[Senate Hearing 113-845]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 113-845

                      WHY NET NEUTRALITY MATTERS:
                          PROTECTING CONSUMERS
                        AND COMPETITION THROUGH
                     MEANINGFUL OPEN INTERNET RULES

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

                                 HEARING

                               BEFORE THE

                       COMMITTEE ON THE JUDICIARY
                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                           SEPTEMBER 17, 2014

                               __________

                          Serial No. J-113-73

                               __________

         Printed for the use of the Committee on the Judiciary

                       
                       
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT] 


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                       COMMITTEE ON THE JUDICIARY

                  PATRICK J. LEAHY, Vermont, Chairman
DIANNE FEINSTEIN, California         CHUCK GRASSLEY, Iowa, Ranking 
CHUCK SCHUMER, New York                  Member
DICK DURBIN, Illinois                ORRIN G. HATCH, Utah
SHELDON WHITEHOUSE, Rhode Island     JEFF SESSIONS, Alabama
AMY KLOBUCHAR, Minnesota             LINDSEY GRAHAM, South Carolina
AL FRANKEN, Minnesota                JOHN CORNYN, Texas
CHRISTOPHER A. COONS, Delaware       MICHAEL S. LEE, Utah
RICHARD BLUMENTHAL, Connecticut      TED CRUZ, Texas
MAZIE HIRONO, Hawaii                 JEFF FLAKE, Arizona
           Kristine Lucius, Chief Counsel and Staff Director
        Kolan Davis, Republican Chief Counsel and Staff Director
                            
                            
                            C O N T E N T S

                              ----------                              

                     SEPTEMBER 17, 2014, 10:34 A.M.

                    STATEMENTS OF COMMITTEE MEMBERS

                                                                   Page

Grassley, Hon. Chuck, a U.S. Senator from the State of Iowa......     2
    prepared statement...........................................   215
Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont.     1
    prepared statement...........................................   213

                               WITNESSES

Witness List.....................................................    37
Burnham, Bradford, Managing Partner, Union Square Ventures, LLC, 
  New York, New York.............................................     4
    prepared statement...........................................    38
Eisenach, Jeffrey A., Ph.D., Visiting Scholar, American 
  Enterprise Institute Center for Internet, Communications and 
  Technology Policy, Washington, DC..............................    11
    prepared statement...........................................    69
    attachment I to prepared statement...........................    76
    attachment II to prepared statement..........................   108
    attachment III to prepared statement.........................   159
    attachment IV to prepared statement..........................   181
Livier, Ruth, Writer, Independent Producer, and Actress, Pacific 
  Palisades, California..........................................     7
    prepared statement...........................................    42
McDowell, Hon. Robert M., Former Commissioner, Federal 
  Communications Commission, and Partner, Wiley Rein LLP, 
  Washington, DC.................................................     9
    prepared statement...........................................    49
O'Connor, Nuala, President and Chief Executive Officer, Center 
  for Democracy and Technology, Washington, DC...................    13
    prepared statement...........................................   201

                               QUESTIONS

Questions submitted to Bradford Burnham by Senator Leahy.........   218
Questions submitted to Jeffrey A. Eisenach, Ph.D., by:
    Senator Grassley.............................................   225
    Senator Leahy................................................   221
    Senator Lee..................................................   228
Questions submitted to Ruth Livier by Senator Leahy..............   219
Questions submitted to Hon. Robert M. McDowell by:
    Senator Grassley.............................................   223
    Senator Leahy................................................   220
    Senator Lee..................................................   227
Questions submitted to Nuala O'Connor by:
    Senator Leahy................................................   222
    Senator Lee..................................................   229

                                ANSWERS

Responses of Bradford Burnham to questions submitted by Senator 
  Leahy..........................................................   230
Responses of Jeffrey A. Eisenach, Ph.D., to questions submitted 
  by Senators Grassley, Leahy, and Lee...........................   243
Responses of Ruth Livier to questions submitted by Senator Leahy.   231
Responses of Hon. Robert M. McDowell to questions submitted by 
  Senators Grassley, Leahy, and Lee..............................   232
Responses of Nuala O'Connor to questions submitted by Senators 
  Leahy and Lee..................................................   250

                MISCELLANEOUS SUBMISSIONS FOR THE RECORD

ACS Solutions et al., letter to Hon. Penny Pritzker, Secretary, 
  U.S. Department of Commerce, September 9, 2014.................   287
ADTRAN et al., letter to Federal Communications Commission (FCC), 
  May 13, 2014...................................................   290
Aeronet Wireless Broadband Corp. et al., letter to Hon. Penny 
  Pritzker, Secretary, U.S. Department of Commerce, July 30, 2014   283
Computer and Communications Industry Association (CCIA), 
  statement......................................................   273
Electronic Frontier Foundation, Corynne McSherry, Intellectual 
  Property Director, statement...................................   255
Future of Music Coalition (FMC), Casey Rae, Vice President, 
  Policy and Education, statement................................   265
Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah, and 
  Hon. Jim DeMint, a U.S. Senator from the State of South 
  Carolina, Wall Street Journal, October 29, 2009, op-ed article.   300
McConnell, Hon. Mitch, a U.S. Senator from the State of Kentucky, 
  et al., letter to Hon. Thomas Wheeler, Chairman, Federal 
  Communications Commission, May 13, 2014........................   294
National Association of Realtors (NAR), Steve Brown, 2014 
  President, September 16, 2014, letter..........................   253
National Cable and Telecommunications Association (NCTA), Rick 
  Chessen, Senior Vice President, Law and Regulatory Policy, May 
  14, 2014, letter...............................................   278
Szoka, Berin, President, TechFreedom, et al., letter to Hon. 
  Thomas Wheeler, Chairman, Federal Communications Commission, 
  September 15, 2014.............................................   296

                 ADDITIONAL SUBMISSIONS FOR THE RECORD

Submissions for the record not printed due to voluminous nature, 
  previously printed by an agency of the Federal Government, or 
  other criteria
  determined by the Committee, list..............................   302

American Enterprise Institute, Jeffrey A. Eisenach, Ph.D., 
  economic study:
     http://www.aei.org/files/2012/10/17/-broadband-competition-
      in-the-
      internet-ecosystem_164734199280.pdf........................   302

Eisenach, Jeffrey A., and Ilene Knable Gotts, ``In Search of a 
  Competition Doctrine for Information Technology Markets: Recent 
  Antitrust Developments in the Online Sector,'' paper:
    http://www.techpolicydaily.com/wp-content/uploads/2014/06/In-
      Search-of-a-Competition-Doctrine-for-Information-
      Technology-Markets-
      Eisenach-Gotts.pdf.........................................   302

Federal Communications Commission (FCC), Electronic Comment 
  Filing System, September 4, 2014, online posting:
    http://apps.fcc.gov/ecfs/comment/view?id=6018327622..........   302

Federal Communications Law Journal, Jeffrey A. Eisenach and Hal 
  J. Singer, June 2013, article:
    http://www.fclj.org/wp-content/uploads/2013/09/65-3-
      Singer.pdf.................................................   302

Journal of Law and Economics, The, R.H. Coase, October 1959, 
  article:
    http://www.jstor.org/stable/724927...........................   302

Social Science Research Network (SSRN), Jerry Brito et al., April 
  12, 2010, article:
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=
      1587058&download=yes.......................................   302

 
                      WHY NET NEUTRALITY MATTERS:
                          PROTECTING CONSUMERS
                        AND COMPETITION THROUGH
                     MEANINGFUL OPEN INTERNET RULES

                              ----------                              


                     WEDNESDAY, SEPTEMBER 17, 2014,

                              United States Senate,
                                Committee on the Judiciary,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:34 a.m., in 
Room SH-216, Hart Senate Office Building, Hon. Patrick J. 
Leahy, presiding.
    Present: Senators Whitehouse, Klobuchar, Franken, 
Blumenthal, Hirono, Grassley, Hatch, Lee, Cruz, and Flake.

          OPENING STATEMENT OF HON. PATRICK J. LEAHY,
            A U.S. SENATOR FROM THE STATE OF VERMONT

    Chairman Leahy. Senator Grassley is on his way, we will 
begin with my opening statement and I will yield to him when he 
gets here. Senator Lee is here, Senator Whitehouse, Senator 
Klobuchar, Senator Franken, and Senator Hirono.
    I appreciate the number of people who are here. I also 
appreciate the almost overwhelming number of people who have 
emailed me or contacted me about this hearing.
    On Monday, the Federal Communications Commission closed the 
public comment period on its proposed rules to protect an open 
Internet. I was not surprised by the number of emails and calls 
I got in my office because the FCC got 3.7 million--Americans 
made their voices heard. The issue is critical to consumers and 
businesses. An overwhelming number of the comments called on 
the FCC to enact meaningful rules that will protect consumers 
and preserve competition online. I should note I agree, and I 
believe the FCC should heed their call.
    This is the second hearing the Judiciary Committee has 
convened on this issue. The first hearing, which I chaired in 
Vermont this summer, was an important opportunity to hear 
voices outside of the Beltway. Vermont-based small businesses 
now have a reach they only dreamed of thanks to the 
transforming power of the Internet. For the Vermont Country 
Store--it has long operated two retail outlets and a mail order 
business, the Internet now accounts for a remarkable 40 percent 
of its business, one third of its employees and they hire 
several hundred people. Logic Supply is based entirely online 
and sells industrial computers to consumers around the world.
    They both were very honest and said they have reached a 
point and size that they could pay extra to jump over other 
people, but they do not want it to be that way. They said they 
never would have been able to start in the first place had they 
had to face that kind of obstacle. Their testimony was simple, 
keep the Internet an open playing field for small businesses so 
that they can launch and thrive. Cabot Orton from the Vermont 
Country Store said, ``All the small business community asks is 
simply to preserve and protect Internet commerce as it exists 
today, which has served all businesses remarkably well.'' He 
could not be more right.
    Martha Reid, the Vermont State Librarian, testified about 
the important role that libraries play in communities 
throughout the country, particularly those in underserved 
areas. She said, ``All Americans, including the most 
disenfranchised citizens who would have no way to access the 
Internet without the library, need to be able to use Internet 
resources equally.''
    So this testimony and the testimony we will hear today will 
underscore the importance of why net neutrality matters. It 
matters for our economic growth and competitiveness. I believe 
the Internet is an equalizer. It can help break a lot of cycles 
of unemployment and poverty. It matters because the online 
world is the ultimate tool for free expression and democracy--a 
tool so powerful that it has helped topple totalitarian 
governments. Think about that. I mean this is something even a 
few years ago, none of us could even imagine. If you have the 
Internet become a two-tiered system of ``haves'' and ``have-
nots,'' controlled by a small number of corporate gatekeepers, 
it destroys everything that has made it one of the greatest 
innovations, certainly in history. The FCC must act in a 
meaningful way to protect its openness.
    Meaningful rules would stop so-called ``paid 
prioritization'' deals that would allow large corporations to 
drown out smaller competitors. I introduced legislation with 
Congresswoman Doris Matsui of California that would require the 
FCC to develop rules to stop these deals. Regardless of whether 
our bill passes or not, the FCC should act to block this kind 
of behavior. You have to have rules that go beyond the 
antitrust laws, which play an important role as a backstop but 
alone are not enough to promote and preserve free speech and 
innovation online.
    The FCC's action will determine whether the Internet as we 
know it stays open, vibrant, and competitive, or whether it is 
going to become a place where only the most powerful have a 
say. I know the outcome the people in Vermont want.
    I thank the witnesses for coming today on Constitution Day. 
We have extra copies if anybody wants it.
    Before I start, one of my friends of decades in the U.S. 
Senate, Senator Grassley of Iowa--today is his birthday. So let 
us all wish him a happy birthday.
    Senator Grassley. Thank you.
    Chairman Leahy. That faked you out; did it not?

           OPENING STATEMENT OF HON. CHUCK GRASSLEY,
             A U.S. SENATOR FROM THE STATE OF IOWA

    Senator Grassley. Yes. Thank you all. Thanks to everybody 
in the audience who is here. Most importantly, the witnesses 
who have prepared for this and our experts in this area. It is 
very important that you have a hearing like this, I think a 
complex topic, and I am glad the committee can hear from all 
sides of the debate.
    I believe that many, if not all of us, share similar goals 
with respect to the Internet. We all want the Internet to grow. 
We want it to prosper. We all want faster and cheaper Internet 
access. We all want more deployment of broadband technologies, 
particularly the areas that remain without access. We all want 
more innovations and new avenues by which we can access that 
information. We all want consumers to have more choice and 
options.
    The FCC is in the process of considering whether to adopt 
rules that would regulate the Internet. Chairman Wheeler claims 
that there is not enough competition in the highspeed broadband 
marketplace. There are some that dispute that. Rather, these 
people say that we have competitive dynamic Internet right now 
and the push for new regulations is a solution in search of a 
problem.
    Is the Internet really broken? Broadband and Internet 
technologies are advancing every day. New products are 
constantly entering the market. Overall, broadband deployment 
and speeds, both wired and wireless, are estimated to reach 98 
percent of the American households with broadband speeds of 10 
megabytes or faster. 82 percent of those households have access 
to broadband speeds of 50 megabytes or faster.
    The overall broadband industry--cable, telco, satellite and 
wireless--has invested over $1.2 trillion in infrastructure, 
$60 billion a year recently. Further, it is estimated that 
broadband speeds double every 2 to 3 years.
    So many contend that the FCC and others are just 
speculating about future harms and there is no need to deviate 
from the current policies that have generated Internet 
phenomenal growth. Morever, many--including this Senator--are 
highly skeptical about the prospects of expansive FCC 
regulation over every aspect of the Internet. The Internet has 
been successful precisely because of a hands-off approach.
    I note that this policy was first implemented under 
President Clinton. The lack of government intervention has 
allowed competition to flourish beyond wildest imaginations.
    We all want more deployment of technology and 
infrastructure. In fact, I would like to see more broadband 
growth and options take place in rural America where I live and 
where the Chairman proudly says that he resides. However, it is 
more likely that we will see improvements in this area as a 
result of innovation and investment and not more regulation.
    Because of the fast changing Internet market, rules and 
regulations could just end up impeding the development and 
adoption of new technologies and services. In fact, they could 
threaten investment in network upgrades, generate legal and 
marketplace uncertainty, and ultimately cost jobs, harming the 
economy.
    It is doubtful that creating an expansive regulatory regime 
will increase broadband deployments, spur innovation and ensure 
better quality services and consumer satisfaction.
    Supporters of net neutrality do contend that new rules will 
restore Internet protections and ensure the vitality of the 
Internet. If anything, I am concerned that the imposition of 
such regulations and in particular, expansion of 80 year-old 
rules designed to regulate old telephone monopolies under Title 
II might have the exact opposite effect.
    There are legitimate concerns about making sure Internet 
competition and consumers are protected from bad actors. I know 
about them and hear about them quite often.
    No I do not support monopolistic, anti-competitive or 
predatory practices in the Internet marketplace or anywhere for 
that matter, but rather than allow the FCC to impose 
regulations on an industry that has been so successful under a 
hands-off regime, antitrust and consumer protection laws may 
provide a better option to ensure consumers and businesses are 
not harmed by anti-competitive conduct in the modern Internet 
ecosphere. I have been a strong supporter of vigorous 
enforcement of antitrust laws by the Justice Department and the 
Federal Trade Commission to ensure a fair playing field in many 
sectors of our economy--just recently got somewhat of a 
modification in the meat-packing industry of such a merger to 
make sure that that would take place. So you know that I am 
active in the enforcement of the antitrust laws. I hope that 
these people, the Federal Trade Commission and the Justice 
Department, will be paying close attention to this market as 
well.
    So in conclusion, because the Internet is so important to 
consumers and to our economy, we should proceed with caution. 
No one wants to undermine the Internet. It is a complex policy 
debate and I look forward to today's testimony. And who knows? 
You could change my mind.
    Chairman Leahy. It has been known to happen.
    Senator Grassley. Not often enough.
    Chairman Leahy. Not often enough.
    [Laughter.]
    Chairman Leahy. I was showing some of you the picture in 
rural Vermont where I live and the Senator from Iowa has a 
similar picture of his home in rural Iowa where he lives. An 
open Internet in a rural area is critical. It is similar to 
what my grandparents would tell me about when--in Vermont--they 
got rural electricity, rural telephone, the difference it made. 
It is something we all take for granted today.
    Our first witness is Brad Burnham. He is a cofounder and 
managing partner of Union Square Ventures, a New York based 
venture capital firm. He has invested in companies like 
Twitter, Etsy and Kickstarter. Obviously, you know where to 
invest.
    He previously worked at AT&T in a variety of sales, 
marketing and business development roles. He also worked at 
AT&T Ventures, the venture capital group.
    Mr. Burnham, please go ahead.

 STATEMENT OF BRADFORD BURNHAM, MANAGING PARTNER, UNION SQUARE 
               VENTURES, LLC, NEW YORK, NEW YORK

    Mr. Burnham. Thank you, Senator Leahy for the opportunity.
    As you said, my perspective has been shaped by a career 
spent on both sides of the issue, first as a telecommunications 
executive at AT&T and a partner at AT&T Ventures and then later 
as a founding partner of Union Square Ventures.
    I believe we are at a crossroads. The rules the FCC is now 
considering will shape the Internet ecosystem for many years to 
come and could have a profound effect on our economy, our place 
in the world and ultimately on the nature of our society. 
Almost everyone has benefited from the phenomenal innovation 
enabled by the Internet, but few of us have stopped to think 
about how all of this happened.
    The Internet we know is the direct result of two key 
characteristics. First, the Internet separates applications 
from infrastructure, making it possible to create a networked 
application without knowing anything about the underlying 
network. Second, every applications is immediately available to 
every consumer. These two characteristics radically lowered the 
cost of building and distributing Internet applications, 
opening the market to a much larger and more diverse pool of 
creators.
    For the first time, people without money, connections, or 
corporate backing could create an application and reach a 
global audience. Facebook was created in a dorm room. 
Foursquare spent $25,000 to reach their first 100,000 users. 
These companies and thousands more started from scratch and 
grew to reach global audiences. They have since gone on to 
empower hundreds of millions of others--independent 
craftspeople setting up shop on Etsy, filmmakers raising 
millions of dollars on Kickstarter, and journalists reaching a 
global audience on Twitter.
    This incredible explosion of innovation happened because it 
became so cheap to create and distribute an application on the 
Internet that innovators no longer required permission from a 
boss, a network operator, or an investor to launch a business. 
If you could imagine an application like Instagram, you could 
build it yourself and get it into the hands of thousands or 
millions of consumers almost overnight. Later, once you had a 
large audience, you could approach investors from a position of 
strength to raise money to grow your business. This is the 
model of innovation that powered the growth of the Internet, 
and all of this is about to change.
    Until recently, Internet access providers could not tell if 
you were watching Netflix, playing Angry Birds, or posting on 
Facebook. By default, access to the Internet was open. They 
have now deployed technology that allows them to see what 
services you are using. This will make it possible for the 
cable and telephone companies we use to get to the Internet to 
charge application developers for faster delivery of packets, 
slow traffic they decide is less important and even block 
traffic altogether.
    Even as Internet access providers increase their ability to 
treat applications differently, the Internet has remained a 
relatively level playing field because of a combination of FCC 
enforcement actions and Comcast's acceptance of net neutrality 
principles as a condition of their merger with NBC. Today, 
those agreements are nearing expiration, and the FCC's ability 
to enforce open Internet principles has been sharply curtailed 
by the DC Circuit Court's decision in the Verizon case.
    Unfortunately, the FCC, in search of a compromise, is not 
proposing to reclassify Internet access. Instead, they are 
proposing rules that would explicitly allow cable and telephone 
companies to treat Internet applications differently for a 
variety of business and network management reasons. The 
combination of access provider's new technical abilities and 
the FCC's proposed rules will dramatically increase the cost of 
creating and distributing Internet applications. Applications 
developers will have to consider the network management 
strategies and even the business interests of cable and 
telephone companies when they design their applications. They 
will also have to change the way they approach investors.
    Every web application developer knows speed is a feature. 
They all work to shave milliseconds off the time it takes to 
load a page. Start-ups will need to raise money up front to buy 
access to the fast lane to succeed, making it impossible to 
launch first as Tumbler and Foursquare did and then raise money 
later. No new application will be created in a dorm room. The 
applications like video and voice that compete with cable and 
telephone companies will find it especially hard to raise 
money.
    It may seem like I am overstating my case, but ask yourself 
how comfortable would you be investing in a company creating a 
new air conditioner if the company that delivered power to that 
device could single it out and throttle its power during busy 
periods while delivering full power to their own air 
conditioners. What if the power company zero-rated their air 
conditioners, powering them for free?
    It seems obvious that allowing electric utilities to 
discriminate between different applications--technically or 
financially--would distort the market for applications. The 
companies that provide access to the Internet are asking to be 
able to do just these things. Lobbyists for cable and telephone 
companies like to jump on this analogy to suggest that 
advocates for the open Internet are fuzzy headed liberals who 
want the Internet regulated as a public utility. This is a 
cynical, but effective misdirection. I am a capitalist. I 
believe in markets. If anything, like many investors, I lean 
libertarian. I am not suggesting the Internet should be 
regulated. I am suggesting the telecommunications networks we 
use to get to the Internet not be allowed to exploit that 
bottleneck position to distort the market for Internet 
applications.
    This is not some dangerous new government intervention into 
a free market. We have always recognized that 
telecommunications services were essential services because 
they are the connective tissue of our entire economy. In fact, 
until 2004, there was no question that Internet access was a 
telecommunications service. It was only then that cable 
companies convinced the FCC to treat Internet access as an 
information service. That was a fiction then, and it is still a 
fiction.
    How many of us use our cable or telephone company for 
anything other than access to the Internet? The vast majority 
of applications we use come from independent developers. Many 
were created on a shoestring budget in the last couple of 
years. I understand why cable and telephone companies would 
like to change that. I understand why it is in their business 
interests to leverage their ability to control access to 
consumers to advantage their own applications or to get paid to 
advantage other providers' applications. I do not understand 
why anyone other than the access providers or the shareholders 
of the access providers would think this a good idea.
    There is a way to preserve the key characteristics that 
enabled the emergence of the applications on the Internet. It 
is possible to keep the cost of developing and distributing 
Internet application within the reach of anyone with a computer 
and a little programming knowledge. All we have to do is admit 
what we all know, that access to the Internet is an essential 
services. Classify that service as a telecommunication service 
and then immediately forbear most of the regulatory overhead of 
the current telecommunications regulation. This would give the 
FCC sound legal authority to adopt the rules we need to protect 
innovation and investment on the Internet--rules against 
blocking? rules against prohibiting application-specific 
discrimination and rules banning access fees. This simple, 
clear, solution is the lightest weight approach possible. Not 
only is it not overbearing government regulation, it is the 
only way to prevent the distortion of the market for Internet 
applications which would ultimately require much more heavy-
handed intervention.
    Chairman Leahy. Thank you very much, Mr. Burnham. 
Incidently, everybody's statement will be placed in the record 
in full. We are going to have to try to keep closer to our 
time, only because I know we are going to have votes on the 
floor and we will be losing Members when that happens.
    [The prepared statement of Bradford Burnham appears as a 
submission for the record.]
    Chairman Leahy. Ruth Livier is writer, independent producer 
and actress. She created the award-winning bilingual web 
series, Ylse, and she is the first member of the Writers Guild 
of America West to join that union solely for work in new 
media.
    Please go ahead.

  STATEMENT OF RUTH LIVIER, WRITER, INDEPENDENT PRODUCER, AND 
             ACTRESS, PACIFIC PALISADES, CALIFORNIA

    Ms. Livier. Thank you, Chairman Leahy.
    I am here as a Union actress and as the first person to 
join the Writers Guild of America West via my work in digital 
Media to share about how net neutrality changed my life.
    Minority communities have historically lacked equitable and 
balanced representation in traditional media. UCLA's Dr. 
Darnell Hunt, a media diversity expert, testified that business 
as usual in the industry is wholly inadequate for addressing 
the stagnation in Hollywood diversity. A new paradigm is Needed 
that goes beyond symbolic pronouncements and token gestures. 
This is where net neutrality, or the open Internet comes in.
    As an American Latina, I got tired of seeing the 
disproportionate amount of negative stereotypes about my 
community in traditional media. So, in 2000, I wrote Ylse as a 
TV pilot. It is a bicultural dramedy about a modern Latina.
    At a conference designed to nurture Latino talent, I 
approached an executive for advice who said, ``Who are you for 
anyone to produce your show?'' Others asked, ``Who's going to 
watch this?'' Their comments were not based on my writing. They 
had not read a single word. Their immediate objections were 
based entirely on the concept of a Latina-driven show written 
by someone with no track record.
    Who was I to think that anyone would take me seriously? And 
how was I supposed to prove there was a market for my content? 
There was no way in so, I filed the script away.
    Then, years later, everything changed. Technology advanced. 
Camera equipment was no longer cost prohibitive. The Internet 
suddenly put worldwide distribution at our fingertips. It all 
seemed too good to be true, but, it was. And it changed 
everything.
    We independent artists suddenly had unprecedented access to 
create, produce and distribute our content. In this exciting 
new frontier, anyone, regardless of ethnicity or socio-economic 
standing, could finally tell their stories from our points of 
view without getting discouraged, derailed or having our 
visions diluted by corporate gatekeepers.
    So in 2008, I took that old script and reconceived it into 
the award-winning web series, Ylse.net. Our global audience was 
even broader than expected. Our indie series provided jobs for 
a diverse work force in front of and behind cameras. Our 
minority directors earned points toward becoming members of the 
Directors Guild of America and I earned points toward becoming 
a Writers Guild of America member via digital Media. This meant 
that the open Internet was a viable alternative way to build a 
career and diversify the talent pool of professional writers. 
It also meant that programming on the web was not up to the 
same few gatekeepers who controlled traditional media where, by 
all accounts, by every study, minorities are still under-
represented in the writers' rooms, Executive positions, and in 
front of cameras. And Latinos are the most under-represented 
relative to our share of the US population.
    But, with an open Internet, low-budgets and no connections 
does not mean there was no way in. Never again could we be 
disregarded by anyone who essentially asks, ``Who are you to 
have your story be told?'' We all deserve to have our stories 
told. We all deserve to be heard, to be acknowledged, and to 
not have to sit in the shadows until someone else decides that 
our lives are worthy of being reflected in the media and to 
have to wait for someone else to get it done. We could now take 
the reigns in our hands and take responsibility for our own 
destinies.
    The open Internet has given the rest of us an opportunity 
to improve our crafts, provide jobs and a creative outlet for a 
more diverse work force, define ourselves by creating more 
varied, complex, positive and balanced portrayals of our demos. 
It has given us instant access to information and reputable 
data to prove our markets and connect with our global 
audiences. It has empowered and motivated historically 
marginalized communities to take the reigns in our own hands 
and create content, knowing there is a distribution outlet for 
it.
    This communication platform must not go the way of 
traditional media, since through it diverse voices can finally 
partake in the national conversation at all levels. But the 
same companies that distribute traditional media control 
Internet service and they are advancing an agenda of 
unenforceable rules that would allow them to be the gatekeepers 
and decide what content is available online and on what terms. 
We cannot allow this to happen. That is why the FCC must 
institute strong rules that ban unjust and unreasonable 
discrimination by Internet service providers.
    I join with the millions who have commented on the FCC's 
proposed rules to call on the Commission to reclassify Internet 
service as a telecommunications service, that it may, once and 
for all, permanently protect Internet openness. Make no 
mistake, this is a civil rights issue and it is my hope that 
for future generations of minority and low-income youth having 
a platform where they can express themselves on an equal-
playing field will be nothing out of the ordinary because for 
us it has been nothing short of revolutionary. Thank you. 
Chairman Leahy. Thank you very much. I do appreciate that.
    [The prepared statement of Ruth Livier appears as a 
submission for the record.]
    Chairman Leahy. Our next witness is Robert McDowell who 
served as a member of the Federal Communications Commission 
from 2006 to 2013. Last week he joined the law firm Wiley Rein 
as a partner. Prior to serving at the FCC, Mr. McDowell worked 
for 10 years at Comptel. It is an association of competitive 
communication service providers.
    Please go ahead.

          STATEMENT OF HON. ROBERT M. MCDOWELL, FORMER
 COMMISSIONER, FEDERAL COMMUNICATIONS COMMISSION, AND PARTNER, 
                 WILEY REIN LLP, WASHINGTON, DC

    Mr. McDowell. Thank you, Mr. Chairman, Ranking Member 
Grassley and all Members of the Committee. It is an honor to be 
here before you today and thank you for pointing out the 
resume. I will cut that out of my testimony right now.
    I did start at Wiley Rein just last week. Nonetheless, the 
opinions I will give today are strictly my own and not those of 
any clients of Wiley Rein. I have to say that to make sure I 
have a job when I get back to the office later this afternoon.
    As was the case during my 7 years on the FCC, my hope is 
that the Internet remains open and freedom-enhancing as it has 
been since its inception, since it was privatized in the mid-
1990s.
    As the Net migrated further away from government control, 
it grew beautifully, growing from just under 90 thousand users 
in the late 1980s to approximately 3 billion globally today. 
Its success as the fastest growing disruptive technology in 
human history was the direct result of the Clinton 
Administration's bipartisan policy to keep the government's 
hands, largely, off of the Internet sector. The Clinton 
Administration was expressly vigilant about resisting attempts 
to regulate the Net like an old phone monopoly, as some net 
neutrality proponents desire today. In short, the Internet is 
the greatest deregulatory success story of all time.
    While serving on the FCC, I saw many, many different 
iterations of the net neutrality debate. Without a doubt, the 
definition of the term ``net neutrality'' keeps morphing by the 
day. Years ago, new rules were offered up, ostensively, to 
prevent Internet service providers from blocking or degrading 
the content and applications consumers seek to use.
    Since then, the term has become a sort of Rorschach inkblot 
to mean anything anyone can envision regarding the Internet to 
benefit their agenda and their interests. For instance, net 
neutrality has evolved from being about the last mile ISPs to 
the middle mile. And for the first time this year, it has grown 
to include ideas for regulation of the Internet backbone. The 
FCC's record even contains comments calling for the Commission 
to have general regulatory over the Internet, including not 
only networks like those built by cable and phone companies, 
but content and application providers at the so-called ``edge'' 
as well. At the end of the day, some are attempting to use 
public policy to essentially regulate their business rivals.
    I have opposed new rules for many reasons, including, but 
not limited to, these five: (1) nothing is broken in the 
Internet access market that needs fixing; (2) no government 
agency has conducted a bona fide, peer-reviewed market study 
that has diagnosed any alleged systemic illness; (3) if 
systemic market failure were to come to light, ample laws 
already exist to remedy the problem, while current laws provide 
a deterrent against anti-competitive behavior; (4) retrofitting 
Title II of an 80-year old statute designed for the now-extent 
dinosaur phone monopolies of the early 20th century would be 
devastating to the entire Internet ecosphere and should not be 
held out as America's cutting edge 21st century tech policy for 
the world to emulate; and (5) expansion of the government's 
reach into the operations of the Net is providing cover and 
encouragement to regimes such as those in China, Iran, and 
Russia to push for multi-lateral, intergovernmental, or as 
Vladimir Putin said 3 years ago, ``international control of the 
Internet.''
    At this critical crossroads, two disturbing trends are 
emerging at the FCC. The first is to subject the Internet to 
antiquated phone monopoly regulations known as Title II. The 
second is to suffocate the competitive, dynamic, vibrant and 
world-leading wireless industry with new and unnecessary rules. 
Some technology companies that are pushing for classification 
of Internet access as a telecommunication service under Title 
II should be careful what they wish for.
    This section of the Communications Act is not only 
antiquated, but it is particularly powerful, prescriptive, far-
reaching and it has over 1000 requirements. As market forces 
cause the technical architecture of tech and telecom--as we 
used to call them--companies to converge, companies that today 
are calling for the regulation of their rivals and think they 
will not get swept up in Title II regulation themselves could 
wake up 1 day having to live under its mandates.
    As a technical matter and business matter, transmission 
services and information services are quickly becoming 
indistinguishable. It would be impossible to parse the 
difference between broadband service providers and other tech 
companies that combine transmission with information processing 
or storage such as content delivery networks or E-reader 
services.
    Accordingly, across the globe, content and application 
companies are falling under the purview of more and more 
regulations and court orders. The FCC has the potential to 
stoke a contagion of international Internet regulation.
    This scenario becomes even more nettlesome and discouraging 
when it comes to wireless broadband. Since its inception, 
American wireless companies have spent nearly $400 billion on 
infrastructure. Investment grew more than 40 percent between 
2009 and 2013, and may add up to $1.2 trillion in new economic 
activity by 2017.
    Over 90 percent of Americans have a choice of four mobile 
broadband providers. Furthermore, America leads the world in 4G 
build-out and adoption. The wireless market is clearly working 
and consumers are benefiting from it like no other time in 
human history.
    Most importantly, though, wireless is different. As a 
matter of physics, wireless networks operate far differently 
from fiber or coaxial cable and require unique management. 
Subjecting wireless to new, unnecessary and one-size-fits-all 
rules will inject uncertainty into a thriving marketplace. Such 
government action could undermine American global 
competitiveness as the mobile Internet of everything comes over 
the horizon to change our world. Brace yourselves, it is 
coming.
    In conclusion, whether creating new rules or foisting 
antiquated and obsolete laws on new technologies, the end 
result would be unnecessary and counterproductive while 
creating uncertainty and unintended consequences. A better path 
if we all share the same goal of freedom and choice and 
openness on the Internet, would be to rely on time-tested anti-
trust and consumer protection laws that have helped make the 
American economy the strongest and most innovative in the 
world.
    Thank you for the opportunity to testify today and I look 
forward to your questions.
    Chairman Leahy. Thank you very much.
    [The prepared statement of Hon. Robert M. McDowell appears 
as a submission for the record.]
    Chairman Leahy. Dr. Jeffrey Eisenach is a visiting scholar 
at the American Enterprise Institute. He directs the Center for 
Internet, Communications and Technology Policy. He serves as 
executive editor of Tech Policy Daily.com. He writes on a wide 
range of issues, including industrial organization, 
communications policy, the Internet, government regulations, 
labor economics, and public finance. In his spare time, he 
comes and testifies here before the Congress.
    Go ahead, Doctor.

  STATEMENT OF JEFFREY A. EISENACH, PH.D., VISITING SCHOLAR, 
      AMERICAN ENTERPRISE INSTITUTE CENTER FOR INTERNET, 
      COMMUNICATIONS AND TECHNOLOGY POLICY, WASHINGTON, DC

    Mr. Eisenach. Jack of all trades, master of none, perhaps. 
Thank you for your introduction.
    Chairman Leahy, Ranking Member Grassley, and Members of the 
Committee, thank you for the opportunity to appear before you 
to present my views on net neutrality regulation. I do want to 
say that while I am here in my capacity as a visiting scholar 
at the American Enterprise Institute, the views I express are 
my own and should not be contributed to any of the 
organizations with which I am affiliated.
    My testimony today advances three main points. First, net 
neutrality would not improve consumer welfare or protect the 
public interest. Rather, it is best understood as an effort by 
one set of private interests to enrich itself by using the 
power of the state to obtain free services from another, a 
classic example of what economists term ``rent-seeking.'' 
Second, the potential costs of net neutrality regulation are 
both sweeping and severe, and extend far beyond a simple 
transfer of wealth from one group to another. Third, legitimate 
policy concerns can be addressed through existing antitrust and 
consumer protection laws.
    To begin, let us be clear what we mean by net neutrality 
regulation. The rules favored by net neutrality advocates would 
ban or restrict payments from one type of business, edge 
providers, to another type of business, broadband ISPS. Now it 
is easy to see why edge providers would lobby for such rules, 
but difficult to understand how they would benefit consumers or 
the economy generally.
    Net neutrality advocates offer a variety of justifications 
starting with the idea that broadband ISPs have monopoly power. 
But the monopoly argument has several fatal flaws. First, as 
the FCC has repeatedly noted, broadband ISPs are investing 
billions of dollars to upgrade their networks, prices are 
falling at a rapid pace and broadband speeds are increasing--
Senator Leahy, as I think you mentioned--at 30 percent or more 
every year. That sort of performance is not consistent with the 
``cozy duopoly'' theory advanced by net neutrality advocates. 
Indeed, the broadband market is less concentrated than other 
Internet markets like search engines, social networks, and 
personal computer operating systems.
    Another variant of the market power argument suggests that 
while big, established edge providers might be able to fend for 
themselves against the ISPs, we need to look out for the little 
guys, the new entrants who may be strangled in the crib as a 
result of discriminatory access fees. But what no one can 
explain, however, is why ISPs would want to discriminate 
against start-up edge providers which pose no competitive 
threat and which create the applications and content that draw 
consumers to subscribe to the broadband in the first place. 
Indeed, historically, they have not done so.
    The FCC's case for net neutrality regulation is mostly not 
based on concerns about monopoly power. Instead, its main 
theory is that in the two-sided market in which broadband ISPs 
operate--with edge providers on one side and consumers on the 
other--edge providers generate so much innovation that they 
deserve to be subsidized by consumers through a rule that 
forces consumers to pay 100 percent of the cost of the network 
while edge providers pay zero. Now, this is a fine theory, but 
there is not a scintilla of empirical evidence to support it.
    Finally, some argue net neutrality regulations are needed 
to protect freedom of speech. There are numerous problems with 
this argument as well, not the least of which is that giving 
Netflix the right to distribute ``Orange Is the New Black'' 
over Comcast broadband network for free, has nothing to do with 
protecting political speech or dissenting views.
    When these erroneous arguments are stripped away, what is 
left is the obvious--edge providers big and small and those who 
fund them and profit from their success have a powerful 
economic interest in getting the government to guarantee them 
free access to the ISP's networks. Occam's razor applies, the 
simplest explanation tends to be the correct one and net 
neutrality is no exception.
    Now if all that were at issue here were a transfer of 
wealth from consumers and ISPs to edge providers and venture 
capitalists, that would be bad enough. But much more is at 
risk. The regulations being considered by the FCC, especially 
Title II, would replace the current dynamic pragmatic business 
and engineering approach to operating the Internet with a 
static, bureaucratic, politicized regulatory regime.
    Ironically, common carrier regulation would not prevent 
price discrimination, but instead can actually require that 
rates vary across different types of services and customers 
just as postal rates do today. Under a Title II regime, the FCC 
could easily find itself overseeing rate proceedings that look 
a lot like the perennial scrum between first, second and third 
class mailers over who will pay how much for junk mail, 
magazines, and so forth. That is not the future of the Internet 
any of us want to see.
    Finally, adoption of net neutrality regulation would harm 
the cause of Internet freedom worldwide. By embracing the idea 
of state-control of the Internet, the adoption of net 
neutrality rules in the U.S. would legitimize the efforts of 
tyrants everywhere to impose far-more repressive forms of 
statist intervention.
    To conclude, it is true that the economic characteristics 
of high-tech markets throughout the Internet ecosystem result 
in many firms having a form of market power and that such 
market power creates the potential for anti-competitive acts. 
But these characteristics are not unique to broadband markets 
or broadband ISPs and they cannot justify discriminatory 
regulation. The appropriate remedy is vigilant, 
nondiscriminatory enforcement of the anti-trust laws.
    Mr. Chairman and Members of the Committee, this completes 
my testimony and I look forward to answering any questions.
    Chairman Leahy. Thank you very much.
    [The prepared statement of Jeffrey A. Eisenach, Ph.D., 
appears as a submission for the record.]
    Chairman Leahy. Our next witness, the last one, Ms. Nuala 
O'Connor. She is the president and CEO for the Center for 
Democracy and Technology, and an internationally recognized 
expert in Internet and technology policy.
    Prior to joining CDT, she held a number of positions in the 
public and private sector, including as the first Chief Privacy 
Officer at the Department of Homeland Security, senior 
positions at General Electric and Amazon.com. She was born in 
Belfast, Northern Ireland. And I--with a certain amount of 
pride--mention she is a graduate of Georgetown University Law 
Center many, many, many years after I graduated from there.
    Please go ahead.

  STATEMENT OF NUALA O'CONNOR, PRESIDENT AND CHIEF EXECUTIVE 
  OFFICER, CENTER FOR DEMOCRACY AND TECHNOLOGY, WASHINGTON, DC

    Ms. O'Connor. Thank you, Chairman Leahy, Senator Grassley, 
distinguished Members of the Committee, my esteemed colleagues 
on the panel--I thank you.
    I am honored to be here today to represent the Center for 
Democracy and Technology. For over 20 years, CDT has worked to 
promote and sustain public policy that protect a free and open 
Internet. Above all, we are dedicated to advancing the 
individual's interest in a digital world that supports free 
expression, freedom of association, personal privacy, and 
innovation.
    Both the technology and the policy architectures of the 
Internet must support these individual rights and freedoms 
while also fostering innovation and the free flow of 
information--not only within the United States, but around the 
world. The Internet, at just over two decades old, is still in 
its infancy. Sound technical and policy choices have brought 
about an Internet that has supported robust expression, 
creativity and innovation.
    While it is an appropriate time to strengthen the rules 
governing our rights in the digital world, we must be 
thoughtful about the consequences. We must seek to protect an 
individual's profound need to fully engage in the digital world 
as speakers, as creators, as recipients of rich and diverse 
ideas at reasonable costs and effective speeds. We must remain 
dedicated to growth and innovation that supports these goals in 
both public and private policies.
    The Center for Democracy and Technology strongly supports 
the concept of net neutrality. We believe that the Internet is 
an enabler of knowledge, of community, and of Democracy around 
the world. We encourage the FCC to take decisive action to 
establish clear and strong rules that will create a level 
playing field for consumers.
    We seek new rules that are undergirded by principles of 
fairness and Internet openness and we believe that all options 
should be on the table for the FCC to consider. When the FCC's 
open Internet rules were adopted in 2010, there was, in fact, 
even far less agreement on net neutrality than there is today. 
Most now agree that we need strong, open Internet rules that 
provide clarity for consumers and for businesses alike. 
Ultimately, strong rules should make it clear that the open and 
free nature of the Internet cannot and would not be changed.
    We advocate for a principled and a pragmatic approach to 
the new rules with the following principles guiding any 
decision: (1) there must be no blocking, no censorship allowed; 
(2) we must have transparency about the services and the 
practices offered; (3) there should be low barriers to entry to 
the market on the Internet not only for individuals, but for 
start-up companies as well, which means we must have baseline 
nondiscriminatory rules; (4) we must encourage open technical 
standards while still allowing for reasonable network 
management.
    It is through the lens of these principles that we should 
consider all of the options on the table and be open to new 
ones that we have not even considered yet.
    In our comments to the FCC and our written testimony for 
today's hearing record, CDT has provided a detailed examination 
of the pros and cons of a number of the authorities on which 
the FCC could base its oversight, including both Title II and 
Section 706. We also explored a number of hybrid proposals that 
had been suggested.
    While all of these are real options, we remain concerned 
about the limitations inherent in the structure and enforcement 
of any of these solutions and the challenges to speedy and 
effective implementation.
    Over 3 million comments have been submitted to the FCC in 
the course of this rulemaking process. The vast majority of 
which call for strong rules that protect and preserve an open 
Internet. While the details of these comments vary, citizens 
have weighed in on this issue as never before, largely through 
online filings and emails showing the very nature of the 
Internet as a vehicle for political speech and openness. Many 
of these comments call for Title II reclassification and all 
agree that the Internet is a valuable resource and a platform 
and essential to our daily lives.
    While there are some procedural concerns and hurdles that 
Title II must overcome, it nevertheless remains a very 
significant option for the FCC to consider. Other options are 
also possible.
    A number of companies have called for hybrid proposals 
involving Title II applied to edge providers and Section 706 to 
end users. Others have suggested that prioritization might be 
acceptable if it is a choice made by the individual end user 
herself.
    All of these proposals reflect thought and effort and 
creativity and deserve the time and attention of the FCC in 
crafting a new and innovative policy framework, one that 
matches the speed and the innovation and the impact of the 
Internet on our economy, our institutions, and our private 
lives.
    The Center for Technology and Democracy believes that any 
regulatory framework adopted by the Federal Communications 
Commission must promote access, free expression, and the civil 
rights that will enable the greatest number of individuals to 
fully engage in the digital world. Whatever path the FCC 
chooses to take, it must act swiftly to create policy certainty 
that protects the individual and promotes the future growth and 
innovation.
    Thank you.
    Chairman Leahy. Thank you very much.
    [The prepared statement of Nuala O'Connor appears as a 
submission for the record.]
    Chairman Leahy. Let me ask a few questions here and then 
yield to Senator Grassley. I have to go back to the floor. I am 
going to ask Senator Hirono to take the gavel after that.
    Mr. Burnham, when you talked about why a free and open 
Internet is crucial for the businesses that are flourishing 
online--others have raised concerns that if you have strong net 
neutrality protection, it is going to come at the cost of 
investment in broadband networks. You worked at a large 
telecommunications provider. You have seen what happens.
    How do you respond to the concerns that net neutrality will 
come at the cost of investment in broadband networks?
    Mr. Burnham. First of all, I think that all of us would 
like to see more investment, particularly anyone who lives in 
any sort of rural community would like to see a lot more 
investment in broadband capacity. I think that the important 
thing to remember is that nobody I know in the community that 
advocates strong network neutrality rules would object to any 
provider of access to the Internet charging whatever they felt 
they needed to charge in order to be able to build out the 
network. I think consumers would make that trade. They would 
pay more for more speed.
    The problem with allowing access providers to sort of 
vertically integrate up into the applications layer and extract 
new profits from the applications layer in order to fund a 
build-out is that it actually perverts the incentives. If they 
are going to create fast lanes, the incentive is to actually 
have the rest of the Internet be fairly slow to create a market 
for their fast lanes.
    So I think that in order to see investment, we need to 
separate the infrastructure of the Internet, the actual wires, 
from the applications layer and we need to manage them 
separately and regulate them separately. So I do think that it 
is absolutely possible to see investment in the network and 
investment on the network without having this vertical 
integration.
    Chairman Leahy. Thank you.
    Ms. Livier, we have had a lot of hearings on this. I was 
struck by the fact that you are the first one who has spoken of 
it as a civil rights issue. I am going to ask you the same 
question I asked a number of businesses and others in Vermont 
when I had my hearing. Could you have launched your own series 
if the Internet had been operating under fast lanes and slow 
lanes?
    Ms. Livier. No, sir. I could have not. I do not have deep 
pockets. I would not be able to pay for a fast lane, so there 
is no way that I would be able to distribute my show. There is 
no way that I would have been able to find an audience or prove 
my market if that existed.
    Chairman Leahy. Well, now of course, you can have others 
come in and compete against you. Do you want them to have the 
same opportunity you have?
    Ms. Livier. Everyone should have the same opportunity. 
Everyone everywhere should have the same opportunity to do it.
    Chairman Leahy. You know it is interesting because I asked 
that question at our hearing up in Vermont. We had a couple of 
companies there doing extremely well now. They started off as 
start-ups and were happy they did not have to pay for a fast 
lane.
    They all said they could easily pay for a fast lane today 
because they have grown so large, but they do not want it.
    Ms. Livier. No. It is not fair.
    Chairman Leahy. Okay. Well, thank you.
    Ms. Livier. Thank you.
    Chairman Leahy. Obviously, you preach to the converted.
    [Laughter.]
    Ms. Livier. Thank you.
    Chairman Leahy. Ms. O'Connor, more than 3.5 million 
Americans filed comments with the FCC. I think that sets a 
record. I know the comments I have received have just been 
enormous.
    So I share your belief that the FCC has to adopt strong and 
clear rules to protect the open Internet. What is the best 
approach to do that?
    Ms. O'Connor. We are open to not only the Title II 
approach, but the hybrid approaches that have been proposed in 
a number of the filings as well as what is called a Section 706 
heavy approach. We do think Title II is one of the clearest and 
most direct paths to deal with the issues raised in the 
overturning of the prior rules, but there are a number of 
policy innovations on the table. We think the FCC should 
consider all of them fully before making a decision.
    I am sensitive to--having worked in the Internet industry 
for many years--concern about heavy-handed regulation, but the 
time is now for the FCC to take action and to settle the 
playing field. I think Mr. Burnham's comments are quite right 
when he says market certainty will actually help in many ways 
here.
    So we are really asking for the FCC to take decisive action 
based on the principles of openness and focus on that as their 
goal.
    Chairman Leahy. Dr. Eisenach, I know in your testimony you 
said that in a paid prioritization world, the ISPs have an 
incentive to give start-ups a lowest cost access, but what if 
those start-ups are competing with products or services that 
are being provided by those who are paying the higher price? 
Are they going to have a conflict there?
    Mr. Eisenach. Well, certainly, I am glad you asked. I think 
this is precisely where the antitrust laws come into play. A 
case that we are all familiar with and remember--Senator Hatch 
and I talked about this at the time--was a Microsoft case.
    In that circumstance, you had a monopolist which exercised 
its market power to disadvantage a new entrant, Netscape, also 
JAVA at the time, and the antitrust laws were brought to bear 
successfully. So I think it was always hard to figure out what 
to do with Microsoft when you caught them, but we did finally 
catch them and deterred that behavior and we have not seen it 
since.
    So that is an example of how the antitrust laws can come to 
bear in precisely the circumstance you are talking about. That 
is a legitimate concern.
    Chairman Leahy. Mr. Burnham, how do you feel about that?
    Mr. Burnham. That is a very difficult way to solve the 
problem for a start-up. The start-ups in the Internet world 
come and go in a matter of years for sure, but perhaps months. 
So by the time an antitrust procedure works its way through the 
courts or even an FCC 706 procedure, I think that it would be 
irrelevant for most start-ups.
    I think you need clear bright-line rules that start-ups can 
rely on so that they can build their business without having to 
hire a lawyer and represent themselves either in front of the 
Department of Justice or the FCC.
    Chairman Leahy. Thank you very much.
    Senator Grassley.
    Senator Grassley. Thank you very much.
    Chairman Leahy. I would note for everybody, I kept within 
my 5 minutes.
    Senator Grassley. All right. I am going to ask Mr. McDowell 
to comment on something that was in Mr. Burnham's testimony 
about Title II reclassification and the fact that--not 
concerned about the impact on investment in the Internet 
marketplace. Do you agree with that position? Is there any 
problem in that area?
    Mr. McDowell. No. I do not agree with that position and 
actually, other analysts do not as well. For instance just this 
Monday, Robert Kaminski from Capital Alpha Partners--investment 
analysts called Title II classification the nuclear option. 
Back in 2010, when the FCC examined this issue last, Credit 
Suisse's Jonathan Chaplin said, ``But while it is business as 
usual now, capital investment will come down if Title II 
becomes a reality.''
    So the investment community has a variety of concerns and 
like a lot of things, where you stand is a matter of where you 
sit, perhaps.
    Senator Grassley. To you, Dr. Eisenach and Commissioner 
McDowell--both of you do not have to answer this, but if you 
want to--I want an answer on the claim that rural communities 
will be hit especially hard if there is no new net neutrality 
rules. Do you agree and should I--coming from a rural state--
have any concern?
    Mr. Eisenach. You absolutely should have concern that net 
neutrality regulation would deter investment in rural broadband 
networks. That is precisely what would happen and that is 
something that even the advocates of net neutrality 
acknowledge. I am quoting Tim Wu when I say that, ``The impact 
of net neutrality regulations, an open question whether in 
subsidizing one side of the market content the welfare gains 
would be as great as consumers would enjoy or the benefit of 
expanding broadband service to new consumers.'' So in 
subsidizing edge providers, we are explicitly taxing consumers 
and the ISPs who we want to be building out rural broadband 
service.
    Senator Grassley. Yes. Do you have anything to add? If you 
do not want to, I will go on.
    Mr. McDowell. I would like to go back, actually to 
something Mr. Burnham said earlier, a common misconception that 
somehow before 2004, broadband access was classified as common 
carriage. That is simply not the case. If you look in the 
attachment to my voluminous testimony, there is a May 2010 
letter to Congressman Waxman which outlines this.
    But you can go back to the 1996 act and also the 1998--what 
was called the Stevens' Report, named for Senator Stevens--to 
Congress from the FCC where the Clinton era FCC Chairman 
Kennard issued a report to Congress saying, ``Internet access 
services are appropriately classified as information rather 
than telecommunication services. The provision of Internet 
access services offers end-users information service 
capabilities inextricably intertwined with data transport. As 
such, we conclude that it is appropriately classified as 
information service.''
    They have never, ever been classified under Title II, those 
services.
    Senator Grassley. All right. Mr. McDowell and Mr. Eisenach, 
it has been argued that antitrust analysis is purely a numbers 
game that does not take into account important non-economic 
values. Do you agree, but more importantly, does an antitrust 
analysis only consider financial and economic values, or can 
it, in fact, constitute a broader consumer welfare-based 
analysis that looks at other consumer values?
    Mr. McDowell. There is antitrust. There is also consumer 
protection laws, in general, as well as breach of contract and 
the Trial Lawyers Bar, others who would have a field day if 
Internet service providers, indeed, were to act in anti-
competitive way that harms consumers.
    But when you have robustly competitive markets that 
actually makes a rising tide that floats all boats, not just 
economically, but socially as well--so let us just take a look 
back at what has made the Internet so fantastically successful. 
It has been this incredible area of freedom that has benefited 
society in more ways than we ever could have imagined 15 years 
ago.
    Mr. Eisenach. I would just add that we are all very strong 
supporters of the social benefits that have been created by the 
Internet both here and abroad and those benefits have been 
created under an unregulated regime. The concerns that--those 
of us who have concerns about net neutrality is that bringing 
regulation into the mix will harm rather than benefit those 
benefits in the future.
    Senator Grassley. Then for the two of you again--and this 
will be my last question--in your opinion, has there been any 
widespread anti-competitive behavior within the Internet 
ecosystem that would warrant a prescriptive regulator solution 
imposed by the FCC?
    Mr. McDowell. The answer is no. I have long advocated for 
years that the Government do a peer-reviewed market study that 
would be put out for public comment. The last time the 
Government looked at this was in 2007, the Federal Trade 
Commission. It was not a peer-reviewed market study, but they 
unanimously on a bipartisan basis found there was no market 
failure and they warned against the unintended consequences of 
new rules.
    Mr. Eisenach. Yes. I think what we have seen is some 
occasional accusations, but the accusations have not been borne 
out. Most recently, Netflix--I think--has been making wild 
accusations with respect to Comcast and other ISPs. In a 
current filing at the Federal Communications Commission in the 
past few days, it has acknowledged that it was the one that was 
throttling traffic and then turned around and used the slow 
delivery of some of its traffic to some of its customers as an 
excuse to try to seek regulation of the ISPs.
    So I think there is the potential for lots of back and 
forth. That is what we are worried about. But there have not 
been any bonafide antitrust problems that we know of.
    Senator Grassley. Thank you. Those are all my questions, 
but I have some materials I would like to enter into the 
record.
    Senator Hirono. Certainly, without objection.
    [The information referred to appears as submissions for the 
record.]
    Senator Hirono. Senator Klobuchar.
    Senator Klobuchar. Thank you very much, Madam Chair. Thank 
you for holding this important hearing to Senator Leahy, 
Senator Grassley.
    The open and equal nature of the Internet has been 
incredibly important for economic development in the U.S. and I 
do not think people always think of it that way, but it has 
been.
    In our state of Minnesota where Senator Franken and I 
serve, online sales represented more than 36 billion in revenue 
for local businesses just last year. And in the wake of recent 
court decisions, it has become clear that the FCC needs to 
pursue new rules.
    The record three million comments received by the FCC--I 
believe the website went down a number of times--are proof that 
Americans recognize the impact of these decisions and the 
importance of our careful deliberation.
    Legitimate concerns have been raised about the FCC's May 
2014 rulemaking proposal regarding what authority the agency is 
seeking to use and what regulations may include or what types 
of business arrangements would be allowed.
    As Chairman of the Senate Judiciary Antitrust Competition 
Policy and Consumer Rights Subcommittee, I have a strong 
interest in ensuring robust competition for all users of the 
Internet. And as I wrote the FCC earlier this summer, antitrust 
law alone is not sufficient to regulate the Internet. We need a 
clear set of rules for a fair playing field.
    Mr. Burnham, one of the most central elements of the 
Internet is its ability to foster new and creative developments 
like Yahoo and Google, Facebook, they have all resulted from 
literally students using the open and free Internet to create 
billion dollar companies. As a venture capitalist in this 
field, what is the most important idea for encouraging this 
type of innovation, how will investment in tech and Internet 
companies change if FCC rules do not sufficiently protect and 
promote the open Internet and competition?
    Mr. Burnham. It will change. And so we are really debating 
here investment in the Internet or in the infrastructure that 
delivers the Internet and investment on the Internet.
    The problem with investing on the Internet, you know, the 
opportunity that we have had is to invest in any idea that 
could reach any consumer in a completely free and open way with 
no discrimination. The minute you begin to allow the 
infrastructure, the wires that deliver that service to 
consumers to reach up into that layer and either manage it for 
network management purposes or extract some kind of rents from 
that layer, it distorts that market. And so we as investors 
would have to then consider what kind of relationship they had 
with a provider.
    If you want to get a hint of what this looks like, think 
back to all of the applications that were created and 
distributed by cell phone operators on their cell phone before 
the iPhone. How many of those actually became businesses? How 
many of those did you actually use?
    Those services were controlled by the carriers and 
distributed by the carriers. And you had to get permission of 
the carrier to launch that service. Once we opened that up, the 
world changed.
    Senator Klobuchar. Right. Exactly. Mr. Eisenach, do you not 
you think this paid prioritization could affect this investment 
that I was just discussing with Mr. Burnham?
    Mr. Eisenach. Well, two points. The first point is that he 
is right. This is a question over who will pay for the network. 
And the proposal, as Mr. Burnham said very clearly is that 
consumers pay 100 percent of the cost of the network and rich 
venture capital firms like Mr. Burnham's and their companies 
that they invest in pay zero.
    Now, there is no shortage of investment going into Internet 
start-up companies. Mr. Burnham's company has invested hundreds 
of millions of dollars and returned billions of dollars on 
those investments, and that is in the absence of net neutrality 
regulation. There is simply no basis for thinking net 
neutrality regulation is needed.
    This is my second point, the phenomenon Mr. Burnham just 
described which is the death of vertically integrated cell 
phone applications and the rise of this very vibrant mobile 
applications economy happened in the absence of any kind of net 
neutrality regulation. It happened through the free market.
    Senator Klobuchar. Can I go to Ms. O'Connor because you 
have heard Ms. McDowell and Dr. Eisenach talking about how 
antitrust laws could be used effectively and I want to know 
what you think. Do you believe that antitrust law is sufficient 
to address potential Internet distribution issues, the things 
that would harm competition and consumers and what do you think 
needs to be done?
    Ms. O'Connor. Well, the short answer to that question is 
no. After almost 20 years of practicing law, I have seen few 
areas of the bar short of their ability to solve the problem 
than the antitrust bar, maybe second only to the telecom bar. 
But I do not think it works in this context.
    First of all the analysis is largely economic and 
commercial, but it is also ex post. So it would not solve for 
the issue Mr. Burnham has raised, and that is a very real one, 
the ability of a small independent start-up or an individual 
user to get online absent interference. To ask those 
individuals to apply for antitrust relief after the fact would 
basically prevent individual freedom and opportunity in getting 
into the Internet economy, into the Internet space, into the 
digital world. So it is not an effective and it is not a 
complete solution to the problem we are facing of a truly open 
and vibrant digital life.
    Senator Klobuchar. Thank you.
    Senator Hirono. Senator Lee.
    Senator Lee. Thank you, Madam Chair, and thanks to each of 
you for being here today and for your thoughtful testimony. The 
issue of an open Internet has attracted a lot of attention from 
a lot of Americans. A considerable amount of public attention. 
Now, regardless of where any American stands on this issue, 
whether someone views herself as in support of or against what 
is commonly known as net neutrality, Americans are sending a 
consistent message which is, do not break the Internet. Do not 
mess with it. Do not mess with the most vibrant, expansive, 
even explosive area of our economy because it has worked and it 
has worked well, and it has brought enormous benefits in terms 
of economic growth to our great country and it has played an 
important role in bringing more information, more education, 
more entertainment, more opportunities generally to people not 
only throughout our great country, but throughout the world.
    Subjecting the Internet to heavy-handed regulations, the 
type of regulations that were designed to regulate the railroad 
industry in the 19th century and designed to regulate Ma Bell 
in the 20th century could threaten to do precisely that.
    Unwise regulation in this area would do nothing, I fear, 
but stifle much-needed innovation in Internet service and 
would, in the process, make it harder in the long run for 
consumers to be able to secure better service and ultimately 
have a real choice, more choices than they currently have about 
who delivers their Internet service.
    Anyone who has ever had an hour-long frustrating phone call 
with their cable company's customer service representative 
knows that consumers certainly could use more choices rather 
than fewer choices, particularly in this area. The proposed 
regulations of the sort that we are talking about today, would, 
I fear, do nothing to make the underlying problem better, but 
instead, I fear, would make it much, much worse.
    So I have a few questions. I would like to talk to you 
first, Dr. Eisenach. Rent-seeking is often defined as a process 
in which someone devotes money and other resources to lobbying 
government so that they can take in a greater share of wealth 
that is already been produced without actually generating 
wealth on their own. Would you agree basically with that 
definition?
    Mr. Eisenach. I think that is correct.
    Senator Lee. Do you think we should be concerned about the 
possibility that the sort of FCC regulation that we are talking 
about today will lead to more rent-seeking behavior than it 
would solve the problems for which it was purportedly designed 
to solve?
    Mr. Eisenach. Absolutely. The FCC has a long history and an 
unfortunate history in the rent-seeking department. Ronald 
Coase who won a Nobel Prize for helping to develop the theory 
of rent-seeking won it in part for an article titled ``The 
Federal Communications Commission'' which was about the 
lobbying and political influence that went into the allocation 
of broadcast licenses back during the 1950s and 1960s. That 
same kind of activity, and I spent an unfortunate amount of my 
time in and around the Federal Communications Commission and a 
tremendous amount of activity, as Rob knows better than anyone, 
goes into precisely that sort of lobbying and everyone who is 
paying a lobbyist to be there on all sides of the argument is 
there defending the interests--their economic interests--in 
these arguments. Senator Lee. So when government gets involved 
in picking winners and losers in the marketplace, the winners 
end up being not necessarily those who provide the best service 
at the best price to consumers, but rather those with the most 
effective context perhaps with the best relationships to 
government decisionmakers. I would like to ask you briefly 
about a point that was made earlier, I believe, by Mr. Burnham. 
An analogy was made to an air conditioner. Let us take that 
analogy a step further, let us explore it a little bit more. 
Let us suppose that someone installed a particular type of air 
conditioner that consumed an extraordinary amount of electric 
power, so much power that it made it very difficult for the 
electric utility in question to supply adequate electricity to 
other customers in the area. Would there be anything 
extraordinary about the electric power company perhaps charging 
a higher rate for that consumer who chose to use that 
particular air conditioning system?
    Mr. Eisenach. No, nor would there be anything wrong with 
the electric company turning around and saying to manufacturers 
of air conditioners, you know, our network, our ability to 
serve our customers efficiently depends on your making more 
efficient air conditioners. We would like to give incentives 
for you to use less energy in the air conditioners that you 
manufacture. Both of those would be good things and would 
result in more efficient markets.
    Senator Lee. And one follow-up to that. If the electric 
utility company in question decided to get into the business of 
providing its own air conditioning equipment to its rate 
payers, if it did that and then engaged in practices that 
favored its own system as compared to others, would not 
antitrust laws be equipped to handle that? And so too here, to 
the extent that we have Internet service providers that start 
to compete with content providers, if they use their position 
in the marketplace in an anti-competitive manner, are our 
antitrust laws not there for that very reason?
    Mr. Eisenach. Absolutely. That story is called Microsoft 
and Netscape. And one can easily imagine that story replaying 
itself in this environment. And one can easily imagine the 
antitrust laws being responsive to that.
    One point very quickly on the speed with which regulation 
versus antitrust can be brought to bear. We are a decade into 
the net neutrality saga. We do not have enforceable rules. 
Whatever the FCC does, we will not have enforceable rules for 
three to 5 years while this round of regulatory gamesmanship 
plays itself out in the courts. In the meantime we could have 
had five rounds of antitrust cases.
    So the notion that regulation is a faster way of getting to 
the right end I think is upside down.
    Senator Lee. Okay. Thank you, sir.
    I see my time is expired, Madam Chair, thank you.
    Senator Hirono. Thank you. Senator Franken.
    Senator Franken. Thank you, Madam Chair.
    I think there is a fundamental misunderstanding here. Net 
neutrality is not about regulating the Internet. Net neutrality 
is about preserving the Internet as it is. Net neutrality has 
been the architecture of the Internet from the very beginning.
    Innovation has not just happened while net neutrality has 
been in place. It has happened because net neutrality is in 
place. Let me just talk about one example so everybody who is 
listening and watching can hear.
    Before YouTube there was a thing called Google Video. It 
was not very good. The guys who started YouTube did it over a 
pizza place in San Mateo, California. It was superior to Google 
Video. And because it was allowed to travel at the same speed, 
people preferred it and it replaced Google Video as the medium 
that people watched videos on. And Google ended up buying it 
for $1.6 billion. This is about innovation that has taken place 
because of net neutrality. What the FCC has proposed, paid 
prioritization--that represents a change. That is why 3.5 
million people have commented--because they understand this. 
This is not about new regulation; this is about preserving the 
structure that we have had. The Occam's razor here is do not 
change what we have.
    Ms. O'Connor, can you speak to that?
    Ms. O'Connor. Thank you so much, Senator Franken and thank 
you so much for your leadership on this issue. That is exactly 
right, there has always not only been rules and regulation, but 
there has been the specter of enforcement by the FCC and the 
FTC for the entire lifetime of the Internet.
    We are looking at it not only obviously as an economic 
empowerment issue and as an opportunity for growth and 
innovation, and small business empowerment, we are looking at 
it as a need of the individual to engage in digital life in 
every aspect of their world: in their communications with their 
spouses, with their employers, with their schools, with each 
other.
    The example that Jeff gave about antitrust law versus net 
neutrality regulation I think actually proves the point. In the 
case he cited, Microsoft v. Netscape, millions of dollars of 
legal fees were spent on both sides. No small business is going 
to have the resources to engage in that kind of fight. But 3.5 
million individual citizens of this country were able to 
comment on this proceeding at the FCC. That proves the point 
that regulation is a more democratic opportunity here, and this 
is the path we need the FCC to take.
    Senator Franken. And it is just preserving the way it has 
been the whole time. So all this innovation you have cited, all 
this investment you have cited has happened while there has 
been net neutrality.
    Mr. Burnham, I have met with some small businesses in 
Minnesota and start-ups who tell me that net neutrality is just 
crucial for them. They are making applications to do all kinds 
of things ranging from a company called ``thisCLICKS,'' which 
helps companies manage their employees' time sheets. That is in 
St. Paul. A Minnesota company called ``Sport Ngin,'' which is 
now employing about 300 people, has tripled their number of 
people in the last year, connecting people who want to join 
recreational sports leagues.
    Now these companies are growing and they are innovating and 
there are thousands and thousands of companies like them. Now, 
if under pay prioritization they were made to compete with 
bigger, deep-pocketed entities, they could not do that, but let 
us say they did. Let us say they got on, they paid for pay 
prioritization. What they told me is that the apps that they 
use--the software that they use to run their app--unless those 
subcontractors pay for pay prioritization, their thing would 
not work. Is this not all about these pay prioritizations? Is 
this not about squelching the kind of innovation that we have 
all been celebrating, all five witnesses? Is that not the way 
it has been and aren't these pay prioritization lanes going to 
squelch that? Is that not a huge change?
    Mr. Burnham. It is a huge change. And as I pointed out in 
my testimony, it is only in the last few years that the 
Internet access providers have even had the technology to 
figure out what you are doing online and therefore to be able 
to discriminate between that. So not only do we have the threat 
of FCC enforcement, but we also had the lack of technology in 
place. That is what has changed. The technology is in place and 
the FCC has proposed a new set of rules.
    You bring up a very interesting point which is, it is not 
just the application that you see that matters, it is all the 
applications that they use. So, for instance Tumblr runs their 
application in their own data center, but they store all of 
their images at Amazon. And so in order to load a Tumblr page, 
you go to the Tumblr data center, but you also send a call out 
to the Amazon data center. If Amazon is not paying for paid 
prioritization, that page will not load. So there is a whole 
ecosystem of services that are built on top--or rather 
underneath--the services that you see that would also be 
affected.
    Senator Franken. Well, speaking of Amazon, all the 
companies that are like Amazon: DropBox, eBay, Facebook, 
Google, Microsoft, Netflix, Reddit, Tumblr, Twitter--they are 
all saying we need this. These are the innovators. And I just 
want everybody to understand that this is about preserving the 
Internet the way it is. That is what net neutrality is about.
    Thank you, Madam Chair.
    Senator Hirono. Senator Hatch.
    Senator Hatch. Well, thank you, Madam Chairperson. Net 
neutrality is not a new issue. Congress has been debating this 
issue for year. As Chairman of the Senate Republican High Tech 
Task Force I co-authored a Wall Street Journal op-ed in the 
fall of 2009 when then FCC Chairman Julius Genachowski and his 
Democratic colleagues first proposed their net neutrality 
rules. My op-ed entitled ``Who is Going to Build the 
Information Superhighway'' is just as applicable today as it 
was then.
    Here is what I wrote in 2009. ``If there is any sector of 
our economy where competition is so fierce, and where the pace 
of innovation is so rapid that government interference would 
only get in the way, it is the Internet and telecommunications 
market. The Internet has grown because of the virtuous and 
mutually beneficial circle.
    ``Network operator provide ever-increasing speed and 
bandwidth. Content providers one-up each other with game 
changing innovations and consumers adapt and adopt at lightning 
speed. Yet despite an overwhelming record of innovation and 
customer satisfaction Washington wants to replace the judgment 
of consumers with that of politicians and bureaucrats. Net 
neutrality may sound like fairness, but it is actually the 
opposite. Bandwidth is finite like the finite number of lanes 
on a highway network providers must innovate in order to 
accommodate the burgeoning traffic. As they invest billions of 
private dollars in new and improved networks they should right 
expect to set prices and manage those networks as they see fit.
    ``If the FCC takes control of the Internet, we will have 
the inevitable result of all poorly designed regulations, 
business decisions prejudiced by politicians and political 
decisions prejudiced by corporations. Keep in mind we are 
talking about the most competitive, efficient, and consumer-
driven industry in the global economy.''
    Now, I did not write those words 5 days ago, but 5 years 
ago. I ask unanimous consent to enter the entire Wall Street 
Journal op-ed into the record at this point?
    Senator Hirono. Without objection.
    [The op-ed referred to appears as a submission for the 
record.]
    Senator Hatch. Although 5 years have past, those statements 
are just as true today. We have been the recipients of an 
explosion of apps, products, and services that directly result 
from broadband and Internet growth.
    Without government regulation the Internet is growing. So 
what is the problem? What is broken? What is it that needs to 
be fixed?
    An unregulated Internet has spurred innovation and economic 
growth all around the world. Yet despite all these successes, 
some argue we need to regulate the Internet. I cannot disagree 
more.
    Let me just ask Mr. McDowell and Mr. Eisenach to answer a 
simple question. If so, what is it that needs to be fixed here? 
If you could answer that question.
    Mr. McDowell. Senator, you raise an excellent point which 
is nothing is broken that needs fixing. And we have the open 
and freedom enhancing explosive and amazingly bountiful 
Internet today precisely because of market forces and the laws 
that already existed before there were any formal net 
neutrality rules which really did not even start happening 
until 2008. We had Facebook, eBay, all those great companies 
had already blossomed into giants.
    Senator Hatch. They did not do that because of net 
neutrality rules.
    Mr. McDowell. It was long before then.
    Senator Hatch. Right. Mr. Eisenach.
    Mr. Eisenach. Well, Senator, absolutely. So what you have 
in the Internet echo system is you have lots of firms who are 
creating value and they share in the creation of that value. So 
edge providers and networks and applications providers all have 
to get together. They get together on the screen of your iPhone 
to produce something of tremendous value and they fight about 
how they are going to share that value creation. All right. 
Every day on the Internet is a battle over who is going to----
    Senator Hatch. I want to keep that fight going.
    Mr. Eisenach. And that fight should happen between private 
companies in private bargaining as opposed to being a complaint 
before the Federal Communications Commission every time two 
parties disagree.
    Senator Hatch. Well, let me ask you both again, do you 
think that the Internet today would be characterized by the 
current level of innovation if it had been subject to common 
carrier regulation?
    Mr. McDowell. No, sir. What folks are calling for is what 
is called ex-ante regulation, before the fact, or what some 
call ``Mother May I,'' which is that then starts to prompt 
companies that may have thousands of miles of fiber optics and 
servers and routers that offer voice, video, and data services, 
those could be tech start-ups. Those are going to be tech 
companies, not what we think of as cable or phone companies.
    Senator Hatch. Let me ask you----
    Mr. McDowell. They would have to file petitions for 
declaratory ruling at the FCC for permission to innovate.
    Senator Hatch. Sure. Now, what will be the global impact if 
the FCC reclassifies the Internet as a utility under Title II 
of the Communications Act?
    Mr. Eisenach. The International Telecommunications Union 
has been trying to get its hands on the Internet since the mid-
1990s when the Clinton administration said no. And that is 
precisely what would happen. They would ultimately be 
successful in doing what they would like to do which is 
regulate the Internet as a public utility internationally.
    Senator Hatch. One last question and this just needs a yes 
or no from both of you. In your view would investment and 
innovation increase or decrease if the FCC subjects broadband 
services to common carrier regulation?
    Mr. McDowell. I think the right answer is decrease, not yes 
or no, but, yes, decrease.
    Mr. Eisenach. Technological innovation would decrease; 
lobbying innovation, however, would grow.
    Senator Hatch. What are we talking about here. I mean, to 
me, I cannot understand why my friends on the other side love 
this type of regulation so much when I think it will wind up 
really fowling up the whole Internet.
    Well, thank you, Madam Chairman.
    Senator Hirono. Thank you.
    We have heard a lot about the antitrust laws as being 
adequate to provide consumer protection in this area. I am 
curious to know from either Mr. Burnham or Ms. O'Connor who I 
assume you have practiced in this area, you understand 
antitrust law. So, Ms. Livier has said that if we did not have 
net neutrality it would be highly unlikely that you would have 
been able to get your show on the Internet. So I am curious to 
know what kind of--in her situation looking at that kind of 
start-up, Mr. Burnham or Ms. O'Connor, what kind of antitrust 
claim would lie that she could pursue? Are we talking about 
price fixing? Are we talking about time? What are we talking 
about? What would she be able to proceed under to go forward?
    Mr. Burnham. Well, I am not a lawyer and I am not practiced 
in antitrust law, so I am going to turn it over to Ms. 
O'Connor.
    Ms. O'Connor. Having been in the Internet law and policy 
space again my entire career almost working in front of the 
Federal Trade Commission and in this area, there would be 
precious few remedies available under antitrust law. Your point 
is incredibly well taken. The limitations for a small 
individual artist or start-up company or individual end user to 
avail themselves of redress under the law would be quite 
limited. And the phrase that keeps coming to mind is, your 
antitrust law is not good enough for my Internet. It is just 
not comprehensive enough to protect the needs of the individual 
end user, the rights of the citizen.
    Again, it is a fallacy to say the Internet has not been 
regulated. I was at a company in the late 1990s that had not 
only an FTC investigation, but 21 class actions, 12 attorney 
general investigations, a slew of regulatory oversight for the 
idea--the scintilla of an idea about a data matching project. 
It is wrong to say the Internet has not been regulated by the 
FCC and the FTC for years.
    To not act right now would actually be the change. Senator 
Franken is right, to not act would be the absence of the 
playing field that is open and accessible to the individual end 
user.
    Senator Hirono. Thank you. I appreciate, Mr. Burnham, your 
pointing out that the technology has changed, so now our 
providers can figure out what the consumers are accessing. I 
think that is a very powerful piece of information for 
providers. And this is why I believe that the landscape is 
changing and why we are here today.
    Now, Ms. O'Connor, you mentioned that--and several of you 
mentioned Title II is really probably not terribly applicable 
because Title II is a public utility. And we regulate public 
utilities up the kazoo. So this is not necessarily where we 
want to go.
    You also mentioned that maybe we should look at Section 
706. But that may not fit either. So my question to either Mr. 
Burnham, or you, Ms. O'Connor, is should we be talking about a 
new title?
    Ms. O'Connor. We would welcome that kind of policy 
innovation from Congress or from the Federal Communications 
Commission. The Internet is a precious and valuable space for 
the individual and for the end user and for small business 
innovation. And I am sympathetic to those claims that these are 
old titles that were based in historical parts of the economy 
that are very different. And we do not want to slow down the 
speed of the Internet economy and growth. But given the options 
on the table, we encourage the FCC to explore all of the 
options, all of the opportunities. And we have seen some very 
creative hybrid approaches proposed by policy groups and by 
companies, things that would combine 706 and Title II to get 
the enforcement abilities of both. And we encourage the FCC to 
consider those.
    Senator Hirono. Well, possibly in the best of all worlds 
that we would be coming up with a very clear new title, but in 
the absence of that happening, which will very likely be the 
case, that you are saying that the FCC--and I assume that Mr. 
Burnham agrees--that they have the authority to proceed under 
either Section 706 or Title II----
    Ms. O'Connor. Yes.
    Senator Hirono [continuing]. To protect consumers?
    I mean, clearly consumers feel that net neutrality is 
important because all of us have heard from hundreds, and 
hundreds, and hundreds of our constituents who have said, make 
sure that we are not going to create an environment where they 
are going to have to pay differential rates for access to the 
Internet.
    So my time is fast expiring and I would like to--well, 
Senator Flake.
    Senator Flake. I will go quickly. I find it interesting, I 
heard one of my colleagues say that the purpose of these net 
neutrality rules is to maintain the Internet as it is. Imagine 
if any tech company said, we are going to succeed by 
maintaining our company as it is. If Apple prior to launching 
iPhone 6 or the Apple watch said, we are just going to maintain 
as it is. I do not think if the Internet stays as it is, that 
it will be prepared for the future innovations that we are 
going to need to advance.
    I hear the same kind of arguments with regard to 
pharmaceuticals or drug companies. I think with regulation we 
can make current drugs cheaper. You can, but you do not get the 
innovation you need to grow and progress and to go into other 
areas. So, I am always wary when we want to maintain something 
as it is especially something as dynamic as the Internet.
    But just one question. I know we have votes going on. Dr. 
Eisenach, you have done some work in this area, can you discuss 
the University of Pennsylvania, Professor Chris Hugh's work on 
Europe and investment in broadband and Internet compared where 
they have regulatory regime perhaps similar to what we would be 
moving to here compared to what we have here? What is the 
difference between investment there and in the United States?
    Mr. Eisenach. Thank you, Senator Flake. As Christopher Hugh 
has written as Richard Bennett at the American Enterprise 
Institute has written in a new study available from the 
TechPolicyDaily.com. The Europeans have followed a much more 
regulatory course than the U.S. and five or 10 years ago there 
was a debate about how wise a course that was. There was a 
debate about whether the U.S. was ahead or behind in broadband 
infrastructure. There is no debate today. The Europeans have 
recognized that the U.S. course was the wiser course. There is 
almost no fiber availability, virtually no fiber availability 
from telephone companies and very little from cable companies 
in Europe. The Europeans are a generation behind now on 
wireless broadband access, LTE only covers about a quarter of 
the population of Europe versus virtually 100 percent of the 
U.S.
    So the regulatory course proved to be disastrous for 
Europe. And I think has the potential--we talked about leaving 
things the same versus changing them. The Internet has not been 
regulated. Net neutrality is a proposal to regulate it, I think 
it is that simple.
    Senator Hirono. We need to vote now, so I would like to 
call a brief recess and ask the witnesses to remain until I 
return. And I am also expecting Senator Blumenthal to return so 
he can pose his questions.
    Recess.
    [Whereupon at 12:08 p.m., the Committee recessed.]
    [Whereupon at 12:15 p.m., the Committee reconvened.]
    Senator Blumenthal. We are now back in session. Thank you 
very much for being so patient. I was going to apologize for 
voting, but we should not be apologizing for voting. We should 
be applauded for moving forward. Thank you.
    Let me ask, I have a few questions and then I understand 
Senator Cruz is coming back. Mr. Burnham, as you know better 
than anyone, the Internet's incredible economic success has 
been made possible because it is an open platform where anyone 
with a good idea can connect and consumers across the globe can 
compete on a level playing field for their business. And it is 
the relevance of an entrepreneur's product, the consumers are 
not sort of their sweetheart deals with large broadband 
providers that determine success. After launching their 
business start-ups frequently come to you, they want to be 
financed. They need capital. And they pitch their ideas to 
secure additional funding that would take their ideas to the 
next level.
    Without net neutrality start-ups may not even be able to 
launch their products without turning to you for funding first. 
And it seems like to be successful in a paid priority context, 
you would want to know whether they have a deal with Comcast or 
AT&T. They would have to come to you with that sort of 
sweetheart deal first. Can you tell me how the content of 
start-up pitches would change in a world without the net 
neutrality rules? How do your criteria as an investor change?
    Mr. Burnham. Well, we would need to understand the 
relationship between what they were doing and the interests of 
the companies that they depended on for distribution. And so 
that would--you know, we would stop focusing on the innovation 
and start focusing on the deal that they had struck. And that 
would make it very difficult.
    I think, you know, contrary to what Mr. Eisenach has said 
about venture capital, this actually is not so bad for venture 
capital. If we end up in a paid prioritization regime because 
every start-up would now have to come to us first. They would 
have no negotiating leverage and we could extract a fairly big 
chunk of the company in exchange for taking the risk to fund 
them in this new riskier environment.
    The way the world works today, start-ups launch, they get 
to scale, and they have real engagement with users, real 
traction, and then they farm out, you know, they basically shop 
that opportunity and venture capitalist compete with each other 
to do that deal because they have already proven that it works. 
That is a much better situation for entrepreneurs and start-up 
and any creator. It is not so great for venture capital, but we 
would prefer to see the world favoring entrepreneurs.
    Senator Blumenthal. So it might be better for some of the 
sources of financing, but worse for the start-ups, worse for 
the entrepreneurs?
    Mr. Burnham. Yes.
    Senator Blumenthal. Ms. O'Connor, the antitrust laws are 
intended to prohibit business practices that unreasonably 
deprive consumers of the benefits of competition and that 
result in higher prices for goods and services. These important 
laws are crucial to America's success today by prohibiting 
collusion, conspiracy, monopoly power, and they evaluate 
combinations and agreements to preserve competition. But really 
what is at stake here is more than just questions of the 
economic benefit, it has also harmed the customers and freedom 
of speech. It is the speech that is made possible as a core 
component of our democracy.
    In a world of pay prioritization, for example, NBC's 
website could tap into its affiliation with Comcast to make 
sure that its news reaches Comcast subscribers faster than 
Fox's website. Or we could see one Presidential candidate pay a 
broadband provider so that content on his or her website loads 
faster than the other candidates. Consumers and content 
providers alike would be affected. And these are effects in 
noneconomic ways. So my belief is that to safeguard free speech 
in the 21st century and the infrastructure that prevents 
interference with free speech, we ought to make sure that net 
neutrality is preserved. And maybe you can tell us a little bit 
more about how net neutrality affects those values of free 
speech?
    Ms. O'Connor. Senator Blumenthal thank you so much for 
raising what we think is the fundamental question. It is 
important to address the antitrust laws and the appropriate 
authorities the FCC should consider. But it is the voices of 
the individual citizen, the voices of the artists like Ruth. 
The voices of the entrepreneur, the start-up technology who has 
the tiny kernel of an idea. Those are the voices we are 
concerned about, not only in the United States, but around the 
world.
    And the concern, first of all, internationally that by 
taking some action we will be sending the wrong signal to the 
rest of the world, we are concerned about that too at CDT, but 
we think the signal we would be sending is that free speech is 
a fundamental right. It is the most important right, and the 
Internet is the greatest engine and the greatest platform that 
history has known for the individual's voice to be heard.
    An independent artist like Ruth can suddenly reach millions 
of viewers overnight. A small company like the ones Senator 
Leahy talked about can suddenly reach customers all around the 
world. Without strong open Internet protections, those voices 
will go to the back of the line. This is simply unacceptable 
and undemocratic. It is the fundamental reason I am here today.
    Thank you.
    Senator Blumenthal. Well, thank you for that strong 
statement. I agree completely with you because it highlights 
the non-economic benefits, but those non-economic benefits in 
turn produce enormous value throughout our society. It is the 
reason that entrepreneurs want to come here. And scientists 
want to invent and that great writers want to be here. The 
value of free speech is what distinguishes America, our 
protections for free speech.
    Let me ask Commissioner McDowell, you know, I know from 
what I have been told that you have spoken about the efficiency 
and effectiveness of the market and competition apart from the 
net neutrality rules. Two weeks ago FCC Chairman Wheeler said, 
and I am quoting, ``Meaningful competition for high speed, 
wired broadband is lacking and Americans need more competitive 
choices for faster and better Internet connections.'' He went 
on to say that ``between three-quarters and 82 percent of 
consumers lack choice depending on the service.''
    Why do you believe that broadband is a competitive market 
that will correct itself in light of what Chairman Wheeler has 
said?
    Mr. McDowell. Thank you, Senator, and it is a privilege to 
be before you today. Excellent question. I think the Commission 
is looking at the broadband market too myopically. We have 
wireless broadband. We also have unlicensed wireless. Senator 
Klobuchar and I have worked very closely together on the 
proliferation of that.
    If you look at market data, I also look at my children, my 
young kids, the number one screen now is becoming the mobile 
screen. And that is causing a wonderfully disruptive element to 
the marketplace. So that is, I think, disrupting things in a 
way we could not have imagined 10 years ago.
    Back to your Comcast and NBC analogy though, there are a 
number of complaints, thinking as a lawyer, that could be 
brought, not just in the antitrust context that would prevent 
that from happening or deter that from happening like 
exclusionary conduct and raising rivals' costs, but also breach 
of contract and tortious interference with contract and state 
attorneys general of which you were one, would have a field day 
if that type of behavior were to happen. That is also a 
deterrent, I think, in the marketplace.
    Senator Blumenthal. Thank you. Well, I want to thank all of 
you for giving us the benefit of your wisdom and insight on 
this very, very important issue. It has been very valuable 
testimony. I am going to turn back to Senator Hirono if she has 
additional questions. And, again, many thanks for being here.
    Senator Hirono. Thank you. I understand that Senator Cruz 
is on his way back. So I would like to give him the opportunity 
to come back in time to ask his questions. So that being the 
case I have a question for Ms. O'Connor.
    Chairman Wheeler has proposed evaluating certain practices 
of broadband providers under a commercially reasonable 
standard. Can you explain your concerns with that standard and 
why it would be a poor fit for preserving open Internet?
    Ms. O'Connor. Thank you so much, Senator. The commercially 
reasonable standard was only a relatively recent creation of 
the Federal Communications Commission and it certainly goes to 
the commercial qualities of any agreement between various 
providers on the Internet. But we think it misses the mark in 
an open Internet proceeding that is, we wish, to protect the 
interests of the individual end user and the entrant to the 
market, not the established players. We seek a standard that 
looks more like something that protects the qualities of an 
open Internet or does not degrade services to the individual. 
So we think that not only the language, but kind of the theory 
underpinning commercially reasonable, while perhaps and 
completely applicable in other contexts under FCC jurisdiction 
is not the right standard for a rulemaking proposal that seeks 
to protect the qualities of a flat Internet structure that 
allows for low barriers to entry and a free market--and a 
market that is open to all.
    Senator Hirono. Thank you. Mr. McDowell, you have testified 
that the antitrust laws would be adequate to protect the 
consumers. So there has been discussion about the antitrust 
laws as basically protecting an economic argument. So if the 
Internet providers now know what customers are accessing, it 
would be a way for them to determine without net neutrality 
rules in place that they would want to have differential 
pricing based on what the consumer is accessing. So in that 
kind of circumstance, do you think that the antitrust laws are 
adequate to protect the consumers' right to access whatever 
programming and applications the consumer wants to access?
    Mr. McDowell. I do. And as I explained in greater length in 
the appendices to my testimony more about that. But not just 
the antitrust laws, but general consumer protection laws, 
Section 5 of the Federal Trade Commission Act, for instance, 
you have state laws and other Federal laws. As I was explaining 
to Senator Blumenthal, breach of contract, tortious 
interference with contract. You have to remember that every 
major ISP has in their terms of service, their contracts 
essentially, with their customers these types of protections. 
If they were to breach them, the plaintiffs' bar would have a 
field day. That is a huge deterrent right there. But let us 
look at what has worked. What has worked in this country to 
have a wonderfully, you know, blossoming Internet ecosystem are 
the laws that are in place, that were in place before net 
neutrality came about as a government action which was only 
2008. You know, the iPhone came about in 2007. And the ap 
community started to--the ap industry started to explode.
    So that is what has made it wonderful is the marketplace, 
market forces, and these general, flexible, more nimble rules 
that are in place that, as Nuala pointed out before, in the 
1990s she was at a company or knew of a company that was 
investigated by the Federal Trade Commission, state attorneys 
general, and all the rest. What is better than creating a new 
body of law which would create uncertainty and years of 
litigation, as Dr. Eisenach pointed out, would be for the 
Government to sit down and sort of assemble a war council. I 
called for this for years. You could have the Federal Trade 
Commission, you could have the FCC, you could have the 
Department of Justice, state attorneys general, consumer 
groups, the plaintiffs' bar, all sit down and say, hey look, 
any of you, whether you are ISPs, or you are search engine 
giants, if you act in an anti-competitive way that harms 
consumers, then we are going to come down on you. We are going 
to launch this avalanche of rules.
    But I also agree and wanted to speak to the fact that we 
sorely need to rewrite the Communications Act of 1934. We need 
to start over and look at all of this through the lens of 
consumer protection, knock down the silos that regulate based 
on your technology whether it is copper, or coaxial cable, or 
fiber, or wireless. All those are regulated differently. From 
the consumers' perspective, they just want their stuff when 
they want it and generate it, right? So they do not really care 
what the laws are behind the scenes. They are antiquated, they 
need to be rewritten. I hope in the next Congress we can get 
that done.
    Senator Hirono. I see our witnesses nodding their heads. So 
there seems to be general agreement that we probably should 
amend the 1934 law so that it is up with the times. So pretty 
much you agree? Well, maybe we can work on that.
    I see that Senator--I am sorry, Ms. O'Connor, did you want 
to say something?
    Ms. O'Connor. I could not agree more that consumers want 
what they want when they want it. And they do not really 
differentiate how they get their Internet whether it is on 
their mobile device, or on their home computer, or in the air.
    And I would like us to consider banning the phrase 
``Internet of things.'' This is not the Internet of things. 
This is the Internet of people. So we want what we want when we 
want it, but we also want a level playing field to get in the 
game.
    Senator Hirono. Thank you. Senator Cruz.
    Senator Cruz. Thank you, Madam Chairman. And I want to 
thank each of the witnesses for being here today to discuss a 
critical issue that impacts the desire of all of us to keep the 
Internet free and open, a marketplace of competition and an 
oasis that historically has been beyond the unnecessary reach 
of government regulators.
    This is by no means the first time the issue of so-called 
net neutrality has been raised. And every time it stirs up an 
interesting debate between government regulation versus to some 
the terrifying freedom of the Internet. I think the American 
people do not find that freedom all that terrifying at all.
    The FCC's latest adventure in net neutrality in my view 
would only serve to stifle innovation, and would potentially 
subject the Internet to nanny state regulation from Washington.
    Internet freedom has produced robust free speech for 
billions across the world. And a wide open incubator for 
entrepreneurs to generate jobs and to expand opportunity.
    Back in May, FCC Commissioner Ajit Pai said this is, ``not 
for us five unelected individuals to decide. Instead it should 
be resolved by the people's elected representatives, those who 
choose the direction of the Government and those whom the 
American people can hold accountable for their choice.'' I 
could not agree more. Although in Washington there are a lot of 
folks in Congress who are fans of pushing difficult decisions 
off to unelected members of our Government to insulate 
themselves from accountability at the voting booth.
    And I fully agree with Commissioner Pai that a five-member 
government panel should not be dictating how Internet services 
will be provided to millions of Americans. More than $1.2 
trillion has already been invested in broadband infrastructure 
since 1996. And that has led to an explosion of new content, 
applications, and Internet accessibility.
    The FCC should not be endangering future investments by 
needlessly stifling growth in the online sector which remains 
one of the few bright spots in an economy that is otherwise 
struggling.
    Net neutrality is a wolf in sheep's clothing. It is a set 
of government directives disguised, as they always are, as 
concerns about consumers and competition. That is the 
justification for nanny state regulations over and over again, 
whether it is the Mayor of New York telling us that our glass 
of Coke is too big, or the FCC deciding here is how the 
Internet should be governed.
    We must keep in mind that when government imposes new 
regulations, inevitably the cost of them is easily absorbed by 
the large dominant companies, by the major players, and those 
who bear the brunt of it, those who are fatally strangled so 
often by these regulations are the little guys or the start-ups 
or the ``mom and pops.''
    The Internet has grown and flourished in ways we never 
could have imagined from back in the days when Al Gore invented 
the Internet. And a big part of the reason has been that 
Washington has left the Internet alone.
    Now, that used to be a bipartisan commitment. Back in 1996, 
President Clinton said, ``Governments can have a profound 
effect on the growth of electronic commerce. By their actions 
they can facilitate electronic trade or inhibit it.''
    Government officials should respect the unique nature of 
the medium and recognize that widespread competition and 
increased consumer choice should be the defining features of 
the new digital marketplace.
    We are seeing this growth in nanny state regulation in many 
contexts. One is net neutrality and the push to bring 
Washington into the day-to-day, online world. Another is a bill 
that Congress is considering and that I fear Congress will try 
to push through in the lame duck session and that is, namely, 
extending an Internet sales tax to millions of ``moms and 
pops'' who are selling their goods online who are starting 
small businesses and who if Congress has its way will be forced 
to collect taxes for 9600 jurisdictions nationwide. The big 
guys will be benefited by that. But the little guys, the young 
people, the Hispanics, the African Americans, the single moms, 
the people just filled with hopes and dreams wanting the 
American dream will find their lives made harder if we begin 
taxing the Internet, if we begin regulating the Internet. 
Instead, I believe we should protect the freedom of the 
Internet. And that should be something that brings us together 
across partisan lines, across the country, keep the Internet 
free that protects our speech. It protects our economy, and 
most importantly it protects opportunity for those who are 
struggling and want a better life.
    Thank you, Madam Chairman.
    Senator Hirono. Thank you, Senator Cruz. Thank you to our 
witnesses. This hearing is adjourned and the record will stay 
open for 1 week.
    [Whereupon, at 12:36 p.m., the Committee was adjourned.]
    [Additional material submitted for the record follows.]

                            A P P E N D I X

              Additional Material Submitted for the Record

[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

                 Additional Submissions for the Record

A list of material and links can be found below for Submissions for the 
 Record not printed due to voluminous nature, previously printed by an 
 agency of the Federal Government, or other criteria determined by the 
                               Committee:

    Journal of Law and Economics, The, R.H. Coase, October 1959, 
article:
        http://www.jstor.org/stable/724927.

    Federal Communications Law Journal, Jeffrey A. Eisenach and
     Hal J. Singer, June 2013, article:
        http://www.fclj.org/wp-content/uploads/2013/09/65-3-Singer.pdf.

    Social Science Research Network (SSRN), Jerry Brito et al., April 
12, 2010,
     article:
        http://papers.ssrn.com/sol3/papers.cfm?abstract_id=
        1587058&download=yes.

    American Enterprise Institute, Jeffrey A. Eisenach, Ph.D., economic 
study:
         http://www.aei.org/files/2012/10/17/-broadband-competition-in-
        the-
        internet-ecosystem_164734199280.pdf.

    Eisenach, Jeffrey A., and Ilene Knable Gotts, ``In Search of a
     Competition Doctrine for Information Technology Markets:
     Recent Antitrust Developments in the Online Sector,'' paper:
        http://www.techpolicydaily.com/wp-content/uploads/2014/06/In-
        Search-
        of-a-Competition-Doctrine-for-Information-Technology-Markets-
Eisenach-
        Gotts.pdf.

    Federal Communications Commission (FCC), Electronic Comment Filing
     System, September 4, 2014, online posting:
        http://apps.fcc.gov/ecfs/comment/view?id=6018327622.

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