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

          H.J. RES 37, DISAPPROVING THE RULE SUBMITTED BY THE FEDERAL
     COMMUNICATIONS COMMISSION WITH RESPECT TO REGULATING THE INTERNET AND
                          BROADBAND INDUSTRY PRACTICES

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

                                    HEARING

                                   BEFORE THE

                 SUBCOMMITTEE ON COMMUNICATIONS AND TECHNOLOGY

                                     OF THE

                        COMMITTEE ON ENERGY AND COMMERCE
                            HOUSE OF REPRESENTATIVES

                          ONE HUNDRED TWELFTH CONGRESS

                                 FIRST SESSION

                                   __________

                                 MARCH 9, 2011

                                   __________

                               Serial No. 112-18

          Printed for the use of the Committee on Energy and Commerce
                            energycommerce.house.gov

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    66-805 PDF                WASHINGTON : 2011
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                        COMMITTEE ON ENERGY AND COMMERCE

                              FRED UPTON, Michigan
                                     Chairman

    JOE BARTON, Texas                    HENRY A. WAXMAN, California
      Chairman Emeritus                    Ranking Member
    CLIFF STEARNS, Florida               JOHN D. DINGELL, Michigan
    ED WHITFIELD, Kentucky                 Chairman Emeritus
    JOHN SHIMKUS, Illinois               EDWARD J. MARKEY, Massachusetts
    JOSEPH R. PITTS, Pennsylvania        EDOLPHUS TOWNS, New York
    MARY BONO MACK, California           FRANK PALLONE, Jr., New Jersey
    GREG WALDEN, Oregon                  BOBBY L. RUSH, Illinois
    LEE TERRY, Nebraska                  MICHAEL F. DOYLE, Pennsylvania
    MIKE ROGERS, Michigan                ANNA G. ESHOO, California
    SUE WILKINS MYRICK, North Carolina   ELIOT L. ENGEL, New York
      Vice Chair                         GENE GREEN, Texas
    JOHN SULLIVAN, Oklahoma              DIANA DeGETTE, Colorado
    TIM MURPHY, Pennsylvania             LOIS CAPPS, California
    MICHAEL C. BURGESS, Texas            JANICE D. SCHAKOWSKY, Illinois
    MARSHA BLACKBURN, Tennessee          CHARLES A. GONZALEZ, Texas
    BRIAN P. BILBRAY, California         JAY INSLEE, Washington
    CHARLES F. BASS, New Hampshire       TAMMY BALDWIN, Wisconsin
    PHIL GINGREY, Georgia                MIKE ROSS, Arkansas
    STEVE SCALISE, Louisiana             ANTHONY D. WEINER, New York
    ROBERT E. LATTA, Ohio                JIM MATHESON, Utah
    CATHY McMORRIS RODGERS, Washington   G.K. BUTTERFIELD, North Carolina
    GREGG HARPER, Mississippi            JOHN BARROW, Georgia
    LEONARD LANCE, New Jersey            DORIS O. MATSUI, California
    BILL CASSIDY, Louisiana
    BRETT GUTHRIE, Kentucky
    PETE OLSON, Texas
    DAVID B. McKINLEY, West Virginia
    CORY GARDNER, Colorado
    MIKE POMPEO, Kansas
    ADAM KINZINGER, Illinois
    H. MORGAN GRIFFITH, Virginia

                                     _____

                 Subcommittee on Communications and Technology

                              GREG WALDEN, Oregon
                                     Chairman
    LEE TERRY, Nebraska                  ANNA G. ESHOO, California
      Vice Chairman                        Ranking Member
    CLIFF STEARNS, Florida               EDWARD J. MARKEY, Massachusetts
    JOHN SHIMKUS, Illinois               MICHAEL F. DOYLE, Pennsylvania
    MARY BONO MACK, California           DORIS O. MATSUI, California
    MIKE ROGERS, Michigan                JOHN BARROW, Georgia
    BRIAN P. BILBRAY, California         EDOLPHUS TOWNS, New York
    CHARLES F. BASS, New Hampshire       FRANK PALLONE, Jr., New Jersey
    MARSHA BLACKBURN, Tennessee          BOBBY L. RUSH, Illinois
    PHIL GINGREY, Georgia                DIANA DeGETTE, Colorado
    STEVE SCALISE, Louisiana             JOHN D. DINGELL, Michigan
    ROBERT E. LATTA, Ohio                HENRY A. WAXMAN, California (ex
    BRETT GUTHRIE, Kentucky                  officio)
    ADAM KINZINGER, Illinois
    JOE BARTON, Texas
    FRED UPTON, Michigan (ex officio)

                                      (ii)

                                 C O N T E N T S

                                  ----------
                                                                       Page
    Hon. Greg Walden, a Representative in Congress from the State of
      Oregon, opening statement......................................     1
        Prepared statement...........................................     4
    Hon. Henry A. Waxman, a Representative in Congress from the State
      of California, opening statement...............................     6
    Hon. Fred Upton, a Representative in Congress from the State of
      Michigan, opening statement....................................     8
        Prepared statement...........................................    10
    Hon. Joe Barton, a Representative in Congress from the State of
      Texas, opening statement.......................................    12
        Prepared statement...........................................    13
    Hon. Anna G. Eshoo, a Representative in Congress from the State
      of California, opening statement...............................    15
    Hon. Edolphus Towns, a Representative in Congress from the State
      of New York, prepared statement................................   222

                                   Witnesses

    S. Derek Turner, Research Director, Free Press...................    17
        Prepared statement...........................................    19
        Answers to submitted questions...............................   223
    Robin Chase, CEO, Buzzcar........................................    52
        Prepared statement...........................................    54
    James Cicconi, Senior Executive Vice President, External and
      Legislative Affairs, AT&T......................................    64
        Prepared statement...........................................    66
    Anna-Maria Kovacs, Ph.D., Strategic Choices......................    70
        Prepared statement...........................................    72
        Answers to submitted questions...............................   225
    Shane Mitchell Greenstein, Ph.D., The Elinor and Wendell Hobbs
      Professor, Kellogg School of Management, Northwestern
      University.....................................................    97
        Prepared statement...........................................    99
        Answers to submitted questions...............................   230
    Tom DeReggi, President, RapidDSL & Wireless......................   127
        Prepared statement...........................................   130

                               Submitted Material

    Letter of March 1, 2011, from faith-based organizations to
      subcommittee leaders, submitted by Ms. Eshoo...................   160
    Letter, undated, from Consumers Union to subcommittee leaders,
      submitted by Ms. Eshoo.........................................   163
    Letter of March 9, 2011, from Consumer Federation of America to
      subcommittee leaders, submitted by Ms. Eshoo...................   165
    ``Internet Access and Network Management Practices: The Public
      Remains Concerned and Wants Policies and Energy Access,'' March
      2011 survey conducted by Consumer Federation of America and
      Consumers Union, submitted by Ms. Eshoo........................   176
    Letter of March 8, 2011, from Wally Bowen, Executive Director,
      Mountain Area Information Network, to subcommittee leaders,
      submitted by Ms. Eshoo.........................................   194
    ``The FCC's neutral Net,'' editorial dated March 3, 2011, Los
      Angeles Times, submitted by Ms. Eshoo..........................   196
    ``Net Neutrality, Back in Court'' editorial dated March 6, 2011,
      New York Times, submitted by Ms. Eshoo.........................   197
    ``Our view on `net neutrality': On the Internet, the pipes
      shouldn't control the content,'' editorial dated January 3,
      2011, USA Today, submitted by Ms. Eshoo........................   199
    Letter of April 28, 2010, from Seth P. Waxman, Counsel for the
      United States Telecom Association, to Julius Genachowski,
      Chairman, Federal Communications Commission, submitted by Mr.
      Walden.........................................................   211

          H.J. RES 37, DISAPPROVING THE RULE SUBMITTED BY THE FEDERAL
     COMMUNICATIONS COMMISSION WITH RESPECT TO REGULATING THE INTERNET AND
                          BROADBAND INDUSTRY PRACTICES

                                  ----------

                            WEDNESDAY, MARCH 9, 2011

                      House of Representatives,
         Subcommittee on Communications and Technology,
                              Committee on Energy and Commerce,
                                                        Washington, DC.
        The subcommittee met, pursuant to call, at 10:34 a.m., in
    room 2123 of the Rayburn House Office Building, Hon. Greg
    Walden (chairman of the subcommittee) presiding.
        Members present: Representatives Walden, Terry, Stearns,
    Shimkus, Rogers, Blackburn, Bilbray, Bass, Gingrey, Scalise,
    Guthrie, Kinzinger, Barton, Upton (ex officio), Eshoo, Markey,
    Doyle, Matsui, Barrow, and Waxman (ex officio).
        Also present: Representatives Christensen and Inslee.
        Staff present: Jim Barnette, General Counsel; Neil Fried,
    Chief Counsel, Communications and Technology; David Redl,
    Counsel, Communications and Technology; Ray Baum, Senior Policy
    Advisor; Peter Kielty, Senior Legislative Analyst; Alex Yergin,
    Legislative Clerk; Roger Sherman, Minority Chief Counsel; Shawn
    Chang, Minority Counsel; Jeff Cohen, Minority Counsel; Sarah
    Fisher, Minority Policy Analyst; Pat Delgado, Minority Chief of
    Staff (Waxman); and Phil Barnett, Minority Staff Director.
        Mr. Walden. I would like to call the Subcommittee on
    Communications and Technology to order.

      OPENING STATEMENT OF HON. GREG WALDEN, A REPRESENTATIVE IN
                   CONGRESS FROM THE STATE OF OREGON

        Mr. Walden. Today, we have a hearing and a markup on
    network neutrality and H.J. Res 37, the resolution of
    disapproval I introduced to stop the FCC from regulating the
    Internet. This is our second hearing on this topic. On February
    16, 2011, this committee had a 3-hour hearing with all five FCC
    commissioners. At the request of our Democrat colleagues, I
    delayed a previously scheduled markup and scheduled this
    hearing to shed even more light on the impact of the FCC's
    rules for deregulating the Internet--for regulating the
    Internet.
        I have introduced the resolution under the Congressional
    Review Act, which provides Congress with an expedited process
    to nullify agency rules. The resolution requires a simple
    majority in each chamber, and is filibuster-proof in the United
    States Senate. Because the form of the resolution is provided
    for in statute, it is not subject to amendment.
        Senate Majority leader Harry Reid, an original co-sponsor
    of the CRA, has described the process as ``reasonable, sensible
    approach to regulatory reform''.
        We have an open and thriving Internet, thanks to our
    historical, hands-off approach. The Internet works pretty well.
    It is the government that doesn't. However, on December 21,
    2010, the FCC adopted rules regulating the Internet without
    statutory authority to do so.
        Before we get into the harm that government regulation of
    the Internet will cause, it is important to realize that the
    FCC's underlying theory of authority would allow the Commission
    to regulate any interstate commerce communications services on
    barely more than a whim and without any additional input from
    Congress. I do not want to cede such authority to the Federal
    Communications Commission.
        Section 230 of the Communications Act makes it U.S. policy
    to ``preserve the vibrant and competitive free market that
    presently exists for the Internet and other interactive
    computer services unfettered by federal or state regulation.''
    Under the FCC's rationale, its authority is bounded only by its
    imagination. This new rule is little more than a weak attempt
    to do an end run-around the D.C. Circuit's Comcast/BitTorrent
    ruling that the FCC failed to show it had authority to regulate
    the Internet.
        Do my Democratic colleagues agree the FCC has the authority
    to regulate the Internet in coffee shops and bookstores and
    airlines and other entities? Well, the FCC believes it has that
    authority, and in its rule it declined to subject those
    entities to their new regulations. My opinion, this is an
    agency exceeding its congressional authority, and its actions
    will hurt investment and cost jobs.
        A small cable and Internet provider from my district
    recently wrote to me about her concerns, stating ``Last spring,
    the FCC chairman primed the pump, threatening to apply portions
    of Title II of the 1934 Telecom. Act to broadband. The cable
    industry has invested billions of dollars of private capital to
    build broadband and infrastructure to over 90 percent of
    American homes. Commissioners are looking in the rearview
    mirror, attempting to regulate the Internet of yesterday,
    absent any market failure. How will companies like
    BendBroadband be able to compete if we bear the brunt of the
    regulations against, while the giants like Google, Amazon, and
    Netflix go free? The Internet is evolving. All members of the
    ecosystem need to work together to innovate. The chairman has
    picked winners and losers in this recent effort to impose net
    neutrality regulations. These efforts will cost jobs, stall
    innovation, and dampen investment.''
        This is not a partisan issue. In 2006, 58 Democrats voted
    with us on the House floor to oppose a network neutrality
    amendment to video legislation. Some of those Democrats are
    still on the full committee. Some are still on this
    subcommittee. That was not a vote against a Title II versus a
    Title I approach, that was a vote against imposing network
    neutrality rules.
        There is no crisis warranting the FCC's deviation from our
    historical hands-off approach. Rather than show an actual
    problem, the Federal Communications Commission relies on
    speculation of future harm. The FCC even admits in the order
    that it conducted no market power analysis. See footnote 87.
    Dr. David J. Farber, grandfather of the Internet and former FCC
    chief technologist, warned on December 21, 2010, in an op ed
    that the FCC's ``order will sweep broadband ISPs and
    potentially the entire Internet into the big tent of
    regulation. What does this mean? Customer needs take second
    place and a previously innovative and vibrant industry becomes
    a creature of government rulemaking.''
        This will also make it harder for upstarts to compete with
    web incumbents. New entrants will have fewer resources to
    advocate before the FCC, and will also lack the needed
    flexibility to strike creative deals to compete with web
    incumbents. As we will hear today, what is even more
    universally damaging is the rule's potential to destroy the
    ability of infrastructure providers to raise capital. That
    would threaten the infrastructure which both customers and
    content providers rely.
        We will also hear that the FCC's rule will transfer wealth
    from broadband providers to application providers. ``That does
    not begin to grasp the problem for both parties. The transfer
    of wealth between two independent parties can be beneficial to
    one at the expense of the other. A transfer of wealth that will
    ultimately cripple the party in which the other relies for its
    very existence is profoundly harmful to both.'' These
    regulations will cost jobs. They will hinder the necessary
    investment in network upgrades on which customers and content
    providers rely, thus thwarting the competitive free market
    vibrancy, and innovation of the Internet.
        Let us keep the Internet open and innovative. I urge my
    colleagues to support the resolution.
        [The prepared statement of Mr. Walden follows:]

        Mr. Walden. With that, I will recognize my friend from
    California, Ms. Eshoo, for an opening statement.
        Mr. Waxman. Mr. Chairman, I am going to----
        Mr. Walden. With that, I will recognize my friend, the
    gentleman from California, Mr. Waxman, for an opening
    statement, as he needs to go to another committee hearing.
        Mr. Waxman. Thank you very much, Mr. Chairman, and I want
    to thank my colleague, the Ranking Member of the Committee,
    Representative Eshoo, for allowing me to go before her in
    making this statement.

    OPENING STATEMENT OF HON. HENRY A. WAXMAN, A REPRESENTATIVE IN
                 CONGRESS FROM THE STATE OF CALIFORNIA

        I want to thank you, Mr. Chairman, for agreeing to our
    request for a legislative hearing on H.J. Res 37. It is a
    resolution of disapproval under the Congressional Review Act.
    Democrats on this subcommittee felt strongly that before we
    rush to consider this legislation, we would all benefit from
    hearing from companies, public interest groups, and economists.
        My concern is that there is an enormous disconnect between
    the facts and the Majority's policy objectives. As we will
    learn today, technology innovators oppose the disapproval
    resolution, consumers oppose the resolution, and economists
    oppose the resolution. Even broadband providers do not support
    the resolution.
        In a letter the Committee received on Monday, the cable
    industry said it supports the FCC order because ``it largely
    codified the status quo which the industry has voluntarily
    committed. It contains helpful clarifying language around what
    constitutes reasonable network management. It provides greater
    certainty about our ability to manage and invest in our
    broadband services, and the alternative of Title 2 regulation
    presented a stark and much worse risk.'' Well, here is similar
    testimony from AT&T today. Yesterday, the Consumer Federation
    of America and Consumers Union released a poll showing the
    overwhelming public support for an open Internet. By a two to
    one margin, consumers opposed congressional action to block the
    FCC rule.
        But none of these facts seem to matter. The reason we are
    debating the disapproval resolution is that Republicans claim
    that FCC regulation will stifle the Internet and hurt our
    economy. But the fastest growing, most innovative companies in
    America, companies like Google, Amazon, Netflix, and others say
    exactly the opposite. They urge the FCC to adopt open Internet
    rules because ``baseline rules are critical to assuring that
    the Internet remains a key engine of economic growth,
    innovation, and global competitiveness.'' In fact, most of the
    Internet companies wanted stronger rules than those adopted by
    the FCC.
        I wanted to get independent advice, so our staff contacted
    economists at Stanford, NYU, USC, and other leading academic
    institutions. They told us that the FCC got the rules right.
    The phone and cable companies have near monopolies as providers
    of Internet access, especially wireless Internet access.
    Without sensible regulation, they could choke off innovation by
    charging Internet companies for the right to communicate with
    consumers.
        One of the costs of this misguided resolution is that it is
    distracting us from important telecommunications issues that we
    should be addressing, and we could do so on a bipartisan basis.
    We are to be working together to grow our economy by freeing up
    spectrum. We should be working together to make our Nation
    safer by building a broadband network for public safety. We
    should be protecting taxpayers and consumers by enacting
    Universal Service reform. But we are doing none of these
    things. Instead, we are wasting time with a destructive
    resolution that should threaten openness and innovation on the
    Internet.
        I thank our witnesses for being here. I look forward to
    your testimony. I want to yield the balance of my time to Mr.
    Markey.
        Mr. Markey. Thank you, Mr. Waxman, very much.
        Why is the Internet so important? It enables freedom of
    expression and the sharing of ideas across town or around the
    world. It prevents a single entity, whether it is a broadband
    behemoth or the government from exercising total control. It is
    a vital tool that helps small businesses compete and expand,
    pumping life into our economy. That is what an open Internet is
    all about.
        One of our witnesses here this morning, Robin Chase,
    embodies the importance of an open Internet to our economy. Ms.
    Chase co-founded and ran Zipcar, a car-sharing service that is
    available in more than 200 cities across the U.S. She used the
    open nature of the Internet to build her innovative business
    from the ground up, without having to ask permission from
    Verizon, AT&T, Comcast, or any other carrier for permission.
    Here are Zipcar's current numbers: 474 full-time employees,
    $186 million in revenue, 540,000 members. That is what the open
    Internet means to our economy.
        This debate we are having today is not just a solution in
    search of a problem, it is a resolution in search of a problem.
    If we want to move forward here in a way that deals with this
    issue, Comcast agrees they can live with these Rules. AT&T
    agrees they can live with these rules. The key to the Internet
    is ensuring that it is open so that new companies, new
    applications, new gadgets are being invented on a daily basis
    in hundred and thousands of cities across our country that
    utilize this engine for economic growth as a way that keeps
    America's lead over the rest of the world. That is what makes
    us great, the open Internet. If we allow a small number of
    companies to control how fast that change, that innovation
    moves, then we will be stifling our ability to continue to be
    the engine of growth in the world, using the Internet as our
    way of revolutionizing the rest of the world.
        If we did not have an open Internet, no Facebook, no
    Twitter, Hulu, YouTube.
        Thank you, Mr. Chairman, for extending graciously that
    extra time to me.
        Mr. Walden. Thank the gentleman from Massachusetts. I would
    now turn to the chairman of the full committee, Mr. Upton, for
    opening statement.
        Mr. Upton. I would just thank you, Mr. Chairman. I just
    remind my friend from Massachusetts that we have all of those
    currently, and we don't have net neutrality now.

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

        Mr. Upton. I urge my colleagues to support H.J. Res 37 that
    nullifies the FCC's attempt to regulate the Internet. President
    Obama has said that it is now his priority to focus on jobs. He
    has also said that his Administration will avoid onerous and
    unnecessary regs that stifle investment and innovation. In
    fact, in a January Executive Order, the President said that
    agencies must base regulations on a reasoned determination that
    the benefits, in fact, justify their cost.
        While the Executive Order does not apply to independent
    agencies like the FCC, the President urged such agencies to
    follow it. FCC chair Genachowski has said that he does agree
    with the Order's principles. Well, if the FCC had taken this
    approach for the last year, we might not have needed this
    resolution today. The reality is that if the FCC was truly
    weighing the costs and benefits of its actions, that the agency
    would not be attempting to regulate the Internet.
        There is no crisis warranting intervention. The Internet is
    open and it is thriving, precisely because we have refrained
    from regulating it. Imposing these rules will cause more harm
    than good by chilling the very investment and innovation that
    we need to ensure that the Internet keeps pace with the growing
    demands being placed on it. This will only hurt our economy.
        The Internet is not broken. The market has not failed. To
    justify its power grab for a favored sector, the FCC is simply
    speculating about the possibility of future harm. Apparently,
    they never heard the old phrase, ``If it ain't broke, don't fix
    it.'' Well, we can go one step further. As the late James
    Crowell, who served as Democratic FCC commissioner, said, ``If
    it ain't broke, don't break it.''
        The FCC actually confesses in the order, albeit in the
    footnotes, that it did not conduct a market analysis. Where is
    the rigorous cost benefit analysis and demonstration of need?
    We have reviewed the response to our follow-up, and quite
    frankly, it is lacking. They point to paragraphs that contain
    little more than conclusory statements or summaries of
    comments.
        Let us be clear. I do not believe we should be regulating
    the Internet, but if we follow the FCC's logic, the agency
    would ultimately be regulating Google and any number of other
    Internet companies. Press accounts indicate that Google engages
    in subjective prioritization of some search results over
    others. This not only affects what traffic Internet users see,
    it also can have a financial impact on Web sites. Should the
    FCC be determining whether Google is engaged in unreasonable
    discrimination? Is Google's traffic management reasonable?
    Would it be appropriate for the government to intervene because
    of the possibility of future harm without an analysis of
    current problems or market power? I think not. Not for Google,
    and not for anybody else.
        Ultimately, there is a question of authority. The FCC has
    changed its story about where it gets the power to issue these
    rules more times than it has uttered the word ``transparency''.
    Each time it teeters from one weak explanation to another,
    based on the most legal or political impediment it is facing.
    None are consistent with its own precedent, and all are end
    runs around the D.C. Circuit's decision in the Comcast case
    that the FCC has failed to show its authority in the space.
        For these reasons, I urge my colleagues to vote for the
    resolution, and I yield the balance of my time to my friend,
    the Chairman Emeritus, Mr. Barton.
        [The prepared statement of Mr. Upton follows:]

        Mr. Barton. Thank you, Chairman Upton. You gave an
    excellent explanation of why we should all support H.J. 37.

       OPENING STATEMENT OF HON. JOE BARTON, A REPRESENTATIVE IN
                    CONGRESS FROM THE STATE OF TEXAS

        Mr. Barton. To be as succinct as possible, the Internet has
    thrived, I think, in large part because this Congress
    repeatedly has stated that we did not want it to be regulated,
    and the FCC keeps attempting to get some nose under the tent,
    so to speak, so that in the future they can come back with real
    heavy handed regulation. This latest attempt, the three to two
    vote, in my opinion is simply an effort to establish the
    principle that the FCC can regulate the Internet. It is not as
    important what they do now, but the fact that they have the
    authority to do it. H.J. 37 would explicitly say they do not
    have the authority. As Chairman Upton has just said, if it is
    not broke, don't fix it. All these great things that are
    happening are happening under a deregulated environment, and we
    should keep it that way.
        With that, I yield back to the subcommittee chairman.
        [The prepared statement of Mr. Barton follows:]

        Mr. Walden. Thank the gentlemen for their opening
    statements.
        I would now yield to the gentlewoman from California, Ms.
    Eshoo, for 5 minutes.
        Ms. Eshoo. Good morning, Mr. Chairman, and all of my
    colleagues. To the witnesses, thank you for being here today.

     OPENING STATEMENT OF HON. ANNA G. ESHOO, A REPRESENTATIVE IN
                 CONGRESS FROM THE STATE OF CALIFORNIA

        Ms. Eshoo. Given the significance of the resolution under
    consideration today, I want to thank Chairman Walden for
    respecting the request of the ranking member of the full
    committee, Mr. Waxman, myself, and members of the subcommittee
    to have a legislative hearing. I think it is essential that
    members of the subcommittee have an opportunity to hear from
    key stakeholders who are here today before voting on a
    resolution that would overturn the FCC's Open Internet rules.
        It is so fascinating to me to listen to the statements that
    members make. This is all about an open and free Internet. In
    fact, those words are really the hallmarks of the Internet. All
    of the reasons that my Republican colleagues are saying they
    are doing this is fascinating, because the stakeholders
    themselves are on the other side of the issue. They do not
    believe that the light touch of the FCC is menacing; in fact,
    they have said and weighed in. We know the testimony. You have
    seen it--not only the testimony, but the letters that have
    poured in to this committee of groups and organizations across
    the country, from religious leaders to consumer organizations
    to high technology associations, they have all weighed in and
    said don't do this. It is fascinating to me that they say they
    are for an open Internet after reviewing the record of where
    there have been abuses. We want to see consumers making the
    choice, not corporations. We want companies to grow to be
    successful, and there is a long, long, long list of them, so
    many of them constituent companies from my congressional
    district.
        I think that everyone here really needs to think very
    carefully about the direct and indirect consequences of passing
    this resolution. Disapproving the FCC's rule is a serious
    threat to our economy, and I think it is a direct attack on
    transparency. It could also lead to further uncertainty in
    areas beyond the December order, such as the FCC's ability to
    promote public safety and ensure online safeguards that prevent
    piracy and protect children from accessing harmful Internet
    content.
        As I said or alluded to a moment ago, the history of an
    open Internet speaks for itself. Businesses that rely on an
    open Internet continue to grow--an open Internet continue to
    grow. A stunning example is eBay. In just over 15 years, it has
    gone from a living room startup to a company that enables
    hundreds of thousands of American small businesses and
    entrepreneurs to sell their goods to consumers across the
    country and around the world. The significance to our economy
    is enormous. It is actually stunning. Sixty billion dollars in
    goods sold on eBay marketplaces globally in 2009.
        A similar story of success is Netflix, which in just the
    last year has added eight million new subscribers. With over
    2,000 employees and a physical presence in every state, Netflix
    is continuing to grow, and there is a reason for it. Open,
    accessible, consumers making the choice. That is what we seek
    to protect.
        So why are the basic rules of the road essential to the
    continued growth of these companies? By preventing blocking and
    unreasonable discrimination, the Internet can remain a source
    of innovation and new ideas, not a platform where consumers and
    businesses are told which sources of news, information, and
    entertainment they can access.
        The witnesses that are here today, we are all grateful to.
    I want to express a very special thanks to Robin Chase, who
    flew from Paris, France, to be here today, only to fly back to
    Berlin, Germany, this afternoon. That is one hell of a
    commitment, to come here and to speak on this really
    extraordinarily important issue, and we are very grateful to
    her. I think this is just one example among thousands of
    Internet innovators who understand how the CRA will hinder job
    creation and consumer choice. I am also pleased that members
    will be presented with the economic theory supporting the FCC's
    rules.
        So Mr. Chairman, thank you for making sure that we have
    this legislative hearing. I thank the witnesses, and I don't
    have any time to yield back. Thank you.
        Mr. Walden. That is all right. I thank you for your
    comments, and we look forward to hearing from the witnesses.
    Obviously, as you all have been briefed, the Prime Minister of
    Australia is going to be speaking to a joint session of
    Congress, so at some point here we will recess because we are
    not allowed under our rules to meet during a joint session.
        I would like to point out how much we appreciate your being
    here. Ms. Chase, I know as a witness you had to fly from France
    and back to Germany today. We could have used high technology
    maybe to get your testimony and take your questions. We could
    have worked on that.
        I would also like to point out for the record, this is our
    second hearing on this topic. We had all five FCC commissioners
    before, and now we have six witnesses here, equally divided, I
    would point out, between the Republicans and the Democrats, the
    Majority and Minority. At the conclusion of this hearing, there
    will have been two hearings, and probably one of the first
    times in the history of the committee that the Minority has
    actually had more witnesses on a topic than the Majority.
        So we are trying to hear from people. We are trying to be
    open and fair and balanced about this, and we look forward to
    your testimony when we resume. So at this point, I will recess
    the committee until after the Prime Minister. It will be
    probably about an hour, we are guessing, by the time members go
    and get back, maybe a little bit more. So if you can kind of
    hang out not too far away, that would be helpful.
        With that, the committee is--stands in recess.
        [Recess.]
        Mr. Walden. I am going to call back to order the
    Subcommittee on Communications and Technology, and welcome our
    witnesses this morning--or now this afternoon. Thank you for
    being here. Thank you for making the extra effort to be here
    from Europe and back, and so we will start. Let us start with--
    I believe we will just go left to right with Mr. Turner. We
    appreciate your willingness to come and testify.
        Mr. Turner, if you want to go ahead and start, research
    director for Free Press. We welcome you here, and we look
    forward to your testimony, sir.

     STATEMENTS OF S. DEREK TURNER, RESEARCH DIRECTOR, FREE PRESS;
    ROBIN CHASE, CEO, BUZZCAR; JAMES CICCONI, SENIOR EXECUTIVE VICE
     PRESIDENT, EXTERNAL AND LEGISLATIVE AFFAIRS, AT&T; ANNA-MARIA
     KOVACS, PH.D., STRATEGIC CHOICES; SHANE MITCHELL GREENSTEIN,
     PH.D., THE ELINOR AND WENDELL HOBBS PROFESSOR, KELLOGG SCHOOL
       OF MANAGEMENT, NORTHWESTERN UNIVERSITY; AND TOM DEREGGI,
                     PRESIDENT, RAPIDDSL & WIRELESS

                      STATEMENT OF S. DEREK TURNER

        Mr. Turner. Thank you. Good afternoon, Chairman Walden and
    Ranking Member Eshoo, members of the committee. On behalf of
    Free Press and the Free Press Action Fund, as the coordinator
    of the Save the Internet Coalition, representing more than 800
    groups and their 10 million members, I appreciate the
    opportunity to offer the perspective of Internet users in
    today's hearing on House Joint Resolution 37.
        Let me begin by acknowledging an often-forgotten truth. The
    principle of non-discrimination, which is the bedrock of net
    neutrality policy, was not always the political football it is
    today. Unfortunately, the debate around non-discrimination has
    become immune to the calming powers of historical fact and
    susceptible to the ills of special interest politics and false
    partisan frames.
        This recent rhetorical drift is very much at odds with the
    long bipartisan effort to prevent market power abuses by owners
    of our Nation's critical communications infrastructure. It was
    the Nixon administration that put in place strong rules of non-
    discrimination in order to ensure abuses of market power would
    not stifle the growth of an infant network computing industry.
    This successful framework was later improved upon by both the
    Carter and Reagan administrations.
        In the Telecom Act of 1996, a bipartisan Congress
    recognized that in order to foster new industries, we needed
    the FCC to act to ensure that everyone had open access to the
    information superhighway. Look no further than Section 10 to
    see that Congress intended non-discrimination survive any
    deregulation.
        In the early 2000s, the FCC began to abandon the Telecom
    Act's blueprint for reasoned deregulation through forbearance;
    however, the Commission still recognized that the underlying
    nondiscriminatory outcomes were worth preserving. FCC Chairman
    Michael Powell first articulated the four Internet freedoms
    that subsequently served as the basis for the Open Internet
    provisions in the COPE Act adopted by the House in 2006.
    Chairman Kevin Martin took action in 2008 to stop Comcast's
    secret discrimination against certain Internet content.
        But recently, we have seen this debate move away from the
    shared goal of preserving the open Internet. The problem of
    market power in communications networks is very real and
    increasingly politically inconvenient. As a result, we have
    seen those who used to recognize this problem abandon those
    views. Some policy makers now seem resigned to the misguided
    notion that the duopoly Internet access market is perfectly
    competitive. This is unfortunate because I believe we all agree
    that the Internet should be preserved as an open platform.
    Allowing gatekeepers to erect barriers to speech and commerce
    is an unacceptable outcome, and public policy should be used to
    prevent it.
        If we can agree that ensuring access to an open platform is
    a worthy policy goal, then we have a duty to confront the
    reality that network owners have strong incentives to close the
    platform and favor their own content at the expense of everyone
    else's. Now, I recognize that some of you are uncomfortable
    with the FCC's Open Internet order. My organization, too,
    ultimately opposed it. We felt that it failed to adequately
    preserve and protect the open Internet; however, we oppose the
    resolution of disapproval. It will leave consumers completely
    unprotected. It will remove the limited certainty that the
    FCC's rules provide. Most importantly, it will prevent the FCC
    from addressing blatant censorship and anti-competitive
    activities in the future. This resolution is an unnecessary and
    dangerous overreaction to a policy framework that is, at its
    core, very similar to the bipartisan COPE Act of 2006. Make no
    mistake, adoption of this resolution will increase market
    uncertainty and harm economic growth.
        Most ISPs have told Wall Street the truth, that these rules
    are no burden, so to borrow a very tired old phrase, the
    resolution of this approval is a solution in search of a
    problem.
        Innovators in the applications and content sector believe
    they now have a certain, albeit imperfect, framework to live
    under. This resolution, if enacted, will remove that certainty
    and subject them to the discriminatory whims of the ISPs. There
    may be much to dislike about what this FCC did and how it did
    it, but the fundamental point here is that we cannot simply set
    up a false choice between what the FCC did and no policy at
    all. We can't wish away the concentrated market structure. We
    can't simply hope that the duopoly ISPs will make decisions in
    the best interest of all Americans.
        I am a strong believer in free markets, but I understand
    the immovable barriers to effective competition in markets like
    this that have natural monopoly characteristics. Internet users
    cannot afford for Congress to remove what little oversight is
    left.
        So instead of pursuing this perilous path, we urge this
    body to remember its commitment to protecting non-
    discrimination, and work on constructive solutions that will
    benefit all Americans.
        Thank you for your attention, and I look forward to your
    questions.
        [The prepared statement of Mr. Turner follows:]

        Mr. Walden. Mr. Turner, thank you for being here today. We
    appreciate your testimony.
        Ms. Chase, we welcome you to the subcommittee. We
    appreciate your testimony as well, and your extra effort to be
    here today. Please go ahead.

                        STATEMENT OF ROBIN CHASE

        Ms. Chase. Chairman Walden, Ranking Member Eshoo, and
    members of the subcommittee, thank you for this opportunity to
    discuss the importance of network neutrality rules to job
    creation, economic development, and innovation.
        I am the founder of GoLoco, an online ridesharing
    community; the founder of Meadow Networks, a consulting firm
    that advises governments about wireless applications in the
    transportation sector; and the founder and former CEO of
    Zipcar, the world's largest carsharing company. When I received
    the invitation late last week to testify before this committee,
    I was working across the Atlantic, and later this afternoon I
    will fly back. Despite the significant resources and travel
    time to come here, I accepted the invitation because the course
    of action Congress is considering, namely repealing and
    eliminating the authority of the FCC to enact policies that
    preserve an open Internet, will greatly harm our country's
    ability to innovate, produce jobs, and remain globally
    competitive. As a successful American entrepreneur, I care
    deeply about maintaining our leadership within the world
    marketplace.
        Eleven years ago, I co-founded Zipcar. Our innovation was
    to make renting a car as simple as getting cash from an ATM,
    and open access to the Internet was central to Zipcar's
    success. It is only because of the ease, speed, and zero
    marginal cost of finding, reserving, and unlocking a car that
    anyone would be willing to rent a car for an hour or to sell
    only an hour of a car's time. Without an open Internet
    facilitating these transactions, Zipcar would simply not exist.
        Eliminating the FCC's network neutrality rules would put
    future entrepreneurs and small businesses at a significant
    disadvantage. Network neutrality prevents the
    telecommunications industry from discriminating against new
    applications and supports innovative new services like Zipcar.
        I want to draw an important parallel. Imagine, for example,
    if Zipcar had been forced to rely on the auto industry's
    definitions of car ownership, or worse yet, had to ask their
    permission to exist. Our vision of a fleet of cars being shared
    among a community of individuals would have been seen as
    implausible and threatening. Likewise, we cannot rely on the
    telecommunications industry to define the Internet or what
    people may use it for. Without consumer protections like
    network neutrality, these companies will define the Internet to
    mirror their preferred ``triple play'', their telephone
    services, their video channels, and their notion of the ideal
    Internet experience, and they will seek to squash any service
    that threatens their revenue stream, a perfect recipe for
    stifling innovation.
        This is not just mere speculation about the potential for
    shortsightedness, but rather personal firsthand experience.
    During the initial years of Zipcar, the wireless industry was
    simply unable to think outside the box. When we first
    approached cell phone companies to buy a data plan access in
    2000, we were met with blank non-responsive stares. The
    industry had only one vision of wireless at that time, and
    therefore only one product to sell. I recall many
    representatives not actually understanding the difference
    between purchasing kilobytes versus purchasing minutes. In
    their minds, their customers all used cell phones. Others
    simply did not exist.
        Today, innovation is the lifeblood of a competitive
    economy, and the Internet is its circulatory system. An open
    Internet gives everyone both access and the ability to apply
    new ways of thinking to problems. An open Internet breaks
    through silos that often do not get new thinking applied to
    them. For entrepreneurs, the open Internet allows for
    extraordinarily low input costs, which allows them to
    efficiently tap into unused excess capacity and leverage ideas
    at virtually no cost.
        Ensuring that the Internet will continue to promote
    innovation is the reason we are having this debate, and I
    absolutely agree that excessive regulation stifles innovation
    and prevents free markets from innovating. But the most
    important thing I have to say to this committee, and the reason
    I am here and flew all this way, the protections enacted by the
    FCC will help ensure an open Internet. Network neutrality is
    not excessive regulation that will stifle innovation. Network
    neutrality promotes innovation and protects consumers by
    preventing telecommunications companies from stifling new
    thinking, new services, and new applications.
        Indeed, I think the FCC's rules actually do not go far
    enough, especially with respect to wireless. The idea that
    different rules should apply, and that my experience of the
    Internet would be different depending on whether I am sitting
    at home on my desk connected or a park bench accessing those
    same pages wirelessly is nonsense. These arbitrary distinctions
    dramatically complicate life for innovators and entrepreneurs
    who will now have to contend with two different Internets, one
    wireless and one wireline, in everything they do. If Congress
    wants to truly unlock the economic and job creating potential
    of the Internet, and fully tap into the innovation potential of
    our country, it should do so by improving the FCC's rule in
    this regard, not repealing it.
        Twenty years ago, no one was thinking that the Internet
    would be used to share small numbers of cars among large
    numbers of people, and I don't know what brilliant and
    unexpected use the Internet will enable tomorrow. No one here
    does. That is why it is critical that fundamental
    characteristic of the Internet, its ability to accommodate,
    adapt, and evolve, is protected from companies that want to
    control how entrepreneurs and the general public use our
    networks. Public policies to ensure this outcome are vital if
    America wants to remain competitive in the 21st century
    economy. Protecting the open Internet and preventing an
    oligopoly from controlling how entrepreneurs like me use the
    Internet is in America's best interests.
        Thank you for letting me testify, and I look forward to
    your questions.
        [The prepared statement of Ms. Chase follows:]

        Mr. Walden. Thank you, Ms. Chase, again for your testimony.
        Now let us go to Mr. Cicconi. Thank you for being here from
    AT&T, senior executive vice president, external and legislative
    affairs. We welcome your testimony, sir.

                       STATEMENT OF JAMES CICCONI

        Mr. Cicconi. Thank you, Chairman Walden, Ranking Member
    Eshoo, members of the committee. Thank you for inviting me to
    testify today on behalf of my company, AT&T. I recognize it is
    unusual to be asked to testify on a resolution on which we have
    not taken a position; however, as I am sure all of you know, we
    have been involved for years in the issue that underlies H.J.
    Res. 37, and that is the protracted dispute over net neutrality
    regulation by the FCC.
        Let me first stress that AT&T has long supported the
    broadband principles laid out by the FCC over 6 years ago. We
    support an open Internet, we promise to abide by that concept
    voluntarily. But like many issues that start from a shared
    belief, this debate long ago devolved into a long discussion
    over specifics, whether the FCC should be able to enforce the
    broadband principles, whether a broad set of rules was needed,
    what legal authority the FCC has to put such rules in place.
    And all of this, despite any real evidence of a problem.
        As in most regulatory debates, this one does not lack for
    radical voices. Many sought heavy-handed government regulation
    and control of free markets, some for commercial advantages,
    others to advance their own ideology. Since this debate began
    back in 2005, AT&T has consistently opposed any FCC regulation
    of Internet services or facilities. This is still our strong
    preference today. We feel the anti-trust laws, the Federal
    Trade Act, and the discipline of highly competitive markets are
    more than adequate to police any potential abuses.
        Nonetheless, the pressure for Internet regulation continued
    over the years. You have all heard the saying that there is
    nothing so powerful as an idea whose time has come.
    Unfortunately, this is sometimes also true of a bad idea. The
    versions of net neutrality put forth by our opponents were, in
    many cases, truly bad and truly radical ideas.
        In October of 2009, some of these bad ideas found their way
    into a proposed net neutrality rule at the FCC. AT&T and the
    entire industry strongly opposed this proposal. It created a
    high degree of market concern, and needless to say, a very bad
    climate for investment. Unfortunately in the spring of 2010,
    the situation went from bad to worse. Following a decision by
    the D.C. Circuit Court of Appeals that questioned the FCC's
    legal authority to enforce its broadband principles, the
    Commission reacted by proposing to subject all broadband
    facilities to common carriage regulation under Title II of the
    Communications Act. This proposal was both extreme and without
    foundation in law, we feel strongly, and we fought it
    vigorously. Again, this even more radical proposal upset the
    financial markets in a very delicate economic situation.
        By the summer of last year, and after hearing from a
    bipartisan majority of House and Senate members, Chairman
    Genachowski, to his credit, began seeking a different approach.
    Discussions began between the opposing sides. AT&T
    participated, because quite frankly, we felt the issue was on a
    dangerous path that could end very badly for our company and
    for the industry. This process was long, hard, contentious. It
    led ultimately to discussions last fall under the auspices of
    Chairman Waxman, and a compromise with which, like most
    compromises, no one was entirely happy, but most participants
    felt to be fair. However, legislation proved impossible in that
    short timeframe, and the FCC made clear its intentions to move
    forward with a vote on net neutrality regulations by year end.
        In this situation, my company faced a difficult decision,
    given that the only proposals currently before the FCC were
    either bad or worse, in our view. With others in the industry,
    we decided we would be willing to accept a rule modeled on the
    compromise we reached in the Waxman process, but we were
    unwilling to support anything that went beyond that. Chairman
    Genachowski, I might add, was under tremendous pressure from
    others, including voices on the Commission, to impose Title II
    regulations. Instead, he and his staff worked with the industry
    in good faith, and with the various stakeholders to craft a
    compromise rule to try to balance major differences, while
    avoiding more extreme proposals.
        I would be the first to stress this is not a perfect
    solution. Our preference has always been that the FCC should
    not regulate any Internet space. But it was also clear to us
    that a majority of the FCC was determined to move forward in
    December, and that we would not be representing our
    shareholders well if we let the perfect be the enemy of the
    good. We faced opponents pressing for more extreme regulations,
    and knew that absent a fair middle ground, a good bit of harm
    might be done to our industry and to needed investment.
    Chairman Genachowski resisted those pressures and acted in good
    faith to find that fair middle ground. The rule is consistent
    with AT&T's current open Internet policies. It would not
    require us to change any of our business practices or plans,
    assuming it is applied in a reasonable narrowly tailored way.
        As the chairman of AT&T has said, it provides a path for
    continued investment by removing much of the uncertainty this
    issue has caused. It was a factor, along with recent tax law
    changes, and AT&T's decision to accelerate the investment in
    the build-out of our LTE wireless network.
        In short, we believe the result, given the alternatives
    before the Commission, is both fair and will help maintain our
    company's ability to invest.
        Thank you.
        [The prepared statement of Mr. Cicconi follows:]

        Mr. Walden. Thank you, Mr. Cicconi. We appreciate your
    testimony.
        Now we are going to go to Dr. Anna-Maria Kovacs with
    Strategic Choices. We appreciate your willingness to come and
    testify on the financial implications of this rule in the
    markets. Thank you. Go ahead.

                     STATEMENT OF ANNA-MARIA KOVACS

        Ms. Kovacs. Thank you. Good afternoon----
        Mr. Walden. Please pull that microphone close and make sure
    it is turned on.
        Ms. Kovacs. Good afternoon, Chairman Walden, Ranking Member
    Eshoo, and distinguished members of this subcommittee. Thank
    you for the opportunity to appear before you today.
        I spent roughly 25 years working as an investment analyst
    covering the communications industry before retiring as an
    analyst at the end of 2010. While I intend in the future to
    work as a consultant, at the present time I have no clients and
    I represent myself.
        The Internet has become central to the lives of most
    Americans, and it is certainly something I rely on almost every
    day for news, information and communication. I agree with the
    stated goals of the FCC's order. The desire for an open
    Internet, for transparency, for an environment in which
    innovation and investment flourish to the benefit of both
    consumers and providers at all levels of the Internet
    ecosystem.
        I am concerned, however, that some aspects of the order
    will ultimately result in unintended, but nevertheless
    detrimental, consequences to investment and innovation, both at
    the edge and the core. And I think it is important to emphasize
    that the debate is not about whether blocking or degradation of
    service are good or bad. It is about whether they are more
    likely to occur through the intentional actions of broadband
    Internet access providers or through lack of investment. That
    really is what the debate boils down to.
        The order appears to be premised on the view of the
    Internet ecosystem that assumes that the edge is embryonic and
    innovative, and the core is mature and static.
        Application providers, including content and service
    providers, are left free to transform their business plans at
    will. One of their key inputs, transport, is provided to them
    free over the networks of broadband Internet access providers,
    carriers with whom they may compete at the application level.
    Conversely, the order restricts the carrier's flexibility in
    designing their business plans, limits their sources of
    revenue, dictates that they spend capital to expand the
    networks at the edge provider's will, and forces them to
    subsidize competitors who cannibalize their customer base.
        To characterize this as a transfer of wealth from broadband
    Internet access providers to application providers is accurate,
    but does not begin to grasp the problem for both parties. A
    transfer of wealth between two independent parties can be
    beneficial to one at the expense of the other. A transfer of
    wealth that will ultimately cripple the party on which the
    other relies for its very existence is profoundly harmful to
    both. Thus, it is the order's implicit assumption that it is
    possible to protect the edge at the expense of the core that
    concerns me most. The two are inextricably entwined. To protect
    the edge, it is vital to protect the core.
        Far more devastating to Google, Skype and Netflix than
    being charged for transport is an Internet whose evolution and
    capacity are flash frozen for lack of investment. That is
    because their innovative applications can only follow a step
    behind the network's capacity and quality.
        Networks have a voracious and unending need for capital,
    just as new applications cannot safely rest on its laurels,
    neither can networks. They must constantly be upgraded to
    satisfy the need for ever-increasing speed, quality, and
    security. But carriers can only raise capital to invest if they
    have enough to cover their costs. To raise the necessary
    revenues, companies need flexibility. They need to be able to
    address their business plans to changing market conditions.
    Above all, they need to be able to charge for their services
    and to have flexibility in doing so. Just as professional
    application providers cannot afford to give away their content
    and services for free, neither can the carriers.
        As an example, the FCC's model forbids Frontier to charge
    Skype at the wholesale level, even while Skype takes away
    because the voice customers at the retail level from Frontier.
    If carriers are forced to charge only for broadband access
    because they can no longer charge for video and voice, the
    price of that broadband access will increase and investment
    will fall. That is damaging not only to the carriers, it is
    also damaging to the application providers that ride on the
    carrier's networks and are constrained by the capacity and
    quality limitations of those networks.
        My concerns is there is a false dichotomy that drives the
    net neutrality debate, that views the edge as separate from the
    core as needing to be protected from the core, as able to
    prosper only at the expense of the core. In fact, because
    innovation at the application level is so completely tied to
    investment and innovation at the transport level, the edge can
    only exist if the core prospers. The best way to encourage
    innovation, investment, and jobs at the edge is to also promote
    innovation, investment, and jobs at the core.
        [The prepared statement of Ms. Kovacs follows:]

        Mr. Walden. Dr. Kovacs, thank you for your testimony. We
    appreciate it.
        Next is Dr. Shane Mitchell Greenstein, Ph.D., the Elinor
    and Wendell Hobbs professor at the Kellogg School of
    Management, Northwestern University. Dr. Greenstein, we welcome
    you, and look forward to your comments.

                 STATEMENT OF SHANE MITCHELL GREENSTEIN

        Mr. Greenstein. Thank you for giving me an opportunity to
    speak. I am happy to share my views with you. Please understand
    I do not work for anyone, neither firm nor advocate. I come as
    a professional economist who has had the privilege to study and
    write about the commercial Internet access market almost since
    its inception.
        From the standpoint of the economics of the Internet access
    market, there are great potential risks from disposing of the
    Open Internet order, and the gains from continuity are high.
    The order looks like good innovation policy and good economic
    policy. If we want to create a prosperous commercial Internet
    in the next 15 years, think about how well the Internet works
    today. Now think about all the ways it could have gone wrong,
    and my advice boils down to avoid the same problems we avoided
    in the past.
        How do you do that? You keep transactions, costs low for
    entrepreneurs. The United States commercial Internet functions
    well today because it avoids a number of industry practices
    that would have raised transaction costs of innovation that
    would have introduced hassles, delays, and haggling. Instead,
    today any entrepreneur can enter without worrying about the
    gains--gaining the permission of a gateway firm.
        If the U.S. government commits to no regulatory
    intervention in Internet access markets, would that invite
    problems? Experience of the last 50 years suggests that there
    is a risk it will and a chance it will not. It is hard to tell.
    Until recently, regulatory restraints prevented all carriers
    from taking certain actions so there is little experience from
    which to forecast how carriers would behave in the absence of
    restraint.
        One central concern arises due to commercial activities in
    one line of business, for example, broadband service, affecting
    the prospects in another, for example, video entertainment. If
    carriers act on their economic incentives, we would expect
    carriers to help all of their businesses, deliberately becoming
    less transparent to rivals, blocking some content of rivals, or
    giving lower priority to traffic from erstwhile competitors.
    Concentrated supply of access in some locations in the United
    States also heightens the incentives to act this way.
        A balanced view would also note that there are other
    factors pushing in the other direction. National
    standardization processes generate transparency. User
    tendencies to substitute to alternative carriers in some
    markets also reduce incentives to block traffic. Reasonable
    people can differ on the relative importance of these forces
    and that is an additional reason why forecasting is hard to
    make.
        The dangers would be costly. Any movement towards less
    transparency and more blocking and more discrimination of
    traffic introduces hassles and delays for entrepreneurs,
    software innovators, server companies around the globe, even
    juniors at Harvard with ambitions to unseat Mark Zuckerberg.
        Overall, taking away regulatory oversight risks the
    emergence of a very desirable consequence, less commercial
    innovation, and its child, less economic growth. Policies that
    tend towards continuity are the most desirable. Continuity here
    is the regime of continued regulatory presence with occasional
    inconsistent action.
        It is my view, as it is among many others, that the FCC's
    policy represents continuity. Frankly, I think broadband firms
    can live with this rule because it really does not change much
    of what they do. Entrepreneurs can live with this rule because
    it lets them innovate and start businesses as easily tomorrow
    as they did in the past, and raises the certainty that no
    additional hassles will emerge in the near term. Moreover, the
    rule includes important and appropriate exceptions for
    reasonable network management, and for the complications of
    wireless applications.
        In sum, the potential risks of disproving the rule are
    great, and the gains from continuity are high, and the order
    looks like good innovation policy, and good economic policy.
        Thank you for your attention, and thank you for allowing me
    to testify.
        [The prepared statement of Mr. Greenstein follows:]

        Mr. Walden. Doctor, thank you for being here. We appreciate
    your testimony.
        Now our final witness this afternoon, Tom DeReggi,
    President, RapidDSL and Wireless from Boyds, Maryland. We
    welcome you. You probably came maybe the least distance. I
    don't know, but certainly not from overseas. Mr. DeReggi, thank
    you for being here.

                        STATEMENT OF TOM DEREGGI

        Mr. DeReggi. Thank you. Chairman Walden, Ranking Member
    Eshoo, and members of the committee, thank you very much for
    the opportunity to testify. It is a great honor to be here
    today.
        Quickly about myself, I started selling--reselling DSL--
    started outselling DSL. In 2000, I formed RapidDSL and
    Wireless. My company is a grass-roots, independently owned and
    financed fixed wireless broadband access provider. We cover a
    30-mile radius around Washington, D.C., serving businesses and
    residences in urban and rural communities. I have sat on
    advisory boards of ISPCON and until last year, I served on the
    Board of WISPA as legislative committee chairman.
        Quickly a bit about WISPA. The WISP industry is primarily
    made up of small independent companies serving both competitive
    markets and rural markets, many of which would otherwise have
    no access to broadband at all. The combined services of all
    WISPs nationwide cover more than 75 million households, 71
    percent of the entire population of the United States.
        The speed of wireless is determined by topography. In
    heavily treed areas, a connection may be limited to as little
    as three megabits shared by 50 households, whereas in areas
    with direct line of sight between towers and customers, speeds
    as high as 80 megabits are possible. In short, WISPs are real
    and relevant competition for AT&T, Verizon, Comcast, and can
    reach means--can reach areas others are unlikely to cover
    without substantial government subsidies.
        I am here today to show my industry's support for H.J. Res.
    37, and ask Congress to vote to reverse the FCC's Open--recent
    Open Internet rules which are not open, and are not neutral. It
    is my belief that the FCC has overstepped their authority to
    address a problem that didn't exist at the detriment of our
    industry and the consumers.
        If the rules take effect, it will destroy jobs, stifle
    innovation, deter investment, create uncertainty, distract
    WISPs from building networks to all Americans, increase
    government spending, create liability, increase legal costs,
    degrade broadband performance and increase consumer's price,
    and possibly put some small WISPs and ISPs out of business.
    These are facts that would be contrary to the goals of the
    FCC's National Broadband Plan.
        Rules and regulations create jobs only for lawyers instead
    of putting more jobs to expand broadband access to all
    Americans, community based jobs that lead to life-long careers,
    locally owned WISPs create that. We don't need regulated band-
    aids, we need true competitive environments that give consumers
    choice. Foster competition between access providers and the
    consequences will be open Internet content. Net neutrality
    regulation is a foundation for monopolies and unnecessary if we
    build competitive industries.
        Internet providers need the support from policy makers, not
    regulatory roadblocks. Uncertainty and liability created by
    these regulations would be so great that even I, the business
    owner, have to reconsider whether to continue investing money
    in my company.
        The rules applied to broadband as a single uniform product,
    rather than recognize that two very different distinct
    generation broadband products exist, broadband and advanced
    broadband. It is inappropriate to expect first generation
    broadband network providers to allow the operation of second
    generation advanced broadband applications, such as HD
    streaming video, which minimum requirements may exceed the
    capability or acceptable use policies of the first generation
    basic networks. It is inappropriate to insist that broadband
    access products need to support a user application for which
    the product was not originally designed to support. I believe
    the term reasonable network management does not go far enough
    to guarantee that the rules properly match technology to the
    appropriate access technology. The rules give special
    consideration to mobile carriers but inappropriately bundle
    WISP fixed wireless providers. The rules intended for wireline
    and fiber providers, but failing to recognize that WISPs are
    subject to the same technical constraints as mobile providers,
    the Commission failed to fulfill its role as an expert agency,
    and instead, succumbed to political pressure to pick and choose
    winners.
        One size does not work and does not fit all. I wish I could
    say the Internet was simple, but it is not. The Internet is
    extremely complicated and is different in every community that
    it is deployed. The Internet is an ever-changing dynamic
    industry with many variables. I see no way static regulation
    could ever keep up.
        The FCC rules address what could happen, rather than what
    actually did happen. For example, ISPs have never censored
    legal content, but content providers have demonstrated actual
    anti-competitive behavior. For example, ESPN360/Disney prevents
    every one of its ISP customers from accessing its content
    unless the provider pays it a fixed fee for every customer it
    has, even though most will not watch the content. It gives
    favorable rates to large carriers than it gives small
    providers. This behavior is anything but neutral, but the FCC
    fails--rules failed to address the serious content neutrality
    issue. Certainly, if the rules are going to address prospective
    harms, they ought to address ones that actually already exist.
    In an environment where content providers can be discriminatory
    is not a neutral network.
        The rules unjustly entitle consumers and content providers
    to free reign of someone else's private network at the access
    provider's expense. Because the rules literally could render an
    Internet provider's network inoperable, the rules may actually
    constitute a regulatory taking of Internet service provider's
    networks in violation of the Fifth Amendment. The Commission
    attempts to justify the rules, proclaiming that they are
    necessary, because many areas are served by only one or two
    providers. Not only is this false in most cases, but also the
    rules themselves would make the problem worse by making it more
    difficult to competitive providers to expand their services.
        Are WISPs real competition for wired networks such as
    Comcast? The arithmetic says yes. Wimax actually delivers more
    capacity to the end user than most widely deployed cable
    services, which are based on DOCSIS 2.0. A DOCSIS 2.0 hybrid
    fiber cable system has 43 megabits in downstream direction, two
    megabits upstream at the equipment cabinet that serves a
    neighborhood. The network is usually engineered so that 500 to
    2,000 subscribers are connected by coaxial cable to that
    cabinet and the bandwidth is divided among them. But in
    wireless systems using Wimax or Airmax technology, each radio
    has typical capacity of 24 megabits and serves 60 or fewer
    users. So if all the bandwidth is in use and is divided evenly,
    each cable subscriber gets 86 kilobits per second, not much
    more than dial-up, while wireless users get up to 400 kilobits
    per second.
        Mr. Walden. Mr. DeReggi, you have exhausted your time. Can
    you just wrap it up?
        Mr. DeReggi. Yes, let me wrap it up.
        I have pointed out many reasons why the FCC Open Internet
    rules are inappropriate and should be nullified; however,
    please do not misinterpret this testimony to mean that WISPs or
    ISPs ought to be unfair to their customers or in any way limit
    their ability to express themselves online. What we want is the
    freedom and the flexibility to compete, to innovate, and to
    design our networks to provide the services the customers
    really want. The FCC's regulations should take effect would not
    only fail to do what the Commission claims, they will instead
    degrade harm, preventing us from competing to provide the best
    services to our customers.
        Thank you.
        [The prepared statement of Mr. DeReggi follows:]

        Mr. Walden. Thank you, sir. Thank you to all of you who
    testified today. We will go into our questions now, and
    obviously we are on time constraints here. We each get about 5
    minutes, so don't take offense if we ask these in sort of a yes
    and no environment. Mr. Dingell probably pioneered that on the
    committee quite successfully.
        Mr. Turner, do you believe the FCC is on strong legal
    ground with this order and it will be upheld in the courts?
        Mr. Turner. I believe they took an unnecessary risk by
    going down the Title I route.
        Mr. Walden. So you do not believe they are on strong legal
    ground?
        Mr. Turner. I think they are on less firm legal ground than
    they could have been.
        Mr. Walden. Do you oppose the resolution of disapproval not
    because you like the FCC order, you have stated that, but
    because you think the FCC might lose in court when that
    happens? Won't you push for a reclassification on Title II?
    Isn't that your preference?
        Mr. Turner. I oppose the resolution of disapproval because
    of the consequences once Congress disapproves of these rules,
    the FCC is then forbidden from enacting any similar rules in
    that space that could extend to things far beyond network
    neutrality, bill shock, lots of other issues.
        Mr. Walden. But the real issue is they can't do Title II,
    right, with this disapproval resolution if it becomes law?
        Mr. Turner. No, I don't believe that. I believe the issue
    of reclassification is separate from the resolution of
    disapproval, and I do not think reclassification acts would
    fall under the CRA.
        Mr. Walden. Because in your own documents from Free Press,
    point number five, legal footing, it says ``Genachowski
    reportedly is grounding these new rules in the same kind of
    legal arguments that were rejected by the courts last spring.
    This strategy presents an unnecessary risk in the shortsighted
    attempt to avoid reclassifying broadband under Title II of the
    Communications Act. Such a move doesn't just put net neutrality
    on shaky ground, it places the FCC's entire broadband agenda in
    jeopardy.''
        Mr. Turner. That is exactly right.
        Mr. Walden. So essentially a vote against this resolution
    is a vote for reclassification, something that more than 300
    members of Congress have opposed in a bipartisan basis.
        Mr. DeReggi, is it your sense that the larger broadband
    providers cut a deal that they could live with because it was
    better than Title II reclassification, but that ultimately you
    will be the one having to pay the price, companies like yours?
    Can you turn on your microphone, sir?
        Mr. DeReggi. That is correct. The smaller providers and the
    more competitive providers are the ones that will pay the price
    for the rules. I agree. I would say that all of us could
    probably live with the rules if we had to, if they stayed
    there. The question is they don't necessarily stay there and
    the rules don't really give all the protections that are needed
    for the access providers. You know, content providers are not
    the only person on the table to protect here.
        Mr. Walden. And does it give you any concern that the FCC
    refuses to close its Title II rulemaking? They have that still
    open. They are taking information on it. Is it kind of like the
    little club hanging out there?
        Mr. DeReggi. I think this is really an issue that needs to
    be solved by Congress. So I think the same thing applies to
    Title II, that Congress should stop that if that were to
    happen, and pass laws that are--do the right process.
        Mr. Walden. I would concur. We--some of us on this
    committee believe they don't have the authority, the FCC. It
    has not been granted by this Congress or any other Congress.
        Ms. Kovacs, you explained in your statement that networks
    have a voracious and unending need for capital. Will the net
    neutrality order hurt the market for capital for network
    providers? Be sure to turn on your microphone there, ma'am.
        Ms. Kovacs. Yes, I think that this rule, if it is
    implemented at all the way it appears likely, is going to be
    detrimental because it is going to hit at the revenue sources.
    It is going to make it easier to cannibalize the network
    provider's revenues. For example, Skype taking Frontier's voice
    revenues, driving up the cost of broadband by forcing all of
    the cost on that. So short version yes, I think it is going to
    be a problem.
        Mr. Walden. For capital?
        Ms. Kovacs. For capital.
        Mr. Walden. Ms. Chase, again, thank you for coming, and I
    would just suggest the members that she does have to leave some
    time this afternoon to catch a flight back, so she may have to
    depart before we are done with our questions.
        Despite the fact that these rules have never existed
    previously and the companies you have been involved with and
    thousands of others have thrived, do I understand correctly
    that you support these rules because you believe they are
    needed to ensure that small companies can compete on the
    Internet?
        Ms. Chase. These rules haven't existed. If we think about
    the Internet and Internet innovation, it doesn't have a very
    long life, so indeed, the power of the tel-co's is becoming
    more and more obvious, and yes, I think it does need
    protection. And while I didn't have to need that protection
    when I founded, today we definitely do.
        Mr. Walden. And you said that without these rules small
    companies will get squeezed out by larger companies that can
    pay for priority on the Internet, in effect, correct?
        Ms. Chase. Priority is also classifying what constitutes
    the Internet, and if we don't have a definition at the FCC, the
    telecommunications companies can decide what access actually
    looks like. So I think I could be separated from my market as
    well.
        Mr. Walden. The FCC order itself has said this is not going
    on today, but Ms. Chase, you are worried that that might go on
    in the future, right?
        Ms. Chase. We typically try to protect small interest from
    duopolies, and I see this as a duopoly so it definitely needs
    some oversight.
        Mr. Walden. So would you be worried if web companies like
    Google charged Web sites for prioritized placement on the
    Internet?
        Ms. Chase. I think the FCC ruling doesn't deal with Google
    right at this moment. I think it is more talking about
    infrastructure and access to the Internet.
        Mr. Walden. What would you be worried about that? Are you
    concerned about that, because somewhere on the end of the pipe
    somebody is prioritizing, right?
        Ms. Chase. Yes, I could become worried about that.
        Mr. Walden. And in preparation for this hearing, I did a
    little search on carshare with Google to familiarize myself
    with the market, and I was pretty surprised to find that my
    search resulted in a paid place at the very top of the search
    list for Zipcar, the company that you founded and ran. So isn't
    that exactly the kind of issue you are concerned about, in
    terms of a market leader paying an Internet giant for better
    access to consumers?
        Ms. Chase. I would say exact opposite. If we think about
    the old days of newspapers where I, as a rich person, could buy
    a giant full-page ad on a newspaper and small companies could
    never afford that, I think that is the parallel that I would
    like to draw.
        Mr. Walden. My time is expired. I will give it to Mrs.
    Eshoo now.
        Ms. Eshoo. My thanks to all of the witnesses, an
    instructive hearing.
        First to Ms. Chase, again, thank you for traveling the
    distance that you have to be here with us. You are an American
    entrepreneur, an American businesswoman, an innovator. I don't
    know if my colleagues know this, but Ms. Chase was named by
    Time magazine as one of the 100 most influential people. So you
    bring a lot to the table, and I am especially proud that a
    woman has achieved what you have.
        There is a difference at the table. You heard what Dr.
    Kovacs said, and while I am not going to--I guess I will be
    paraphrasing. She claims that the rules that the FCC adopted
    would hit revenue sources, damage capital for investment. Do
    you want to comment on that, and then I will ask Dr. Greenstein
    to comment on that, just very quickly because I have several
    questions.
        But would you go the heart of this whole issue of capital
    formation, businesses thriving or not thriving, whether the
    rules are helpful or hurtful, and this attempt to--I think
    there is a virus here in Congress, and it really is not about
    net neutrality. I think it is about any kind of regulation and
    whether government agencies have authority to carry out rules
    through their regulations. I think that is really what is at
    the heart of this thing. But at any rate, go ahead.
        Ms. Chase. When we think about the core and whether we are
    protecting the core, the edges and--the core is a duopoly, and
    so their investment choices--they have no competitive reason to
    make good investment choices. I think they--we can invest in
    something or we can cut our costs. We can do more innovations
    from an operational perspective. There has been an argument
    that there is only one thing for them to do to improve their
    system and only one revenue source. There are lots of revenue
    sources, so I do not buy the argument that just because we are
    cutting off one particular revenue source that the whole thing
    crumbles. It doesn't make any sense.
        Ms. Eshoo. Thank you. Dr. Greenstein?
        Mr. Greenstein. I disagree strongly with the assertion that
    all the ISPs in the United States have a problem covering the
    costs of data. First of all, we should recognize that there are
    different costs and there is a large variety. About 15 percent
    of the U.S. population lives in low-density areas where it is
    expensive to run an ISP. In the urban populations and the high
    density parts of the United States, we had a complete build-
    out, at least by two wire line providers. That was shown in the
    national broadband plan. Those firms are really very healthy.
    They get margins somewhere estimated between 70 and 90 percent;
    that is to say, of the dollar they collect, something like 70
    cents to 90 cents on the dollar goes back to capital
    investment, the stockholders, the owners, and then the rest of
    it covers the cost of their data, the costs of customer
    maintenance, the cost of service.
        So given that is the situation, and for 15 years we have
    been watching the amount of data users ask for go up. I don't
    really think there is any particular crisis in 85 percent of
    the population over how much data the ISPs can handle. It is a
    dollar a month on average----
        Ms. Eshoo. I appreciate it. I am going to ask you to stop
    because I want to get a couple more questions.
        Mr. Greenstein. You get the idea.
        Ms. Eshoo. To Mr. DeReggi, I mentioned in my opening
    statement about innovative companies, Netflix and Skype and
    eBay and how they have flourished. Other companies, thousands
    of jobs that have been created, not just in my district, my
    constituent's companies, but across the country.
        In your written testimony, you suggest that appropriate
    network management might be to simply block Netflix altogether.
    I find that a little chilling, and so----
        Mr. DeReggi. I can explain why. I don't believe----
        Mr. Walden. Will you turn on your mic?
        Mr. DeReggi. I don't believe in blocking anything without--
    --
        Ms. Eshoo. But I mean to block anyone I think is part of
    the heart of all this, so why would you suggest that an
    appropriate network management is to block, and then fill in
    the blank. I mean, you said Netflix, but what--why do you
    find----
        Mr. DeReggi. If a spammer----
        Ms. Eshoo. Wait a minute. Why do you find that to be
    appropriate, and just real quickly.
        Mr. DeReggi. OK. It is appropriate because you blocked the
    source of a problem. If the person that is violating your
    acceptable use policy is Netflix, you block Netflix. It takes
    less system resources to block them----
        Ms. Eshoo. I think this is----
        Mr. DeReggi [continuing]. Than to----
        Ms. Eshoo. Frankly, I think this is an ineloquent statement
    about a school of thought. I just don't agree with it, and I
    think it would be offensive to consumers across the country.
    But that is my view and you have yours, so thank you.
        Mr. Terry. [Presiding] Thank you. Dr. Kovacs, do you have a
    response to Ms. Eshoo's question?
        Ms. Kovacs. I would like to----
        Mr. Terry. Microphone, please.
        Ms. Kovacs. Sorry about that. I would just like to----
        Mr. Terry. It is still not on.
        Ms. Kovacs. OK. I would just like to correct a fact. If you
    actually look at the margins of the carriers, that income
    margin is 10 percent for AT&T and Verizon in 2009, 6 percent
    for Frontier, that is opposed to 28 percent for Google. So I am
    afraid Dr. Greenstein's numbers are reversed of what he
    indicated.
        To go back to the issue of revenues, I think part of what
    is being missed is that not only are the companies not being
    allowed to charge for wholesale carriage, so Verizon or
    Frontier can't charge Skype for carrying Skype. The revenues
    that are going to get lost are the revenues--voice revenues
    that Skype then takes away from Frontier or Verizon or AT&T or
    the others. The networks are supported by the core revenues.
    The cable networks are largely supported by video. The phone
    networks are largely supported by voice. Broadband right now is
    treated as incremental. If the core revenues go away, broadband
    will have to carry it all.
        Mr. Terry. I appreciate--I just want to give you that
    opportunity, but Mr. Cicconi, there was a statement made during
    the opening statements that this rule is necessary because
    companies like Verizon and AT&T have hindered or blocked or
    somehow have interfered with the vibrancy of the Internet and
    the ingenuity. Can you tell me what policies exist with--have
    existed with AT&T and would you hinder or block the vibrancy of
    the Internet?
        Mr. Cicconi. Mr. Terry, I don't believe anybody can point
    to a single instance where AT&T has really done anything of
    that nature. In fact, I think one can argue that probably no
    company has made available to consumers more innovations or
    more choices in the past 5 years than AT&T. The notion that
    somehow we would have any interest, economic or otherwise, in
    disadvantaging any businesses represented at this table or
    frankly any other. I think----
        Mr. Terry. How about blocking? That is a major issue here
    to put that blocking. How have you blocked access?
        Mr. Cicconi. We haven't.
        Mr. Terry. You haven't?
        Mr. Cicconi. We have not.
        Mr. Terry. You have not, all right.
        Ms. Chase, since you have come so far I want to make sure
    we use your time. In your statement, you had mentioned that
    there was an issue with wireless. Could you tell us with your
    previous company where there were problems with ISPs who were
    backed on or any part that hindered the ability of that
    company?
        Ms. Chase. The anecdote I gave about starting in 2000,
    there is a lot of talk about wireless and it turned out that we
    were the second application for consumers outside of cell
    phones. I was very struck then, and as we make this--think
    about it today that the telecommunications industry was lagging
    behind innovation, yet they were the gatekeepers so how I could
    buy data packets.
        Mr. Terry. Did they work with you to make sure that----
        Ms. Chase. No. No, we had to do a workaround for the first
    3 years until they offered a different data plan, and it was
    very arduous. I would also add that in a similar fact, we
    manipulate black boxes as we put into cars, there is a
    permissions process for that, and that was a 3- or 4-month
    delay while the telecommunications carrier that we were working
    with--I think it was Verizon--gave us permission to manipulate
    the box as they saw fit, and that was also a significant delay
    for us.
        So it is better for innovators to not have to ask
    permission whenever possible.
        Mr. Terry. Would you like to reply? She did say that
    Verizon and not AT&T, but is that a net neutrality issue?
        Mr. Cicconi. That would have been the point I would have
    made, Mr. Terry. First of all----
        Mr. Terry. Microphone, please.
        Mr. Cicconi. I think companies are certainly free to price
    their services in a competitive market. How they choose to
    price them, and that may certainly help some companies and hurt
    others, but that is within their purview in our system.
        The second point is none of the things cited with respect
    would be a net neutrality violation, frankly, under any of the
    proposals that were on the table, including the ones that we
    rejected pretty strenuously.
        Mr. Terry. All right, my time is up. At this time I would
    like to recognize the ranking member of the full committee, Mr.
    Waxman.
        Mr. Waxman. Thank you very much, Mr. Chairman.
        Mr. Cicconi, I would like to thank you for agreeing to be
    here today to testify. I know that you and your company have
    been under pressure to repudiate your past statements about the
    FCC's Open Internet order. I understand that AT&T would have
    preferred no rules in this area, but based on your public
    statements and conversations with my staff, it is my
    understanding that you think the FCC landed on a reasonable
    middle ground that removes the uncertainty that was impeding
    jobs and investment. Is that an accurate description of AT&T's
    position?
        Mr. Cicconi. Yes, sir, it is. We do think it is a
    reasonable middle ground. I think provided the FCC, as it goes
    forward, interprets this rule in a narrow way and with
    appropriate regulatory humility, I think it could also provide
    the certainty we need in this industry.
        Mr. Waxman. Your position is very similar to that of the
    Cable Association. In a letter filed with the committee earlier
    this week, NCTA CEO Collin Pasquale stated that the cable
    industry supports the FCC order because, among other things, it
    ``provides greater certainty about our ability to manage and
    invest in our broadband services today, and those we may deploy
    in the future.''
        Professor Greenstein, in looking at the question of whether
    the FCC should put in place rules to protect the open Internet,
    my staff reached out to a number of prominent economists. They
    spoke with professors at NYU, Wesleyan, Stanford, Wharton, and
    USC, all of the economists shared a common belief in
    competitive markets, and all suggested that unnecessary
    regulation can undermine efficient markets. But there was also
    a consensus around the idea that competition in the market for
    broadband Internet access services is limited. Most said this
    lack of competition made the FCC's Open Internet rules
    necessary and appropriate. Do you agree?
        Mr. Greenstein. Yes, I do.
        Mr. Waxman. You said that the Open Internet rules are
    essential for growth and innovation of online services. Can you
    explain?
        Mr. Greenstein. The access to the Internet goes back to the
    founding of the Internet. There has always been a question
    about who can use it and who has access to the transport level.
    It goes all the way back to when the NSF net was first
    prioritized. Congress has to pass an amendment to NSF charter
    in order to allow for multiple users, and in terms of the
    economics, there has always been a question of who can use it.
    The Internet is designed and it has always operated as a
    network for every user and every potential supplier doesn't
    have to ask anyone for permission to use it.
        Mr. Waxman. That leads to growth and innovation in online
    services?
        Mr. Greenstein. Yes. It is great for entrepreneurs, even
    college sophomores at Harvard.
        Mr. Waxman. I have heard of one, saw the movie.
        Ms. Chase, do you agree? Do you think that open Internet
    rules are essential for growth and innovation of services?
        Ms. Chase. I absolutely agree, and I think you only have to
    look at the number of jobs and new companies created over the
    last 10 years to realize an open innovation--open Internet is
    the key to our future in America. I think if we close that down
    and we don't protect the status quo, which is an open Internet,
    we are putting ourselves in such an anti-competitive position
    relative to the rest of the world.
        Mr. Waxman. Thank you. In addition to reaching out to
    academics, my staff also spoke with economists at the
    Department of Justice, and we wanted to speak with DoJ to get
    their reaction to the argument often repeated here, that the
    issue of net neutrality is better addressed through anti-trust
    enforcement. DoJ told us that that is not the case, although
    anti-trust can be useful if a phone or cable company uses its
    market power to stop a competitor from entering the market,
    anti-trust law doesn't stop a phone or cable company from
    blocking Web sites or applications that don't pay for access.
    According to DoJ, favoring Web sites that they hide fees and
    degrading Web sites that don't is perfectly legal under the
    anti-trust laws, as long as the phone or cable company isn't in
    direct competition with the Web sites being degraded. I don't
    know who to direct this to, but let me ask you, Mr. Greenstein.
    Do you agree that anti-trust laws are not sufficient to protect
    the public against attempts by the phone and cable companies to
    take advantage of their market power?
        Mr. Greenstein. Anti-trust laws are very good for looking
    at mergers, but at very narrow questions in mergers. That is
    principally what they are about.
        Mr. Waxman. Does anybody on the panel disagree with the DoJ
    position?
        Mr. Turner. Mr. Waxman, I very much agree with Justice on
    this. There are numerous problems in the marketplace that anti-
    trust will not govern. Further, the limited selection of
    problems that anti-trust would govern has been weakened by the
    Supreme Court's Trinko case, so therefore, anti-trust is really
    no remedy at all to consumers, or producers, in this case.
        Mr. Waxman. Thank you very much. Yield back my time, Mr.
    Chairman.
        Mr. Terry. Thank you very much. We will now go to the
    gentleman from California, Mr. Bilbray. Mr. Bilbray?
        Mr. Bilbray. I would yield to the gentlewoman from
    Tennessee.
        Mr. Terry. OK. The gentleman yields to the gentlewoman from
    Tennessee, Ms. Blackburn.
        Mrs. Blackburn. Thank you, Mr. Chairman, and I want to
    thank our witnesses for being here today.
        Ms. Chase, I wanted to come to you. Your testimony seems a
    little disconnected to me, and so I was hoping that you could
    help clear up a couple of things for me. Unless I am missing
    something, you set up a very successful company using the
    Internet as it was basically the status quo Internet. You did
    that without a whole lot of trouble, is that right?
        Ms. Chase. I wouldn't say without a whole lot of trouble at
    all, but yes.
        Mrs. Blackburn. Well, you didn't have to overcome horrific
    odds or anything. You worked your business plan, set it up, and
    got it in place. So now I hear you saying that what you are
    wanting to do is to preserve the net neutrality rules that the
    FCC moved forward on, is that right?
        Ms. Chase. Yes.
        Mrs. Blackburn. OK. And you are saying you want to do that
    so that edge companies like yours can innovate--like your
    current company can innovate. But see, I look at this and I
    think the Internet without net neutrality rules has worked
    great for innovators, and now you are wanting to change the
    rules. So why should the FCC's rules allow you to innovate, and
    then not other entrepreneurial companies like Mr. DeReggi's
    over here?
        Ms. Chase. I would say that I would like to see the FCC's
    rules preserve the status quo that existed when I was doing
    that innovation, and the----
        Mrs. Blackburn. Ma'am, there was no federal governance of
    the Internet.
        Mr. DeReggi, do you have a comment on that?
        Mr. DeReggi. Well yes, I think you pretty much summed it up
    with your statement.
        Mrs. Blackburn. OK, well then let me ask you this. I have a
    very rural part of my district, Perry, Wayne, Hickman County
    where I was last week, they are very concerned about broadband,
    so speak to me, what do you think is going to happen with
    broadband investment? These communities need it for education
    and for economic development, so what should their expectation
    be?
        Mr. DeReggi. Most likely people aren't going to spend their
    money if they are not going to get a return on it. I think what
    people need to realize is that the cost to deploy difficult
    areas to get broadband is much higher than the cost to deploy
    broadband to the mass easy areas.
        Mrs. Blackburn. Let me ask you this, then. Do you have any
    idea of what the magnitude of jobs loss would be for these
    areas that are underserved or sparsely populated and can't get
    it?
        Mr. DeReggi. Well, it is astronomical, but it is also going
    to lead to the population leaving to other areas.
        Mrs. Blackburn. OK. Mr. Turner, I wanted to come to you for
    a minute. I was sitting here looking through everything. Now,
    Mr. Cicconi, we know he is with AT&T, Mr. DeReggi with
    RapidDSL, Ms. Chase with Buzzcar, so we know what interests
    that they are representing, and it is less clear to me whom you
    represent with Free Press. I think it might be instructive to
    us as we read your testimony and as we try to figure out, you
    know, the bias that you bring to the argument. If we--if you
    could detail to us where Free Press gets its funding.
        Mr. Turner. Certainly, do you want me to do that now or in
    writing?
        Mrs. Blackburn. I would love to do it now, and if you want
    to submit for us the 10 largest supporters of Free Press, I
    think that would be great. It would be instructive.
        Mr. Turner. Free Press takes zero corporate money. We are
    completely supported by our members and by foundation support.
        Mrs. Blackburn. OK, and then will you submit your funding?
        Mr. Turner. Absolutely. I would pleased to, yes.
        Mrs. Blackburn. All right, that would be great. I would
    appreciate that, and with that, I am going to yield back the
    balance of my time.
        Mr. Walden. Gentlewoman yields back the balance of her
    time. The chair now recognizes the gentleman from Massachusetts
    for 5 minutes.
        Mr. Markey. Thank you, Mr. Chairman, very much.
        Mr. Cicconi, thank you for being here and walking this
    tightrope that you are here today.
        Let me just begin. I heard you say that you feel that the
    regulations that were promulgated are a fair middle ground. Is
    that correct?
        Mr. Cicconi. Correct.
        Mr. Markey. And you also testified that as the rules have
    now been promulgated, that it is going to require no change in
    the business plans of AT&T, is that correct?
        Mr. Cicconi. That is correct.
        Mr. Markey. And you are also testifying that it is creating
    a longer-term predictable investment environment for AT&T, is
    that also correct?
        Mr. Cicconi. It is correct. Again, with--provided that the
    FCC continues to interpret the plain language of the rule in a
    narrow way, and again, I would hope with appropriate regulatory
    humility.
        Mr. Markey. But at this point, you identified that
    appropriate level of humility, is that correct?
        Mr. Cicconi. Yes, sir.
        Mr. Markey. Yes, and I think that is important for people
    to hear. Is there a problem? Is there something here that we
    are trying to cure that actually does not exist? Because
    obviously, before August of 2005 the non-discrimination
    principles were there and the Internet grew, expanded, for
    years until that ruling in 2005. So all these companies,
    Google, eBay, Hulu, YouTube, Facebook, whatever, all were able
    to be founded in that non-discriminatory era.
        Ms. Chase, from the entrepreneur's perspective, you know,
    you are here representing thousands and thousands of smaller
    companies out there now looking at this decision--this
    potential resolution that the Republican Majority is thinking
    of promulgating. What do you think would be the impact in terms
    of how the venture capital industry, other investors will now
    view these thousands of companies that are in this space,
    trying to innovate using the Internet.
        Ms. Chase. If the venture capitalists think that I can't
    compete because I can't pay for special access or I might be
    stymied by special rules, clearly they wouldn't invest in us.
        Mr. Markey. OK, and how many companies are in this space? I
    don't mean competing against Zipcar, but I am talking just the
    companies that are dependent as smaller startups?
        Ms. Chase. If we think about innovation and job creation,
    we know that startups are the ones that created all the jobs in
    the last 10 years, or 75 percent of them. So I would say a
    significant number of them.
        Mr. Markey. OK, now this hope that the anti-trust laws
    could be used, if you are a small--if you are Zipcar, how long
    would it take and how much would it cost Zipcar to use the
    anti-trust process, and what is the likelihood that your
    vindication would be posthumous from a corporate perspective if
    a court ultimately did render a favorable decision?
        Ms. Chase. You have made a very good point, that without a
    body such as the FCC to whom I can turn to to protect me, as a
    small business, you never sue anybody. You can never enter into
    that at all.
        Mr. Markey. Right, and I agree with that. That is a false
    promise, false protection because the anti-trust laws clearly
    for smaller companies and 80 percent of all new jobs in America
    are created by smaller companies, and a disproportionate number
    of them are now created by companies dependent upon the
    Internet. So that is where our job creation comes from, and
    this is a huge decision that the Republicans are now making,
    intervening into a marketplace where AT&T says they can live
    with the rules, Comcast says they can live with the rules, and
    the smaller Internet companies are all saying that they can
    live with the rules.
        Mr. Turner, when you were just asked who do you represent,
    could a simple explanation of who you represent just be the
    consumer?
        Mr. Turner. We are a public interest advocacy group
    concentrated on the interest of consumers, yes, sir.
        Mr. Markey. On the consumers, thank you. Now, why don't you
    just expand a little bit on what the impact of a repeal of
    these non-discriminatory principles could mean for our
    consumers in the United States?
        Mr. Turner. It could be devastating. Right now I think
    through Mr. Cicconi's testimony we have learned that there is
    really no problem the marketplace has with the FCC rules;
    however, if you remove that certainty, you then create
    potential discrimination against innovative companies like Ms.
    Chase. You potentially have companies that would block content,
    like Netflix, because it competes with their online video
    products. You potentially have the next Netflix, the next
    Zipcar not being able to start their business, and consumers
    ultimately are the losers in that.
        Mr. Markey. Sir, if you are a kid in a dorm someplace and
    you have got an idea right now and your girlfriend is over at
    the business school, and she says maybe I can help you to raise
    some money right now, what is the difference in terms of the
    perspective of an investor if you have discrimination or non-
    discrimination principles on the books in terms of the startup
    of a small business that would ultimately provide consumers
    with more choice?
        Mr. Turner. Well, it would create tremendous uncertainty,
    and I think--we keep hearing, you know, that there was never
    network neutrality to begin with, but I think that is really an
    inaccurate view of history. The Internet was born from the
    principle of non-discrimination. It existed for the 30 years
    before it even became commercialized, and it existed, as you
    mentioned, until 2005. It wasn't until that recent change that
    this got started.
        Mr. Markey. Thank you. Let me just finish on that point.
    That was the testimony that we had here from Tim Burners Lee,
    the creator of the world wide web. He made it quite clear that
    when he created the world wide web, he baked the principle of
    non-discrimination into the personality of the Internet. He
    invented the world wide web. He is still only 54 years old, and
    that was the first witness that we had 4 years ago before the
    committee. So we can either give some deference to the investor
    of the world wide web, which is the basis for all of this
    commercial activity, or we can just ignore it, but non-
    discrimination he testified was the central characteristic of
    the web. Thank you, Mr. Chairman.
        Mr. Walden. Gentleman's time is expired. Chair recognizes
    the gentleman from Louisiana, Mr. Scalise.
        Mr. Scalise. Thank you, Mr. Chairman. I appreciate the
    opportunity to ask some questions of the panel, and especially
    to have us focusing on this issue, this new government
    regulation of the Internet, net neutrality, and especially as
    we deal with the legislation later on today, you know, I am
    kind of amazed at some of the comments I am hearing not only
    from some people on the panel, but some of my colleagues on the
    other side. You know, I am a computer science major and I have
    watched as this industry has thrived, probably more than any
    other industry in the world, and it has thrived because the
    government hasn't figured out how to regulate it, how to mess
    it up. And yet you have got now a rule coming in by the FCC,
    this new net neutrality, where the government is coming in and
    saying we are going to fix the Internet. We are going to come
    in with regulations to fix the Internet, because boy, if you
    look all across this country, all the problems our country is
    facing, if the President really was focused on what the real
    problems of the country are, he would be focused on creating
    jobs. If you want to go and find a good template of how to
    create jobs, go look at the Internet. Go look at these great
    innovative companies. Go look at these great innovators who
    dropped out of college and are now billionaires because the
    federal government hadn't figured out how to regulate in a way
    that somebody can do just that, can innovate in a way that Ms.
    Chase and so many others have innovated.
        And so now you have got the FCC coming in and saying we are
    going to regulate, and people are actually saying it is good
    that the FCC is regulating it to keep the status quo. Well
    first of all, it is the other format, the non-regulated format
    that allowed all of this innovation, that still to this day--by
    the way, it is not over. Unfortunately with the FCC coming in,
    there is a big concern in industry of the people who actually
    invest billions of dollars.
        I want to ask you, starting off with Mr. Cicconi, your
    company is one of the many companies who has invested
    tremendously. We had testimony a few weeks ago from the FCC,
    all five FCC commissioners came before us, talking about this
    new regulation of the Internet, net neutrality. We heard
    testimony from one commissioner, and nobody disputed it, that
    over $500 billion of investment has been made to build the
    broadband infrastructure that exists today that allows all this
    innovation, and none of that was taxpayer money, by the way.
    Maybe that is one of the things that this administration
    doesn't like. It all happened with private investment.
        How much money has your company invested in allowing this
    innovation and creating and building this network
    infrastructure?
        Mr. Cicconi. I don't have an exact figure in front of me,
    Mr. Scalise, but last year we invested approximately $19
    billion in capital. I think----
        Mr. Scalise. How much was that? Can you say that again?
        Mr. Cicconi. Nineteen billion dollars in capital in the
    United States, nearly all of that was in the United States, and
    I think that was more than any other American company invested
    in the United States last year.
        Mr. Scalise. And that was under non-net neutrality rules?
        Mr. Cicconi. Correct, and this year we will invest roughly
    between 17 and 19 billion dollars in capital again.
        Mr. Scalise. And let me ask you this, because in your
    statement--I listened to your testimony and you used a number
    of comments that I thought were interesting. You know, some
    people act as if you are really thrilled about net neutrality,
    and maybe some people are thrilled about it, but in your
    statement you said ``all of this, without any real evidence of
    a problem. It is still AT&T's strong preference to have no
    regulation. The proposal was extreme and upset the financial
    markets. You are talking about earlier proposals,'' and then
    ultimately you said ``the only proposals before us were either
    bad or worse.'' So here you have got the government coming in
    and saying OK, first of all, there is no problem. The
    innovation has never been greater and no industry in the
    history of the world has seen this much innovation, and so now
    the government is going to come in and regulate it. But they
    are going to give you some options and we are going to give you
    a bad option and a worse option. Well, anybody would say well,
    I guess I will take the bad option instead of the worse option,
    and that to some people on the other side constitutes you
    supporting this new regulation of the Internet.
        So I just want to put it in that context, but I ask you,
    because you expressed this as a concern. There is an assumption
    by some that the FCC is going to interpret these rules in a
    very narrow way. What if the FCC does not interpret these rules
    in a narrow way, which if we are not able to pass our
    legislation to block the regulation, the FCC would be free to
    interpret it as broadly as they like. What if they don't
    interpret the rules narrowly?
        Mr. Cicconi. I think it depends on the circumstance, sir.
    Clearly we would reserve the right to challenge that in court,
    if something were to occur that we feel is inconsistent with
    the plain language of the rule.
        Mr. Scalise. And I am sure some people would think that is
    good to have now, companies that innovate that add $17 billion
    of their own capital to build out the infrastructure are now
    concerned about maybe having to go to court to be able to
    continue innovating.
        Let me ask you, Ms. Chase, you know, I appreciate you
    coming here from France to participate in this. When I did, as
    the chairman of the subcommittee did, a Google search on
    carsharing, your company that you founded, Zipcar, came up. Is
    there anything in this FCC ruling that prohibits you from being
    able to buy that premiere placement under net neutrality where
    a startup wouldn't have that same advantage?
        Ms. Chase. I feel like that is not the question at hand.
        Mr. Scalise. Well, that is the question at hand. The bottom
    line is, you know, maybe you don't want to answer it because
    you are given now a monopoly. You are now given an advantage
    over the new startup. I am not as concerned about the companies
    that are already successful today, being able to innovate as
    much as the new company, the new idea that we will be blocking
    from innovating and maybe you would like the idea because under
    net neutrality, Google is still able to give you preference
    over the new startup that now is at a competitive disadvantage
    because of net neutrality.
        So I would hope you would not only be concerned about your
    company's success----
        Mr. Walden. The gentleman's time is expired.
        Mr. Scalise [continuing]. But also the new startup company
    that is going to be as innovative as yours.
        Mr. Walden. Gentleman's time is expired.
        Mr. Scalise. And I yield back my time.
        Mr. Walden. Chair recognizes the gentleman from
    Pennsylvania, Mr. Doyle.
        Mr. Doyle. Thank you, Mr. Chairman, and thank you to all
    the witnesses today.
        It is amazing. Maybe sometimes we just don't speak clearly
    enough, but you know, up until 2005, the transmission component
    of DSL service was regulated as a telecommunications service.
    In the dial-up world, companies provided data transmission.
    They were obviously regulated as a telecommunications service,
    because the data traveled over phone lines. So you know, to
    keep hearing statements that there was never any regulation of
    the Internet and it worked just peachy keen, it just isn't
    based in any reality.
        Dr. Kovacs, I was interested in your testimony. I hear you
    say that we can't take care of the edge at the expense of the
    core, and that you feel that these rules that the FCC has put
    forward would stifle investment in this. Are you aware of the
    analysis done by the Bank of America and Merrill Lynch?
        Ms. Kovacs. I am not, no.
        Mr. Doyle. They came to a different conclusion. How about
    Citibank that called this FCC ruling balanced? They came to a
    different conclusion to you. Do you know that Wells Fargo in
    their analysis of these rules called it a light touch, and that
    Raymond James also disagrees with your analysis? It seems to me
    that you are somewhat of an outlier in the field with regards
    to whether or not this stifles investment in the field.
        Let me ask Dr. Greenstein. You have looked at the
    literature on this and did a literature review. What did you
    find was, in your review of the literature, was the consensus
    on the FCC order and its impact on investment?
        Mr. Greenstein. It largely doesn't change the practices at
    most ISPs. We all went home tomorrow. The business--it looked
    the same as it did a year ago.
        Mr. Doyle. Mr. DeReggi, first of all, I want to say I
    appreciate your company and the competition that it provides in
    areas that need it, and I know it is hard for entrepreneurs to
    come up to this committee and provide testimony and engage in
    policy matters, so I appreciate the fact that you are here.
        But I am a little confused by some of the things that you
    have said. On prior occasions, you have expressed support for
    open Internet principles. Specifically in comments that you
    made to the NTIA and RUS in response to the second round of
    BTOP funding, you stated that RapidDSL fully endorsed the
    comments of the Wireless Internet Service Providers
    Association, and among those associations' comments, it argued
    that the agency should make clear to any funding recipient that
    they will agree to abide by the rules the FCC adopts in its
    ongoing network neutrality proceedings.
        So I guess my question is since you agree with applying the
    FCC's rules to funding recipients, why would you support a
    wholesale rejection of the rules through a resolution like
    this?
        Mr. DeReggi. Great question, because the government was
    paying for the network, not me. Also, I do support an open
    Internet. The net neutrality rules passed by the FCC is not an
    open neutral policy. It is a policy that favors content
    providers and gives it discriminative rights and does not allow
    those same----
        Mr. Doyle. Let me ask you this. Also you sent an e-mail to
    then-FCC Chairman Kevin Martin regarding Comcast blocking your
    traffic, and your quote was ``Comcast is a necessary war. It
    sets the precedent that these net neutrality blocking won't
    expand as a strategic advantage to harm competitors.'' You have
    also expressed support for RapidDSL being subject to rules
    related to truth in advertising or disclosure of your network
    management practices. You said that in an ex parte letter to
    Chairman Genachowski. I guess what confuses me is, if you are
    in support of some of these FCC rules, such as transparency
    requirements, why do you want to see the Congressional Review
    Act be used to invalidate all of the FCC's rule? Wouldn't you--
    --
        Mr. DeReggi. Because they----
        Mr. Doyle [continuing] Prefer Congress to take a more
    surgical approach to, you know, deal with those things that
    trouble you but not throw the entire rules out?
        Mr. DeReggi. They don't deal with any of the things that
    troubled us, so we are a provider too. We are there. Just
    protecting our competition doesn't help us.
        Mr. Doyle. Thank you.
        Mr. DeReggi. All the claims that I have asked help for, we
    haven't got that help. The rules don't give us protection----
        Mr. Doyle. But you are here to support a practice that is
    going to throw all of this up, that which you agree with as
    well as those things that you have a problem with.
        Mr. Turner, your testimony--you don't support this
    resolution. You basically think that the FCC didn't go far
    enough. Would that be an accurate statement?
        Mr. Turner. Yes, sir.
        Mr. Doyle. And Ms. Chase, I just want to say, I see Zipcars
    all over Pittsburgh. That is the area that I represent, and I
    think it is really a fantastic service and people use it a lot
    in Pittsburgh. Just as an entrepreneur and an innovator and a
    job creator, you know, you are here and you have come a long
    way to do that. We are policy makers up here, so what is the
    one thing that you would like to share with all the policy
    makers up here with regards to the Internet? What do you think
    Congress should be doing?
        Ms. Chase. We have talked a lot about the stymieing this
    promoting and will prevent investment for the core, and we--
    there is a figure here that was thrown out of $19 billion that
    was--that Verizon is--AT&T is intending to invest. I would like
    to point out that the small business contribution to the
    economy is vastly, vastly larger than any of that, and we are
    talking about throwing out rules that protect those small
    businesses from lawsuits that we can't have anti-trust suits
    that we can't go after. I would also like to suggest that Mr.
    DeReggi's fears, as he represents a small business and he is
    also being crushed by the duopoly, and their advantages. So it
    comes back to this duopoly control of access to the Internet,
    and not about what happens on the Internet. The Internet itself
    is inherently open, if we can get there.
        Mr. Walden. Gentleman's time is expired.
        Mr. Doyle. Thank you, Mr. Chair.
        Mr. Walden. Chair recognizes the gentleman from Illinois,
    Mr. Shimkus.
        Mr. Shimkus. Thank you, Mr. Chairman. It is great to have
    the panel. We appreciate all the effort to be here.
        This is what I have always struggled with, and I think I am
    going to open up with really Ms. Chase, because I think all of
    us appreciate a business model that people have an idea of a
    service that is not being rendered, it is an idea. You all have
    to develop a business plan and then you go to the markets to
    raise money. You are assuming risk. Hopefully somewhere down
    the road there is a return. That is the way the business works.
    That is the capitalist system. It is great, it is thriving. It
    is why we have one of the greatest economies in the world, even
    in a down time.
        Why doesn't this work for--let me ask the question this
    way. If the FCC can control the pipeline by picking winners and
    losers in intervention, what is the market signal to build out
    more pipes?
        Ms. Chase. I don't think the FCC is controlling the
    pipeline to pick winners and losers.
        Mr. Shimkus. OK, let me ask this question again, and I am
    not trying to pick a fight. I am saying I want to--where is the
    market signal if we want to build out more pipes? If there is a
    government agency that then can say bad boy, bad girl, usually
    there is a constrained supply, the market would say you can pay
    a premium for access. Eventually, the market signal would be
    what? Build out another pipe, just like--and you have made
    these decisions in your whole business plan, and that is the
    way the system--my question is what is the market signal that
    would encourage build out of more pipes? Because what is a
    better answer, instead of government regulation, the better
    answer is build more pipes.
        Ms. Chase. I think there is a variety of answers. Build
    more pipes might be one of those answers, but I also think it
    only----
        Mr. Shimkus. It is the only market answer. I mean, it is
    the only answer in a competitive market that then private
    capital would flow to build it. Now, we have an example of
    government trying to intervene in building this and the
    stimulus, and we found out that we overbuilt, we incentivize,
    government-run. We have unserved, underserved areas. The
    stimulus is a perfect example of how we failed by providing
    government money to do what the market should do. So let me
    go--I have got 2 minutes left, and I want to ask Mr. Cicconi--I
    hope I pronounced that right----
        Mr. Cicconi. Yes, sir.
        Mr. Shimkus. The FCC says that these rules bring certainty
    to the broadband economy, and certainty in the business model
    is very, very important. If you have got certainty, you have
    got lower risk, you can borrow more capital or the cost of
    capital is less. That is true, right?
        Mr. Cicconi. Right.
        Mr. Shimkus. Isn't the uncertainty that the FCC cure is
    originally caused by the FCC?
        Mr. Cicconi. I couldn't----
        Mr. Shimkus. Was that unfair?
        Mr. Cicconi. No, I don't think so, Mr. Shimkus. I clearly--
    and I think I reflected this in my opening statement, that you
    know, I think this rule is a fair and middle ground, but
    certainly that is fair in comparison with the alternatives that
    we were facing.
        Mr. Shimkus. That is great.
        I want to end up with Mr. DeReggi, and I appreciate your
    testimony and to highlight your background, and again, I see a
    segue to market principles is the best way to provide goods and
    services to individuals.
        But do you believe it is equitable that these rules apply
    to you but not web companies?
        Mr. DeReggi. I find that to be a tragedy that they apply
    solely to us and not web companies.
        Mr. Shimkus. Do you agree with the letter we received from
    the NCTA, other cable folks that drawing these types of
    distinctions between broadband providers and web companies no
    longer makes sense?
        Mr. DeReggi. I would agree.
        Mr. Shimkus. Great. Mr. Chairman, I am finished. Thank you
    for the time, and I yield back.
        Mr. Walden. Gentleman yields back the balance of his time.
    Chair recognizes the gentlewoman from California, Ms. Matsui,
    for 5 minutes.
        Ms. Matsui. Thank you very much, and I thank the witnesses
    for being here today. Mr. Chairman, I thank you for holding
    this hearing prior to any markup on such an important issue,
    although I still have reservations regarding the process in
    which this resolution is moving.
        There are far too many unanswered questions to resolve that
    would undoubtedly lead to unintended consequences on the
    market. That being said, I strongly oppose this resolution
    because it undermines market certainty, harms consumers,
    discourages innovation, investment, and job creation in this
    country, and does nothing to move our Nation's economy forward.
        Mr. Cicconi, it is no secret that over the years AT&T has
    raised concerns over proposed net neutrality rules. Yet, AT&T
    took a stance in support of the FCC's order as a CEO and
    chairman earlier this year that the Open Internet order ended
    at a place where we have a line of sight and we know we can
    commit to investments. What are the specific factors that lead
    you to supporting the FCC's order?
        Mr. Cicconi. As I said earlier, Ms. Matsui, I think we are
    comfortable with the order primarily because it locks this
    line, we feel, in a more balanced way than the other proposals
    that were in front of the FCC. I think keep in mind that the
    two proposals that were there, one was an NPRM that frankly had
    a discrimination standard in it that we felt was probably a
    violation of the Telecom Act and certainly didn't have support
    in the Act. It would have inevitably led to legal challenge.
    The other was to impose common carriage regulation on these
    services, again which would have been, I think, a very extreme
    proposal. We were pleased that the FCC was willing to work with
    us to try and deal with our concerns, and frankly, deal with
    the concerns of stakeholders to see if there is a middle
    ground. Like any middle ground, we are not happy with every
    part of it. We would have preferred some different language and
    different standards. We would have preferred nothing on
    wireless.
        Ms. Matsui. Right, I understand that. We heard from a great
    number of leading economists in support of the FCC's order.
    Assuming that the FCC moves forward with the order to ensure
    rules of the road are in place to protect innovators and
    consumers, what impact does CRA have on Wall Street.
        Mr. Cicconi. I think that is tough to predict, Ms. Matsui,
    primarily because I think if the CRA were to pass, I think the
    ball then passes to the FCC, and I think the market reaction
    would depend heavily on how the FCC then reacted. If the FCC,
    for example, reacted by deciding that it didn't want to move
    forward with any further regulations in this area, obviously I
    think the market would be pleased and that would provide a high
    degree of certainty. If, on the other hand, the FCC reacted by
    going back to the still-open Title II proceeding and began that
    process all over again that we went through this past year, I
    think it would create a great deal of uncertainty.
        So I think the answer to that really rests with the FCC. It
    doesn't really--it is not really a product of the CRA and what
    the Congress decides to do on that. It is really more a product
    of what the FCC decides to do in the wake of that.
        Ms. Matsui. OK, but you are still dealing with uncertainty,
    though?
        Mr. Cicconi. Potentially, but again, depending on what the
    FCC decides to do.
        Ms. Matsui. OK. The FCC Open Internet order includes a
    meaningful transparency requirement so that consumers and
    innovators have information they need to make informed choices.
    I should mention that this transparency rule is widely
    supported by all industry stakeholders and deemed non-
    controversial. If this resolution becomes law, the FCC's
    transparency rule, which simply states that broadband providers
    must disclose their network management practices, performance
    characteristics, and terms and conditions of the broadband
    service to consumers will be eliminated. That would be bad for
    consumers, bad for business, and bad for the Internet economy.
        I have a question for the panel and I would like a yes or
    no answer, just a yes or no answer. Do you support the FCC's
    sixth principle on transparency, which would provide consumers,
    small businesses, and innovators with the information they need
    to make informed choices? I will start with you, Mr. Turner.
        Mr. Turner. Yes.
        Ms. Chase. Yes.
        Mr. Cicconi. Yes.
        Ms. Kovacs. Yes.
        Mr. Greenstein. Yes.
        Mr. DeReggi. Yes.
        Ms. Matsui. OK, thank you for your answer. The FCC order
    includes a meaningful transparency requirement, which this
    whole panel seems to agree should be in place.
        As our economy continues to evolve, and new emerging
    economic sectors are growing, a free and open Internet would be
    vital, one that acts as a framework for industry to follow to
    ensure that all stakeholders are playing by one rule.
        Ms. Chase, you are a leading entrepreneur who relies on the
    Internet to conduct business. Using your experience, how would
    the FCC Open Internet order impact emerging new economic
    sectors like smart grid and health IT, among others?
        Ms. Chase. I think it will have an enormous impact, and
    that is one of the things I am concerned about.
        Ms. Matsui. OK, thank you. Yield back the balance of my
    time.
        Mr. Walden. Gentlelady's time has expired. I now recognize
    the chairman of the Oversight Committee and the former chairman
    of this committee, Mr. Stearns, for 5 minutes.
        Mr. Stearns. Thank you, Mr. Chairman. I listened to the
    testimony of Mr. Waxman and Mr. Markey, and Mr. Cicconi, they
    have praised you as supporting the FCC approach to rulemaking,
    and Mr. Markey has phrased you and Mr. Waxman I think are the
    Democrats. I know that must put you in a little awkward
    position, having been the ranking member of this committee and
    working with you and all the consumer groups, as well as
    others, trying for months to try and work this out and
    realizing how difficult it was. In reading through your
    testimony, I think maybe this will clear it up for Mr. Waxman
    and Mr. Markey a little bit. The chairman of your company,
    Randall Stevenson, summed up his reaction to the FCC--this is
    in your opening statement--his decision, and I thought I would
    read it because it really, I think, goes to the point and
    perhaps gets you off the hot seat here, because he is speaking
    for your company and he said ``We would be lying if we said we
    were pleased with the approach, but it is a place we know we
    have. We didn't get everything we would like to have, but I
    would like to have had no regulation.'' That was his point. ``I
    would have liked to have had no regulations, to be candid.''
        So Mr. Waxman and Mr. Markey are saying that you folks are
    just out there touting this approach. I think your chairman has
    pointed out that if he had his druthers, he would like to have
    no regulation. Is that still accurate, in your opinion?
        Mr. Cicconi. That is absolutely accurate, Mr. Stearns. I
    think this entire debate for many years, but certainly for the
    past 2 years, has revolved around very difficult questions,
    which is should one regulate to deal with hypothetical problem,
    because by and large, that is what we are dealing with, are
    these hypothetical. It is the hardest thing, I think, for
    policymakers to decide. If you move into this space, it is
    very, very hard to draw lines, and this is one of the things
    that worries us the most about moving into this area. It was
    stated earlier that, you know, different members of the
    Internet ecosphere might be regulated in a different fashion,
    some regulated, some not. Inevitably, the danger there is of
    course the government gets into picking winners and losers. Our
    concern, of course, is not only with that but with the fact
    that the government doesn't do this very well.
        Mr. Stearns. Dr. Kovacs, in looking through your testimony,
    the aspect about your opening statement where you talked about
    the transfer of wealth from broadband Internet access providers
    to application providers is accurate, but you say it does not
    seem to grasp the problem for both parties. So you say it
    provides those who ride the network with a strategically vital
    financial weapon to use against broadband Internet access who
    in many cases are their competitors. To put it another way, it
    takes all bargaining power away from the BIA. You might just
    confirm that, what you mean?
        Ms. Kovacs. A couple of different things. For example, one
    of the things the FCC did not look at is a situation in which
    Google might decide to withhold its services from Verizon in
    Boston, but continue to provide them to Comcast, which would, I
    think, become a huge problem for Verizon retaining customers.
    The revenues that are taken away from the voice provider who is
    also a broadband provider, like Frontier, like Google Voice,
    Skype, Vonage, all of those represent a transfer of wealth, and
    they become problematic for Google and et cetera. That means
    that the network cannot continue to innovate, and I think to
    me, the really troubling piece of this discussion is the
    assumption that only the companies at the edge, like Robin's,
    need to innovate, but that Mr. DeReggi doesn't. And in fact,
    she won't be able to do her business unless he keeps investing.
        Mr. Stearns. Mr. DeReggi, have you actually read the FCC's
    approach to this net neutrality? I mean, have you actually--you
    or your staff actually taken time to read it?
        Mr. DeReggi. Yes.
        Mr. Stearns. What specifically is in there that you don't
    like? I mean, can you tell the committee maybe some specifics
    about it, just briefly?
        Mr. DeReggi. Yes, the thing that I don't like about it most
    is that it is--everything is a double standard. It does half
    the problem. For example, I want consumers to have their choice
    of content, but it doesn't really give that, you know.
        Mr. Stearns. So it is vague in areas you think it should be
    precise, would that be----
        Mr. DeReggi. Right, exactly. It is also very vague, so
    because of it, it allows the--it to be interpreted by the
    person who just happens to be in the office at that specific
    time who could have a completely different viewpoint of what
    those terms mean.
        Mr. Stearns. And because it is vague at this point, does it
    create uncertainty to you in terms of investment?
        Mr. DeReggi. A tremendous amount of uncertainty. I just
    don't know what to expect.
        Mr. Stearns. Thank you, Mr. Chairman.
        Mr. Walden. Gentleman's time is expired. Chair recognizes
    the gentleman from Michigan, Mr. Rogers, for 5 minutes.
        Mr. Rogers. Ms. Kovacs, the FCC claims that the order
    brings certainty to the market. I am having a hard time finding
    where the uncertainty was, except for the fact that the FCC was
    talking about intervening in the market. Doesn't a lawsuit over
    the FCC's lack of authority bring even more uncertainty into
    the market?
        Ms. Kovacs. The issue is definitely not settled at this
    point, because of the possibility for litigation and because of
    the point that Mr. Cicconi made, that we are not going to know
    what the rules mean until the FCC interprets them one by one.
    So companies right now really have no idea of what they can do
    in terms of pricing, in terms of the kind of products they can
    develop as part of their business plan on the carrier's side,
    until sort of case law develops at the FCC.
        Mr. Rogers. And that never happens in a hurry.
        Ms. Kovacs. Well--no. The whole--I mean, that is----
        Mr. Rogers. So now we have added another layer of
    uncertainty to the definitive uncertainty that the FCC put into
    the market in the first place. A little confusing to me. We are
    just a small construction company back in Michigan. We don't--
    maybe a little beyond our intellectual prowess to understand
    how we got to the uncertainty in the first place.
        Ms. Chase, thank you for being here today. I am really
    interested in your business model. When you negotiate a parking
    space, say, in Washington D.C. or Philadelphia, is that
    something the company pays for, is that something that the city
    gives you? How does that work?
        Ms. Chase. That is a jurisdiction by jurisdiction thing. It
    is typically done through an RFP.
        Mr. Rogers. All right, so there is--you compensate on most
    cases or are they given to you in most cases?
        Ms. Chase. I can't speak for what is happening today and I
    couldn't give that count, but I have paid for municipal parking
    spaces.
        Mr. Rogers. And so you took advantage, basically, it was a
    good business model, I think it is a smart business model, but
    you took advantage of the concrete and the per paid for by
    taxpayers. You negotiate a much lower rate, and the only reason
    I say that, I have driven by those spaces and looked with envy
    as I went around the block 16 times, trying to park my car.
        So what you have done is you have utilized taxpayer-funded
    support networks, the infrastructure, you have utilized that
    part, taken it off the market for the rest of the taxpayers who
    paid for it, and for the service business model--I think it is
    clever, don't get me wrong, but you can clearly see that you
    are taking advantage of that particular spot, based on someone
    else's investment, mainly the taxpayer. I find it interesting,
    because I know you have got several millions of dollars to help
    you start your company from the federal government. The
    argument being--I think we found $6.5 million to date on
    earmarks to Zipcar. I do believe the figure is larger that that
    at the end of the day.
        So let me make my point, and I will certainly get your
    response. So you understand why I think advocacy is important
    and why we should understand advocacy and why people take
    position. I mean, your company did well, it was certainly
    helped--financed by the federal government, you are taking
    advantage of taxpayers buy using their infrastructure and
    making money off of it. If you get away with that, God bless
    you. It is capitalism. I am all for it.
        But now you are saying we want to do the same thing to the
    Internet. We want the government to come in to protect me so I
    don't have to pay for the expansion of the Internet that we
    know should happen, based on hopefully what we would see as
    increased volume and more businesses coming into the Internet.
        And so that is the part that I find confusing about your
    advocacy is that--I mean, clearly your business model heavily
    weighted on subsidies, especially by taxpayers.
        Ms. Chase. Let me just correct a couple of things. I was
    CEO for the first 3 years. In the first 3 years we took
    absolutely zero government dollars. As to parking spaces,
    parking is grotesquely underpriced everywhere. People--citizens
    park for free on street generally, and if you were to rent that
    parking space, it would be $3,000 a month. So it is certainly
    by no means--I would feel it is uncompetitive that we had to
    compete with free on-street parking given to residents and we
    could not access that.
        Mr. Rogers. I am not sure where the free on street parking
    has begun. Try putting the quarters in. You better bring about
    8,000 pounds of quarters to Washington, D.C. But I will just
    tell you----
        Ms. Chase. Well, so this is not the argument, but to this
    other piece, sir, I do not think at all that we have sucked at
    the corporate--at the government tit, in any case. I would say,
    though, that when I look at market--I have written here that
    market signals are driven by demand and by competitive
    pressures, and we can look to the--what we are talking about,
    which is that the access to an open Internet is gated by two
    major companies. They may be responding, the market signals
    might be working for demand but they are not responding to----
        Mr. Rogers. OK, I hear your point. I am running out of
    time. I hear your point, but you said something interesting.
    You said if you can get there, and I completely agree with you.
    On-ramps and off-ramps are incredibly important. My fear is,
    and Mr. DeReggi, if you can follow up on this, we have now
    purposely--because the government now comes in and makes
    everything nice in theory, and they decide who wins and who
    loses. Why on God's green earth would you invent--invest in new
    on-ramps and off-ramps for the Internet.
        Mr. Walden. Gentleman's time is expired.
        Mr. Stearns. Mr. DeReggi, could you just answer that? I see
    my time is almost up.
        Mr. Walden. Very quickly.
        Mr. DeReggi. I pretty much fully agree with you. I am not
    quite sure how to answer it because I agree with what you have
    said.
        Mr. Stearns. On-ramps and off-ramps are important to
    companies like yours, are they not?
        Mr. Walden. Gentleman's time----
        Mr. DeReggi. On-ramps and off-ramps are definitely
    important to our company.
        Mr. Stearns. Does this not stifle----
        Mr. Walden. Gentleman's time----
        Mr. Stearns [continuing]. AT&T and Verizon from investing
    in new on-ramps----
        Mr. Walden. Gentleman's time is expired.
        Mr. DeReggi. It definitely does, yes.
        Mr. Stearns. Thank you, Mr. Chairman.
        Mr. Walden. Gentleman's time is expired. Recognize Mr.
    Barrow for 5 minutes.
        Mr. Barrow. I thank the chairman. I would like to yield my
    time to the gentlelady from California, Ms. Eshoo.
        Ms. Eshoo. I thank the gentleman for yielding his time to
    me very, very much.
        First, Mr. Chairman, I would like to ask unanimous consent
    request that the following items be entered into the record: a
    letter to the committee from numerous faith-based
    organizations, a letter to the committee from Consumers Union,
    a letter to the committee from Consumer Federation of America,
    a survey conducted by Consumers Union and Consumer Federation
    of America, a letter to the committee from the Mountain Area
    Information Network, known as MAIN, an editorial from the LA
    Times, an editorial from the New York Times, and an editorial
    from USA Today.
        Mr. Walden. Without objection, each of those items have
    been reviewed by the Majority and are--they will be entered
    into the record.
        [The information follows:]

        Ms. Eshoo. Thank you very, very much.
        It has been said that there isn't any reason for a--for the
    FCC to have developed these rules of the road and that we are
    operating in theory. That is not correct, and I don't think
    that can stand on the record. The Open Internet order was a
    reaction to specific abuses designed to prevent future
    problems. Those are the facts. This is not theory; this isn't
    something that we made up. In 2005, Madison River
    Communications blocked VoiP on its DSL network. It was settled
    by FCC's consent decree that included a $15,000 payment. In
    2006, Cingular blocked Paypal after contracting with another
    online payment service. In 2007, Comcast initially denied and
    then admitted, after an FCC complaint was filed, that it
    blocked peer-to-peer traffic. Comcast subsequently changed its
    practices and the FCC directed Comcast to disclose its network
    management practices and enjoined it from blocking VoiP. In
    2008, Max Plank Institute released a study finding significant
    blocking of bit torrent in the United States, including efforts
    by Comcast and Cox. In 2009, RCN entered in the class action
    settlement agreement in which it acknowledged it blocked
    degraded or slowed P to P apps. In 2009, AT&T blocked use of
    iPhone VoiP applications that used 2G or 3G, and in 2010, AT&T
    blocked use of the slingbox iPhone application on a 3G network.
        So we are not operating out in the ether somewhere, and
    neither is the FCC. So I think it is important to set those
    things down for the record.
        I would also like to make an observation, and again, thank
    the chairman for having this legislative hearing. What I have
    heard today is consumers believe that we should not be
    proceeding with the CRA, and that there is a very important set
    of standards--light by standard by the FCC that really should
    be put into place. We have heard from one of the 100 of Time
    magazine's most influential persons in our country, maybe in
    the world, Ms. Chase, say that this is not menacing to
    innovators, that this is helpful and that it is important.
        Dr. Kovacs, you are the only one that I really don't get
    here, in terms of your theory of economics. But Mr. Cicconi, I
    appreciate the fact that you would come, that you would accept
    our invitation and say what you have said, and stand where you
    are standing. I have had disagreements, policy disagreements
    with AT&T, but we see where Comcast, where AT&T, where small
    entrepreneurial businesses as well as consumer organizations,
    as well as economists all weighing in and saying that these
    rules are not menacing. In fact, what is menacing is this CRA.
        So I am glad that we have had this legislative hearing,
    because it has cast even a brighter light on what the committee
    is considering doing, following this legislative hearing. I am
    grateful to all of you, even those whose views I don't entirely
    either understand or embrace, but that is what makes for a
    great hearing, and I think that this has been, and I will--oh,
    right there, almost on the money, used my time.
        Thank you, Mr. Chairman.
        Mr. Walden. Thank you, and I appreciate your comments. For
    the witnesses' edification and for the committee, we are in the
    middle of a vote right now so we will recess now and resume the
    hearing immediately thereafter. Now I know some of you may have
    to depart, I understand that. Our committee members will
    probably submit some questions for the record then for those of
    you that have to leave. Those who don't, we will reconvene, and
    then after we are done with the round of questions, the final
    round here, we will then recess briefly so the room can be
    reset and we will go right into the markup.
        And so I would welcome you all to stay around who can, and
    we will be back after the vote. With that, the committee stands
    in recess.
        [Recess.]
        Mr. Walden. We are going to call the committee back to
    order, so if you would like to take your seats, and maybe we
    can close the doors out to the hallway there. Excellent.
        I will call the Subcommittee on Communications and
    Technology back to order. We are under a hearing on H.J. Res.
    37, a resolution disapproving the rule submitted by the Federal
    Communications Commission with respect to regulating the
    Internet and broadband industry practices.
        We have a couple more members who have been here for the
    duration who want to ask some questions of our remaining
    panelists. I appreciate our panelists, by the way, for staying
    and continuing to participate.
        With that, I would recognize the gentleman from Georgia,
    Mr. Gingrey.
        Mr. Gingrey. Mr. Chairman, I want to thank you, first of
    all, for calling today's actually second hearing on the FCC
    order on net neutrality. I know that my time is limited, so let
    me--I would like to proceed with my questions to these industry
    stakeholders that are present today, and thank you also for
    your patience.
        Dr. Kovacs, before we broke for votes, the distinguished
    ranking member of the subcommittee had kind of questioned your
    economic logic in your testimony, but you really weren't given
    an opportunity to respond to that, so I am going to go to you
    first and maybe you would want to expound on that and my own
    questions.
        Is there currently some sort of network neutrality crisis
    warranting government intervention, or do you think we are
    better off letting the technology and the relationships between
    and among broadband providers and web companies just continue
    to evolve?
        Ms. Kovacs. Let me try and address those and a whole bunch
    of questions that came up earlier and went away. I think one of
    the best ways to answer that question is to look at the last
    few years and say that both the vast investment in fiber, that
    is, FiOS, most of the wireless broadband investment has come
    since the triennial review and since the classification of
    broadband as an information service.
        So to me, it clearly shows that giving the companies
    flexibility to run their businesses the way they need to run
    them makes it a lot easier for them to raise capital. It is not
    clear to me that at this point there is any kind of crisis.
    Certainly the incidents that have come up that the ranking
    member referred to were dealt with one-by-one under the old
    regime.
        Mr. Gingrey. Well, if you will let me comment, and I agree.
    I don't know that there is a crisis. Do you see any market
    power analysis in this FCC order demonstrating that there truly
    is an actual problem and it is not just some speculation that
    there could be some future harm?
        Ms. Kovacs. The FCC looked at an enormous record, and I
    think we do have to give them credit for having looked at an
    enormous record in reaching their decision. Having said that,
    there is not anything like the kind of analysis that you would
    have an HHI index, that kind of thing, that would be looking
    even at the transport layer at the broadband access providers,
    and there is no recognition that wireless actually, in some
    markets, does serve--and for some market segments does serve as
    a competitor. So I would disagree pretty strenuously with Ms.
    Chase's earlier repeated comments about the duopoly.
        There is also no analysis at all of anything above the
    transport layer, so the kind of market power, if there is
    market power, that Google, for example, has----
        Mr. Gingrey. Let me reclaim my time, and I thank you for
    your answer.
        Ms. Kovacs. Sure.
        Mr. Gingrey. I mean, it is certainly nothing that I would
    think rises to the level of what the President said in his
    Executive Order recently in regard to rulemaking and what
    standards need to be met in regard to cost benefit analysis.
        Mr. DeReggi, the testimony delivered earlier by Ms. Chase--
    I am sorry she had to leave--but she stated that eliminating
    the FCC's network neutrality rules will put future
    entrepreneurs and small businesses at a significant
    disadvantage. Based on your testimony, I can tell that you are
    in disagreement with that characterization. In fact, you go as
    far to say that the FCC order will--and I think I will quote
    you--``result in fewer jobs and indeed stifle innovation.''
        So in addressing Ms. Chase's testimony, can you describe
    why the FCC order will do just the opposite of what she
    characterized?
        Mr. DeReggi. Let me share my hometown of Bernardsville, 70
    out of the 300 homes operate home-based businesses. That was
    made possible because of three megabit broadband shared by 50
    homes, which we provided. Broadband provides jobs, not HD
    video.
        When Netflix started streaming across that network, it
    compromised the businesses in our town. I had no choice but to
    slow Netflix. That is it.
        Mr. Gingrey. Well, has there been a lack of innovation in
    the absence of government regulation over the Internet during
    the past decade?
        Mr. DeReggi. Repeat the question?
        Mr. Gingrey. Has there been a lack of innovation in the
    absence of government regulation over the Internet during this
    past decade?
        Mr. DeReggi. Absolutely not.
        Mr. Gingrey. Is this a hammer looking for a nail?
        Mr. DeReggi. Exactly.
        Mr. Gingrey. Mr. Chairman, I realize my time is expired and
    I yield back.
        Mr. Walden. I appreciate the gentleman's participation. Now
    recognize the gentleman from Kentucky, Mr. Guthrie for 5
    minutes.
        Mr. Guthrie. Thank you, Mr. Chairman.
        Mr. Turner, Mr. Markey's questioning established that you
    are here on behalf of the consumer. Do you think that the web
    content should also be regulated, or do you think it is
    sufficient that just the Internet providers are regulated?
        Mr. Turner. Well, we come at this from the perspective of
    economics. I am sure Dr. Greenstein can speak to this. There
    are tremendous fixed costs to providing broadband networks.
    There are very high switching costs for consumers in those
    markets. There is nothing preventing this consumer going one
    click away to another Web site, so think they exist in
    different markets.
        That is not to say there isn't problems with market power
    in those markets, but I don't think that the FCC in the context
    of its authority over communication by wire or radio should
    really be the ones looking at that. But certainly, we would
    welcome----
        Mr. Guthrie. So they should address that market power in
    that place that the one has more than the other?
        Mr. Turner. Well again, there is--there potentially is
    market power in the search markets, but it is not the same from
    a consumer perspective in terms of switching costs, nor from
    the barriers to entry for other competitors to come in. If you
    have a good idea for a search algorithm, it is very easy for
    you to start a search engine today. It is not the same for
    someone to go build a network next to AT&T.
        Mr. Guthrie. OK, thanks.
        Mr. Cicconi--Dr. Kovacs, you said it was going to be more
    difficult for capital for people to enter the market because of
    this rule. Now, would that affect AT&T and Mr. Cicconi more, or
    would that affect Mr. DeReggi and his smaller business more?
        Ms. Kovacs. It would affect smaller businesses more,
    obviously, and----
        Mr. Guthrie. I knew that too, I just wanted to get the
    answer----
        Ms. Kovacs. I also, if you will allow me just to comment on
    switching costs. If it is that easy for anyone to enter the
    search business, why have companies like Microsoft, for
    example, not been able--or Yahoo not been able to very
    effectively challenge Google?
        Mr. Guthrie. That is a fair point. That is what I was
    getting at as well. Thank you so much.
        Mr. Cicconi, I know Mr. Shimkus asked--we have used the
    word uncertainty I don't know how many times here today. I
    still haven't figured out in the marketplace, and you said this
    brought certainty to a business. What in the marketplace was
    there uncertainty about? I know in general there is uncertainty
    in the marketplace, but what in the marketplace did this rule--
    may bring certainty to your business?
        Mr. Cicconi. Well, I think, Mr. Guthrie, the uncertainty
    that was roiling these markets was largely the result of the
    prospect of pretty heavy-handed regulation by the FCC to
    implement net neutrality. They had a notice of proposed
    rulemaking out there in the fall of 2009 that was very specific
    and very onerous, and that was followed by a proposal that was
    laid out in spring of last year that was even more onerous and
    heavy-handed.
        Mr. Guthrie. But there wasn't something in the marketplace
    they were trying to solve that is real--a real problem in the
    marketplace today they were trying to solve?
        Mr. Cicconi. Well----
        Mr. Guthrie. If you don't want to go there, that is OK.
        Mr. Cicconi. I think it is fair to say that, you know, that
    the uncertainty that has been created over the years in this
    debate, and I think we should stress that the debate over net
    neutrality and the authority the FCC should have in this area
    didn't just start in January of 2009. It has been going on for
    5 or 6 years. It got worse in 2009 and 2010, but we do feel
    that this rule, you know, addresses much of the uncertainty
    that that debate helped cause.
        Mr. Guthrie. Unless the new FCC wants to go further, which
    is unsettled.
        Mr. Greenstein, you said--what is the number you said, 70
    to 90 cents of every dollar, is that the gross profit is what
    you were----
        Mr. Greenstein. That's the gross margin.
        Mr. Guthrie. Gross profit in typical Internet service
    providers?
        Mr. Greenstein. Gross, so that doesn't account for----
        Mr. Guthrie. Gross profit. Now when you said that, Mr.
    DeReggi, you were shaking your head no. Why were you shaking
    your head no?
        Mr. DeReggi. I just wish and dream that I could have those
    type of profit margins.
        Mr. Guthrie. Gross profit. Your gross profit is not that
    right?
        Mr. DeReggi. No, gross profit is not that high. That would
    barely--revenue barely covers the antenna co-location costs,
    let alone a profit. If we are lucky, we can get legal and pay
    permit fees. No, I don't think so. Some business models may
    have those costs, but all WISPs aren't uniform. There are
    different costs to provide service to different places in the
    country.
        Mr. Guthrie. Thank you.
        Mr. Greenstein, that number----
        Mr. Greenstein. Yes, I just got this from UBS and from
    Craig Moffett at Bernstein. These are authorities. I am just
    quoting somebody else.
        Mr. Guthrie. OK.
        Mr. Greenstein. And I think it is largely for wire line
    ISPs, so that is quite different than his business.
        Mr. Guthrie. OK, I just wanted to establish that.
        Ms. Kovacs--Dr. Kovacs, I am sorry.
        Ms. Kovacs. Not to get arcane, but he is talking about
    gross margin, which is when you removed only some part of the--
    and then there is a huge amount of other costs that have to be
    covered. So again, net income is in the 5 to 10 percent range.
        Mr. Guthrie. So----
        Ms. Kovacs. Which is what goes back to the shareholder.
        Mr. Guthrie. Net income is what you have to go to your
    investors with, isn't it?
        Ms. Kovacs. That is what goes back to your investors,
    exactly.
        Mr. Guthrie. I yield back.
        Mr. Walden. Thank you, gentleman's time is expired.
        I recognize the gentleman from California, Mr. Bilbray, for
    5 minutes.
        Mr. Bilbray. Thank you, Mr. Chairman.
        Mr. Turner, you indicated in your testimony that you really
    don't think the FCC has gone far enough on this, and I assume
    that means that you would prefer the FCC to have gone and
    reclassified into Title 2?
        Mr. Turner. Well look, I recognize that net neutrality
    appears messy, and it is really because it is a band-aid to
    what the earlier FCC----
        Mr. Bilbray. OK, well I am just wondering about this. I am
    trying to find the line. In your opinion, would the Title 2 be
    a better option for us to be going down, rather than stopping
    at this level?
        Mr. Turner. You may not be aware, but much of the large
    business enterprise market for broadband is today regulated
    lightly under Title II. Mr. Cicconi's business----
        Mr. Bilbray. My point is that you would like to expand that
    and bring it into this field?
        Mr. Turner. Well, I think by doing that, the WISP
    Association which Mr. DeReggi was a member of, they would
    actually probably prefer that because it takes away the
    regulation on the Internet service provider layers and----
        Mr. Bilbray. So your support for going to Title 2 is
    because the business--some in the business community would like
    that?
        Mr. Turner. My support for Title II is because that is what
    Congress adopted in the 1996 Telecommunications Act. It is the
    law of the land.
        Mr. Bilbray. Well, I don't normally associate with someone
    who was on the committee at that time that some of this is an
    interpretation.
        I got to say one thing. Let me just say one thing. I know--
    I just think that I want to clarify something. There was a
    comment made earlier--Mr. Turner, have you ever run for elected
    office?
        Mr. Turner. I have not, no.
        Mr. Bilbray. You have never gotten a vote? OK. Mr.
    Chairman, I just want to clarify. There are statements made
    here that Mr. Turner represents consumers. Now people around
    the world are standing up and demanding the right to elect
    their representatives. And it is not just on Mr. Turner, we do
    this all the time. I am sorry, in this country, you elect your
    representatives. I really think it is quite inappropriate from
    this gentleman's point of view for us to be in this institution
    and basically assume that people represent someone without that
    person being--having the right to choose who represents them.
    Self-declared representatives is what Libya is fighting against
    right now.
        So I just want to say in all fairness, nothing personal. It
    is something we do in this institution that is quite
    inappropriate, I think, seeing the makeup of this institution.
        So that----
        Mr. Turner. I meant no offense, sir. We do have 550,000
    members that I do represent that are consumers.
        Mr. Bilbray. Right. OK, and you say that, but the fact is
    that when it comes down to it, the choices you make, we try to
    open them up. I just think that we have got to remember that we
    elect people in our system, and that--I just worry about how
    many people are identified as representatives without having
    gone through a due process that I would assume would be a
    minimum standard in our society.
        That aside, I wish Ms. Chase was here because I had a
    question, but Mr. DeReggi, interesting thing on Ms. Chase's
    situation. She was at Zipcar and if I remember right, normally
    if she wanted to get basically rated somewhere on--through the
    system, it would either be alphabetical, which would put her at
    the bottom, or it would be based on how many hits she gets.
        Now, if you are little guy going up against a big guy, that
    system kind of puts you at a major disadvantage, wouldn't it?
        Mr. DeReggi. It certainly does.
        Mr. Bilbray. Now, so she now actually--her company or
    former company had the option of paying into an advertising
    mode that moved her up to the front and made it big.
        So by having the ability to sort of pay to play, that gave
    her the ability to compete on a much more even footing than
    somebody who was an established big guy, right?
        Mr. DeReggi. That is correct.
        Mr. Bilbray. Now, what would happen if the FCC said no,
    that is not an option either, that somebody can't buy their way
    onto the front page by paying for advertisement. What would
    that do to little guy's ability to take on the big established
    operations in this kind of business that Zipcar was in?
        Mr. DeReggi. Yes, that would let the little guy have an
    equal opportunity.
        Mr. Bilbray. OK. I just think that as we go down here,
    there is one--you know, we forget that a lot of times what we
    perceive to be a big advantage of the big guy is really the
    only vehicle that a little guy has to compete in the system.
    And I always get kind of frustrated if somebody comes from a
    blue collar background, and that is why, you know, Mr. Turner,
    I bring this up all the time because everybody says they
    represent the poor and the working class, and some of us never
    got to elect these guys.
        But I think that when it comes down to the system of who
    gets to participate, the fact is big government favors big
    business. Little business is the one who keeps big business
    honest, and allowing the little guy to compete, get access,
    that is what keeps the big guy honest. Traditionally when we
    think we are helping with big government, we actually end up
    creating more protection for the big guy.
        Mr. Walden. Gentleman's time----
        Mr. Bilbray. Is that fair to say?
        Mr. Turner. The concern for small businesses is why we are
    strong supporters of network neutrality, sir.
        Mr. Walden. Gentleman's time has expired. Now recognize the
    gentleman from Illinois, Mr. Kinzinger, for 5 minutes.
        Mr. Kinzinger. Thank you, Mr. Chairman. Thank you for
    spending your morning, afternoon, and forever with us. I
    appreciate it.
        I have said this before. One of my concerns with this whole
    thing is, you know, we can argue the merits for or against net
    neutrality, and I have my position, but one of the biggest
    concerns is--and you five now, but six weren't necessary privy
    to this discussion, but to me, it is just amazing, the whole
    idea that we are sitting here talking about something that I
    don't even think the FCC had a right really to do. That was
    outside of the venue, outside of the will of the body of the
    American people. I mean, last year, last Congress over 300
    members of this body signed something opposing these rules. I
    heard the FCC commissioners talk about they are pretty doggone
    sure, basically, that this is going to hold up in court. Well,
    if you are not positive why don't you come talk to us and we
    can talk about it.
        So that is--I think with this whole discussion--again,
    talking about the merits, where it's good, where it's bad. The
    10,000 foot overview I have is just the fact that we have
    regulatory bodies that are operating outside of the will of the
    House of Representatives, and that, to me, is unbelievable.
    That is not what was ever intended to happen.
        I had to get that off my chest.
        Let me say to Dr. Kovacs. I hope I am saying your name
    correctly.
        Ms. Kovacs. You are.
        Mr. Kinzinger. The current order, and I know you have
    discussed this, but I want to ask it in this way: If the
    current order from the FCC were to be implemented, with the
    current lack of complete definitions in a lot of areas in many
    of these aspects, do you believe that that lack of definitions
    and this current order would create the necessary certainty
    that broadband Internet access providers will need to determine
    that long-term strategy?
        Ms. Kovacs. I think it is going to take a long time to get
    to the point where we know what the definitions are, because it
    is going to be case by case, as protests are filed and the FCC
    deals with them. So we have quite a while to go before we have
    certainty about what the rules are actually going to----
        Mr. Kinzinger. Well we don't even know in, you know, 5, 10,
    whatever--I am just pulling those numbers out. We don't even
    necessarily know what this is all going to look like, anyway,
    so this is all still----
        Ms. Kovacs. It is going to be a multi-year process.
        Mr. Kinzinger. Right.
        Mr. DeReggi, I hope I am saying that right. You guys have
    difficult names. You need an easier one, like Kinzinger. I
    currently represent a rural district that is fairly rural, and
    it is served by a lot of small companies like your own. One of
    the things that I tend to know with consumers in these kinds of
    areas is that they choose, in many cases, small companies like
    yours so that they are able to pay for the services that they
    want to have in that area. The FCC order has a provision that
    mandates that every consumer be able to access every service on
    every device, regardless of cost. Could you expound a bit on
    how that particular provision would impact your pricing plans
    as well as what you think it would do to your ability to serve
    customers in areas like that?
        Mr. DeReggi. It would definitely force us to raise our
    prices in order to be able to do that, but it is also not
    physically capable of happening because a spectrum is not
    available to be able to fulfill that request.
        Mr. Kinzinger. So we basically are creating something or
    something is being created that is just not even possible to
    follow through on anyway?
        Mr. DeReggi. You are basically making the operators a
    criminal because I can't comply.
        Mr. Kinzinger. Right, OK. And you know, finally Mr. Turner,
    just to be clear, yes or no is fine on this. Please, just yes
    or no. If the FCC loses in court, will you support Title II
    regulation of the Internet.
        Mr. Turner. I support Title II regulation of Internet
    access--the transport segment of Internet access services
    today.
        Mr. Kinzinger. So the answer is yes?
        Mr. Turner. The answer to--you didn't ask the question the
    way I would answer, but yes, the answer on the connectivity
    side, not the access service side, yes, sir.
        Mr. Kinzinger. OK. So basically a vote against this
    resolution is a vote for Title 2 regulation.
        I yield back. Thank you.
        Mr. Walden. Gentleman yields back his time.
        We have now entertained the unanimous consent request to
    allow Mr. Inslee to sit at the subcommittee level. Without
    objection, so ordered, and he will be our final questioner
    before we go into the markup. So I will yield now 5 minutes to
    the gentleman from Washington State, Mr. Inslee.
        Mr. Inslee. Thank you, Mr. Chair. Thank you for your
    courtesy in letting me participate. I appreciate it. These are
    very important things. I want to thank all the panel for being
    here. These issues and the constellation of issues this
    represents, with all the problems we have got in the world,
    from Libya to--for gas prices, this one I hear more about. I
    mean, not necessarily more than some of those others, but a lot
    about, and I have almost come to think that when people in my
    district think about life, liberty, and the pursuit of
    happiness, they think about free access to the Internet as
    either life or liberty or the pursuit of happiness, or maybe
    all three of them, and they really do perceive a threat to that
    because certain business plans could result in the loss of
    their decision-making about what they look at on the Internet,
    and losing that ability and that going to some commercial
    entity instead. We are imposing costs on them that are not
    necessarily in their benefit.
        So it is a huge issue in my district. People are very, very
    concerned it and I am as well. I don't believe the FCC actually
    went far enough to guard against the life of that life,
    liberty, and the pursuit of happiness. Interests in part
    because it didn't deal with the wireless spectrum, which is the
    future. We are really talking about the past or the present
    here in wired, but wireless is the future and the fact that we
    haven't considered protections on that is very disturbing to
    me.
        So I just have a couple questions. First off for Mr.
    Cicconi. Do you think that consumers are the ones that ought to
    have final say in deciding what content and services they have
    when they access the Internet, and in what ways, if any, does
    the present order restrict those consumers, if any?
        Mr. Cicconi. I think by and large we are--the objective of
    our business is to provide that very access and it is not our
    position or policy to hinder it in any way. I--as I have said
    before, I don't think we have done that in any way, and I think
    it is in the interest of our business to make it as broadly
    available as possible.
        Mr. Inslee. And do you think that the FCC's present net
    neutrality order restricts access of consumers to access they
    would want in any way?
        Mr. Cicconi. I don't think so, Mr. Inslee. I am not sure I
    am getting the import of your question. There are provisions in
    the rule that provide for and allow for reasonable network
    management, which you know--I mean, there are certain things
    you have to do to make sure a network runs properly, and then
    on shared networks such as cable or wireless, your objective is
    to ensure the most access for the most people at any given
    time. And so there could be policies or terms and conditions on
    the service that are related to the ability--to management of
    that network that could impede that. But I think the Commission
    has recognized that and I don't think there is any disagreement
    that we have with the Commission about the importance of that.
        Mr. Inslee. Thank you.
        Mr. Turner, I want to talk if I can about previous
    frameworks. Isn't it true that non-discrimination really was
    the agreed-upon rule of the game, if you can call it that,
    during the past few decades, and including during much of this
    explosive growth through the Internet? And AT&T really agreed
    to it--that principle of net neutrality in FCC merger
    approvals. If that is the truth, and I think it is, what is the
    reason that the American people should be asked to abide by
    jettisoning that framework?
        Mr. Turner. Well I don't think they should, and you raise a
    great point. I always turn back to the '96 Act, because that is
    the governing law here. The focus of the Act was keeping
    Internet companies like AOL, CompuServe, Prodigy viable. They
    were dependent on the infrastructure. We had great ISP choice
    there. We had--any consumer could choose dozens of ISPs. There
    was no way I think Congress would have said the FCC should be
    not allowed to invent words like inextricably intertwined to
    basically take away that choice. I don't think Congress would
    have wanted in '96 to look out at the world of ISP choice and
    say 15 years later, I only want consumers to have choice of
    two, and I don't want them to be able to choose the content
    that they would like to access on the Internet. I wish this
    body could return to first principles, return to the principle
    of non-discrimination. The FCC may have not done it the right
    way. Let us talk about the right way to do it.
        Mr. Walden. Thank you. Gentleman concludes his questioning
    and returns his time.
        We have concluded now the hearing phase today--or actually
    the hearing today, our second hearing on this topic. We have a
    document that has been shared with the Minority that we will
    put in the record, National Broadband Plan for our Future. This
    is from Solicitor General Seth P. Waxman, former solicitor
    general, as counsel for the United States Telecom Association.
    I assume not necessarily a relative of the former Chairman
    Waxman. And in it he makes the case that the Internet was never
    regulated at the retail level. Without objection, this will be
    entered in the record.
        [The information follows:]

        Mr. Walden. And with that, the subcommittee will be
    adjourned. Thank you again for testifying, it has been most
    helpful to our process.
        For our committee members who are watching, listening, or
    somewhere out there in telecommunication land, we will
    reconvene as the subcommittee and for purposes of the markup on
    this legislation at, let us say, 3:30, so 15 minutes. We will
    reconvene for the markup.
        We stand adjourned as the Subcommittee on Communications.
        [Whereupon, at 3:15 p.m., the subcommittee proceeded to
    other business.]
        [Material submitted for inclusion in the record follows:]