[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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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:]