[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:]






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