ensuring the adequacy of the E911 Phase II system. That is 
extremely important to the country, extremely important to 
public safety. So I think that we need to just tread very, very 
carefully; but if somebody can figure it out and make it work 
as a business model, then by all means they ought to have the 
right to bid, and if they win, they ought to have the right to 
try out that business model.
    Mr. Pickering. Now, Mr. Evans, you would probably bid for 
the CMA and the 700, is that correct?
    Mr. Evans. I purchase mostly CMA, so a couple of EAs as 
well.
    Mr. Pickering. EAs? Now, none of the proposals on 
Carterfone or openness relate to EA or CMA under the current 
proposals. Are you concerned that if you do require openness in 
the upper bands that it will intensify the competition in the 
lower bands and the lower markets and drive your price of the 
auction up?
    Mr. Evans. Well, I think that is certainly one factor, but 
I think a bigger factor is the fact that I believe you would 
actually shut down capital investment into rural markets by 
doing that. If venture capitalists or anybody who is putting 
their own capital into a project suddenly realizes that there 
is a band of spectrum that a group received for free and they 
are going to go out and do something with it----
    Mr. Pickering. Nobody is talking about doing anything for 
free.
    Mr. Evans. OK.
    Mr. Pickering. There would be reserve prices, and you would 
have full-market value at any auction.
    Mr. Evans. I understand. Then I will have acquired spectrum 
based on a certain set of rules, and now under a different set 
of rules there is a new piece of spectrum that is out there 
whereby we don't know what they are going to do with it. We 
don't know what they are going to deploy. We don't know what 
type of technology, but we know that it is open. Therefore you 
substantially lower the barrier to entry for any competitor to 
come in, literally anybody in the world who wanted to walk in 
and try to turn on a wireless network----
    Mr. Pickering. I think you have captured the issue. Do you 
want more competition or less competition?
    Mr. Evans. The issue is the following. I think you do want 
more competition, but the issue is there isn't a wireless 
network out there, there is not a wireless technology out there 
today that will accomplish that. So you are going to give up a 
scarce resource or sell a scarce resource out there today that 
you are not going to be able to recoup the value on at a later 
date; and you are going to inhibit other people from deploying 
proven technologies in that same scenario.
    Mr. Pickering. Mr. Evans, it is just a wholesale network. I 
think the technology is clearly available to do wholesale. You 
are just talking about taking somebody who will build a network 
and sell at a wholesale rate, which is a very healthy component 
with any fully functioning economic market. We are not talking 
about content, and device portability is technically feasible. 
So this is not rocket science. This is wholesale and device 
portability. What is wrong with that?
    Mr. Evans. I would simply ask how many wholesale models in 
the U.S. wireless industry, which has been open, and you have 
been able to become a wholesaler in the wireless industry for 
20 years. How many of those models have been successful?
    Mr. Pickering. Well, the question would be do you have a 
national network and opportunity in this spectrum to do so? Mr. 
Chairman, I yield back.
    Mr. Markey. The gentleman's time has expired. The Chair 
recognizes the gentleman from Texas, Mr. Gonzalez.
    Mr. Gonzalez. Thank you very much, Mr. Chairman. Happy 
birthday. I guess I am just going to build on somewhat, go in a 
different direction than my colleague, Mr. Pickering, but I 
will remind individuals that he prefaced his statements in his 
opening statement as to what open access really does mean and 
what others may feel that it means and whether this is an issue 
of net neutrality coming into the wireless, into the airwaves. 
Of course it is. We may call it open access, but I think let us 
just be frank in our discussion. We can continue this debate. 
Unfortunately, I never have liked the term ``net neutrality'' 
because I don't think it is accurate, and I don't like open 
access because I don't think it is descriptive, either. 
However, I think the professor understands that if you define 
the debate at the beginning, you win the debate. We may already 
be there, I don't think so.
    But let us just start off with open access. In building on 
what Chip was talking about, it is just going to be a sliver. 
We are going to have a pilot project or something. If this is 
such a wonderful model to follow, why a sliver? Why not just 
have open access conditions supplied to the entire spectrum? 
And I will ask Professor Wu. Would you be in favor to apply the 
open access model to the entire auction?
    Mr. Wu. To the entire auction or the entire----
    Mr. Gonzalez. Everything that is going to be out there in 
700. Everything. I mean, why are we only going to----
    Mr. Wu. I will just say I would be in favor of that. I 
think it is----
    Mr. Gonzalez. OK. I just want to know if you guys really 
believe in this, then you would say why are we going to 
experiment? Why are we going to have just a small portion of 
what is out there available? This is it. This is the answer. 
And Mr. Devitt, would you agree with the professor to extend 
that to what we are going to be auctioning at that MHz?
    Mr. Devitt. Oh, let me be clear. I would go back and apply 
it retrospectively to all of the spectrum in the country.
    Mr. Gonzalez. OK. And that is what I thought. Let me go on 
because I am going to follow up, Professor, specifically with 
you. You seem, and others, to totally dismiss the investment 
that it takes in the way of buildout, and you are assuming for 
whatever reason that under this new model we will still have 
individuals and entities making that kind of an investment 
without any restrictions and such. And to me this is just a 
business model. There is always exclusivity agreements and 
such. Each and every one of you in your business dealings have 
entered those type of contracts. Now, if we take the iPhone for 
instance, there was an interview, and this is what Steve Jobs 
said. Is the iPhone a wireless iPod or is it a phone that has 
an iPod in it? And this is what he said. It is three things. It 
is the best iPod we have ever made, if it was a cell phone 
alone, it is an incredible cell phone, but what it is is the 
Internet in your pocket. And so Mr. Zipperstein, this is not 
the RAZR. This is the Internet, and this is what we have been 
discussing from day one in this committee.
    Mr. Zipperstein. Right.
    Mr. Gonzalez. And this is what he said. Why AT&T? Why? He 
said, well, he believed that they have spent a fortune to build 
these 3G networks, so they have a lot of bandwidth. Phones are 
not capable of taking advantage of it because their Internet 
experience is so poor. They have lousy browsers, and then he 
went on to say we are going to take advantage of some of the 
investments they have made in their bandwidth in an entirely 
new way. So it did spur this innovation in what I think will be 
the future because of the carriers' and the networks' previous 
investment in building out the system that accommodates the 
device. So we have the carriers, we have the device 
manufacturers, and we have the content aggregators. No one does 
anything for free, and Mr. Murray, you said Google was doing 
something for free. No one does anything for free. There has to 
be a return. And I forget exactly what you were alluding to.
    Mr. Murray. That was actually the BlackBerry. They wanted 
to offer a free mapping feature to their customers, and 
absolutely, people were purchasing their phones, but they felt 
that that was----
    Mr. Gonzalez. And I am sure it was just out of the goodness 
of their heart. There wasn't any business connection, and I am 
sure there was no other motive. But what I am getting at, let 
us just say you get your way and we have this auction. You 
anticipate that we are going to have a new entrant, and I 
think, Professor, you may be the person to tell us who that new 
entrant may be because there are stories out there already as 
to who probably has the capital and the assets to make that 
investment. So I would like for you to answer, who do you 
anticipate this new entrant would be, who would build out the 
network because they probably would have to go to the third 
party to have it built out, right?
    Mr. Wu. Well, I will answer that.
    Mr. Gonzalez. What would be the return for that person that 
is buying that spectrum? How would they make their money? How 
would they pay the third party for the buildout?
    Mr. Wu. Wholesale markets are common in many different 
markets. Mr. Pickering has last mentioned energy markets. There 
are parties with billions and billions of dollars who are 
interested in investing, and we have seen them, whether they 
are associated with Frontline or other parties, interested in 
entering this market on a different model. I think there is no 
question that if this auction comes and as you suggested, if 
you take this amount of spectrum and you make it a wholesale 
structurally separated model, there are people who are 
interested in investing billions, investing in buildouts on a 
model where your return of investment comes from selling 
bandwidth to anyone who is interested.
    Let me give you an example of a company that lives on a 
full wholesale model. Ford Motors. Ford Motors does no retail. 
Ford Motors is only a supplier of cars, and they have their 
retailing given to everybody else. If Ford Motors can make 
money on a wholesale model, then surely someone in the Internet 
and wireless broadband model can make money on a wholesale 
model. There is no question this is an established model. It is 
part of a----
    Mr. Gonzalez. Do you believe that the new entrants aren't 
some of the current players out there, not under the carrier or 
network category, but definitely as content? I mean, that is 
where this is all going, isn't it? I mean, Google is not in 
this business to simply provide free services. It is to compile 
a consumer profile, to build an advertising hierarchy. We know 
what is going on out there. I am concerned about who is going 
to assume the responsibility of making the capital investment 
to make sure that we continue to build out broadband capability 
so that all your devices, and that includes Mr. Devitt, and I 
know that you eventually sold to--I think Zingy now has it. I 
mean, their advertising package starts at $25,000. So who takes 
the place of AT&T and Verizon and others? That is my question.
    Mr. Wu. I think it is a great question. I agree with you 
100 percent that no one does anything for free, but as I have 
said, if Ford Motors can make money and General Motors can make 
money on wholesale models, new entrants have every----
    Mr. Gonzalez. Mr. Wu, I would not use our domestic 
automakers at this point in time as a model.
    Mr. Wu. Let us talk about the domestic automakers early in 
the 20th century which is where they would be. The companies 
that come into this market will have more incentives to build 
than our friends at Verizon or AT&T. AT&T and Verizon already 
have networks. Their interest in getting more spectrum is in 
protecting their market share, not in building new networks. 
They already have spectrum. If you already have spectrum, you 
have less reason to want to build. If you don't have spectrum, 
then you are waiting to try and create a new wholesale model. 
Those are the parties who are going to invest in building the 
world's best wireless network, and that is what America should 
have.
    Mr. Gonzalez. Thank you. My time is up.
    Mr. Markey. The gentleman's time has expired. The Chair 
recognizes the gentlelady from California, Ms. Eshoo.
    Ms. Eshoo. Thank you, Mr. Chairman, for having another 
really important and substantive hearing in your series that 
you began in the beginning of the year. I apologize for not 
being here for a good deal of it. I have duties at the House 
Intelligence Committee as well, so I am trying to keep you 
safe, and now let us see if we can be competitive, how is that?
    This is a very interesting discussion. I think all too 
often the work that is put into the memorandums that the 
committee staff does kind of goes unnoticed, but I would like 
to make note of what is on page 2, and that is essentially that 
the top four national carriers represent 85 percent of the 
market for wireless. So this is about protecting in my view the 
most sought-after real estate there is. It is really beachfront 
property, and we don't want anybody else coming to the beach. 
They have spectrum that they are not even using. So that is 
what this discussion is about, how we enlarge this, how we 
allow for real competition. I have learned around here in 
Congress that everybody is for competition until it comes to 
them, and then they don't want somebody else really competing 
with them. I guess that is just part of the way we operate, and 
I understand that, but it is an observation. But no one should 
think that we don't respect people making investment, capital 
investment. We want more capital investment. So those that have 
made capital investment want to keep others out, from making 
their own capital investment? Look, this is the way the 
consumer wins in our country, so I appreciate what has been 
said, but to my wonderful colleague from Texas, there is more 
to it than that. You have to fill out the story. You have to 
fill out the story and say, hey, are we going to go for 95 
percent and not let anybody else in? So, to Mr. Devitt, thank 
you for traveling to Washington and being with us. I admire 
what you have done, and you are just one city out of my 
Congressional District; but for today, well, I am going to 
adopt you. How is that? You can be part of the 14th district. 
You certainly are part of the innovation that is going on in 
our country. Let me just ask a couple of quick questions.
    First, obviously, the rollout of Apple's iPhone has caused 
a great deal of excitement in the country, as well it should. 
And I thought your answer about why you are not a partner in it 
was curious. It kind of reminds me of when you hear great 
actors being interviewed and they say, well, what role did you 
turn down, and they name it, and they regret it. But I 
appreciate the way you described it.
    At any rate, it has generated a great deal of excitement, 
among the public and in the media, and it obviously 
demonstrates a great deal about innovation and also the 
appetite that customers have for new and exciting technologies. 
Another exciting product of Apple's is AirPort. It is a 
wireless base station as you all know that connects to any 
broadband network. Can any of you, maybe Mr. Murray, Professor 
Wu--I understand you spent some time at Stanford. I like that. 
Don't you wish the weather were like that here? And Mr. Devitt, 
why is it OK for consumers to use new technologies like AirPort 
that can be used on any network but the iPhone and the 
partnership with AT&T doesn't allow that?
    Mr. Wu. I will start, speaking from Stanford. Not exactly. 
There is something strange about----
    Ms. Eshoo. I will bet you miss it, don't you?
    Mr. Wu. Yes, I do.
    Ms. Eshoo. I am putting words in your mouth.
    Mr. Wu. There is something weird about this market, and I 
just come back to that. It is a strange market. We keep talking 
about the markets working, but it is an unusual market. It is 
not like consumer electronics, it is not like computer 
software, it is not like the Internet. AirPort is something--
people buy computers, people hook it up to any Internet 
connection. They buy devices. The one big exception to 
America's way in technology policy is its mobile networks. They 
are strange, and the reason is I think historical. This is the 
last vestiges of the old AT&T monopoly, and it is that business 
model, the model that failed us, that still dominates wireless; 
and it is not the Internet business model which has been the 
driver of this Nation's economy.
    Mr. Devitt. And I would add to that that I don't think it 
is any surprise that it has taken 26 years for Apple to decide 
to produce a phone. I mean, in that previous 26 years they came 
up with a whole host of extraordinary computing devices, all of 
which they were able to attach to Verizon's DSL network or its 
AT&T network or its Comcast or its Time Warner without asking 
permission of those companies; and for some strange reason, Mr. 
Gonzalez, those companies in turn were prepared to go on making 
a significant capital investment in delivering the bandwidth 
necessary for those computers to work, despite the fact that 
they weren't allowed to switch them off remotely.
    So it is as Professor Wu says, the iPhone is an 
extraordinary technical achievement, but it is a miracle that 
it is even possible under the current market condition; and we 
should have seen many, many more devices come to market in the 
years gone by.
    Ms. Eshoo. Thank you very much to all of you, and Mr. 
Chairman, happy birthday.
    Mr. Markey. Thank you.
    Ms. Eshoo. Thank God you were born.
    Mr. Markey. Oh, boy. You are in a minority there, but thank 
you. I appreciate it.
    Ms. Eshoo. Well, it is what I think. It is my time. Thank 
you.
    Mr. Markey. I thank the gentlelady. The Chair recognizes 
the gentleman from New Jersey, Mr. Ferguson. Oh, by unanimous 
consent, we will move to the gentlelady who is not on the 
subcommittee and recognize her before the remaining 
subcommittee members. The gentlelady Mrs. Blackburn is 
recognized.
    Mrs. Blackburn. Thank you, Mr. Chairman, and I will wish 
you happy birthday also. And I think that as we have very 
robust debates that we are all glad that you were born. We all 
have a position that we fill here for our constituents, and I 
want to say thank you to our panelists for taking the time to 
come here and participate in the debate today. We do appreciate 
your time and your interest in this.
    You have reset the clock on me, but that is OK. There are 
three things that I want to get to in my questions, and 
hopefully I will be able to yield back time so that you all can 
get on with your time. I want to talk about deficit reduction, 
public safety, and innovation. And we have to realize that we 
are here because of the Deficit Reduction Act and the set-aside 
for the auction of that spectrum. And I think sometimes as we 
debate, some of the devices that would be at the end use we 
forget about that. And I do think that that is an important 
component of this discussion that we are having, and I 
appreciated that Mr. Pickering focused on bringing us back to 
that discussion.
    Mr. Wu, I would love to spend some time talking with you on 
your spectrum-based oligopoly as you stated it, but I am not 
going to do that. I am going to submit those questions. I think 
our debate on that would be rather robust. I think that what 
you would like to do is you don't like the oligopoly that you 
see out there but you are saying give me a shot at structuring 
one for my friends. And so I do think that we could have a 
rather robust debate on that.
    Mr. Verveer, I think that I would like to start on 
questioning with you if I may, please. We have heard all the 
sides on open access and on the neutral and net neutral auction 
arguments, and they suggest sometimes that the only way to go 
about spurring innovation is to have open access rules, to have 
the neutrality rules, because if we don't do that, then we are 
going to have a beleaguered, stagnant, anti-competitive 
industry. And looking at the panel and listening, reading your 
testimonies and listening to me, I think you may come at this 
with the most personal historical participation in the 
development of the industry. And I say that in deference to you 
from what you have submitted to us as we look at the industry 
having grown. And of course, I come at this also as a parent of 
a son that majored in MIS and technology-related items in 
college and the amount that I learned as he went through 
school. So I want to hear from you. Do you share some of these 
sentiments about being beleaguered and stagnant and anti-
competitive, or do you believe that consumers have access to 
advanced technologies at increasingly lower prices? Just your 
perspective on that, and then if you would come back and just 
address how you think open access rules would either drive or 
depress innovation in the wireless marketplace.
    Mr. Verveer. I believe that this market is probably as 
progressive as we could possibly hope. We could always do 
better, there is no doubt about that. But it is a wonderfully 
progressive market. In fact, I believe Professor Wu in the 
working paper that started off the Carterfone debate describes 
the industry as a modern wonder, and I think that is a correct 
assessment.
    The question about whether or not we can do better by 
introducing open access or other kinds of arrangements is one 
that at least I am personally skeptical about. I think that if 
for some reason we believe we don't have enough competition and 
we don't want the major players in the next auction, the 
straightforward thing to do is to say you can't participate in 
the next auction, just as we have in the past with spectrum 
caps. I don't think that is necessary, but if we believe that 
that was the case, that is probably the right way to do it. If 
we move to a so-called wholesale model, we have accomplished a 
variety of things. There is clearly no free lunch here, so the 
first thing that is going to happen as Mr. Evans said is the 
spectrum will be auctioned at a lower price because it is 
encumbered.
     The second thing that is going to happen is that it will 
turn out it is not quite as simple in terms of saying simply 
open access and have it magically happen as we were told. It is 
going to turn out that there are going to be decisions about 
what kind of air interface. I think it also will turn out there 
is nothing magical about this in terms of rural coverage. 
Somebody is going to have to pay a lot of money to put a radio 
signal over rural areas, and there is nothing inherent about a 
wholesale model that would cause that to happen. There are an 
awful lot of things that one might wish were different or 
better, but in general, I think that our commitment over the 
last several decades to competition has been the right one. It 
has been the successful one.
    Mrs. Blackburn. So then stability and predictability are 
two things, one you have mentioned and one you have alluded to. 
You see the value of that in the marketplace for spurring the 
innovation?
    Mr. Verveer. Well, these things are clearly very important 
in terms of securing investment capital.
    Mrs. Blackburn. OK. Mr. Chairman also I have got two 
articles from the Wall Street Journal today, one a commentary 
and the other, I guess it is Review and Outlook. I would like 
to submit those for the record as we move forward in our 
discussion. They are from today's Wall Street Journal, if I 
may.
    Mr. Markey. Without objection.
    Mrs. Blackburn. Thank you.
    Mr. Markey. And I will also, if I may, without objection, 
the letter on behalf of Mr. Pickering from Cellular South 
Company regarding the inability of small or mid-size wireless 
carriers to get access to the iPhone will be inserted at the 
same time.
     The gentlelady is recognized.
    Mrs. Blackburn. Thank you, Mr. Chairman. Mr. Evans, you 
mentioned a couple of times services that you were wanting to 
roll out. Can you describe some of the services that you are 
rolling out or planning to roll out?
    Mr. Evans. Certainly. First and foremost, it is broadband 
Internet access, just the ability for these people to access 
the Internet. It is something better than 250 kilobits per 
second. On top of that, it is our plan in 2008 to begin 
introducing a voice over IP solution to go in and have a 
competitive environment for the telephone market out in these 
areas as well. There is typically a local ILEC or one of the 
larger RBOCs that are out there operating in these areas, and 
we believe we can be very competitive against those individuals 
as well. Moving on from there, there is also we believe a 
market for a regional portal, if you will, where you can access 
information on the Internet about your local community that is 
out there and therefore evolve into an advertising model where 
we can sell local advertising, if you will, in the rural 
markets and provide that across our network. So we see it as a 
three-pronged approach to go out there, the broadband Internet 
access is first and foremost by far but then adding on various 
applications and services to sell to these individuals that 
don't have access to that today.
    Mrs. Blackburn. Well, and we hear from so many of those 
ILECs and our rural communities about the broadband access and 
the effect that it has not only on the quality of life and on 
public safety, but also on economic development.
    Mr. Chairman, I will yield back the balance of my time. 
Thank you for the courtesy.
    Mr. Markey. The gentlelady's time has expired. The Chair 
recognizes the gentleman from New Jersey, Mr. Ferguson.
    Mr. Ferguson. Thank you, Mr. Chairman. I apologize, too. I 
wasn't at this entire hearing but certainly have a great deal 
of interest in the topics that have been discussed. I want to 
thank all of you for being here and for offering your various 
perspectives on some of the important issues that we are 
dealing with. Obviously, being from New Jersey, we are not only 
packed with people who benefit from these technologies but we 
are also home to some of the leaders in innovation who helped 
to create these products and these technologies, and we are 
very proud of that.
    I want to begin with Mr. Zipperstein if I might. I 
certainly want to thank you for being here today. I know you 
have been fielding all sorts of different questions on 
different topics, and we appreciate both the work that Verizon 
Wireless does--we are very proud to be your home in New 
Jersey--but for being a leader in developing so many new 
technologies and services for people that really are enhancing 
and improving the quality of people's lives. I want to talk a 
little bit about some of the preemption issues that have been 
very important. We have a state-to-state sort of patchwork 
issue that we deal with in some ways, not necessarily on rates 
but in other ways for wireless carriers. What would be the net 
effect on the consumer if wireless carriers were actually 
subject to 51 different sets of rules on how you write 
subscriber contracts and formatting of bills and whatnot? 
Ultimately, how does that affect a customer like me?
    Mr. Zipperstein. I think the effect would be very 
detrimental, Congressman. A customer like you based in New 
Jersey also using your cell phone in Washington and other parts 
in between, perhaps New York, perhaps Delaware, Pennsylvania, 
and elsewhere in the country, you might find yourself subjected 
to different kinds of service mandated by different States, 
depending upon where you are. If you have a bill coming to your 
place of work, even though you live in New Jersey, the billing 
format may be mandated to be a different way in the place where 
you work than the place where you live. In some States, 
regulators have, for whatever reason, decided that it would be 
appropriate to target wireless for very, very intrusive 
micromanagerial sorts of monopoly, utility-style regulation, 
even though it seems very clear, and particularly from the 
comments that pretty much all the members have made in this 
hearing today, that the wireless industry is a nationwide 
inherently interstate industry, to use the chairman's term, and 
therefore, this sort of individual state-by-state patchwork 
could harm consumers, could create confusion, could lead to 
higher costs as we would have to spend more money to achieve 
compliance with multiple conflicting, inconsistent regulations. 
That is why we favor a more appropriate approach which would 
have a Federal set of rules.
    Mr. Ferguson. This national framework that has been talked 
about, we have heard about the need, I certainly have heard 
about and I know many of us have heard about this need, for 
this national framework for wireless service. How does a 
national framework for wireless service make our constituents 
better off than they are today given the current set of 
standards?
    Mr. Zipperstein. We think it achieves first of all 
consistency across the country so that consumers, whether they 
are in New Jersey or California, Massachusetts, would have the 
same expectations as to the nature of the service that they are 
receiving from their wireless carrier. It would also enhance 
the ability of carriers to efficiently and cost-effectively 
serve their customers on a nationwide basis.
    Mr. Ferguson. Mr. Clark, thank you for being here today. I 
appreciate your traveling here from North Dakota.
    Mr. Clark. That is correct.
    Mr. Ferguson. Wireless consumers are mobile. They take 
their phones everywhere. They pretty much work everywhere. They 
travel between States. Shouldn't consumers have some consistent 
set of guidelines and expectations regarding what kind of 
consumer protections they can count on? Wouldn't this be easier 
to deliver and to be more uniform if this were sort of 
delivered from the Federal level? I realize I am asking a State 
regulator. But just maybe you could give me your sort of honest 
assessment of that.
    Mr. Clark. Congressman, NARUC is certainly not opposed at 
all to some sort of Federal framework for a consistent approach 
to how wireless issues are, the standards that the industry has 
to deal with. The concern that we have is that the actual 
proposal forwarded by the wireless industry goes far beyond 
that. They try to attempt to federalize both the standards and 
the enforcement, and that is the concern that we have because 
we don't think it is a viable option to tell folks in New 
Jersey or North Dakota when they have something crammed on 
their wireless bill, a service they didn't order, to tell them 
to call Washington, DC, because experience is the FCC just 
doesn't have the resources to handle that. We believe that you 
have to have a local point of contact for enforcement.
    Mr. Ferguson. I realize my time is up. Could I have an 
additional 1 minute?
    Mr. Markey. Without objection.
    Mr. Ferguson. Thank you. We have 33 attorneys general, 
including the attorneys general in my State and your State, who 
have entered into these agreements with national carriers to 
help address some of these challenges. Is that not a good way 
to go? Is that not helpful in this process?
    Mr. Clark. Congressman, I would just respectfully submit 
that 41 attorneys general last year signed a letter urging that 
the particular type of preemption of the wireless industry 
afforded was not appropriate for this particular marketplace.
    Mr. Ferguson. I would be interested in Mr. Zipperstein. We 
have 15 seconds. Can you just briefly give me your thoughts on 
that?
    Mr. Zipperstein. We advocate a single set of rules to be 
established at the Federal level, but we also are not talking 
about preempting State enforcement of their consumer protection 
rules. There are consumer protection laws that apply to all 
competitive industries across the board.
    Mr. Ferguson. Thank you, Mr. Chairman. I appreciate the 
indulgence.
    Mr. Markey. The gentleman's time has expired. The Chair 
recognizes the gentleman from Michigan, Mr. Dingell.
    Mr. Dingell. Mr. Chairman, I thank you.
    A question to Mr. Zipperstein. Mr. Zipperstein, I am lucky 
enough to have an Apple iPhone. Now if it is possible I am not 
happy with the AT&T service and I want to change carriers, 
assuming for the moment that the iPhone is a dual band, is 
there any reason why I shouldn't be able to take my phone with 
me to another carrier?
    Mr. Zipperstein. The only reason at this point is the 
exclusive contract that AT&T has with Apple.
    Mr. Dingell. That is the only reason?
    Mr. Zipperstein. That I am aware of, yes, Mr. Chairman.
    Mr. Dingell. There is no technical reason?
    Mr. Zipperstein. Well, I think you said assuming that it is 
a dual band GSM and CDMA, so our network is a CDMA network. If 
the phone is technically capable of working on a CDMA network 
and it meets the performance standards of the network, if it 
meets the requirements of the FCC and other respects, then 
there would not be a technical reason why it could not work.
    Mr. Dingell. So the FCC through their rulemaking and the 
chip makers through their magic are able to address all the 
questions that might exist here, is that right?
    Mr. Zipperstein. Yes, Mr. Chairman.
    Mr. Dingell. Thank you. Now, this is for my old friend, Mr. 
Verveer, and welcome to the committee. I have heard your 
argument that the wireless network of today is very different 
from the AT&T telephone network of 1968, and I agree with you. 
In fact, you and I are probably the only ones around who would 
remember that. But today, four wireless carriers cover 90 
percent of the market, and it is pretty hard for me to ignore 
the reports and the testimony of Mr. Devitt that people who 
make wireless devices and software are not able to get new 
services to consumers as quickly as they would like at all. 
Quite frankly, this brings back my memories of Carter and 
Carterfone. Now, is there a reason why wireless carriers should 
be constricted in determining what devices consumers can use on 
the network and what applications they can use on their phones; 
and in like fashion, is there any reason why, if the original 
grant of the spectrum and the technical questions can be 
addressed, that the consumers ought not have the ability to 
determine what devices they are going to use on the network?
    Mr. Verveer. Mr. Chairman, assuming that the technical 
issues can be overcome, and some of them have to do with 
intricacies involving shared networks, that is the airwaves are 
shared between all the consumers that use them, things of that 
nature, but assuming they can be overcome, there is no 
particular reason why one shouldn't, if this seems to be the 
preferred course, introduce obligations for the use of any 
device one wants, any application one wants. The question that 
I have about this is whether or not we are better off relying 
on the competitive process to try to produce what consumers 
want. The carriers it seems----
    Mr. Dingell. Well, let us address the competitive process. 
The purpose here is to provide service to the consumers. The 
purpose here is to provide the maximum choice to the consumers. 
The purpose here is to provide competition so that the 
consumers are best served. The purpose here is to see to it 
that this provides the greatest choice and the greatest 
availability of service of all kinds to the consumer. Once we 
agree on all of those points, why is it that we should not 
leave this particular choice to the consumer, and why is it 
that the consumer's right to choose should be constrained?
    Mr. Verveer. I think, Mr. Chairman, there are two things 
that enter into this that are important at least to consider 
carefully. One is whether or not the existing carriers have any 
set of incentives not to try to provide what people want. If 
one assumes as I do that in order to maintain their businesses, 
they are very anxious to serve consumers, to provide what they 
want, we can I think rely on their wholesome incentives. The 
second aspect of this, however, is this. If we change these 
particular requirements, these particular rules, there will be 
consequences. I suspect the consequences will be that there 
will be changes in at least a couple of obvious dimensions. 
One, the pricing for transmission will change, the various 
approaches to pricing will----
    Mr. Dingell. Let me interrupt you, old friend. First of 
all, the Carterfone decision said that they could attach a 
device to the wire network if it did not cause problems. In the 
drafting of the original license or grant of the spectrum that 
can be in large part addressed. The balance of the problems can 
be in large part addressed by the software makers and the 
people who make the network. Now, why then is there a problem 
with this that ought not be decided in favor of the consumer as 
opposed to being decided in favor of somebody else?
    Mr. Verveer. See, I think the question on some level is are 
we sure, are we confident, that this----
    Mr. Dingell. Here is the deal. First, you insist that the 
grant of the spectrum address that question in that fashion. 
That gets rid of a lot of the problems, does it not?
    Mr. Verveer. Well----
    Mr. Dingell. Yes or no. It gets rid of a lot of problems or 
doesn't it?
    Mr. Verveer. I think----
    Mr. Dingell. And then the software maker comes along and 
the hardware maker comes along, the software and the chip 
address the balance of the question. And if it can't be 
addressed, then don't let them do it; but if it can be 
addressed, why should we deny them? Now obviously, the network 
owner, the licensee, is going to say, oh, this is scandalous 
that we should be doing this for the consumer. But as a 
consumer, and I think you and I share that concern, we think 
that maybe the consumer ought to be looked after and that the 
network owner and licensee is going to do just fine because he 
is going to charge whatever it costs to provide the service or 
he isn't going to be in business.
    Mr. Verveer. Mr. Chairman, you are absolutely right. The 
network operator will adjust to whatever the rules are, but 
there are at least a couple of things to think about. One is 
whether or not the preference of the majority of consumers may 
continue to reside in this subsidized handset model. The reason 
it arose I presume is because the carriers thought that this 
would get more people on the network. The second is the pricing 
rubrics. The way that we presently price wireless service will 
surely change if any application is available at the behest----
    Mr. Dingell. That is of course true, and they are going to 
price it at the level which enables them to continue in 
business and continue making money. But we have already 
addressed the problem. Technically, they can address it, and 
quite honestly, there is no reason to say, all right, we are 
just going to blank it and say you can't do it. In the 
Carterfone case, what they do is they see to it that the 
telephone fits on the system. I apologize. I know I am over my 
time, Mr. Chairman. When I look at the bottom of my telephone, 
it says this is by rule and regulation of the FCC determined to 
be suitable for the use on the particular network. Now, is 
there any reason why we wouldn't have the same thing with 
regard to the wireless phone? I see none, do you?
    Mr. Verveer. You clearly can. I think there is no doubt 
about that. I think the question that is uncertain, and I 
really don't believe that there is any way for us to know the 
answer.
    Mr. Dingell. The answer is that you set it up beforehand. 
The grant of the license permits them to function on the basis 
of having all this be compatible. The software, the hardware 
makers, they do what they have got to do, and all of a sudden 
you have solved the problem, and there is no reason to have a 
ban on this kind of arrangement. There is no reason why we 
ought not look after the consumer who is the guy for whom we 
are setting this damned thing up in the first place and who is 
going to be paying the cost.
    Mr. Verveer. I agree that I don't know, at least I am not 
aware of any technical inhibitions.
    Mr. Dingell. All right.
    Mr. Verveer. The thing that is uncertain----
    Mr. Dingell. Well, I am 3 minutes and 46 seconds past my 
time. It is good to see you again. It is good to see you, Mr. 
Chairman.
    Mr. Markey. The gentleman's time has expired. The Chair 
recognizes the gentleman from Michigan, Mr. Stupak.
    Mr. Stupak. Thank you, Mr. Chairman. Mr. Clark, if I may, a 
couple questions for you. It was reported earlier this year 
that the FCC was finally attempting to clear the backlog of 
thousands of Do Not Call registry complaints from its backlog. 
There are tens of thousands of them. I asked Chairman Martin 
about this when he appeared before our committee in March, our 
oversight hearing. He confirmed that these complaints were from 
as far back as 4 years ago. He confirmed that the FCC was 
sending letters to many consumers asking for more information 
because the FCC was unable to process the complaint and then 
was closing out those complaints. Can you please contrast this 
experience with how the States dealt with the Do Not Call 
registry complaints?
    Mr. Clark. Congressman, I think it is a constructive 
example why we say there has to be a local point of contact, 
and it has to go beyond just laws of general applicability. 
There were those who were trying to strike down State Do Not 
Call lists in favor of the completely Federalized system. The 
experience was is that the only place consumers got individual 
relief was at States. I will give an example from my own State, 
sparsely populated, 640,000 people. In the first few years of 
the operation of North Dakota's Do Not Call list, there were 
more individual enforcement actions brought just in North 
Dakota than in the entire Federal Government. It is compared to 
millions of complaints that were received at the FCC. And I 
don't think it is because folks at the FCC don't care or they 
are bad people, it is just that when you are looking at a mass 
market of 300 million people, you can't vest all the authority 
with one Federal Government agency and expect that individual 
complaints can be heard.
    Mr. Stupak. So even if you increased the resources at the 
FCC, do you think they would be able to handle this on a 
nationwide average of complaints?
    Mr. Clark. Congressman, I don't think there is enough 
office space in Washington, DC, to create a Federal bureaucracy 
that would be able to handle the hundreds of thousands of 
individual consumer complaints that State commissions and 
attorneys general across the country handle.
    Mr. Stupak. Let me ask this. I realize the State consumer 
protection statutes help out consumers. We have used them in 
Michigan for price gouging on gas prices, things like that, and 
I know you are not an attorney general, but I assume you work 
with the AG's office in your capacity. So how would relying on 
the statutes of general applicability by the AGs provide 
consumers with a timely resolution of complaints compared with 
State Commissions that investigate and resolve individual 
complaints?
    Mr. Clark. Congressman, the concern that NARUC has about 
laws of general applicability is that there are specific, very 
telecom-specific concerns that States address, things like bill 
cramming, just a myriad of other types of issues that are 
interconnection disputes, eligible telecommunications carrier 
processing, those types of matters. And to simply say that the 
only relief that States have is to bring fraud investigation 
enforcement type actions we don't believe is reasonable. And 
the attorneys general agree with us. Fraud is very specifically 
defined. You have to prove intent, you have to prove all sorts 
of things, and you are not going to bring a full fraud 
complaint simply to address someone who had a bunch of 
ringtones put on their wireless bill but didn't ask for them.
    Mr. Stupak. Thanks. Mr. Evans, if I may, a couple of 
questions. In my opening statement, I raised concerns about the 
Joint Board's proposal for an interim cap on the USF support. 
My fear as I said was the so-called temporary caps usually 
become a permanent fix at the FCC, and I also believe it would 
also become a long-term freeze on deployment of rural wireless 
in many parts of the country that still need service. Agree? 
Disagree?
    Mr. Evans. Yes, I completely agree with you, Congressman. I 
think you are stifling the very thing the fund was created to 
do and that is expand coverage out into rural America today. 
Instead of continuing to feed a technology that is shrinking 
and going away in the ILEC business, we are instead stifling 
what is coming to replace that in a much more economical way 
and clearly in a way that consumers prefer, that is in the 
wireless world. So I strongly disagree with those actions and 
believe that should be left alone and continue to prosper the 
way it has.
    Mr. Stupak. Let me ask this. Wireless carriers have been 
telling me they are having trouble securing roaming agreements 
with large carriers, and it has a huge impact on the data that 
is received or the voice service, especially when they travel 
in different parts of the country. What can be done or what do 
you think should be done to provide whatever incentives or 
whatever you want to call it for large carriers to negotiate 
and in good faith protect the availability of these services in 
rural areas?
    Mr. Evans. I am not familiar with the carriers that have 
been having a lot of those issues, frankly. I mean, I can only 
speak to my own experience which has been negotiating two of 
the top four who share the same type of technology that we are 
using. We are obviously in very rural areas. We are deploying a 
third-generation network, and candidly, they have been very 
open to discussing those with us, and we are having ongoing 
negotiations. So I have not encountered what the other carriers 
have. I think it is a function of the fact that I am deploying 
a network in some cases that is two generations ahead of the 
bigger carriers. So their data services and everything are 
going to work perfectly on our network, and some of the 
smaller, rural carriers have not upgraded technology; and 
therefore, the larger carriers have been hesitant to negotiate 
agreements, knowing that their customers are not going to have 
the same experience when they go down there. So I don't know 
that I am qualified to really answer your question.
    Mr. Stupak. Thanks. Thanks, Mr. Chairman.
    Mr. Markey. The gentleman's time has expired. The Chair 
recognizes the gentleman from California, Mr. Radanovich.
    Mr. Radanovich. Thanks, Mr. Chairman. I have two questions 
and appreciate the patience of the panel. I am sorry I was not 
here to be able to hear all of the testimony, and some of these 
issues may have been covered, but I would like to ask two more 
questions of Mr. Evans and then one question for the entire 
panel.
    Knowing that you have a relatively small company, Mr. 
Evans, would you be more or less willing to operate in a State 
that has its own disparate set of rules?
    Mr. Evans. When we went into the AWS auction last year we 
specifically avoided certain States that had onerous 
regulations around them for that very reason and elected not to 
purchase spectrum in those markets. That was a conscious 
decision on our part at that point in time, so my answer is 
yes, we certainly did review that and in States where we felt 
like it was going to be onerous, from my previous cellular 
experience--I built cellular networks for 20 years yes, I 
intentionally avoided certain States because of the regulatory 
environment.
    Mr. Radanovich. Then also for you, Mr. Evans, but then I 
want to open up the same question to the rest of the panel. If 
there was an effort federally to make things more uniform on 
the issue of consumer protection is always there and then an 
issue with the States, how would you react or respond to a 
consumer protection regime where the standards were set at say 
the Federal level but that the States were empowered to enforce 
those standards? Is that something that you--but I would like 
to hear from the rest of the panel as well.
    Mr. Evans. Yes, from my perspective I think that is 
perfectly acceptable. I think the concern is a different 
playing field everywhere you go. I candidly support States 
being able to enforce those regulations. I think that makes a 
lot of sense. What I don't want to get involved in is States 
setting arbitrary and sometimes unnecessary additional 
challenges for us over and above what is at the Federal level. 
So insofar as there was State enforcement of a Federal 
regulatory environment, no, I would have no issue with that.
    Mr. Radanovich. And even if that consumer protection regime 
included privacy protection, do you think that something like 
that could be crafted that would be suitable and acceptable at 
the State level as well?
    Mr. Evans. With the limited innovation, yes.
    Mr. Radanovich. Even including----
    Mr. Evans. Knowing what I know here, yes, sir, I do believe 
that.
    Mr. Radanovich. Does the rest of the panel feel the same 
way?
    Mr. Clark. Congressman, I believe that that is actually 
pretty close to what NARUC's position is, which is we think a 
Federal framework may be acceptable as long as there is State 
enforcement. One caveat that I would put to that is we do 
believe there should be some mechanism for some State 
flexibility to address an emerging issue that we can't even 
contemplate right now because States do tend to be the ones who 
are able to address those questions more quickly and not have 
to run immediately to the Federal Government. But I think that 
that can all be worked out. You can create some sort of 
mechanism where hopefully you wouldn't have 50 different 
outcomes.
    Mr. Zipperstein. I think that the regulatory community at 
the State level and the industry actually have been moving 
closer together, and I am very pleased to hear some of the 
comments that I have heard today as well as from the members. I 
think everyone has the sense here, the strong sense, 
Congressman, there is really a consensus in the room, that as 
an interstate business, wireless shouldn't be regulated on a 
state-by-state basis. It just doesn't make sense. It is not 
good for consumers, it is not good for innovation, it is not 
cost effective, it will drive prices up. So our view as an 
industry has been that there ought to be one set of rules at 
the Federal level. We already have 34 States and three carriers 
who have agreed upon a set of rules that the attorneys general 
of those States negotiated with the carriers. We could expand 
that to the other one-third of the country, and then those 
rules can be complied with. And the attorneys general, if they 
believe that a consumer protection law that applies to other 
competitive businesses has been violated, they are still free 
to enforce that; and of course I would agree that the State 
public utility commissions can continue to be a clearinghouse 
for collecting customer complaints and asking carriers to 
address those. What we don't want, though, is for the 
individual States through their public utility commissions to 
set different rules, because that is really going to set us 
backward, not move us forward.
    Mr. Radanovich. Very good. Thank you. I am seeing heads 
from the rest of the panel, so I am assuming you are in 
concurrence.
    Mr. Murray. If I might just add, what I didn't hear in the 
answer Mr. Evans gave was he didn't want to go into States 
where there were different standards necessarily. It sounded 
like he would go into some States where there were different 
standards. It was onerous standards that concerned him, and 
that is a little bit what concerns me about Federal standards. 
We are not averse to Federal standards, but if the goal in 
setting Federal standards is to lower the standards that 
consumers have, then yes, we are concerned. So it is a question 
of what is the Federal standard going to be.
    Mr. Radanovich. All right. I thank the panel. Thank you, 
Mr. Chairman.
    Mr. Markey. The gentleman's time has expired, and the time 
for this hearing has expired as well. Thank you so much. This 
was an excellent panel. I think all the members were impressed. 
You had nearly every member of the subcommittee come to hear 
you in the course of the day. And I think it is important for 
us at this point to actually note that it is a historic point. 
Back in 1993 this subcommittee moved over 200 MHz of spectrum 
because the subcommittee was in fact unhappy with the fact that 
there were two incumbent cell phone companies. They were each 
analog, and they were each charging 50 cents a minute. We 
didn't do anything except kind of work with the FCC to create a 
third, a fourth, a fifth, and sixth license but not allow the 
first two to bid in any of those markets where they already 
were. And all of the three or four new companies each went 
digital, and pretty soon it was down to 10 cents a minute; and 
unbelievably, the first two companies within a very brief 
period of time each went digital, and each were charging 10 
cents a minute. And that was a way in which we were able to 
change the marketplace and make it possible for people like Mr. 
Evans and others to exist. And so we kind of reached this point 
now where we are at the end of the spectrum trail. We have this 
700 MHz that we want to deal with now, this frequency, the 700 
frequency, and we want a good result as well. And obviously, 
the goal of this subcommittee has always been that innovation, 
competition, consumer choice is the goal. And for my purpose, I 
think that having wholesale service with Carterfone-like 
principles attached to it for at least some part of this 
spectrum will play a big role in driving the already existing 
incumbent marketplace that serves 230 million Americans. So we 
didn't tell the first two incumbents in 1993 what they had to 
do, we just created a marketplace over here that they had to 
respond to. And that is pretty much what we are talking about 
here as well. We won't tell any of the incumbents what they 
have to do, but watch out what happens over here when there is 
a new part of the spectrum that has Carterfone-like principles, 
it has wholesale, and see what the rest of the marketplace does 
to respond to it. And I think that is the way that we should 
view this, not dictating to incumbents but creating a 
marketplace that kind of moves or creates an environment where 
new technologies, innovation, services can be created and then 
watch the market work once again.
    We can't thank you enough for your great testimony. This 
hearing is adjourned.
    [Whereupon, at 1:50 p.m., the subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]

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               Question for Professor Wu from Mr. Upton:

    Professor Wu, the iPhone is already being credited for 
opening up wireless networks. Since this is happening through 
free market forces, why would we want the FCC micromanaging 
this process at this stage? Haven't we learned from recent 
history that forcing carriers to open up their networks doesn't 
work well?

    Thank you very much for the question. I am, as you are, 
optimistic that, over time, the iPhone and other electronics 
companies will serve as one of the forces that opens up the 
wireless market to greater competition and innovation. But I am 
not confident that they are enough on their own; I believe that 
some level of Government oversight remains necessary.
    Telecommunications markets have a historic tendency toward 
monopoly and the use of that monopoly. That said, I do believe 
that the market can disrupt the use of market power, and open 
innovation in wireless markets. But I don't think markets are 
perfect. That is why I believe that the right level of 
Government involvement--even in an oversight--is essential.
    An analogy may help explain my answer. Just as Congress 
plays an important role watching for abuses of executive power, 
so I believe Congress and the FCC can play an important role 
checking and watching for the potential abuses of some of the 
most powerful private companies in the United States. That is 
the role I believe that your committee is playing, and I 
appreciate its role in that regard.

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