    [House Hearing, 112 Congress]
    [From the U.S. Government Publishing Office]

      ENSURING COMPETITION ON THE INTERNET: NET NEUTRALITY AND ANTITRUST
                              (PART II), FCC PANEL

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

                                    HEARING

                                   BEFORE THE

                                SUBCOMMITTEE ON
                             INTELLECTUAL PROPERTY,
                         COMPETITION, AND THE INTERNET

                                     OF THE

                           COMMITTEE ON THE JUDICIARY
                            HOUSE OF REPRESENTATIVES

                          ONE HUNDRED TWELFTH CONGRESS

                                 FIRST SESSION

                                   __________

                                  MAY 5, 2011

                                   __________

                               Serial No. 112-40

                                   __________

             Printed for the use of the Committee on the Judiciary

          Available via the World Wide Web: http://judiciary.house.gov

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    66-157                    WASHINGTON : 2011
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                           COMMITTEE ON THE JUDICIARY

                          LAMAR SMITH, Texas, Chairman
    F. JAMES SENSENBRENNER, Jr.,         JOHN CONYERS, Jr., Michigan
        Wisconsin                        HOWARD L. BERMAN, California
    HOWARD COBLE, North Carolina         JERROLD NADLER, New York
    ELTON GALLEGLY, California           ROBERT C. ``BOBBY'' SCOTT,
    BOB GOODLATTE, Virginia                  Virginia
    DANIEL E. LUNGREN, California        MELVIN L. WATT, North Carolina
    STEVE CHABOT, Ohio                   ZOE LOFGREN, California
    DARRELL E. ISSA, California          SHEILA JACKSON LEE, Texas
    MIKE PENCE, Indiana                  MAXINE WATERS, California
    J. RANDY FORBES, Virginia            STEVE COHEN, Tennessee
    STEVE KING, Iowa                     HENRY C. ``HANK'' JOHNSON, Jr.,
    TRENT FRANKS, Arizona                  Georgia
    LOUIE GOHMERT, Texas                 PEDRO R. PIERLUISI, Puerto Rico
    JIM JORDAN, Ohio                     MIKE QUIGLEY, Illinois
    TED POE, Texas                       JUDY CHU, California
    JASON CHAFFETZ, Utah                 TED DEUTCH, Florida
    TIM GRIFFIN, Arkansas                LINDA T. SANCHEZ, California
    TOM MARINO, Pennsylvania             DEBBIE WASSERMAN SCHULTZ, Florida
    TREY GOWDY, South Carolina
    DENNIS ROSS, Florida
    SANDY ADAMS, Florida
    BEN QUAYLE, Arizona
    [Vacant]

          Sean McLaughlin, Majority Chief of Staff and General Counsel
           Perry Apelbaum, Minority Staff Director and Chief Counsel
                                     ------

      Subcommittee on Intellectual Property, Competition, and the Internet

                       BOB GOODLATTE, Virginia, Chairman

                       BEN QUAYLE, Arizona, Vice-Chairman

    F. JAMES SENSENBRENNER, Jr.,         MELVIN L. WATT, North Carolina
    Wisconsin                            JOHN CONYERS, Jr., Michigan
    HOWARD COBLE, North Carolina         HOWARD L. BERMAN, California
    STEVE CHABOT, Ohio                   JUDY CHU, California
    DARRELL E. ISSA, California          TED DEUTCH, Florida
    MIKE PENCE, Indiana                  LINDA T. SANCHEZ, California
    JIM JORDAN, Ohio                     DEBBIE WASSERMAN SCHULTZ, Florida
    TED POE, Texas                       JERROLD NADLER, New York
    JASON CHAFFETZ, Utah                 ZOE LOFGREN, California
    TIM GRIFFIN, Arkansas                SHEILA JACKSON LEE, Texas
    TOM MARINO, Pennsylvania             MAXINE WATERS, California
    SANDY ADAMS, Florida
    [Vacant]

                         Blaine Merritt, Chief Counsel

                       Stephanie Moore, Minority Counsel

                                C O N T E N T S

                                  ----------

                                  MAY 5, 2011

                                                                       Page

                               OPENING STATEMENTS

    The Honorable Bob Goodlatte, a Representative in Congress from
      the State of Virginia, and Chairman, Subcommittee on
      Intellectual Property, Competition, and the Internet...........     1
    The Honorable Melvin L. Watt, a Representative in Congress from
      the State of North Carolina, and Ranking Member, Subcommittee
      on Intellectual Property, Competition, and the Internet........     3
    The Honorable John Conyers, Jr., a Representative in Congress
      from the State of Michigan, Ranking Member, Committee on the
      Judiciary, and Member, Subcommittee on Intellectual Property,
      Competition, and the Internet..................................     4
    The Honorable Darrell E. Issa, a Representative in Congress from
      the State of California, and Member, Subcommittee on
      Intellectual Property, Competition, and the Internet...........     5

                                   WITNESSES

    The Honorable Julius Genachowski, Chairman, Federal
      Communications Commission
      Oral Testimony.................................................     7
      Prepared Statement.............................................    10
    The Honorable Robert M. McDowell, Commissioner, Federal
      Communications Commission
      Oral Testimony.................................................    15
      Prepared Statement.............................................    17

              LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

    Material submitted by the Honorable Julius Genachowski, Chairman,
      Federal Communications Commission..............................    69

                                    APPENDIX
                   Material Submitted for the Hearing Record

    Response of the Honorable Julius Genachowski, Chairman, Federal
      Communications Commission, to Post-Hearing Questions from the
      Honorable Howard Coble.........................................   286
    Response of the Honorable Julius Genachowski, Chairman, Federal
      Communications Commission, to Post-Hearing Questions from the
      Honorable Jerrold Nadler.......................................   287
    Response of the Honorable Robert M. McDowell, Commissioner,
      Federal Communications Commission, to Post-Hearing Questions
      from the Honorable Jerrold Nadler..............................   289

      ENSURING COMPETITION ON THE INTERNET: NET NEUTRALITY AND ANTITRUST
                              (PART II), FCC PANEL

                                  ----------

                             THURSDAY, MAY 5, 2011

                  House of Representatives,
             Subcommittee on Intellectual Property,
                         Competition, and the Internet,
                                    Committee on the Judiciary,
                                                        Washington, DC.

        The Subcommittee met, pursuant to call, at 10:03 a.m., in
    room 2141, Rayburn Office Building, the Honorable Bob Goodlatte
    (Chairman of the Subcommittee) presiding.
        Present: Representatives Goodlatte, Quayle, Smith, Coble,
    Chabot, Issa, Jordan, Chaffetz, Griffin, Watt, Conyers, Berman,
    Chu, Sanchez, Lofgren, Jackson Lee, Waters.
        Staff present: (Majority) Holt Lackey, Counsel; Olivia Lee,
    Clerk; and Stephanie Moore, Minority Counsel.
        Mr. Goodlatte. Good morning. The Subcommittee on
    Intellectual Property, Competition and the Internet will come
    to order.
        I have an opening statement. Today's hearing is the second
    part of the Subcommittee's inquiry into ``Ensuring Competition
    on the Internet: Net Neutrality and Antitrust.'' This hearing,
    like the Subcommittee's February 15, 2011 hearing, will explore
    the FCC's Open Internet Order, whether the FCC had the
    authority to issue it and how it will affect Internet
    competition and innovation. Our previous hearing only
    reinforced my belief that the widely criticized order
    circumvents Congress' lawmaking authority and will stifle
    innovation in a morass of bureaucratic rules.
        I conducted our previous hearing at a first--as a first
    step in reasserting that under our constitutional system it is
    the role of Congress, the people's elected representatives, to
    make the laws. Congress has taken several additional steps
    since then. One important step was the passage, early last
    month, of House Joint Resolution 37 which disapproves of the
    Open Internet Order pursuant to the Congressional Review Act.
        However, Congress' effort to protect the Internet and its
    constitutional role in making the laws of the land, did not end
    with the passage of H.J. Res. 37. Congress will continue,
    through hearings like today's, to reassert its rightful
    authority to determine the FCC's jurisdiction and to make the
    laws that will best protect the Internet as an open, innovative
    and relatively unregulated environment. The constitution
    provides that all legislative power is vested in Congress. The
    FCC can only exercise legislative power that Congress has
    delegated to it and the FCC acts unconstitutionally when it
    exceeds its limited power.
        And make no mistake, the Open Internet Order exceeds the
    FCC's power. Congress has never given the FCC the authority to
    impose this sort of top down regulation of Internet services.
    That is why the D.C. Circuit in the Comcast case correctly held
    that the FCC's previous effort to regulate Comcast's network
    management practices was not tied to any statutorily mandated
    responsibility of the FCC. Instead of accepting the limits of
    its power the FCC responded to the Comcast decision by
    inventing an entirely new legal theory to justify its desire to
    regulate broadband network practices.
        According to this new theory, the FCC has to impose
    regulations on broadband in order to encourage development and
    expansion of broadband access. The FCC undoubtedly has
    authority to encourage broadband deployment, but the open
    Internet order bears no rational relationship to that policy
    goal.
        The FCC argues that by preventing broadband networks from
    unreasonably discriminating against applications, it can
    encourage the development of new applications which will in
    turn spur consumer demand for broadband access and then
    Internet service providers will react to this increased demand
    by deploying additional broadband networks. We must reject this
    Rube Goldberg theory of regulation in which the FCC may impose
    an otherwise unauthorized regulation in the hope that it will
    spur a long chain of events that may at some point advance an
    authorized policy. Allowing such a creative and attenuated
    theory would effective remove any limits on the agency's power.
        As the evidence from our early hearing and many of the
    comments that the FCC made clear, imposing these new
    regulations are likely to discourage broadband deployment.
    Common sense tells us that the way to encourage broadband
    deployment is to decrease, not increase, broadband providers
    regulatory costs and burdens. You don't grow an industry by
    regulating it. The way to encourage growth and innovation in
    broadband and the Internet economy as a whole is to maintain
    the relatively unregulated environment in which the Internet
    was conceived, grew and continues to thrive today.
        Rather than a heavy-handed regulatory approach crafted by
    the FCC, I believe a light-touch antitrust based approach will
    best protect a competitive, innovative and open Internet.
    Antitrust law provides a time tested and predictable system for
    preventing providers from engaging in anti-competitive blocking
    or discrimination. Unfortunately, by overstepping its authority
    and imposing its regulatory regime, the FCC has begun to take
    the country down a regulatory direction rather than a flexible,
    fair antitrust-based response to this threat, as this Committee
    has recommended in the past.
        When an agency oversteps the powers that Congress has given
    it, and takes for itself Congress' exclusive power to make the
    laws of the United States, Congress must hold the agency to
    account. Hearings like today's are an important tool for
    ensuring agency accountability. I look forward to this
    opportunity to take statement from our two distinguished FCC
    witnesses and to demand a public explanation for the
    commission's overreach.
        At this time it is my pleasure to recognize the Ranking
    Member of the Committee, the gentleman from North Carolina, Mr.
    Watt.
        Mr. Watt. Thank you, Mr. Chairman and I thank the Chair for
    convening this hearing, although I would have to say I have
    some reservations, some ambivalence about both the
    jurisdictional questions that we are dealing with and the
    timing of this.
        In any event, I do want to welcome Chairman Genachowski and
    Commissioner McDowell to the Subcommittee. They seem to, from
    everything I have read, be on the different tracks that perhaps
    the Chair and I are on, so at least we will get balanced views
    about this issue.
        The debate about net neutrality is far from new. It started
    over a decade ago as broadband network providers became
    increasingly vertically integrated. For example, cable
    companies began to expand from the provision of television
    services to start deploying high-speed Internet, landline
    telephone and even wireless cellular services. Questions
    quickly emerged by how the stratified communications legal
    regime would apply to new conglomerate companies offering
    services that crisscross services and a wealth of regulatory
    laws. At issue then and now is the very architecture of the
    Internet and how to ensure that it remains open to all lawful
    content, information, applications and equipment. Large
    innovative, U.S. based companies like Amazon, E-bay, Facebook
    and Google urged the FCC to act to establish some baseline
    rules that would promote and protect commerce, creativity and
    global competitiveness. Fulfilling that task has been easier
    said than done.
        On the other side of the issue, some Internet service
    providers or advocacy groups fear burdensome restrictions will
    operate to choke off innovation, free speech and commerce. In
    addition, some, like the Chairman, make the process claim that
    antitrust laws are adequate to ensure that the Internet remains
    a viable engine of economic growth.
        Now that the order has issued and the courts have cleared
    the pathway for publication, the intensity has grown here in
    Congress to determine one, whether the FCC had the authority to
    act; two, whether the antitrust laws provide the appropriate
    legal framework to ensure competitiveness on the Internet and
    three, whether the substantive rules embodied by the Open
    Internet Order, transparency, no blocking, no unreasonable
    discrimination, will provide the necessary safeguards to
    ensure--to the entire Internet community, including consumers,
    rights holders and service providers.
        There are no doubt a variety of opinions on this
    Subcommittee, indeed in Congress, as to the FCC's authority to
    police the Internet and to the effectiveness of the antitrust
    regime. Attorney General Holder was just here Tuesday and was
    asked a number of questions about the effectiveness of his
    antitrust division and policies. While these are legitimate
    inquiries I dare predict the same form of net neutrality or
    open Internet rules will ultimately monitor and regulate
    functions to access the Internet, whether through voluntary
    agreements or Federal laws or regulations. I would like to see
    it--see to it that such rules ban illegal conduct, including
    child pornography and online theft, and strike the right
    balance with lawful commerce that stimulates creativity,
    preserves open social discourse and yet has the capacity to
    raise the necessary capital for first rate network management.
        In short, I think whether the rules will protect consumers
    and promote growth in the--is the most important inquiry and
    the repeal efforts are an unfortunate distraction. So I am
    happy that we have the commissioners before us today who
    studied the submissions and have the expertise to assess the
    probable effect of the open Internet rules on its users and I
    look forward to their statement.
        I would just say, outside my notes, as a Member of the
    Financial Services Committee, I think I probably have a much,
    much different perspective on the value of the regulatory
    framework that we have in our system than from my service on
    the Judiciary Committee. I am one that believes that the more
    we dictate these things, as opposed to establishing the broad
    principles, the more we dictate them legislatively, the more
    likely we are to get them wrong and that we ought, quite often,
    defer to regulators to make more reasoned judgments about these
    things, listen to the experts, listen to the consumers and
    business advocates and try to balance their interests within
    the general framework that we have established legislatively.
    So I expose my bias on that. It comes from long service on a
    different Committee, but I think it applies here with equal
    force.
        And with that, Mr. Chairman, I yield back.
        Mr. Goodlatte. I thank the gentleman.
        And the Chair is now pleased to recognize the Ranking
    Member of the full Committee, the gentleman from Michigan, Mr.
    Conyers.
        Mr. Conyers. What a rare opportunity this is this morning
    to have these two excellent public servants before us and I am
    indebted to all of you here. It is rare that--didn't Mr.
    Goodlatte make the opening statement? And it is so unusual when
    I find myself more in agreement with him than the Ranking
    Member of the Subcommittee, especially--yeah, democracy is
    great, isn't it? The reason is because it was Chairman
    Goodlatte that mentioned that there are antitrust remedies that
    this Committee has and I think that is very important. And I
    hope that Mel Watt will agree with both of us in that regard.
        What I was doing since I have had the chance to talk with
    both of you, is that in summary I have to dismiss the view that
    there is irreparable harm being done, that there is nothing
    broken and that the--there is ample protection to consumers
    that is sufficient as it exists now. I wish I could see things
    that way. I don't.
        And then the court, in terms of Mr. McDowell's very
    excellent presentation, in terms of whether the FCC has
    rulemaking authority, we better hope that it does because I
    don't know what else they would do if this commission existed
    and couldn't make rules as a result of the good work that you
    two have mostly agreed with each other and the FCC as a whole.
        We are in for a, I think a very exciting discussion. But
    this case is already--that question is already in the Federal
    judiciary now being resolved. And I--of course our opinions are
    always maybe worth something to them, and whether they are or
    not we give them anyway. So I think this is an excellent
    opportunity that rarely comes.
        We have all worked together on telecommunications issues.
    I, as a long time supporter of net neutrality, was not unhappy
    with the December order of the Federal Communication
    Commission. As a matter of fact, I don't think it went far
    enough to ensure consumer protection and a competitive
    marketplace. The House of Representatives have already voted
    twice to defund and undo the FCC's work and I would like to
    just review some of the arguments that have made--that have
    been made to undermine this net neutrality argument, the net
    neutrality order of the FCC, which the congressional product I
    did not have much sympathy for.
        First, the regulations will cause irreparable harm. Well,
    great. That nothing is broken that needs fixing. That existing
    laws already protect consumers sufficiently. Please, give me a
    break somebody, I mean we are suffering out here. What we need
    is more effective and more precise regulation, not none or
    less.
        Here is some instances where the Internet service providers
    have blocked, slowed, censored content on the Internet. That is
    not a good thing. Verizon Wireless has blocked pro-choice text
    messages. Comcast has slowed traffic to competing video service
    providers. These are demonstrable, uncontrovertible harms that
    will only worsen if this commission is prevented from acting as
    is now being proposed in the House of Representatives.
        Unfortunately ISPs disclose little information to the
    public about how they manage their networks. There is little
    transparency. We have no readily available way to tell if and
    how they could be censoring or slowing content.
        And I conclude with this. The high-speed market is highly
    consolidated and anti-competitive. Most of the people in this
    country have only two choices for high speed Internet. Thirteen
    percent of the--about 90 percent of our citizens live in either
    a monopoly or duopoly. Now let's not start this conversation
    off this morning with everything is okay. It is far from okay.
        And so with that modest opening I thank the Chairman for
    his generosity and time and I turn back the rest of it to
    Chairman Goodlatte.
        Mr. Issa. Mr. Chairman?
        Mr. Goodlatte. I thank the Ranking Member. The custom of
    the Committee is to recognize the Chairman and Ranking Member
    of the Subcommittee and the full Committee and ask other
    Members to submit their statements for the record. Since we
    have had two on that side, we will defer to the gentleman from
    California for an----
        Mr. Issa. Thank you, Mr. Chairman. And I am going to be----
        Mr. Watt. I have no objection to that.
        Mr. Issa. Thank you.
        And I will be brief. I know that the Ranking Member of the
    full Committee is more knowledgeable on all things of this
    Committee, however I know a monopoly when I see one and there
    is no place in America that I know of in which you could say 90
    percent of any state or 90 percent of any region and certainly
    not 90 percent of America, live under a monopoly or a duopoly,
    because ultimately if you have satellite and you have cellular,
    you already have two before you get into any of the well known
    broadband.
        I would like to take exception though, at the onset. In
    order to assert authority one needs to have it. I believe what
    we're seeing here today is an assertion of authority that was
    not granted, a claim of antitrust behavior by monopolies that
    has not been proven. The FCC did not determine that they had
    it, nor are they continuing to study. Instead of asking for
    whether they are were right to make a decision, instead of
    coming to Congress for limited authority, they chose, in a
    quiet period, while Congress was not watching, to do this.
    Clearly, we were at home, we got the word. Clearly, the
    question was not before them, the history of harm was not
    available to them, the finding of a monopoly or duopoly
    certainly does not exist, had it, it would have long ago gone
    through the courts.
        More importantly, if we allow this to stand then we must
    make the presumption that we can regulate gasoline at the gas
    stations so that all grades of gas sell for the same price. We
    can regulate the railroad so that all freight and passengers
    are carried by the same rate per pound.
        Let me not belittle the fact that there were a few isolated
    instances that need to be looked at. Let me not limit the
    question to whether or not there should be some sort of
    guidance available as to fairness and equality. I for one
    believe that if you sell a product and you block a competitor's
    product then you have no claim of any, any right to say you
    serve the public trust. So although I find some things which
    needed to be acted on, I find it completely unacceptable that
    an agency took it on itself to do so.
        I will disagree, just one more time, with the Ranking
    Member of the full Committee, just because something is before
    the courts doesn't mean that it belongs before the courts if in
    fact the only thing the court can essentially say is that the
    FCC had--ceded authority that we as Congress know we did not
    give them.
        I thank the Chairman for the indulgence on this and yield
    back.
        Mr. Goodlatte. I thank the gentleman for his comments and
    without objection other Members' opening statements will be
    made a part of the record.
        And it is now my pleasure to welcome our two witnesses. As
    is the custom in this Committee, we would ask that they stand
    and be sworn.
        [Witnesses sworn.]
        Mr. Goodlatte. Thank you, gentleman.
        Our first witness, Federal Communications Commission
    Chairman Julius Genachowski was nominated to that position by
    President Barack Obama on March 3, 2009 and was sworn into
    office on June 29, 2009.
        Prior to his nomination Chairman Genachowski had spent over
    a decade in the private sector, first as a senior executive
    with the IAC Interactive Corporation and since 2005 at firms
    that he founded to invest in early and mid-stage technology
    companies. Before entering the private sector, Chairman
    Genachowski served as chief counsel to the FCC from 1994 to
    1997, as an advisor to then Representative Charles Schumer of
    New York, and at that time a Member of this Committee, and as a
    law clerk to D.C. Circuit Court of Appeals Chief Judge Abner
    Mikva and Supreme Court Justices William Brennan and David
    Souter.
        Our second witness, Federal Communications Commissioner
    Robert McDowell was originally appointed by President George W.
    Bush and confirmed by the Senate in 2006. Commissioner McDowell
    was reappointed to the commission on June 2, 2009 by President
    Barack Obama. This made him the first Republican appointed to
    an independent agency by President Obama. He was confirmed by
    the Senate for a second time on June 25, 2009.
        Prior to joining the FCC Commissioner McDowell was senior
    vice president for the Competitive Telecommunications
    Association or CompTel, an association representing competitive
    facilities based telecommunication service providers and their
    supplier partners. Over his career he has worked in various
    public policy and private sector positions with a consistent
    focus on telecommunications policy.
        Welcome to both of you and Chairman Genachowski, we will
    ask that you begin.

       TESTIMONY OF THE HONORABLE JULIUS GENACHOWSKI, CHAIRMAN,
                   FEDERAL COMMUNICATIONS COMMISSION

        Mr. Genachowski. Thank you, Chairman Goodlatte. Sorry,
    Chairman Goodlatte. I apologize. Ranking Member Watt, Ranking
    Member Conyers, Members of the Subcommittee, thank you for the
    opportunity to be here. This is my first time testifying before
    this Subcommittee since becoming chair of the FCC.
        Prior to my appointment, Chairman Goodlatte thank you for
    mentioning this, I spent more than a decade in the private
    sector as an executive and as an investor. I saw in the private
    sector the importance of high-speed Internet, of wired and
    wireless broadband to our country's economic success and to
    addressing so many challenges our Nation faces from education
    to public safety. The importance of communications to our
    economy and to all Americans is why the Communications Act has
    long given the FCC authority in this area.
        So we are working hard at the FCC, on a bipartisan basis,
    and I thank my colleague, Commissioner McDowell for his service
    and cooperation, on a series of issues including universal
    service for broadband, on reducing barriers to private sector
    broadband buildout, on promoting competition, on promoting next
    generation 911 and public safety networks and on unleashing
    spectrum so that we can lead the world in mobile and address
    the looming spectrum crunch.
        I also saw, in the private sector, the importance of the
    Internet's freedom and openness to its powerful success as a
    platform for innovation and economic growth, as well as for
    free expression. I learned that no central authority, public or
    private, should have the power to pick which companies or which
    ideas win or lose on the Internet. And I learned that certainty
    and predictability are critical to encouraging private sector
    investment and innovation, as is flexibility for companies and
    sectors characterized by fast moving technologies and markets.
        When I arrived at the FCC the agency had, on a bipartisan
    basis, taken steps to enforce Internet freedom and openness in
    response to incidents in which Internet service providers had
    blocked or degraded lawful online content. This occurs in a
    market where more than 70 percent of Americans live in areas
    with only one or two fixed, terrestrial broadband providers.
        Unfortunately, what some have called the ad hoc process by
    which the prior FCC sought to protect Internet openness,
    generated uncertainty among Internet stakeholders. That's why,
    in 2009, we launched a fair and open Administrative Procedures
    Act process with the goal of establishing a framework that
    would be good for all parts of the broadband economy, for
    consumers of Internet services, for innovators and
    entrepreneurs building new products and services on the
    Internet and for Internet service providers building and
    operating networks. That was our goal and I believe we achieved
    it.
        Our sensible, high-level framework to preserve Internet
    freedom has increased certainty and generated support from a
    very broad array of stakeholders who in the past could not find
    common ground.
        The light-touch rules of the road are built on the
    commissions prior bipartisan steps in this area and rooted in
    the Communications Act. The rules fit on one page and boil down
    to four things.
        First, transparency so that consumers and innovators can
    have basic information to make smart choices about broadband
    networks. Empowering them with information will reduce the need
    for government involvement.
        Second, no blocking of lawful Internet content or services
    so that consumers can be free to access such content or
    services and so startup and other Internet companies can be
    free to reach Internet consumers.
        Third, a level playing field, a fair non-discrimination
    principle so that consumers and markets, not the government,
    are picking winners and losers online.
        And fourth, flexibility for Internet service providers.
    Flexibility to manage broadband networks, to deal with
    congestion or harmful or unlawful traffic, to pursue innovation
    in business models and to earn a meaningful return on
    investment so that we can have a fast and robust broadband set
    of networks in the United States.
        Some people think the framework we adopted doesn't go far
    enough, others thing it goes too far. I believe it gets it
    right. One of the Nation's leading venture capitalists
    described our framework in terms used by many other investors
    and companies throughout the broadband economy, quote, this
    effort is a pragmatic balance of innovation, economic growth
    and crucial investment in the Internet.
        It promotes competition in the marketplace and increases
    certainty. It is not regulation of the Internet, it is a light-
    touch framework to preserve the dynamic, free and open nature
    of the Internet. Virtually all major investment analysts agreed
    that our framework was good news for the broadband economy.
        We completed the Internet freedom order in December and I
    believe that undoing the framework would increase uncertainty,
    decrease investment and hurt job creation.
        Some argue that rather than acting the FCC should have
    allowed antitrust laws to be the sole remedy for violations of
    Internet freedom. In my view, while vitally important,
    antitrust laws alone would not adequately preserve the freedom
    and openness of the Internet or provide enough certainty and
    confidence to drive investment in our innovation future.
        As we heard during our FCC proceeding, antitrust
    enforcement is expensive to pursue, takes a long time and kicks
    in only after damage is done, especially for startups, in a
    fast-moving area like the Internet, that is not a practical
    solution.
        The Supreme Court decision in Trinko also raises
    uncertainty about relying solely on antitrust laws as a remedy
    in the context of communication services.
        To conclude, while the FCC was divided on the particular
    issue of open Internet rules, the issue has a bipartisan
    foundation at the FCC and the fact is that even at the FCC
    today we resolve more than 95 percent of our votes on a
    bipartisan basis. We are now focused together on promoting
    universal access to broadband and unleashing spectrum,
    initiatives of vital importance to our 21st century economy, to
    our global competitiveness and to expanding opportunity
    broadly.
        I look forward to working with my commission colleagues and
    with Congress and the Subcommittee to harness the opportunities
    of communications technologies for our economy and for all
    Americans.
        Thank you and I look forward to your questions.
        [The prepared statement of Mr. Genachowski follows:]

                                   __________
        Mr. Goodlatte. Thank you, Chairman Genachowski.
    Commissioner McDowell, welcome.

     TESTIMONY OF THE HONORABLE ROBERT M. McDOWELL, COMMISSIONER,
                   FEDERAL COMMUNICATIONS COMMISSION

        Mr. McDowell. Thank you, Mr. Chairman, Ranking Member Watt
    and Ranking Member of the full Committee, Mr. Conyers. It is
    terrific to be here today. This too is my first time testifying
    before your Subcommittee and it is an honor to be here. So
    thank you for having me.
        The Federal Communications Commission was created by
    Congress almost 77 years ago. Today its influence reaches far
    beyond the radios, telephones and telegraphs of 1934. By some
    estimates the FCC holds sway over one-sixth of the American
    economy, or a slice of the economic pie that is the same size
    as the healthcare sector. For better or for worse, our actions
    touch the daily lives of all Americans.
        During my 5 years as a commissioner my focus has been to
    support policies that promote consumer choice offered through
    abundance rather than regulation and its unintended
    consequences, whenever possible. In the absence of market
    failure, unnecessary regulations in the name of serving the
    public interest can have the perverse effect of harming
    consumers by inhibiting the constructive risk-taking that
    promotes investment, innovation, competition, lower prices and
    jobs.
        Competition obviates the need for government intervention.
    With that in mind I have made increased competition in the so-
    called ``last mile'' of our country's communications
    infrastructure a top priority. These facilities serve as the
    vital on and off ramps to the Internet, the greatest
    deregulatory success story of all time.
        Since my arrival at the commission in 2006 the FCC has
    taken several historic steps to spur the construction of
    broadband facilities. Our video franchising order of 2006
    removed local barriers to entry into the video market and
    helped spark the largest private investment in fiber to the
    home in American history.
        In early 2007, in the wake of the Supreme Court's Brand X
    decision, without dissent, the FCC finished a deregulatory
    project, started by Clinton-era chairman Bill Kennard, by
    classifying wireless broadband Internet access service as an
    information service. And please keep in mind that broadband
    Internet access services were never regulated as common carrier
    phone services. The FCC's orders after the Brand X decision
    merely formalized its consistent light-touch treatment of
    information services.
        Our bipartisan actions provided the deregulatory certainty
    for entrepreneurs to launch the smartphone revolution which has
    made the United States the world leader in adoption of fourth
    generation devices and networks.
        In one of its finest moments, the commission voted
    unanimously, in 2008, to approve the unlicensed use of vacant
    TV channels, known as white spaces. Under Chairman
    Genachowski's leadership we took that action a step further in
    an additional five to nothing vote last September. Unlicensed
    use of these airwaves offers the promise of greater consumer
    empowerment. I am eager for the FCC to finish its work in this
    area, as soon as possible. Combining the spectral power of
    white spaces with the constructive chaos of an unregulated and
    unlicensed market will act as an antidote for potential anti-
    competitive conduct in the last mile thus negating the need for
    additional rules.
        Chairman Genachowski also deserves credit for bringing to a
    vote many other initiatives that may seem unimportant at first
    blush, but actually have a profound effect on promoting
    competition in the last mile. Among them are: Creating a shot
    clock to ensure faster decisions by local authorities affecting
    placement of wireless towers; ensuring resolution of pole
    attachment approvals with reduce rental rates for broadband
    providers and repurposing some satellite spectrum for
    terrestrial broadband use.
        One frequently forgotten fact about the FCC, that the
    Chairman just reminded us all about, is that roughly 95 percent
    of our votes are not only bipartisan but they are unanimous.
    Certainly we have had our differences of opinion, including
    over the topic of this hearing, the regulation of Internet
    network management. For the convenience of the Subcommittee's
    Members, I have attached a copy of my dissent, which is rather
    long, sorry about that, in that proceeding and I respectfully
    request it be included in the record.
        In a nutshell, however, I dissented from last December's
    order precisely because, number one, nothing is broken in the
    broadband Internet access market that needs fixing and the
    government is not the best tool to fix it if something had been
    broken. Number two, as Chairman Goodlatte said, Congress never
    gave the FCC the legal authority to act as it did. Number
    three, the order is likely to cause more harm than good. And
    number four, sufficient antitrust and other consumer protection
    laws exist to prevent and cure any of the contemplated harms
    outlined in the order.
        So thank you again for inviting me to appear before you and
    I look forward to your questions.
        [The prepared statement of Mr. McDowell follows:]

                                   __________

        Mr. Goodlatte. Thank you, Commissioner McDowell. And
    without objection your, I'm sure, cogently written dissenting
    opinion will be made a part of the record.
        I'm pleased to note that the Chairman of the full
    Committee, Congressman Lamar Smith of Texas is present. I don't
    believe he has a statement to make and these buzzers are going
    off a second time indicate that we have votes on the floor. So
    the Committee will stand in recess and we will begin the
    questioning as soon as we return.
        Thank you, gentlemen.
        [Recess.]
        Mr. Quayle [presiding]. Welcome back to the hearing on
    Ensuring Competition on the Internet and Net Neutrality and
    Antitrust.
        I want to thank the witnesses for being patient with the
    votes and we will just start getting right into the questions.
        And I am going to recognize myself for 5 minutes. The first
    question is for you, Chairman Genachowski. There has been
    reports, just last month, that the newest 706 Report is going
    to be coming out and within that report you--the FCC is going
    to be giving broadband deployment a failing grade. That is
    according to the reports, I don't know if that is accurate.
        But, looking at the statistics, you have 95 percent of
    households have access to at least one broadband service and
    about 200 million people have signed up in the last 10 years.
    Now if you have 95 percent deployment in access to broadband
    services and that is a failing grade, I find it a little
    troubling and a little confusing. But I am kind of new to
    Washington here and when you use that and contrast with a GAO
    report that came out in 2011, in February, not on the FCC but
    on another agency in Homeland Security, when they said that
    they only had 15 percent control of the southern border and 44
    percent operational control and they were saying--the secretary
    was saying that, you know, this is the best it has ever been,
    and from my understanding that could be a B+ to an A.
        So I am trying to understand the sliding scale that we have
    here in Washington where 95 percent could be an F and 15
    percent could be a B+ to an A. So if you could just tell me how
    does the deployment get an F or failing grade, if that is true,
    in the reports that are coming out.
        Mr. Genachowski. So thank you for the question. We are
    working on a 706 Report, it hasn't been released yet and so let
    me not address what it might say specifically. But I can answer
    your question in the following way. I think that there is broad
    agreement that broadband access, high-speed Internet access is
    a service that should be universal. It is so essential to our
    economy, it is essential to education, it is essential to small
    businesses, it is essential to public safety. The numbers
    that--I will just talk about last year's report, that stood out
    for me and that stand out for me in general on this issue is
    that over 20 million Americans live in areas that have no
    broadband infrastructure. And so if they want to be part of the
    online world, if they want to start a small business in their
    area, these are rural communities all over the country, but
    over 20 million, I think that is a significant number. And the
    second significant number are the number of Americans who could
    have--who could subscribe to broadband but don't, for various
    reasons. That number is about 33 percent. So that is about 100
    million Americans who aren't part of our online world, because
    practically broadband isn't available to them.
        My view is that we need for our economy to be moving to
    true universal broadband very, very quickly. Our global
    competitors are. And I think that while we are making progress
    as a country, in a variety of ways, Congress asked us to
    determine whether broadband availability is moving in a
    reasonable and timely manner. Last year we concluded that it
    was not. And I will tell you that based on these kinds of
    numbers and based on what we seeing happening around the world
    and their focus, I think any spur we can give to ourselves to
    get broadband to every part of rural America, to increase our
    adoption rates from 67 percent to, you know, to 90 percent to
    100 percent, it is a very important issue.
        Mr. Quayle. Okay. Thank you. And I would shift topics to
    the order that came out. And I was just looking at it and the
    order argues that broadband providers have the incentive to
    limit Internet openness. But, if the order is correct the
    Internet openness creates a virtuous cycle that drives consumer
    demand for broadband access. Wouldn't broadband access
    providers have every incentive to preserve openness and
    increase demand for their product?
        Mr. Genachowski. Well, there is a history here, of course.
    And the FCC has enforced Internet freedom and openness going
    back to at least 2005. And it found that there were instances
    where Internet service providers blocked or degraded or slowed
    down content. In one case it was voice over Internet content,
    in another case it was lawful video. And the incentives to
    block a competitor I think are there.
        From a global perspective I agree with your point, we
    benefit from preserving a baseline free and open Internet
    because it will trigger the virtuous cycle that I--that you
    spoke about and Commissioner McDowell spoke about and that I
    completely agree with. But I don't think there is any real
    doubt that in a market that isn't characterized by vibrant
    competition that there are incentives to, if you are
    controlling a consumer's Internet access to the home,
    incentives to harm a competitor. And as I said in my opening
    statement, in this context where many of these competitors are
    early-stage startups, the option of waiting to be blocked,
    hiring a lawyer, filing an antitrust lawsuit I think is not
    practical. Having high-level, light-touch, baseline rules that
    say, look no blocking, let's move on, I think benefits the
    entire ecosystem.
        Mr. Quayle. All right. Thank you, Mr. Chairman.
        The Chair now recognizes the Ranking Member of the
    Subcommittee, the gentleman from North Carolina, Mr. Watt.
        Mr. Watt. Mr. Chairman, with the recognition that I have to
    be here for the rest of the hearing anyway, as the Ranking
    Member, I think I am going to defer and let my other Members go
    in front of me.
        Mr. Berman, I think, would be next.
        Mr. Berman. I appreciate that. I thank the gentleman and I
    probably should be here for the rest of the hearing too, but I
    don't have to be. [Laughter.]
        Chairman Genachowski, I wanted to ask you a more elaborate
    question but I am just wondering, is it possible, right at the
    outset real quickly, because of my 5 minute time limit, to
    establish, I hope the answer to this is yes, that net
    neutrality doesn't mean neutrality between lawful and unlawful
    content.
        Mr. Genachowski. Correct. Yes.
        Mr. Berman. Because that has been one fear of mine. And I
    think the FCC and your open Internet order addressed that
    question, I just wanted to make sure I understand it right.
        Mr. Genachowski. You understand correctly. Our open
    Internet framework is only about lawful contact--content. We
    make clear in our order that it doesn't interfere with
    enforcement of laws against--relating to unlawful content,
    whether it is theft of intellectual property, whether it is
    child pornography, those are outside our rules.
        Mr. Berman. Great. And in fact I think in addition to what
    you referred to the Administration has specifically endorsed
    the policy of promoting voluntary marketplace initiatives to
    address cooperative efforts among ISPs and rights holders
    regarding online copyright infringement and then what the FCC
    has done.
        So I--my question I guess is this, given these statements
    and the clarifying language in the FCC open Internet order,
    what can the FCC give assurances--what assurances can the FCC
    give to ISPs that they can enter into voluntary agreements with
    copyright owners to try to address or mitigate copyright
    infringement online without running afoul of net neutrality
    principles? I have been hearing reports for a couple years that
    ISPs and copyright owners are trying to agree on some kind of
    graduated response program to address the peer-to-peer
    infringement online, but assuming that they reach an agreement,
    how are they to know that the program is lawful under FCC
    rules?
        Put another way, can we--how do we get--how can we ensure
    that voluntary practices undertaken solely for the purpose of
    mitigating the occurrence of copyright infringement aren't
    stymied by the fear that people will use the net neutrality
    principles as a sword to prevent such practices from being
    implemented?
        The net neutrality rules aren't completely clear on what--
    how or when an ISP can make reasonable efforts to address
    unlawful activity or when and how it is determined that their
    practices constitute reasonable network management. And I don't
    think the FCC wants to be the arbiter of copyright infringement
    issues online, but you do determine whether efforts to mitigate
    infringement are reasonable.
        Is there any way to give these companies comfort that they
    have some discretion to implement those kinds of initiatives
    which are truly targeted at addressing or mitigating the
    occurrence of copyright infringement?
        Mr. Genachowski. An intention of the framework we adopted
    was to provide that confidence. We made it clear that only
    lawful content falls within the range of the framework. We made
    it clear that our framework doesn't inhibit sensible, voluntary
    efforts to protect intellectual property. Certainly our doors
    at the FCC are open and we have been encouraging voluntary
    efforts that are sensible and that protect intellectual
    property.
        Mr. Berman. So is there a way for a person to talk about a
    possible way to deal with that issue and get some indication of
    whether they are going down the right track?
        Mr. Genachowski. I image that there is, but I would say the
    first step would be to do what I believe is already occurring,
    the discussions with staff of the FCC and our doors are open
    for that and they will continue to be.
        Mr. Berman. Thank you very much.
        I yield.
        Mr. Quayle. Thank you very much. The Chair now recognizes
    the gentlelady from California, Miss Lofgren, for 5 minutes.
        Ms. Lofgren. Thank you, Mr. Chairman and thanks to both of
    our witnesses.
        I think as I listened to the various opening statements, I
    couldn't help remembering the 1996 proceedings on the Telecom
    Reform Act. At one point Henry Hyde, then the Chairman, said
    the Republicans and Democrats are adversaries but the Commerce
    Committee is our enemy. [Laughter.]
        And I think to some extent, if we look at our differing
    approaches to this issue, it does relate to our jurisdictional
    spread. And I was one of the, with Mr. Conyers, introduced the
    bill just about 3 years ago with an antitrust approach to this
    effort. But I must say I am completely satisfied with what the
    FCC has done in this regard.
        While I thought the antitrust approach had merit, clearly
    the FCC is in a position to move more nimbly and, you know, I
    think of the years that Judge Greene had the antitrust breakup
    here in D.C. So I think that the approach you have taken is a
    solid one.
        I would note as well, that although not every Member of
    this Committee, apparently, is enthusiastic about your efforts,
    the business community is enormously enthusiastic about your
    efforts, all the way from TechNet which represents about $2
    trillion in market cap out in--primarily in--well, the
    technology sector, even the big telecoms, AT&T and Sprint and
    Dish were supportive of this. So the fight is inexplicably here
    in the Committee even though the commercial world has moved on.
        And I think there is a very good reason for it. I want to
    give credit, certainly, to the commission for bringing
    content--consensus for what had been, you know, a contentious
    issue. But it is enormously important that we have these rules
    in place. I know sometimes people will say, well isn't this
    really a fight between Google and AT&T. I don't worry about
    Goggle, they have got plenty of money, they can, you know, pay
    for whatever. But I worry about the startup that could be
    squashed, you know, killed in the cradle before there is an
    opportunity, if we don't have a free and open Internet.
        So, I just wanted--I thought it was necessary to say that
    clearly. Although we had had this antitrust effort, I am not
    sure that there have been successful efforts in remedying
    ongoing practices in the telegong industry as opposed to
    stopping mergers or doing breakups of companies.
        Mr. Chairman, do you have any instances where we had
    success using antitrust on an ongoing basis?
        Mr. Genachowski. Well, we certainly heard, during our
    proceedings, from startup companies, early-stage companies,
    small businesses, investors putting risk capital to work in
    early-stage companies was that as important as they believe
    antitrust laws are, and I share that, that they didn't see it
    as a practical solution for the, you know, entrepreneur in the
    great American tradition, in their garage or in their dorm room
    taking advantage of an open Internet to put a new product, a
    new service, a new idea in front of consumers.
        So it wasn't--no insult to antitrust law, but not something
    that early-stage investors and companies thought was a
    realistic solution. And in fact what we heard overwhelmingly
    was that in the absence of basic high level rules of the road,
    the investors in the early-stage companies who had to devote
    their capital, whether it was time or money, would feel much
    less confident, much less willing to do it, not being certain
    whether if they started an Internet business it could be
    blocked from reaching the broad Internet audience.
        Ms. Lofgren. Now one of the measures of whether this serves
    entrenched interests or challengers is what does the venture
    capital world say about it, because they are funding the
    disrupters. In terms of angel investors in the VC world, are
    they supportive of what the commission has done?
        Mr. Genachowski. They have been very supportive. A series
    of prominent leading venture capitalists have been supportive
    as have investors who are investing in the infrastructure
    itself, because what we really need as a country is both
    incredible vibrancy and dynamism in the startup world----
        Ms. Lofgren. Right.
        Mr. Genachowski [continuing]. So that we continue to lead
    the world in that kind of innovation, we also need fast, robust
    wired and wireless networks. The government is not going to
    build those, we need private sector investment to build it. And
    over the course of the proceeding we were able to craft an
    approach that met our goal of increasing the incentives across
    the board to grow the pie.
        I agree with Mr. Quayle on the idea of all working together
    to get a virtuous cycle of investment in early-stage companies
    and infrastructure. And honestly, the early reports on what we
    did is that we--well there was--as I said, there were some
    people who thought we went too far and some people thought we
    didn't go far enough, but the general view was that this was a
    positive for investment throughout the broadband economy.
        Ms. Lofgren. Well, my time is up. I would just like to
    thank you, Mr. Genachowski, for your leadership on this. I
    think it is important for freedom in America and our economy
    future.
        And I yield back.
        Mr. Quayle. Thank you. The Chair now recognizes the
    gentleman from California, Mr. Issa, for 5 minutes.
        Mr. Issa. Thank you, Mr. Chairman.
        Mr. Genachowski, I pretty much, in the opening statement
    gave you some of my ideas of you don't have this authority, you
    have taken it, I disagree. But I will move on past that to a
    couple of questions that are on another set of subjects.
        You are an independent agency. You serve for a term. You
    don't serve at the pleasure of the President. Is that correct?
        Mr. Genachowski. Correct.
        Mr. Issa. Did you discuss net neutrality with the President
    and if so, when?
        Mr. Genachowski. Didn't discuss net neutrality with the
    President. The FCC's----
        Mr. Issa. Were you aware that the President made this an
    issue in his campaign?
        Mr. Genachowski. I think many people were aware----
        Mr. Issa. No, were you?
        Mr. Genachowski. Yes.
        Mr. Issa. Okay. Did you do it, in any way, shape or form,
    because you believe that it was a promise made by President
    Obama that was not being kept by legislative authority? Yes or
    no, please.
        Mr. Genachowski. No.
        Mr. Issa. Okay. So you made this because you thought that
    the market outcome you were seeking to achieve was good for
    America. Fair characterization?
        Mr. Genachowski. Yes.
        Mr. Issa. Well, I commend you for that. Now the question
    is, do you believe we should do the same thing, make gasoline
    and diesel the same price? Yes or not?
        Mr. Genachowski. I am not an expert on gas.
        Mr. Issa. No, but you are an expert on what is good for the
    consumer.
        Mr. Genachowski. I am familiar with----
        Mr. Issa. Do you believe that we should regulate everything
    so it is good for the consumer?
        Mr. Genachowski. No, I don't.
        Mr. Issa. You don't? So you, for example, would not suggest
    that you just give all the rest of the spectrum, as quickly as
    possible, to AT&T, Verizon and Sprint so that they can create
    more brand--broadband capacity faster, drive down the price to
    the goal you say you want?
        Mr. Genachowski. I believe we have a serious spectrum
    opportunity and challenge.
        Mr. Issa. No, no that is--that--spectrum opportunity means
    you want to sell it and make a lot of money. Right? For the
    American people.
        Mr. Genachowski. We would like to bring market mechanisms
    and expand auction authority for the FCC. We----
        Mr. Issa. No, no. You want to make more money for the
    American people by selling more spectrum. Yes or no? That is
    not a hard one. I don't need the flowery.
        You have been selling spectrum. You have sold spectrum to
    AT&T, Sprint, Verizon, you didn't sell any to Comcast, Comcast
    bought their way into cable, for the most part you have been
    selling it.
        You sell it and then you say, I want tell to you how to use
    it. Is that correct, based on net neutrality?
        Mr. Genachowski. Sorry, I didn't understand the last piece,
    I didn't hear the last piece.
        Mr. Issa. Well look, you are selling--you are saying you
    want a better price, it is a value, you are trying to do all
    this but in fact you start off by selling them a very expensive
    commodity. The most expensive fundamental delivery system is
    through the airways, the least expensive fundamental is through
    a piece of fiber, as far as per terabyte. Right? You can't
    deliver as much through broadband as you can, today, through a
    piece of fiber or even copper.
        Mr. Genachowski. Yes.
        Mr. Issa. Okay. Mr. McDowell, you are not completely on the
    other side of this, but in your opinion, don't we have a
    fundamental problem saying that you have to charge the same
    price, effectively, you have to show no preference, when in
    fact in many cases you have a constrained basic capability?
    Nothing in the FCC ruling actually gives AT&T, Verizon, Sprint
    or for that matter the cable companies inherently more
    bandwidth to--in which to deliver services. Is that correct?
        Mr. McDowell. Correct.
        Mr. Issa. So, in addition to the question of whether there
    was antitrust and so on, where is the benefit to a market that
    is already growing, I won't say exponentially, that gets
    overused, but it is growing a pretty feverish rate when we look
    at where we were 10 years ago versus where we are today? Where
    is the benefit inherent in this ruling?
        Mr. McDowell. It is--I think it is----
        Mr. Genachowski. Sorry. No----
        Mr. McDowell [continuing]. Yes, thanks.
        Mr. Genachowski [continuing]. Go ahead. Sorry.
        Mr. McDowell. I think it is confusing. I think what this
    order has done is actually create confusion in the marketplace
    and actually I disagree with the premise that the business
    community is uniformly behind this and the investment
    community. In fact, the evidence in the record is--points to
    quite the contrary.
        We have to look at broadband services in America went from
    covering 15 percent of Americans in 2003, by the end of 2009, 6
    years later, it covered 95 percent of Americans in the absence,
    in the absence of regulation. Also in the absence of regulation
    we had a free and open Internet, under existing law. So I think
    the order was unnecessary and I think it actually creates more
    questions than answers.
        Mr. Issa. Well, I am going to close by having something I
    think that will unite the two of you and which I think we all,
    we should all agree. As we have this fundamental growth, as we
    try to figure out ways to keep the Internet open, isn't the
    fundamental part of what you achieved, not everything you
    sought to achieve, including regulation, the fundamental
    question that you should not be able to block like services to
    those which you are already delivering in your package? Is that
    a fundamental item that the examples that we talked about and
    the worry that Congress had is the one thing that probably both
    sides of the dais agree Congress should have dealt with before
    you did?
        Mr. Genachowski. It was a fundamental piece of our
    framework.
        Mr. McDowell. I think Congress dealt with it through
    Section 2 of the Sherman Act. Congress dealt with it with
    Section 5 of the Federal Trade Commission Act and other
    competition and consumer protection laws. I think there is
    another way to address these hypothetical harms.
        Mr. Issa. Oh, I didn't say I approved of net neutrality as
    the FCC did it, but simply that we did have an obligation to
    ensure that like products were not restricted when they
    happened to come from the competitor of the carrier themselves.
        Mr. McDowell. We want openness and freedom on the Internet.
        Mr. Issa. So do I. Thank you.
        I yield back.
        Mr. Goodlatte [presiding]. Thank the gentleman. The
    gentlewoman from Texas, Ms. Jackson Lee is recognized for 5
    minutes.
        Ms. Jackson Lee. Thank you very much and to both the
    Chairman and the Ranking Member for these ongoing hearings. And
    I have expressed a continuing theme to both the Chairman and
    the commission. Let me thank both of you for the quality of
    work. I know how extensive it is for the different views that
    you are now espousing. But, my thought on this Committee of
    competition and intellectual property is how can we protect the
    genius of America and how can we create jobs.
        And certainly the business community is involved in that
    continuing question and theme. At the same time, for those of
    us who define the business community is that alone, a positive,
    small Internet business user, whether they be sitting in rural
    America or urban America, getting for the first time that
    access or opportunity, I think that is also part of the
    business community. And Mr. Chairman, we may not be able to
    query them, but we have a responsibility to them.
        So I want to ask both of you, what do you think is the
    heart of the net neutrality rule in order--Mr. Chairman the
    heart, very concisely and that for the commissioner, and I'll
    go with the chairman first--and give me the basis of your
    interpretation of the FCC authority to have rended such a rule.
        Let me start with the chairman first. And I have follow up
    questions so if you can be very concise, I would appropriate
    it.
        Mr. Genachowski. Sure. The heart of the order are four
    basic propositions: No blocking of lawful content to consumers;
    transparency so that network management practices are available
    to consumers, reducing the need for government involvement;
    third, reasonable network management permitted and fourth,
    flexibility to deal with network congestion and to invest in
    networks.
        The authority comes from Title I of the Communications Act,
    provisions in Title II, Title III, Title VI and Sections 706.
    And I would be happy to discuss any of those.
        Ms. Jackson Lee. Just give me Title I in particular.
        Mr. Genachowski. Well, Title I, for a very long time, going
    back to Chairman Powell in the early 2000's confirmed by the
    Supreme Court in Brand X made it clear that the FCC, under
    Title I, has the ancillary authority to adopt measures,
    policies with respect to advanced services like high-speed
    Internet. And again, I could go on but I want to respect your
    time.
        Ms. Jackson Lee. Thank you very much.
        Commissioner?
        Mr. McDowell. Well, I let the chairman speak for himself on
    what the heart of the order was.
        Ms. Jackson Lee. Yeah, I'm asking you.
        Mr. McDowell. You asked--well----
        Ms. Jackson Lee. You can either answer it and as they say,
    I----
        Mr. McDowell. Sure.
        Ms. Jackson Lee [continuing]. Asked the question, you can
    give me the answer as you so desire.
        Mr. McDowell. But, it is his order, I dissented against it
    so he knows the heart of it better than I do, because it is his
    heart.
        But in any case----
        Ms. Jackson Lee. But you can interpret the heart, as you
    saw it, that caused you to vote against it.
        Mr. McDowell. I will stipulate to the fact the Chairman has
    a good heart and that he had the best of intentions with
    executing this order.
        But I do disagree with the legal authority. The Title I
    portion is the fundamental cornerstone that the majority tried
    to use to justify its actions. And in a very similar fashion,
    almost identical fashion in some cases, as to what it tried to
    do before and that was struck down by the D.C. Circuit last
    year. So that is one of the many reasons I have concerns about
    the order.
        Ms. Jackson Lee. All right. And then let me start with you
    then, your opposition to it was based upon the fact of, I
    assume, the free market abilities. But let me just ask this
    question to you. In the alternative of what the chairman and
    the commissioners voted on, what is your answer to the
    unfettered access of the small, minority, women-owned and
    businesses and others who are trying to access this huge
    phenomenon?
        Mr. McDowell. Excellent question. For years, long before
    Chairman Genachowski came to the FCC, I have been advocating a
    different approach all together, which is to use the non-
    governmental Internet governance model that the Internet was
    built upon and that is what made it so great. So that is to
    gather together, the FCC could find a new role for itself,
    gather together all the non-governmental entities that help run
    the Internet, the Internet Society, the Internet Engineering
    Task Force, you could have consumer protection agencies,
    government, academics, engineers, bring them all together to
    spotlight allegations of anti-competitive conduct and use
    existing antitrust and consumer protection laws to cure that.
        Sometimes, as we found with the Comcast/Bit Torrent matter,
    that merely shining the sunlight makes the infection go away.
        Ms. Jackson Lee. But----
        Mr. McDowell. And that is adequate. All of the allegations
    that were made earlier of what has gone wrong here, first of
    all were--just a tiny amount of what--of each--of the
    quadrillions of Internet communications each day but also were
    rectified under existing law.
        Ms. Jackson Lee. My time is short and I----
        Mr. McDowell. Sorry.
        Ms. Jackson Lee [continuing]. Appreciate that
    interpretation.
        Chairman, respond to that. And I will lay my premise again,
    I am concerned on the premise of net neutrality, is the
    unfettered access, which I believe you were going after, how do
    you respond to----
        Mr. Genachowski. We share that concern.
        Ms. Jackson Lee [continuing]. The commissioner's point?
        Mr. Genachowski. I think it is fundamental to our economy,
    to the genius of America, as you said.
        A couple of points. One is, the FCC, going back to at least
    2005 has enforced protections for early-stage innovators, small
    businesses, others who want to access an open Internet. And
    that was deemed necessary, number one.
        Number two, I agree with Commissioner McDowell on the
    importance of transparency and that is why we made it one of
    the hearts of the order.
        And the third point that I would make is while we heard,
    very loudly, from the communities that you mentioned and from
    others that baseline rules of the road were necessary to
    provide confidence for investment and for startup activities,
    nothing in our order, in fact we specifically support private
    third party entities developing around that baseline, to
    minimize the need for government involvement. But the core
    question was, should there be a baseline framework protecting
    freedom--Internet freedom and openness. On a bipartisan basis
    the FCC, since 2005 at least agreed to that, I respect
    Commissioner McDowell for dissenting consistently over that
    period, but there is a bipartisan foundation to it and our
    actions were consistent with that bipartisan history and the--
    our analysis of the record and what we heard from the
    investment community and from early-stage entrepreneurs.
        Ms. Jackson Lee. And you believe it is squarely founded on
    antitrust premises of open competition or the non-hindrance of
    competition?
        Mr. Genachowski. I believe it is--I believe we had ample
    authority into the Communications Act. Antitrust is available
    as a remedy as well, but as I said earlier, I believe that that
    remedy would be insufficient for startups who are blocked or
    interfered with, given the realities of what it takes to start
    a company in America.
        Mr. Goodlatte. The time of the gentlewoman has expired.
        Ms. Jackson Lee. I thank the gentleman.
        Mr. Goodlatte. I thank the gentlewoman. And I will ask my
    questions at this point.
        Chairman Genachowski, aren't broadband providers in a
    competitive market in a better position than the FCC to figure
    out how to increase demand for their property?
        Mr. Genachowski. I think broadband providers are in a
    strong position to figure out how to increase demand for their
    product. They have also told us that they recognize that there
    are challenges that they have been unable to solve alone.
        Mr. Goodlatte. And what do you mean by that?
        Mr. Genachowski. Well, our work, which was broadly based,
    found that the adoption gap that we have in this country, 67
    percent versus a goal of a hundred, is related to, in some
    cases affordability, in some cases relevance, people lacking
    knowledge of the benefits of the Internet, in some cases
    digital literacy, in some cases trust of the Internet. And we
    have been working with the broadband industry to develop
    measures that would be a win-win and increase demand adoption
    from 67 percent at a faster rate.
        Mr. Goodlatte. In a competitive broadband market wouldn't
    market forced prevent broadband providers from adopting any
    practices that actually harm their consumers, lest those
    consumers switch to a competitor?
        Mr. Genachowski. I think that, you know, the market that we
    are looking at is one where over 70 percent of the country only
    has one or two choices. I would agree that with more
    competitors and very vibrant competition in place----
        Mr. Goodlatte. But your order specifically says that the
    FCC didn't conduct a market power analysis.
        Mr. Genachowski. I respectfully--the order spent a lot of
    time analyzing the markets, there is a section called cost and
    burdens. We didn't conduct a formal antitrust analysis.
        Mr. Goodlatte. Why not? We like that around here.
        Mr. Genachowski. It wasn't necessary, it hasn't
    traditionally been thought necessary in the FCC's context. But
    the important point to emphasize is the order is filled with
    market analysis, the record is filled with market analysis, the
    Administrative Procedures Act imposes us on an obligation to
    analyze all of the costs and issues in the record and we did
    that in the order.
        Mr. Goodlatte. You note in your statement, and just again
    stated, that as a justification for the order, that more than
    70 percent of Americans live in areas with only one or two
    fixed broadband providers. Does the reasonableness standard
    embodied in the order apply in the same way, whether the
    alleged violation occurred in one of these areas or in the 30
    percent of America with a more competitive broadband market?
        Mr. Genachowski. We haven't had to address that question.
    We heard from the industry that they would, in general, prefer
    having the ability----
        Mr. Goodlatte. You haven't had to address that question
    until today and we are asking you today.
        Mr. Genachowski. I wouldn't want to prejudge issues that
    might come to the commission, but I would agree with you, at a
    higher level I would agree with your point that the more there
    is competition the less there is a need for government
    involvement.
        Mr. Goodlatte. Is it true that the FCC may publish an order
    in the Federal Register, even before the order has received
    final approval from OMB?
        Mr. Genachowski. I am not aware of that. There are
    procedures that are in place involving Paperwork Reduction Act
    and OMB approval. We are in those procedures now and we will
    follow the standard procedures.
        Mr. Goodlatte. Given the sense of urgency surrounding
    adoption of the order in December, why has the FCC chosen to
    delay publishing the open Internet order until the full
    Paperwork Reduction Act process is complete?
        Mr. Genachowski. Well, the order has been published in the
    sense that it is there, everyone knows exactly what it is.
    Formal publication in the Federal Register is a process that I
    don't consider myself an expert on. As I mentioned there are
    Paperwork Reduction Act processes, OMB processes, the Federal
    Register has its own processes, we are doing our work as
    quickly as we can in connection with those processes to get to
    final publication in the Federal Register. But it doesn't
    change the rules that we adopted and that have been made public
    already.
        Mr. Goodlatte. The order--Commissioner McDowell, the order
    explicitly declines to conduct any market power analysis. Do
    you believe that the a market power analysis is necessary to
    distinguish between benign network management practices and
    network management practices that actually harm consumers?
        Mr. McDowell. Absolutely and you are absolutely right. At
    footnote 49 of the order it says specifically we are not
    performing a market power analysis in this proceeding. I think
    that is very telling.
        Mr. Goodlatte. And do you think that is because they do not
    have any evidence to substantiate a claim that there is a
    market power problem that is harming consumers?
        Mr. McDowell. Each time the government has looked at the
    broadband Internet access market, it has not found a
    concentration of market power or abuse of that power, whether
    it is the Federal Trade Commission in 2007 or whether it was
    the Department of Justice just last year filing comments with
    the FCC. In fact, both of those agencies, in both of those
    instances warned against just this type of regulation because
    of the disincentives that it might provide to the buildout of
    broadband.
        And when we are talking about trying to build out broadband
    to that last 5 percent of Americans who might not have access
    to it, it is important to provide those incentives as much as
    we can.
        Mr. Goodlatte. Chairman----
        Mr. Genachowski. I reserve my right, at a later point to--
    --
        Mr. Goodlatte. You are welcome to respond right now.
        Mr. Genachowski. Very quickly. The DOJ's filing with the
    FCC called this market that we are discussing, concentrated.
    And the chairman of the Federal Trade Commission testified, in
    our process, in a way that--with respect was different from
    what Commissioner McDowell suggested. And I would just suggest
    that we make the FTC and the DOJ materials part of the record
    of the proceeding.
        Mr. Goodlatte. Without objection they will be.
        Mr. McDowell. And they speak for themselves.
        Mr. Goodlatte. Sure.
        [The information referred to follows:]

                                   __________

                                   __________

        Mr. Goodlatte. In that regard, Commissioner McDowell,
    Chairman Genachowski has been somewhat dismissive of antitrust
    remedies to address these issues. I don't see problems because,
    as you correctly point out, there are quadrillions of bits of
    information that are exchanged I think very freely over the
    Internet on a daily basis and the examples of potential abuse
    have been de minimis and have been solved under current law as
    opposed to this new proposed rule.
        But, let me just ask you, looking ahead and supposing that
    issues will arise, as I no doubt believe they will, do you
    believe that antitrust law provides an appropriate and adequate
    remedy for the sorts of misconduct that the open Internet order
    seeks to curtail?
        Mr. McDowell. Yes.
        Mr. Goodlatte. Any elaboration on that?
        Mr. McDowell. Sure. So under--I didn't know how long I had.
    Under Section 2, whether it is refusals to deal or exclusive
    dealings or raising rivals' costs, all of the scenarios put
    forth by the proponents of Internet network management
    regulation for these rules can be addressed by those laws. But
    so can also, you know, Section 5 of the Federal Trade
    Commission Act could also address it as well.
        And you make an excellent point which is the de minimis
    amount of allegations that have been made and all, all were
    resolved in favor of consumers under existing law.
        Mr. Goodlatte. Thank you. My time is expired.
        And the Chair now recognizes the gentlewoman from
    California, Ms. Chu for 5 minutes.
        Ms. Waters. Thank you very much, Mr. Chairman. Let me
    welcome Mr. Genachowski here and Mr. McDowell here this morning
    with their statement.
        Voice. It is just Judy Chu. Sorry. Ms. Judy Chu.
        Ms. Waters. Oh, it is Judy's turn? I am sorry.
        Mr. Goodlatte. I think we recognized Ms. Chu.
        Ms. Waters. It was? Okay.
        Mr. Goodlatte. But we will come---- [Laughter.]
        We have a lot of California----
        Ms. Chu. It's fine.
        Mr. Goodlatte. I said we have a lot of California
    gentlewomen here and we respect them all, but we are going to
    Miss Chu first.
        Ms. Chu. Well, thank you.
        Well, Chairman Genachowski, opponents of the rules of the
    road have argued that the Internet is open and inspired
    innovation under current law and that broadband has expanded to
    reach a significant number of Americans. So, please explain for
    our knowledge what has changed in the marketplace, in your
    opinion, to make this rule necessary.
        Mr. Genachowski. Well, the misperception that some people
    have is that the framework that we adopted was the first time
    that the FCC adopted measures to preserve a free and open
    Internet. In fact, in 2002 the FCC issued open Internet
    principles; in 2005 it enforced--it issued an enforcement
    action against a company that was blocking voice over the
    Internet; later, under its framework, it issued--it enforced--
    it took an action against a cable company that was blocking
    online video. What we saw--what I saw when I came to the FCC
    was that there had been a bipartisan history in favor of
    preserving a free and open Internet, but we inherited a process
    that wasn't the traditional rulemaking process, had created
    uncertainty because there weren't any rules that had been
    written down. And we took it upon ourselves to increase
    certainty and predictability in the overall broadband economy
    by conducting an open Administrative Procedures Act rulemaking
    process.
        One other point, if I may, the fact that there were
    incidents of blocking, degrading during these years when the
    FCC made clear that that shouldn't happen, means a lot because
    it means that even with the rules there were issues. In the
    absence of the FCC going back to 2002 saying this was an issue,
    it is fair to presume that there would have been many more
    instances of interference with Internet openness and freedom.
    What we have done now is simply codify a fair and reasonable,
    broadly supported framework that increases the level of
    certainty and predictability for everyone in the broadband
    economy, including America's great entrepreneurs and early-
    stage investors.
        Ms. Chu. And in fact talking about those companies that
    have blocked services on the Internet, can you be more specific
    about them, specific examples?
        Mr. Genachowski. Sure. In 2005 a company called Madison
    River blocked voice over the Internet traffic to its consumers.
    In 2008 Comcast blocked lawful video from Bit Torrent. We
    learned in, I think, 2009 that Apple and AT&T had agreed that
    voice over the Internet applications should not be allowed on
    the IPhone, that has since been changed. There have been
    private lawsuits raising instances of Internet blocking or
    degrading that were settled by--with agreements to follow
    practices consistent with open Internet and freedom. All of
    this was as against a backdrop of an expectation any lawyer
    would have told any company, look the FCC has something in
    place here, before our framework they would have said, but
    we're not sure exactly what it is.
        Ms. Chu. And how has this rule been received by the
    industry and other players?
        Mr. Genachowski. Well, I think in this contentious area I
    am very proud of our staff for working hard to get the broadest
    possible consensus that anyone has seen in an issue that is
    difficult like this. And so across the spectrum from early-
    stage entrepreneurs and investors, to major ISPs and cable
    companies, there has been support for the predictability and
    certainty that the order provides. I mentioned in my opening
    statement that it has been described as a pragmatic resolution
    that promotes investment, economic growth and innovation.
        Ms. Chu. And in fact opponents do argue that this
    regulation would hurt our economy and stifle private sector job
    creation and undermine innovation. How does this ensure that we
    can continue to have innovation in--and that investment can
    flourish?
        Mr. Genachowski. Well, fundamentally this is an innovation
    framework. It makes sure that the next entrepreneur with a
    great idea in a garage or a dorm room can start that business
    knowing that if he or she puts it on the Internet it will reach
    an audience and the market will decide whether or not it is
    successful. And they don't have to worry about it being blocked
    by any of the companies that control access to the Internet,
    that is a fundamental way to make sure that we preserve what
    has been so great about the Internet in promoting innovation,
    job creation and private investment in our company.
        Ms. Chu. Thank you. I have no time--awareness of the time
    because of the----
        Mr. Goodlatte. I think that gives you a little latitude to
    ask another question.
        Ms. Chu. Oh. Okay. Well, but thank you, I think I will
    yield back.
        Mr. Goodlatte. I thank the gentlewoman.
        And the Chair now recognizes the gentleman from North
    Carolina, Mr. Coble?
        Mr. Coble. Mr. Chairman, I thank you for that. Mr. Chabot,
    the gentleman from Ohio has been here longer than I, Mr.
    Chairman. If you would recognize him then I will get mine
    later.
        Mr. Goodlatte. With your deference we will be happy to do
    that and we will recognize the gentleman from Ohio for 5
    minutes.
        Mr. Chabot. Thank you, I--just one question and then I am
    going to yield the balance of my time to Mr. Coble and then he
    can have my time and his time.
        I understand that it has already been discussed, to some
    extent here today, in my absence, the fact that some have
    argued that we don't need further regulation to achieve net
    neutrality because our Federal antitrust laws may be used to
    seek redress from anti-competitive behavior. How does that
    argument square with the impact of the Supreme Court's ruling
    in Trinko that makes it considerably more difficult to bring an
    action under our antitrust laws for activities regulated by the
    FCC pursuant to the Telecommunications Act?
        And I will start with Mr. McDowell, I guess. In fact I will
    give it to Mr. McDowell, then I am going to go ahead and yield
    back so I can go with Howard.
        Mr. McDowell. Thank you, Mr. Chabot. You know, I was in the
    private sector when the Trinko case was decided in 2004 and I
    read it many times and I have reread it in preparation for this
    hearing. What is--I think Trinko is first of all a case of bad
    facts, perhaps not making the best law. You have an indirect
    purchaser situation, first of all. But second of all, what the
    Court said there, my interpretation is that when there is a
    statutory regime setting up regulatory relief for a particular
    matter, that the courts are loathe to step in with antitrust
    remedies. And what you had in Trinko, I think, has to be looked
    at specifically to the facts and the law applied to Trinko. You
    had the Telecommunications Act of 1996, you had Title II
    specifically, you had the unbundling obligations of the
    regional Bell operating companies, so you had Sections 271 and
    Section 251 and Section 251(c)(3) in particular. And so that
    was a very prescriptive, statutory regime, that gave the FCC a
    great deal of authority and latitude as to how to address
    competition matters and regulatory matters that came up within
    the confines of the statute.
        Here, with broadband Internet access, broadband Internet
    access by the net neutrality order's own admission is not
    common carriage. The order itself, from last December, goes out
    of its way to say it is not common carriage, even though I
    think the FCC is trying to foist a lot of the common carriage
    type regulation on there, on its face it is saying it is not
    common carriage. So therefore, Title II would not apply, so
    therefore it is unregulated, so therefore the antitrust laws
    would apply even in the face of Trinko.
        But I would like to address a few other things as well. Not
    to split hairs on the legal history of the FCC's actions
    regarding an open Internet, the FCC, in 2005 did bring action
    against Madison River and entered into a consent agreement.
    Madison River was a phone company and was violating its
    statutory obligations under Title II and that is how the FCC
    came after it.
        The Internet principles of 2005 were just that, they were
    principles. All four commissioners at that point said they were
    not enforceable, they did not have the effect of rules, they
    didn't go through the notice of proposed rulemaking process,
    the notice and comment process. They weren't codified in the
    Code of Federal Regulations. Yet, at least two, I think three
    actually, of the commissioners reversed themselves in 2008 to
    address the allegations made against Comcast in the Bit Torrent
    affair that arose in 2007. So in 2008 there was that order and
    the commissioners reversed themselves to say, oh those are
    enforceable rules when in fact they didn't go through the
    process, they weren't codified in the Code of Federal
    Regulations, they were not rules.
        So that was when the commission actually started to take a
    turn down----
        Mr. Conyers. Sorry.
        Mr. McDowell [continuing]. A turn down the wrong road in
    terms of its authority. And I think that is important. But what
    is also important about what the chairman said is that all of
    those complaints, every single one of them were resolved under
    existing law that came prior to the net neutrality order, every
    single one of them.
        Mr. Chabot. Okay. Thank you very much.
        I would like to yield the balance of my time to Mr. Coble.
        Mr. Coble. Mr. Chairman, what little time I have then I
    will wait my turn, but let me start with Mr. McDowell.
        Mr. McDowell, will the order only affect large cable and
    telephone companies or will it affect smaller companies as
    well, a.). And b.) how will it affect local co-ops?
        Mr. McDowell. It affects, from my understanding of it, all
    companies regardless of their size and including local, rural
    co-ops.
        Mr. Coble. Let me go to the chairman and try to beat the
    red light, Mr. Chairman. Mr. Chairman, given that the recent
    academic studies have demonstrated that in excess of 89 percent
    of the bit traffic--Bit Torrent traffic is copyright infringing
    material, would slowing down or delaying or blocking Bit
    Torrent package to prevent copyright infringement be allowed
    under the rule under the order?
        Mr. Genachowski. The order addresses only lawful content
    and it makes it clear that measures to enforce intellectual
    property or other actions against unlawful content are
    permissible under the framework.
        Mr. Coble. Mr. Chairman, do I have time for one more
    question?
        Mr. Goodlatte. Without objection, gentleman is recognized
    for an additional minute and then we are going to give you
    another bite of the apple here. So----
        Mr. Coble. And by the way, I apologize for my delay, I had
    two other hearings going on this morning.
        Mr. Goodlatte. Go right ahead.
        Mr. Coble. I thank you, Chairman.
        Either to Mr. McDowell or--Commissioner McDowell or the
    chairman. The order predicts significant and likely
    irreversible harm from threats to openness unless the FCC rules
    are enacted, I am told. Has the lack of these rules led to
    significant and irreversible harm at any point in the past?
        Mr. McDowell. The lack of rules has not led to significant
    or irreversible harm, in fact we have an open and freedom
    enhancing Internet, I think precisely because the government
    has not been involved.
        Mr. Coble. Mr. Chairman, you want to be heard?
        Mr. Genachowski. If I could just add again, since 2002 the
    commission has made clear that it was important to the country
    and the commission to preserve Internet openness and freedom
    and since 2005 enforced it in a series of instances. The
    mechanism that it used was later invalidated by the court and
    so that left the commission without--at great uncertainty in
    the marketplace, particularly for early-stage investors. The
    framework that we adopted, pursuant to Administrative
    Procedures Act process under the Communications Act restored
    certainty and predictability among early-stage investors and in
    various ways for Internet service providers as well.
        Mr. Coble. Thank you. Mr. Chairman Goodlatte, thank you for
    your generosity. I yield back.
        Mr. Goodlatte. I thank the gentleman. The Chair now
    recognizes the second gentlewoman from California, Ms. Sanchez
    for 5 minutes.
        Ms. Sanchez. Thank you and I will just point out for the
    Chairman's general knowledge that California sends the most
    female representatives to the United States Congress, that is
    why you find yourself in the midst of so many here on
    Judiciary.
        Mr. Goodlatte. And we are pleased to have them all.
    [Laughter.]
        Ms. Sanchez. Thank you so much. I want to thank both of our
    witnesses for joining us today. And as both witnesses notice
    in--or noted in their written treatment, I think the FCC does a
    great job of addressing the issues in front of them, to the
    best that they can in a bipartisan manner and that is something
    that is to be envied from somebody sitting on this side of the
    table, so to speak.
        I want to start my questioning with Chairman Genachowski.
    Did I pronounce that correctly?
        Mr. Genachowski. Genachowski.
        Ms. Sanchez. Genachowski, I'm sorry. You know, it is no
    secret that in the FCC's national broadband plan 13 percent--
    just 13 percent of Americans have only one broadband access
    provider and 78 percent of Americans have only two broadband
    options which means not a lot of choice out there. So I am
    curious in getting your perspective on in the absence of the
    open Internet order that the FCC has adopted, should those
    citizens be worried about the content that they hope to access
    potentially being censored?
        Mr. Genachowski. Well that was one of the reasons why we
    thought it was important to adopt the order and I think the
    framework that we adopted gives consumers and innovators basic
    protections to ensure that if you are a consumer you can access
    whatever is lawful on the Internet, if you are an entrepreneur
    you can put something on the Internet and know that consumers
    will have access to it.
        Ms. Sanchez. Great. And just as a side note, I would be
    interested to know what you are doing to try to help expand
    options for these folks that don't have a lot of choices when
    it comes to access.
        Mr. Genachowski. We each, Commissioner McDowell and I each
    mentioned several items that we are working on together to
    increase competition, from dealing with infrastructure issues
    like tower siteing and pole attachment to freeing up more
    spectrum both unlicensed and licensed. Those are just some of
    the measures that we pursue to promote and extend competition
    in the marketplace.
        Ms. Sanchez. Great. I am curious in knowing what you think
    the impact of the open Internet order will have minority
    communities in particular.
        Mr. Genachowski. I think keeping the Internet open allows
    anyone with an idea or a business concept to have a real
    chance. And that is true for members of minority communities.
    We have actually seen a number of examples of business and
    content entrepreneurs from minority communities take advantage
    of an open Internet to build an audience, build a business. It
    is one of the many reasons why preserving the openness and the
    freedom of the Internet has real value for the country.
        Ms. Sanchez. Thank you. I am interested in knowing, if you
    can give us an example of how--because it has been suggested
    that antitrust laws would help with respect to violation of
    Internet freedom, but can you give me an example of how using
    solely antitrust enforcement would play out regarding a
    violation of Internet freedom?
        Mr. Genachowski. What concerned the staff and us as we
    looked at this issue was--and what we heard from early-stage
    companies and investors, you know, imagine an early-stage
    company working out of its garage or a small office, that has a
    great product, that perhaps is competitive with a product
    offered by an Internet service provider and gets blocked. Well,
    what is that early-stage company supposed to do? If the only
    remedy is filing an antitrust lawsuit, you know, here is a
    company that has no money, that has very few customers, if any,
    having to find a lawyer, pay the lawyer to file a lawsuit,
    prove damage and hope at the end of the day--well this--it is
    just--even telling the story, it is not realistic for America's
    early-stage entrepreneurs and small businesses, and it is why I
    think that going back many years there has been a real
    consensus that baseline protections for Internet freedom and
    openness were necessary and would be a healthy complement to
    antitrust laws, which themselves are very, very important.
        And so it is no--I don't mean any disrespect to antitrust
    laws, they play a critical role in promoting our economy and
    competition, but in some areas like this, they aren't alone
    enough.
        Ms. Sanchez. There might be in fact an additional hurdle
    for people that are trying to compete?
        Mr. Genachowski. Um hmm.
        Ms. Sanchez. Great. And then finally, you know, there has
    been some debate over what the response has been from the
    commercial sector to the rules that you adopted in December,
    whether it has been predominantly positive or negative. You
    mentioned that in your experience you have been that it seemed
    to be predominantly positive people are looking for something
    that is pragmatic and something that has predictability. And I
    am just wondering if you can expand on that a little bit.
        Mr. Genachowski. Sure, of course. You know, the--and we
    would be happy to provide you--people said things publicly and
    so I am not, you know, reporting simply in private
    conversations. And we heard from, I think one of the Members
    mentioned TechNet which broadly represents the technology
    community, companies and associations throughout the broadband
    economy, large ISPs and cable companies, early-stage investors
    and entrepreneurs. We would be happy to provide you with some
    of the examples of statements that were issued after the order
    was adopted.
        Ms. Sanchez. Would you say, with the Chairman's indulgence
    I will just--if I could have an additional 15 seconds to ask
    this last question?
        Mr. Goodlatte. Without objection the gentlewoman is
    recognized for an additional minute.
        Ms. Sanchez. Oh, thank you. Very generous.
        Would you say that these are not always people that have
    the same interests, so it is sort of a broad swath of people
    who are interested in this issue have actually come to some
    sort of agreement in terms of support?
        Mr. Genachowski. Very much so. And I--at some level we
    became concerned that sort of the Groundhog Day ongoing battle
    on net neutrality was doing harm to the potential of high-speed
    Internet for all Americans. And we heard that from many
    entities throughout the economy saying, you know what, it is
    time to resolve this, the gap between the bid and ask isn't
    that large, let's work together to find a framework that moves
    us forward and allows us to tackle other issues that we need to
    tackle as country, unleashing spectrum, transforming the
    Universal Service Fund from telephone to broadband, a whole
    series of issues that we need to drive broadband success in the
    United States.
        Ms. Sanchez. Great. And I thank you for your time and I
    yield back.
        Thank you, Mr. Chairman.
        Mr. Goodlatte. I thank the gentlewoman and the Chair now
    recognizes California gentlewoman number three, Ms. Waters, for
    5 minutes.
        Voice. Number four.
        Ms. Waters. Thank you very much, Mr. Chairman. Again, I
    would like to thank Mr. Genachowski and Mr. McDowell for both
    being here today with this statement. I have three areas that
    it is going to be hard to get to in a limited period of time,
    but if I kind of tell you in advance perhaps you can respond to
    questions that I am going to have about the Comcast/NBC merger,
    about net neutrality and of course our new bank media mogul,
    Mr. Jamie Diamon and JPMorgan.
        On the Comcast/NBC merger, the FCC and DOJ have authority
    to review media mergers under Federal antitrust laws. The FCC's
    process allows for a more comprehensive public interest
    analysis. According to the Supreme Court and FCC president,
    factors considered to be in the public interest must include a
    deeply rooted preference for preserving and enhancing
    competition, promoting diversity of license holdings and
    generally managing the spectrum in the public interest.
        How does consolidation promote a diversity of license
    holdings and what types of public interest conditions tend to
    promote a diversity of license holdings and broadcast
    viewpoints? Which public interest conditions in the FCC's order
    approving the Comcast merger were not previously agreed to or
    presented by the merging applicants months in advance? That is
    on Comcast.
        On net neutrality, many of us consider the FCC net
    neutrality's rule very weak and all of the consumer protection
    and public interest organizations have basically said this. I
    want to know, since the future of the Nation's communications
    infrastructure is moving to mobile wireless, is the FCC at all
    concerned about the lack of protection for wireless Internet
    users?
        My colleagues on the other side of the alley are also
    worried about investment. Many investment firms and venture
    capitalists are now lining up behind innovators who are
    developing mobile applications for cell phones and other
    portable services. If the FCC is at all concerned about the
    potential blocking that could occur over mobile wireless
    networks, what may that may stifle investment and mobile
    application?
        And finally, last year Bloomberg reported that JPMorgan
    Chase owns a 10.2 percent stake in U.S.A. Today publisher
    Gannett Company, making it the company's largest shareholder.
    Besides U.S. Today, Gannett owns more than 80 other daily
    newspapers scattered across the country. JPMorgan Chase owns or
    wields considerable power over Reader's Digest Association,
    Source Internet Companies and American Media. If the holdings
    of all these companies that JPMorgan Chase has inherited were
    rolled into a single entity it would be the largest magazine
    publisher in the United States.
        JPMorgan could also become a co-owner of the Tribune
    Company, publisher of the Los Angeles Times and Chicago
    Tribune, depending on the outcome of the proposed bankruptcy
    organization or reorganization plans in courts. I have been
    following the L.A. Times waiver for quite some times now and I
    suppose they have been holding on and they have been protected
    in this waiver until they could resolve this bankruptcy and
    perhaps do this kind of sale that is being contemplated.
        So, is the FCC at all concerned about whether JPMorgan's
    mass media holdings violate the agency's cross-ownership rules?
    Do you think it serves the public interest for Wall Street to
    own significant portions of the media?
        Mr. Genachowski. Thank you for the questions. Let me try to
    address each of them.
        With respect to Comcast/NBC, the statutory obligation of
    the agency is to determine that a license transfer is in the
    public interest. And so it is not surprising that companies who
    seek FCC approval think in advance about what types of actions
    might permit the FCC to determine that the transaction was in
    the public interest. And often those public interest benefits
    from the start are beneficial.
        Of course they don't determine the end of our process. In
    that transaction we conducted a very thorough, extensive review
    and over the course of it approved the merger with a series of
    conditions that allowed the commission to determine that the
    transaction was in the public interest. I would be pleased to
    provide you a full list of it and both what was in the initial
    public interest showing and what----
        Ms. Waters. No, no, no. I know what it is in it and I will
    be watching to see if there is going to be an enforcement. I
    don't like it. You have spoken to it. We can move on.
        Mr. Genachowski. And so the second question on wireless, a
    couple of points. There is a misperception, to a certain
    extent, about what we did on wireless and open Internet. We did
    have--we do have a provision, a no blocking provision for
    wireless Internet access. The transparency requirements are
    there. And there is also a provision saying no blocking of
    competitive applications. So those are there.
        We also said that we would monitor developments in the
    wireless space to see if additional action was necessary. We
    hope there won't be, but it is part of the FCC's role to
    monitor and determine if additional action is necessary.
        And on the third question, I am not familiar with the
    underlying--sorry.
        Ms. Waters. If you may, just for a moment on the wireless,
    since the future of the Nation's and communication's
    infrastructure is moving to mobile wireless, is the FCC at all
    concerned about the lack of protection for wireless Internet
    users? I really want to understand with this dual track, this
    dual system that we have, how are you going to do that?
        Mr. Genachowski. Well, we thought it was appropriate to
    take into account legitimate differences between wired and
    wireless, but let me say, the wireless is incredibly important
    to the future of our economy.
        Ms. Waters. That is right.
        Mr. Genachowski. Wireless Internet access is very
    important. Ensuring open Internet on wireless is very
    important. We took into account differences between wired and
    wireless in putting together our rules, but again, there is a
    no blocking rule in affect, no blocking of competitive
    applications, transparency rules in effect. I expect and
    believe that those will be sufficient to preserve Internet
    freedom and openness on wireless, but the FCC will monitor the
    situation and act, if necessary.
        Ms. Waters. Now to JPMorgan.
        Mr. Genachowski. Well, you have mentioned facts that I am
    not aware and so I don't want to tread into areas that I just
    haven't had a chance to think about or be briefed on.
        Ms. Waters. Oh, this is big. You have got to know about
    that?
        Mr. Genachowski. We will look at it. I am not aware of any
    rules that--cross-ownership rules limiting investment by
    financial institutions in broadcast entities. But we would be
    happy to follow up if you----
        Ms. Waters. No, that's--what I am getting to is this
    consolidation. You know--you are aware that JPMorgan has bought
    up these other magazines, newspapers, what have you? You are
    aware of that?
        Mr. Genachowski. I am aware now.
        Ms. Waters. Okay. And you are aware, particularly of their
    purchase of the Tribune or the court actions around the
    Tribune. I guess a decision was made yesterday or today or so
    about their bankruptcy status and what that means in terms of
    JPMorgan's purchase of the Tribune. Are you aware of that?
        Mr. Genachowski. I am not familiar with the current status
    of the bankruptcy proceeding. I am aware that a bankruptcy
    proceeding is going on with the Tribune.
        Ms. Waters. But you know they want it?
        Mr. Genachowski. Excuse me?
        Ms. Waters. You know that JPMorgan is going after Tribune?
        Mr. Genachowski. I don't know exactly.
        Ms. Waters. Okay. All right.
        Mr. Genachowski. But I would be happy to follow up,
    understand it more and----
        Mr. Goodlatte. The time of the gentlewoman has expired.
        Ms. Waters. Thank you.
        Thank you very much, Mr. Chairman.
        Mr. Goodlatte. And in the category of the last shall be
    first or the first shall be last, the Ranking Member deferred
    his questions and so we will recognize him now.
        Mr. Watt. Thank you, Mr. Chairman. And I deferred for--
    because I knew I was going to need to be here until the end of
    the hearing, as the Ranking Member and other Members had other
    things to do.
        I also deferred because at the outset I kind of have viewed
    this as a difference in philosophy share. A free enterprise
    person, antitrust laws will take care of everything and you
    know, stay out of free enterprise and then you have got another
    side. And you know, and I still, even after the whole hearing
    and all of the questions and answers, kind of come down at that
    same place. You have one philosophy about this, the Chairman
    has another philosophy, the Chairman of our Subcommittee has
    one philosophy about it, the Ranking Member has another
    philosophy about it.
        I said at the outset that I was closer to the chairman,
    Chairman Genachowski's position than I was. But so I ask this
    to Mr. McDowell, he has been here most of the time, hadn't had
    a chance to exert himself as much. But I have always kind of
    felt like it is important to understand more my--the opinion of
    the person who I disagree with, and so I ask this question for
    that purpose. When I was practicing law--the beauty of being in
    Congress, I have said a number of times in this Committee and
    other Committees, is when I was practicing law I never asked a
    question that I didn't know the answer to, of a witness on the
    witness stand. Here I can ask any question that I want, without
    worrying about the--whether I know the answer to it because
    nine times out of ten I don't know the answer to it. And my
    purpose, I think the purpose of these hearings is to educate
    Members of Congress about it.
        So the questions I am going to ask are designed to educate
    me about your position, Mr. McDowell, because I want to
    understand it better.
        It seems to me that at least on the surface, and I am sure
    you will be able to clarify why this is not the case, you
    believed that the FCC has some role with respect to the--to
    broadband. You say, in your statement, ``Since my arrival at
    the commission in 2006, the FCC has taken several historic
    steps to spur the construction of broadband facilities.'' You
    list some of those.
        And then you say, on page four of your statement, that
    ``Chairman Genachowski also deserves credit for bringing to a
    vote many other initiatives that may seem unimportant at first
    blush, but actually have a profound effect on promoting
    competition in the last mile.'' So you obviously think FCC has
    some role in that last mile.
        And then you talk about the creation of a shot clock to
    ensure faster decisions by local authorities, ensuring timely
    resolution of pole attachment approvals with reduced rental
    rates for broadband providers, repurposing some satellite
    spectrum for terrestrial broadband use. So it is quite
    obviously to me that you believe that the FCC has some role and
    I am trying to figure out what your bright line distinction is
    between where you think the FCC ought to be acting with
    reference to broadband and where it ought not be acting,
    because it seems to me that in some cases when things have gone
    the way you wanted on that last mile, you were very happy with
    where--with the fact that the FCC was there doing something.
    And yet, in this case you have dissented and said, I don't want
    you to be there. And the appearance is, is that gives you a
    results-oriented process as opposed to a substance-oriented
    process. But I am sure that is not the case.
        So just help me understand what you think the dividing line
    between--is between what the FCC did and what it shouldn't--
    what it did in this case and what it has done in other cases, I
    guess.
        Mr. McDowell. Excellent question. Thank you. So my guiding
    principle is whether or not we have statutory authority. So
    whatever the case might be before us, whether it is this or
    something else, even if I think it is a good idea but if we
    clearly do not have the statutory authority to do something
    then we can't do it.
        In this case, with the net neutrality order the commission
    overreached, in my view. And fresh off a court opinion saying
    that it overreached using the same or substantially similar
    arguments that it did just a year earlier. So----
        Mr. Watt. What are the statute--what is the statutory
    authority for all of the other things that--I am just, again,
    you know, this is not designed to trick anybody I am just
    trying to better understand where you come down.
        Mr. McDowell. Sure. So when it comes to let's say
    repurposing spectrum, we have the authority, under Title III,
    to do that and it is explicit. If it is things like pole
    attachments, we have the authority under Title II to do that
    and it is explicit.
        Sometimes Congress gives us narrow authority, sometimes it
    gives us broad authority. Sometimes a court says you don't have
    that much authority, we are going to narrow down what our view
    of that is and we have to follow that court's order. And that
    is what has happened with net neutrality.
        Mr. Watt. So ultimately if we get the courts saying, yes
    the FCC has this authority, which is, you know, where we are
    headed, I guess, or not headed, one way or another the court
    will decide this, you are not dissatisfied with the rule you
    wrote, you are dissatisfied because you felt like the FCC
    shouldn't have written a rule?
        Mr. McDowell. That we just didn't have the authority to do
    that. So that is right.
        Mr. Watt. Yeah. Okay. All right. Okay, that is fine.
        And that is--that helps me. And believe me, I am not trying
    to call you out here, I am just trying to understand better
    what the differences were here.
        Mr. McDowell. And if I could just--you know, one common
    ground that we have is that, I think we all want an open and
    freedom enhancing Internet. But how do you get there? And we
    have already gotten there under existing law, in my view.
        Mr. Watt. Well you have gotten the--I am not sure you have
    gotten there for that last five--what do you call it----
        Mr. McDowell. Broadband adoption and deployment, that's
    different.
        Mr. Watt [continuing]. To the last mile.
        Mr. McDowell. That is a different issue for the last 5
    percent or so. Yeah.
        Mr. Watt. Okay. All right. That is all, Mr. Chairman. I--
    that is very helpful and I appreciate your----
        Mr. McDowell. Thank you, sir.
        Mr. Goodlatte. Well, I thank the gentleman. If the
    gentleman has additional questions he will be recognized again
    in a moment because I have a few additional questions I would
    like to ask the witnesses. It has been a very, very helpful and
    good discussion and I think we ought to take advantage of
    closing a few issues.
        Chairman Genachowski, to revisit the whole issue of the
    justification for the order that more than 70 percent of
    Americans live in areas with only one or two fixed broadband
    providers, the broadband market is rapidly evolving.
    Commissioner McDowell has pointed out some of the statistics
    that point in that regard. Antitrust law, which we have
    advocated, has the benefit of being available and ready to step
    in at any time but is sitting on the sidelines and not, on a
    active basis, regulating unless some event takes place that
    would justify it.
        So my question for you is will the order remain in effect
    if the broadband market evolves toward what you view as being
    more competition?
        Mr. Genachowski. Well, I am sure that if very significant
    competition develops in the fixed broadband space we will be
    asked to and we would take a look at what rules are necessary
    under those circumstances. It is quite a challenge to generate
    more competition in the space. The investment costs to build
    out the infrastructure are high, switching costs are high.
    Notwithstanding a lot of good work that has been done over the
    years, we are still at a point where there are only one or two
    providers for over 70 percent of the country. So I don't think
    anyone thinks that we are imminently going to see----
        Mr. Goodlatte. But in many instances that is not counting
    wireless providers or satellite providers. Is that not the
    case?
        Mr. Genachowski. And we are--one of the reasons that we
    work together on unleashing spectrum is in additional to the
    economic benefits of making sure our spectrum infrastructure is
    available for the kind of innovation that we are seeing, is
    that we would all be very pleased to see wireless broadband
    developed as a competitor in a substitutable product for fixed
    broadband access----
        Mr. Goodlatte. Oh, I think we would agree with that too and
    we would also agree that you have the jurisdictional authority
    to work in the direction of making more spectrum available for
    that purpose and I have conveyed to you my interest in being
    supportive of that as well. But that is a separate issue from
    whether you have the authority to do what you are doing here or
    whether you need to do it given the current increasing
    availability of broadband and increasing uptake and the number
    of companies involved. We have some large companies, obviously,
    in both hard line telephone service, cable service, wireless
    service. We also have hundreds, if not thousands of small
    companies that are providing these services too.
        So, let me ask you a question regarding that. The order
    creates entirely new adversarial proceedings that can be
    initiated by quote, any person. Once any person initiates a
    proceeding against an Internet service provider, that defendant
    must answer and the FCC staff must evaluate the competing
    filings. Because these proceedings have never existed before,
    how can you be confident that creating them will not impose
    significant costs on those private parties, and the FCC,
    particularly smaller companies?
        Mr. Genachowski. Well----
        Mr. Goodlatte. And will it not have the potential affect of
    slowing down the roll out of more broadband services?
        Mr. Genachowski. We are committed to running any
    administrative processes in the most efficient way. Because of
    the reasons I articulated, my concerns about----
        Mr. Goodlatte. But this is an administrative process you
    have created that doesn't exist and wouldn't be a burden on
    anybody but for the fact that you have created.
        Mr. Genachowski. Understood. But we needed to find, in our
    opinion, some framework to preserve Internet freedom and
    openness.
        Let me make a couple of points. One is the transparency
    piece of what we did is very important and it is designed to
    minimize the need for anyone to ever have to bring a complaint.
        Number two, I agree with the point that was made that it
    would be beneficial for third party organizations to develop,
    and I look forward to working with commissioner McDowell and
    others on that, to be an initial resource. Anything we can do
    to resolve disputes before they come to the FCC we will
    support.
        And the third point I would make is that putting the
    framework in place and providing clarity to both early-stage
    companies and also Internet service providers also reduces the
    occasion for bringing complaints, because there is greater
    clarity. So we see the FCC as a backstop that we hope is
    infrequently and maybe never used. But the existence of that
    backstop we think will be important in promoting innovation and
    preserving Internet freedom.
        Mr. Goodlatte. I wish I shared your optimism about greater
    litigation. But, be that as it may, let me turn to Commissioner
    McDowell and ask him his opinion about whether small companies
    or large companies are going to be better able to deal with
    these adversarial proceedings and what affect will that have on
    competition in the Internet?
        Mr. McDowell. You know, I think the most common request we
    get at the FCC, when you boil it down to its nub, is please
    regulate my rival. And I think that is a lot of what is at the
    heart of what the push for these types of rules. Unfortunately
    we have seen a growing division between application dividers
    and Internet service providers from a policy perspective while
    at the same time from an engineer's perspective they look a lot
    alike.
        So if I were to describe to you a company that has
    thousands of miles of fiber, it has soft switches and servers
    and it offers voice, video and data services and if I gave you
    a multiple choice test and it said, is that company either a.)
    AT&T, is it Microsoft, b.), c.) is it Verizon, d.) is it
    Google, it would be a trick question because the answer would
    be e.) it is all of the above.
        And from an engineer's perspective the market is really
    demanding convergence. And we have got these old stovepipe
    regulations in the statute that actually force us to look at
    these--to treat them differently based on whether or not a bit
    travels over a piece of coax cable or a piece of copper, fiber
    or through the airwaves. And I think wireless is really going
    to change the entire landscape here.
        I think a lot of this is fighting the last war, except it
    is fighting the last hypothetical war, no war ever actually
    broke out. It is really a fight that is rooted----
        Mr. Goodlatte. But it almost invites perpetuation of that
    war into the future, doesn't it? When we open the door for any
    person to bring an adversarial proceeding, these companies
    large and small will have to deal it.
        Mr. McDowell. Absolutely. And it disproportionately, I
    think, affects the smaller companies who have to bear
    litigation costs. But also it becomes a classic case of
    ``Mother, May I'' regulation when the FCC, in its order,
    invites declaratory rulings. So before a company can come out
    with a product or service do they have to come to the FCC for a
    declaratory ruling or do their rivals come to the FCC saying,
    that type of company cannot offer this type of product or
    service? Then we become an adjudicator of innovation.
        Mr. Goodlatte. Commissioner Genachowski, Mr. Chairman, the
    Department of Justice's settlement of its challenge to the
    Comcast/NBC merger included a commitment from Comcast to abide
    by the open Internet order for a period of time, even if the
    order is struck down in court. If the open Internet order is
    struck down in court, will the FCC play any role in enforcing
    this provision? And if not, how will the Department of Justice
    or anyone else enforcing Comcast's obligations under the open
    Internet order determine whether Comcast's practices are
    reasonable?
        Mr. Genachowski. I believe that both the DOJ and the FCC
    orders included conditions relating to open Internet that we
    both viewed, at the Justice Department and at the FCC, as
    transaction specific conditions that would justify the merger.
    So in the absence of the general rules, the mechanisms would
    still exist to enforce those conditions with respect to
    Comcast, I think both at DOJ and FCC.
        Mr. Goodlatte. What is the FCC's authority for using the
    merger review process to extract what Commissioners McDowell
    and Baker called quote far reaching and non-merger specific
    policy concessions, such as Comcast's promise to abide by the
    open Internet order? Weren't Commissioners McDowell and Baker
    correct that the FCC's role in merger review limited--was
    limited to ensuring that the transaction complies with all
    applicable statutory provisions?
        Mr. Genachowski. Well, that is not what the Communications
    Act says in its direction to us. In order to approve a merger
    that is within our jurisdiction, one that involves the transfer
    of licenses granted under the Communications Act, we have to
    find that the transaction serves the public interest. An
    affirmative finding is required. And so it is not surprising
    that companies seek to demonstrate that a transaction is in the
    public interest and over the years, under both Republican and
    Democratic chairman, there have been merger review processes
    that have developed at the FCC looking at areas of importance
    under the Communications Act to determine whether or not a
    transaction is in fact in the public interest. And so it is
    under that framework that we operate.
        The conditions, in my view, in that transaction were
    transaction specific. I think, for example, the open Internet
    condition, here you have the largest broadband provider in the
    country combining with a very large content player, certain it
    raised the potential harm of discriminating in favor of its
    content or against others. And so both the FCC and the DOJ
    concluded that in order to approve that transaction it needed
    to be clear that that kind of favoritism/discrimination would
    not occur.
        Mr. Goodlatte. Commissioner McDowell, do you have any
    response to that?
        Mr. McDowell. Certainly the public interest standard is
    broad and undefined when it comes to mergers. But when you ask
    one player to live by a set of rules that might be overturned
    in court for the rest of the industry, so that it is the only
    player that has to live by those rules, I think that is a
    legitimate public policy concern.
        So it has been my philosophy to look at merger conditions
    to see, as a result of the merger, is there a specific consumer
    harm or market harm that arises and what can we do, in a
    narrowly tailored fashion, to fix that and is there a way to
    sunset that rather than keep it going on, even if it is
    overturned in court more broadly for the rest of the industry.
        Mr. Goodlatte. Thank you.
        Do my questions prompt any additional questions from the
    Ranking Member?
        Mr. Watt. No, just one observation. I keep hearing
    everybody bragging about the level of competition out there,
    still having trouble getting cell service that competes----
    [Laughter.]
        In the mountains of North Carolina.
        Mr. Goodlatte. And Virginia.
        Mr. Watt. And the mountains of Virginia. Maybe I should be
    asking a question here, how close are we to getting any
    competition for--even for phone service, landlines in the
    mountainous parts of our country?
        Mr. Genachowski. Well, transforming our Universal Service
    Fund which spends literally billions of dollars a year to
    support traditional telephone, that is what it is optimized
    for, transforming that to an efficient, focused mechanism for
    broadband is a very high priority that is shared, on a
    bipartisan basis, at the commission, number one. And number
    two----
        Mr. Watt. I have been hearing that for about three or 4
    years now, though.
        Mr. Genachowski. Well, we're working----
        Mr. Watt. I keep asking this question of all of the
    players, the mobile carriers, the--I mean nobody seems to--they
    keep saying it is coming, it is coming.
        Mr. Genachowski. All I can tell you is that the fact that
    we haven't done it yet as a country is not a good thing. We are
    taking this very seriously. In fact, about a month ago all five
    commissioners issued a joint blog letting all the players know
    that we were serious about action and if you had a point of
    view and a view on how we should solve some of these problems,
    now is the time to come to the table. And we are working in a
    very focused way on this, as we are on the spectrum challenge
    that the country faces. There is a growing gap between the
    demand on spectrum, generated by smartphones, tablets, other
    things, very exciting for economic growth, job creation, the
    gap between that and the supply. We proposed an idea for
    freeing up a substantial amount of spectrum. This is one where
    we have asked for congressional authority so that we can do
    this on an incentive based, market based mechanism. I think
    these incentive auctions would be a very positive bipartisan
    success for the country.
        Mr. Watt. Would you just transport into your hearing record
    over there that I think this needs to be done.
        I yield back, Mr. Chairman.
        Mr. Goodlatte. I don't know what authority we have to
    insert into the record at the commission. But---- [Laughter.]
        In that regard I do want to thank our witnesses for their
    statement today. I appreciate both of you taking all this time
    today and working with your schedules to make it possible.
        Without objection, all Members will have 5 legislative days
    to submit to the Chair additional written questions for the
    witnesses, which we will forward and ask the witnesses to
    respond to as promptly as they can so that their answers may be
    made a part of our record.
        And without objection all Members will have 5 legislative
    days to submit any additional materials for inclusion in the
    record.
        With that, I again thank the witnesses and declare the
    hearing adjourned.
        [Whereupon, at 12:44 p.m., the Subcommittee was adjourned.]

                                A P P E N D I X

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                   Material Submitted for the Hearing Record

        Response of the Honorable Julius Genachowski, Chairman, Federal
    Communications Commission, to Post-Hearing Questions from the Honorable
                                  Howard Coble

        Response of the Honorable Julius Genachowski, Chairman, Federal
    Communications Commission, to Post-Hearing Questions from the Honorable
                                 Jerrold Nadler

      Response of the Honorable Robert M. McDowell, Commissioner, Federal
    Communications Commission, to Post-Hearing Questions from the Honorable
                                 Jerrold Nadler