    [House Hearing, 114 Congress]
    [From the U.S. Government Publishing Office]

                       WRECKING THE INTERNET TO SAVE IT?
                         THE FCC'S NET NEUTRALITY RULE

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

                                    HEARING

                                   BEFORE THE

                           COMMITTEE ON THE JUDICIARY
                            HOUSE OF REPRESENTATIVES

                        ONE HUNDRED FOURTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                 MARCH 25, 2015

                                   __________

                               Serial No. 114-18

                                   __________

             Printed for the use of the Committee on the Judiciary

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

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

                                    ___________

                            U.S. GOVERNMENT PUBLISHING OFFICE
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                           COMMITTEE ON THE JUDICIARY

                       BOB GOODLATTE, Virginia, Chairman
    F. JAMES SENSENBRENNER, Jr.,         JOHN CONYERS, Jr., Michigan
        Wisconsin                        JERROLD NADLER, New York
    LAMAR S. SMITH, Texas                ZOE LOFGREN, California
    STEVE CHABOT, Ohio                   SHEILA JACKSON LEE, Texas
    DARRELL E. ISSA, California          STEVE COHEN, Tennessee
    J. RANDY FORBES, Virginia            HENRY C. ``HANK'' JOHNSON, Jr.,
    STEVE KING, Iowa                       Georgia
    TRENT FRANKS, Arizona                PEDRO R. PIERLUISI, Puerto Rico
    LOUIE GOHMERT, Texas                 JUDY CHU, California
    JIM JORDAN, Ohio                     TED DEUTCH, Florida
    TED POE, Texas                       LUIS V. GUTIERREZ, Illinois
    JASON CHAFFETZ, Utah                 KAREN BASS, California
    TOM MARINO, Pennsylvania             CEDRIC RICHMOND, Louisiana
    TREY GOWDY, South Carolina           SUZAN DelBENE, Washington
    RAUL LABRADOR, Idaho                 HAKEEM JEFFRIES, New York
    BLAKE FARENTHOLD, Texas              DAVID N. CICILLINE, Rhode Island
    DOUG COLLINS, Georgia                SCOTT PETERS, California
    RON DeSANTIS, Florida
    MIMI WALTERS, California
    KEN BUCK, Colorado
    JOHN RATCLIFFE, Texas
    DAVE TROTT, Michigan
    MIKE BISHOP, Michigan

               Shelley Husband, Chief of Staff & General Counsel
                 Perry Apelbaum, Staff Director & Chief Counsel
                                C O N T E N T S

                                  ----------

                                 MARCH 25, 2015

                                                                       Page

                               OPENING STATEMENTS

    The Honorable Bob Goodlatte, a Representative in Congress from
      the State of Virginia, and Chairman, Committee on the Judiciary     1
    The Honorable John Conyers, Jr., a Representative in Congress
      from the State of Michigan, and Ranking Member, Committee on
      the Judiciary..................................................     3

                                   WITNESSES

    The Honorable Tom Wheeler, Chairman, Federal Communications
      Commission
      Oral Testimony.................................................     6
      Prepared Statement.............................................     8
    The Honorable Ajit Pai, Commissioner, Federal Communications
      Commission
      Oral Testimony.................................................    12
      Prepared Statement.............................................    14
    The Honorable Joshua D. Wright, Commissioner, Federal Trade
      Commission
      Oral Testimony.................................................    20
      Prepared Statement.............................................    22
    The Honorable Terrell P. McSweeny, Commissioner, Federal Trade
      Commission
      Oral Testimony.................................................    45
      Prepared Statement.............................................    47

              LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

    Material submitted by the Honorable Bob Goodlatte, a
      Representative in Congress from the State of Virginia, and
      Chairman, Committee on the Judiciary...........................    51
    Material submitted by the Honorable J. Randy Forbes, a
      Representative in Congress from the State of Virginia, and
      Member, Committee on the Judiciary.............................    57
    Material submitted by the Honorable Zoe Lofgren, a Representative
      in Congress from the State of California, and Member, Committee
      on the Judiciary...............................................    69
    Material submitted by the Honorable Hank C. ``Hank'' Johnson,
      Jr., a Representative in Congress from the State of Georgia,
      and Member, Committee on the Judiciary.........................    82
    Material submitted by the Honorable Sheila Jackson Lee, a
      Representative in Congress from the State of Texas, and Member,
      Committee on the Judiciary.....................................    94

                                    APPENDIX
                   Material Submitted for the Hearing Record

    Response to Questions for the Record from the Honorable Tom
      Wheeler, Chairman, Federal Communications Commission...........   124

                       WRECKING THE INTERNET TO SAVE IT?
                         THE FCC'S NET NEUTRALITY RULE

                                  ----------

                           WEDNESDAY, MARCH 25, 2015

                            House of Representatives

                           Committee on the Judiciary

                                Washington, DC.

        The Committee met, pursuant to call, at 2:07 p.m., in room
    2141, Rayburn Office Building, the Honorable Bob Goodlatte
    (Chairman of the Committee) presiding.
        Present: Representatives Goodlatte, Smith, Chabot, Issa,
    Forbes, King, Franks, Gohmert, Jordan, Poe, Marino, Collins,
    DeSantis, Walters, Buck, Ratcliffe, Bishop, Conyers, Nadler,
    Lofgren, Jackson Lee, Cohen, Johnson, Chu, Deutch, Richmond,
    DelBene, Jeffries, Cicilline, and Peters.
        Staff Present: (Majority) Shelley Husband, Chief of Staff &
    General Counsel; Branden Ritchie, Deputy Chief of Staff & Chief
    Counsel; Allison Halataei, Parliamentarian & General Counsel;
    Kelsey Williams, Clerk; Anthony Grossi, Counsel; (Minority)
    Perry Apelbaum, Staff Director & Chief Counsel; Danielle Brown,
    Parliamentarian; James Park, Counsel; and Rosalind Jackson,
    Professional Staff Member.
        Mr. Goodlatte. Good afternoon. The Judiciary Committee will
    come to order. Without objection, the Chair is authorized to
    declare recesses of the Committee at any time.
        We welcome everyone to this afternoon's hearing on
    ``Wrecking the Internet to Save It? The FCC's Net Neutrality
    Rule,'' and I will begin by recognizing myself for an opening
    statement.
        On February 26, the Federal Communications Commission voted
    3-to-2 along party lines to approve the commission's new Open
    Internet order. FCC Chairman Wheeler argues that this order
    will preserve and protect the Internet as a platform for
    innovation, expression, and economic growth. He claims that the
    order will not raise Internet service costs, slow broadband
    speeds, reduce investment, limit consumer choice, or let the
    government regulate rates.
        Chairman Wheeler also asserts that the commission's
    dramatic, last-minute departure from the FCC's proposed rule
    was made independently without undue White House influence and
    was consistent with the Administrative Procedure Act.
        Today's hearing will challenge each and every one of these
    assertions. The order will undoubtedly raise Internet service
    costs. The text specifically permits the FCC to impose
    additional fees, raises the rate carriers must pay to deploy
    broadband, and opens the door to higher State and local taxes.
    The result is an estimated $11 billion in new taxes and fees.
        This estimate, moreover, does not include regulatory
    compliance costs. An army of lawyers and accountants will be
    required to comply with the 300-plus page order and the
    dizzying array of additional regulations, proceedings, and
    opinions that it contemplates. The order will also slow
    broadband speeds.
        Europe already imposes utility-style regulation on its
    broadband providers. As result, Europe trails America in
    virtually every measurable category relating to Internet speed
    and deployment. Indeed, Europe is thrilled that the FCC is
    leveling the competitive playing field. The Secretary General
    of the European Policy's Party recently remarked that the FCC
    was about to impose the type of regulation which has led Europe
    to fall behind the U.S. in levels of investment.
        The FCC's order will reduce consumer choice. A group of 142
    wireless Internet service providers, 24 of the country's
    smallest ISPs, and the Small Business and Entrepreneurship
    Council all urged the FCC not to impose Title II regulation,
    because it would hinder our ability to further deploy
    broadband, erode investment and innovation, and badly strain
    our limited resources.
        These are the types of companies that serve small and rural
    communities, like many in my district, and the FCC's
    regulations threaten their very livelihood. Forcing companies
    out of business rarely results in more consumer choice.
        The FCC's order will discourage investment. Nothing chills
    investment faster than regulatory uncertainty, and this order
    is the very definition of it. It allows the FCC to regulate
    virtually any activity it deems to have violated its vaguely
    worded, seven-factor ``Internet conduct'' standard.
        Chairman Wheeler describes this new authority as ``sitting
    there as a referee and being able to throw the flag.'' What he
    doesn't tell you is that he won't be the only one who can throw
    the flag. Hoards of trial lawyers will now have the ability to
    file a suit in any Federal court in the country claiming
    violations of the new, vague conduct standard.
        Additionally, there is uncertainty regarding the validity
    of the FCC's order itself, which has already been challenged in
    court. The last time the FCC acted in this area, it took over 3
    years for the courts to largely invalidate the FCC's net
    neutrality rule.
        Chairman Wheeler told other congressional Committees that
    the order does not allow the FCC to regulate rates. Chairman
    Wheeler further argues that his commission will set precedent
    that will make it more difficult for future commissions to
    regulate rates. Yet, it is this very commission that has
    overturned decades of precedent to categorize Internet service
    under Title II. Obviously, precedent does not carry much weight
    at the FCC.
        Furthermore, it increasingly appears that the FCC changed
    its proposed order under political influence, rather than
    independently. In the words of Commissioner Pai, ``Why is the
    FCC changing course? President Obama told us to do so.''
        Finally, the public did not receive adequate notice of the
    final rule as required by the Administrative Procedure Act.
    Nearly every facet of the final rule is distinguishable from
    the proposed rule, and many aspects of the final rule did not
    receive even a single mention in the proposed rule.
        The Internet that existed before this FCC order was
    dynamic, competitive, open, and free. By raising costs,
    imposing a heavy regulatory burden, introducing regulatory
    uncertainty, and instituting government meddling into nearly
    every aspect of the Internet, the FCC will seriously undermine
    the competitive nature of the Internet. Barriers to entry will
    rise. Smaller rivals will be forced to exit. And consolidation
    will likely ensue.
        Given these fundamental changes to the Internet, one would
    expect widespread documented abuses. Yet, within its 300-plus
    page order, the FCC does not point to a single example of
    actual anticompetitive conduct occurring on the Internet. Four
    million Americans wrote the FCC asking it to protect and
    promote an Open Internet. The FCC turned a deaf ear and
    delivered the most heavy-handed regulatory regime imaginable.
        The FCC has destroyed the city in order to save it.
        I look forward to hearing today's testimony on how the
    FCC's order will impact the future of competition on the
    Internet, and I now am pleased to yield to the Ranking Member
    of the Committee, the gentleman from Michigan, Mr. Conyers, for
    his opening statement.
        Mr. Conyers. Thank you, Mr. Chairman, for your views.
        Now, the full Committee of Judiciary has a central role in
    studying the issue of net neutrality, and, more generally,
    competition on the Internet. As the Committee considers today
    the specific question of what impact the Federal Communication
    Commission's latest Open Internet order has on competition and
    innovation, we should keep several factors in mind.
        To begin with, whatever approach one uses to ensuring an
    Open Internet inaction is not an option. There are real threats
    to net neutrality. And as I have observed earlier at hearings
    in 2008, 2011, 2014, there are many areas in the United States
    where consumers have the choice of only one or two broadband
    Internet service providers. As a result, these providers
    effectively function as monopolies or duopolies.
        In turn, their control over the broadband access market can
    result in differential treatment of content, depending on how
    much a content provider pays, whether the broadband provider
    also offers competing content, or if any other financial
    incentive for discriminating for or against given content were
    present.
        These concerns I have expressed before and have only become
    more problematic since then, particularly in light of further
    acquisition by broadband providers that may result in even less
    consumer choice, less innovation, higher costs, more power in
    the hands of these few broadband providers.
        In light of this threat, I commend the Federal
    Communications Commission and its leadership for its work in
    crafting a strong set of rules for ensuring an Open Internet.
    Congress has created the FCC to develop the specialized
    expertise to properly regulate the complex telecommunications
    industry in the service of public interest.
        After a lengthy rulemaking period, during which almost 4
    million Americans and all industry stakeholders made their
    voices heard on this issue, the FCC has fulfilled that mandate
    with respect to preserving and promoting an Open Internet.
    Rules to address net neutrality have the benefit of addressing
    potential threats to an Open Internet before they fully
    materialize.
        Additionally, having a set of best practices enshrined in
    rules would provide certainty for industry. The FCC's net
    neutrality rules, therefore, must be given an opportunity to
    take root.
        So I am pleased that the FCC's Open Internet order contains
    key provisions that I and others have long called for and that
    will help protect competition. They include a rule preventing
    broadband providers from blocking Internet access; from
    imposing paid prioritization of Internet traffic; also a
    restriction prohibiting any other practices that unreasonably
    interfere with or disadvantage users' ability to access
    broadband service or lawful content applications or services;
    and a requirement mandating disclosure to users of information
    concerning network management practices and any terms,
    conditions, or limitations on the broadband service itself.
        These measures are critical to protecting the virtuous
    cycle of innovation, which net neutrality fosters, and which
    ensures both competition and innovation among broadband and
    content providers to the ultimate benefit of consumers.
        Finally, enforcement of existing antitrust law as the
    exclusive or primary means of ensuring an Open Internet would
    be insufficient.
        Under the current antitrust law, there is relatively little
    that regulators can do outside the merger review context to
    address the conduct of a regulated industry, such as broadband
    Internet service, with respect to enforcing net neutrality
    principles.
        Through a series of decisions, the Supreme Court has
    limited the potential to successfully pursue claims under the
    Sherman Antitrust Act with respect to net neutrality. Moreover,
    exclusive reliance on antitrust enforcement is simply
    insufficient.
        While having the benefit of a more nuanced and fact-
    specific approach to the problem, antitrust enforcement alone,
    I am sorry to say, would also be a cumbersome, more limited,
    more resource-intensive, and after-the-fact way to develop a
    regulatory regime for net neutrality.
        Another potential approach would be for the Federal Trade
    Commission to use its authority under Section 5 of the Federal
    Trade Commission Act to stop unfair methods of competition.
    Although I hold an expansive view of Section 5, to the extent
    that this approach goes beyond the scope of the Sherman Act or
    other antitrust laws, it would be very controversial, as some
    of my friends here in the Committee would be the first to note.
        So finally, moreover, antitrust law is not sufficiently
    broad in scope, as it fails to address the noneconomic goals of
    net neutrality, including the promotion of innovation, and the
    protection of free speech and political debate.
        That is why the former Chairman of this Committee, a
    Republican, and Zoe Lofgren from California and I, all three of
    us introduced a bipartisan piece of legislation going back to
    2006 to strengthen antitrust law to address net neutrality, in
    part because the FCC was doing too little at that time, in my
    view.
        So I do not have that concern with the FCC's latest Open
    Internet order. Rather, I congratulate them on their good work.
    And I welcome all of our witnesses, especially the chairman of
    FCC himself, to join in this discussion this afternoon.
        And I thank you, Mr. Chairman, for the time.
        Mr. Goodlatte. Thank you, Mr. Conyers.
        And without objection all other Members' opening statements
    will be made a part of the record.
        We welcome our very distinguished panel today. And if you
    would all rise, I will begin by swearing in the witnesses.
        Do you and each of you swear that the testimony that you
    are about to give shall be the truth, the whole truth, and
    nothing but the truth, so help you God?
        Thank you very much.
        Let the record reflect that all of the witnesses responded
    in the affirmative.
        Tom Wheeler is the current chairman of the Federal
    Communications Commission. Prior to his appointment to the
    commission by President Obama, Chairman Wheeler was involved in
    telecommunications as a policy expert, advocate, and
    businessman. He has worked in senior positions at two
    technology investment companies, founded a technology company,
    and served as president and CEO at both the National Cable
    Television Association, and the Cellular Telecommunications and
    Internet Association. Chairman Wheeler earned his undergraduate
    degree from the Ohio State University.
        Ajit Pai currently serves as an FCC Commissioner. Prior to
    his appointment to the commission by President Obama,
    Commissioner Pai held several positions within the FCC's Office
    of General Counsel, including as Deputy General Counsel.
        Before joining the FCC, Commissioner Pai worked in both the
    public and private sectors. He was a communications law partner
    at the firm Jenner & Block, associate general counsel at
    Verizon, a trial attorney in the Antitrust Division of the
    Department of Justice, and chief counsel to a Senate Judiciary
    Subcommittee, and a clerk for Judge Feldman in the District
    Court of the Eastern District of Louisiana.
        Commissioner Pai earned his undergraduate degree with
    honors from Harvard University, and his law degree from the
    University of Chicago, where he was an editor of the law
    review.
        Joshua Wright currently serves as a commissioner to the
    Federal Trade Commission. Prior to his appointment to the
    commission by President Obama, Commissioner Wright was a
    professor at George Mason University School of Law and held a
    courtesy appointment in the Department of Economics. He is a
    leading scholar in antitrust law, economics, and consumer
    protection, and has published more than 60 articles and book
    chapters, coauthored a leading casebook, and edited several
    book volumes focusing on these issues.
        Commissioner Wright is currently on his fourth stint at the
    FTC, having previously served in both the Bureau of Economics
    and Bureau of Competition.
        Commissioner Wright earned his undergraduate degree with
    honors from the University of California, San Diego, and his
    law degree and Ph.D. from UCLA.
        Terrell McSweeny currently serves as commissioner to the
    FTC. Prior to her appointment to the commission by President
    Obama, Commissioner McSweeny served as chief counsel for the
    Competition Policy and Intergovernmental Relations Department
    within the Antitrust Division of the Department of Justice.
    Commissioner McSweeny previously served as senior adviser to
    President Obama and Vice President Biden, deputy chief of staff
    to then-Senator Biden, and counsel to the Senate Judiciary
    Committee. She also worked in private law practice at the firm
    O'Melveny & Myers.
        Commissioner McSweeny earned her undergraduate degree from
    Harvard University, and her law degree from Georgetown
    University School of Law.
        All of your written statements will be entered into the
    record in their entirety, and we ask that each of you summarize
    your testimony in 5 minutes or less. To help you stay within
    that time, there is a timing light on your table. When the
    light switches from green to yellow, you have 1 minute to
    conclude your testimony. When the light turns red, that is it,
    time is up. It signals that your 5 minutes have expired.
        Chairman Wheeler, we are very appreciative of your being
    here today. You are welcome to begin the testimony. You may
    want to push the button on that and pull the microphone closer.

       TESTIMONY OF THE HONORABLE TOM WHEELER, CHAIRMAN, FEDERAL
                       COMMUNICATIONS COMMISSION

        Mr. Wheeler. As you said, Mr. Chairman, I did not go to law
    school, but I have built companies, met payrolls, and created
    jobs, and it is from that perspective that I would like to
    address the issues today.
        The widespread use of the Internet exists because of
    decisions of the FCC decades ago that restrained the power of
    the dominant telecommunications network operator. To take one
    example that was important in my education as an entrepreneur,
    FCC regulations enabled open access for the modems that powered
    the early use of the Internet. There would have been no AOL
    without the FCC's openness mandate, for instance.
        The whole Open Internet debate burst into the public
    consciousness when a Republican-led FCC took action against
    Comcast for degrading the delivery of content. The decision was
    overturned in court.
        That led to the 2010 Open Internet rules. These, too, were
    challenged, and the court remanded them to the agency because
    the commission imposed common carrier-like requirements on
    activities previously characterized as information services.
        Nonetheless, the court upheld the commission's power to
    protect the Open Internet and observed, ``Broadband providers
    represent a threat to Internet openness.''
        This observation is not academic theory. It was my real-
    life experience as an entrepreneur. I was part of a new pay-
    per-view video service. When we would seek to get on a cable
    system, the first question the cable operator would ask is,
    what is our cut? Access had to be purchased.
        Likewise, when I was a venture capitalist in the early days
    of mobile data, the only way a wireless carrier would let an
    application provider on his network was for a cut of the
    revenue. Again, access had to be purchased.
        When internet protocol allowed consumers to leap these
    walled gardens, the ISPs sought to use their position as
    network gateways to their advantage.
        Congressional leaders such as Representatives Walden and
    Upton, and Senator Thune, as the chairs of the FCC's
    authorizing Committees, introduced legislation banning
    blocking, throttling, and paid prioritization. Our order has a
    similar ban, as well as establishing that, in the future, ISPs
    cannot act to hurt consumers or innovators, a determination the
    FCC would make on a case-by-case basis, not by broad
    prescriptive regulations.
        We took a businesslike approach in our report and order. It
    was patterned on the regulation the wireless industry asked for
    in 1993, and which has proven so successful, Title II status
    and the forbearance from the old parts of Title II that don't
    apply to the new circumstances. And it is an approach that
    worked.
        When, for instance, the big wireless carriers refused to
    let voice customers of smaller carriers roam on their networks,
    it was a Republican-led FCC that in 2007 invoked Title II to
    mandate open access.
        Finally, allow me to quickly reflect on the allegation that
    our order creates business-threatening uncertainty. When Title
    II was applied to broadband DSL in the late 1990's and early
    2000's, it didn't chill investment. The network industry
    invested more than it had before or since.
        Similarly, during the 4 years the 2010 Open Internet rules
    were in place, broadband capital investment increased steadily,
    topping out at almost $70 billion annually. It is no wonder,
    therefore, that Sprint, T-Mobile, Frontier Communications,
    Google Fiber, Cable Vision, along with hundreds of small rural
    phone companies and the small competitive wireless companies,
    all say they can build their business within Title II.
        Even behemoths like Comcast, AT&T, and Verizon, who opposed
    what we did, continued to invest in their networks even knowing
    the rule was coming. In fact, AT&T and Verizon did so very
    dramatically in the recent AWS-3 spectrum auction.
        There would be, however, a serious casualty of uncertainty
    were no Open Internet rules in place, the innovators who need
    to know that they will be able to get on the networks owned by
    Comcast and AT&T and Verizon.
        Openness without fear of pay-to-play is the key to
    innovation. Similarly, if investors believe their capital will
    be siphoned off by the big network providers or, worse, the
    companies won't be able to reach consumers, investment capital
    will dry up.
        I recognize the propensity of this issue to dance on the
    heads of legal pins. In reality, however, this issue is simply
    about whether those who operate networks will be the rule-
    makers or whether consumers and innovators will have the
    security of knowing that the network operators will not be able
    to misuse their position.
        Thank you again for this opportunity. I look forward to
    your questions.
        [The prepared statement of Mr. Wheeler follows:]
        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                   __________

        Mr. Goodlatte. Thank you, Chairman Wheeler.
        Commissioner Pai, welcome.

      TESTIMONY OF THE HONORABLE AJIT PAI, COMMISSIONER, FEDERAL
                       COMMUNICATIONS COMMISSION

        Mr. Pai. Thank you, Mr. Chairman. Chairman Goodlatte,
    Ranking Member Conyers, Members of the Committee, thank you for
    inviting me to testify today. I appreciate the opportunity to
    share with you my views on one of the most important regulatory
    decisions in recent history, the FCC's decision to regulate the
    Internet.
        Put simply, Title II Internet regulation is a solution that
    won't work to a problem that doesn't exist.
        First, the Internet isn't broken. There was nothing for the
    FCC to fix. Indeed, the Internet ecosystem in the United States
    is the envy of the world. Nonetheless, the FCC decided to treat
    broadband as a public utility. In so doing, it erased a
    bipartisan consensus dating back to the Clinton administration
    that the Internet should be unfettered from government
    regulation.
        Second, the FCC's Title II solution isn't narrowly tailored
    to solve even the hypothetical net neutrality problem. It goes
    far beyond that by adopting a broad and general Internet
    conduct standard rule, by threatening Internet service
    providers with rate regulation, by claiming authority to
    regulate Internet interconnection, and by applying a variety of
    Title II provisions that have nothing to do with net
    neutrality.
        All of this regulation will be a raw deal for consumers. It
    will mean higher broadband prices, lower broadband speeds,
    fewer service plan choices, and less competition in the
    broadband marketplace.
        Now let me focus on that last point, since antitrust
    teaches that robust competition is the best way to protect
    consumer welfare. Title II will reduce competition among
    Internet service providers. Monopoly rules designed in the
    monopoly era will inevitably move us in the direction of a
    monopoly. Thousands of smaller ISPs don't have the means to
    withstand a regulatory onslaught.
        This isn't just my view. The President's own Small Business
    Administration admonished the FCC that its proposed rules would
    unduly burden small businesses.
        Unsurprisingly, small ISPs are worried. One-hundred-forty-
    two wireless ISPs said the FCC's new rules ``would likely force
    us to raise prices, delay deployment expansion, or both.''
    Twenty-four of the country's smallest ISPs, each with fewer
    than 1,000 customers, told us that Title II ``will badly strain
    our limited resources.'' And 43 government-owned broadband
    providers told the FCC that Title II will ``risk serious harm
    to our ability to fund and deploy broadband without bringing
    any concrete benefit for consumers or edge providers.'' These
    are joined by many other companies, big and small.
        In sum, the FCC's Title II regulations not only address a
    nonexistent problem in the marketplace, they will actually harm
    consumers by limiting their broadband choices.
        Even if there were evidence of anticompetitive behavior,
    antitrust would provide the appropriate framework for
    addressing this problem. The scalpel of antitrust, not the
    sledgehammer of Title II, is the best guarantor of consumer
    welfare.
        The Department of Justice and the Federal Trade Commission
    are quite capable of vindicating the public interest by
    investigating and, as appropriate, prosecuting business
    practices that threaten competition. These authorities are
    likely to be more effective than applying Title II.
        For one thing, the FCC's order goes far beyond bright-line
    rules. It adopts vaguely worded standards that are sure to mire
    the FCC and the industry in novel, free-ranging, and expansive
    proceedings.
        For another thing, antitrust law focuses on the abuse of
    market power, but the FCC's Title II regulations presume that
    each and every Internet service provider is, per se, an
    anticompetitive gatekeeper. This view has no basis in economics
    or the agency's record. The notion that corporate behemoths
    like Facebook, Google, and Netflix need to be protected from
    Main Street Broadband, an ISP with four customers in Cannon
    Falls, Minnesota, is absurd.
        Finally, antitrust allows the DOJ and the FTC to target the
    actual exercise of market power by dominant providers whenever
    it presents a threat to online competition. In contrast, the
    FCC's Title II approach focuses solely on the conduct of ISPs,
    ignoring evidence suggesting that startups face a greater and
    existing threat from a different corner, dominant edge
    providers.
        Twitter's recent blocking of Meerkat, detailed in my
    written testimony, is just one example.
        For these and other reasons, I believe that the FCC's
    heavy-handed Internet regulations will reduce competition and
    harm consumers. Antitrust enforcement would be a far superior
    approach.
        Chairman Goodlatte, Ranking Member Conyers, Members of the
    Committee, thank you once again for allowing me to testify. I
    look forward to answering your questions and to working with
    you and your staff in the time to come.
        [The prepared statement of Mr. Pai follows:]
        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                       __________

        Mr. Goodlatte. Thank you, Commissioner Pai.
        Commissioner Wright, welcome.

      TESTIMONY OF THE HONORABLE JOSHUA D. WRIGHT, COMMISSIONER,
                        FEDERAL TRADE COMMISSION

        Mr. Wright. Thank you, Chairman. Chairman Goodlatte,
    Ranking Member Conyers, Members of the Committee, thank you
    very much for the opportunity to appear before you today. My
    name is Josh Wright, and I am a commissioner at the Federal
    Trade Commission.
        Before diving into the FCC's latest net neutrality
    regulation, I want to make clear that the views I express today
    are my own and do not necessarily reflect the views of the FTC
    or any other commissioner. My views are based upon my
    experience and expertise as an academic economist, antitrust
    lawyer, and law professor researching antitrust and regulation,
    and as a commissioner of the FTC.
        I want to begin by discussing net neutrality from an
    economic perspective. The first relevant question to address in
    my view is what market failure, if any, is the FCC trying to
    solve with net neutrality regulation. Chairman Wheeler has
    expressed concern that broadband providers are gatekeepers.
    There are gatekeepers everywhere. Not all gatekeepers require
    regulation.
        Starbucks is the gatekeeper to my all-important morning cup
    of coffee, and the supermarket is the gatekeeper to your access
    to Cheerios. A gatekeeper becomes an economic problem
    potentially worthy of regulation only insofar as the broadband
    industry is either a natural monopoly or otherwise exhibits
    meaningful monopoly power. The simple fact that there are
    multiple suppliers of both wired and wireless broadband
    Internet render this justification of regulation unpersuasive.
        Nevertheless, fearing that any network discrimination by
    broadband providers creates undue risks of competitive harm,
    net neutrality proponents have argued for a one-size-fits-all
    prohibition. This categorical prohibition ignores the empirical
    economic research that demonstrates plainly that contractual
    arrangements between entities that occupy different links in
    the same supply chain--in this case, Internet access providers
    and content providers--very rarely result in consumer harm.
        Further, economists have long understood that these
    vertical restraints often and, indeed, overwhelmingly provide
    substantial benefits for consumers. As one study from leading
    economists assessing the state of empirical evidence on
    vertical contracts at issue here says, ``With few exceptions,
    the literature does not support the view that these practices
    are used for anticompetitive reasons.''
        Other surveys of the economic literature by prominent
    economists come to similar conclusions. So does the FTC's
    investigation of the broadband industry.
        In my view, it is more than fair to say there is a general
    consensus upon empirical economists on this point.
        Surely, given the state of the economics literature and the
    FTC's own report, the FCC's categorical prohibition is
    inappropriate and likely to harm consumers.
        Now if the best economic evidence cannot possibly justify
    an outright ban on vertical restraints in the broadband
    industry, yet there is some chance that vertical restraints can
    harm some broadband consumers some of the time, then what
    should a regulatory agency like the FCC do? My answer is
    nothing, and the reason is that antitrust law is exceptionally
    well-equipped to pick up the slack.
        Indeed, President Obama's current regulatory czar and
    former director of the FTC's own Bureau of Economics, Howard
    Shelanski, has noted that antitrust enforcement is often
    superior to broad regulation. This is because antitrust
    jurisprudence has evolved a highly sophisticated rule of reason
    to adjudicate various types of vertical arrangements by
    analyzing their cost and benefits to consumers on a case-by-
    case basis.
        Indeed, antitrust law initially adopted but ultimately and
    long ago rejected a categorical prohibition of certain vertical
    restraints, not unlike the FCC's new prohibition on paid
    prioritization. The FCC should learn from antitrust's
    historical mistakes rather than relive them.
        I am quite confident that the antitrust regime, after more
    than a century of developing expertise and applying it to rule
    of reason, will be able to apply it to the broadband industry.
        I will now turn from antitrust to the FTC's other
    enforcement priority, consumer protection. By reclassifying
    broadband Internet providers as common carries under Title II,
    the FCC threatens to strip the FTC of its jurisdiction to
    regulate broadband providers. I believe reclassification under
    Title II will unequivocally harm consumers by depriving them of
    the FTC's activities in the broadband sector.
        Importantly, the FTC has certain enforcement tools at its
    disposal that are not available to the FCC. Unlike the FCC, for
    example, the FTC can bring cases in Federal district court and
    obtain equitable remedies, such as consumer redress.
        The FTC's recent action against AT&T in Federal district
    court involving failure to disclose throttling to consumers on
    unlimited data plans and its settlement with TracFone, who
    agreed to pay $40 million to the FTC for consumer redress to
    settle charges that it deceived millions of consumers with its
    promise of unlimited data service, are just two examples
    illustrating the consumer benefits that will disappear with
    reclassification.
        In my view and for the reasons discussed, I am confident
    that a complete and economically rigorous cost-benefit analysis
    of the FCC's new regulation would reveal that it will harm
    competition and leave consumers worse off than a regime focused
    upon antitrust.
        Thank you for your time and for the invitation to testify.
    I am happy to answer any questions.
        [The prepared statement of Mr. Wright follows:]
        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                       __________

        Mr. Goodlatte. Thank you, Commissioner.
        Commissioner McSweeny, welcome.

     TESTIMONY OF THE HONORABLE TERRELL P. McSWEENY, COMMISSIONER,
                        FEDERAL TRADE COMMISSION

        Ms. McSweeny. Thank you. Thank you very much. And I want to
    thank the Members of the Committee and Ranking Member Conyers
    for the invitation to appear today.
        My name is Terrell McSweeny, and I am also a Federal Trade
    Commissioner. Like my colleague, Commissioner Wright, I will
    begin by making the usual disclaimer. I am speaking on behalf
    of myself and not the commission or my colleagues.
        I am delighted to talk to you today about the role of
    competition enforcers like the Federal Trade Commission in
    protecting consumers and competition. For 100 years, the
    Federal Trade Commission has worked to ensure that American
    consumers and the entrepreneurs who bring new and exciting
    products to the marketplace are free from anticompetitive,
    deceptive, and unfair practices that threaten to harm them.
        The FTC's role as a consumer protection and antitrust
    enforcer has evolved along with the economy, adapting to the
    interconnectedness of our 21st century lives to protect
    consumers online and on mobile platforms. In the last decade,
    the FTC has brought more than 100 cases involving consumer data
    security and privacy, and we have cracked down on emerging
    issues such as cramming on mobile phone bills, and unauthorized
    in-app purchases by children, winning millions of dollars in
    redress for consumers harmed by these practices.
        The FTC plays an important role promoting innovation by
    advocating for competition that can be introduced by disruptive
    entrance, and by investigating and prosecuting anticompetitive
    practices across a wide variety of industries. While antitrust
    enforcement is vital to protecting a competitive marketplace,
    it is not always the most effective way to address policy
    issues in the economy.
        Sometimes the public interest is best protected through a
    combination of antitrust enforcement and well-designed
    regulation. Protecting the virtuous cycle of the Open Internet
    is one of these instances.
        The debate over the best way to protect the Open Internet
    raises a host of complicated issues, including public policy
    issues that go beyond the scope of antitrust and consumer
    protection enforcement. The FCC has spent years studying the
    Open Internet issue, informed by the data and input from market
    participants, academics, and the views of nearly 4 million
    commenters.
        On the basis of that record, the FCC concluded that
    Internet openness promotes a virtuous cycle, in which
    innovation by providers of new content, applications, and
    services generates increased consumer broadband demand. This
    increase in broadband demand increases broadband infrastructure
    investment, which in turn spurs new innovation from content
    producers.
        Ex post, case-by-case antitrust enforcement is unable to
    offer the same protections to innovators in the content space
    as clear, ex ante rules.
        Under the Open Internet order, innovators who seek to
    provide new content, applications, and services can have
    confidence that discriminatory network access will not threaten
    their chances of competitive success. Antitrust enforcement, on
    the other hand, would require detection, investigation, and a
    potentially lengthy rule of reason analysis.
        I would also like to point out that the FCC considered
    First Amendment interests, freedom of expression, diversity of
    political discourse, and cultural development as a part of the
    Open Internet proceeding. These are noneconomic, but very
    important values that are not generally protected by antitrust
    laws.
        I want to stress that there is not an either/or choice that
    must be made between FCC regulation and FTC enforcement as it
    relates to the Open Internet. Both are different tools with
    different features, and both have a role to play when it comes
    to protecting consumers and ensuring an Internet that continues
    to foster competition and innovation.
        The optimum outcome for consumers is Open Internet coupled
    with repeal of the common carrier exemption in the FTC Act,
    which may hinder the FTC from protecting consumers against
    unfair and deceptive common carrier activities.
        The FTC has decades of experience and specific statutory
    tools, such as consumer redress, that complement FCC oversight
    of common carriers, and we have a long history of successfully
    working together with the FCC and look forward to continuing to
    work with them.
        I will conclude by pointing out that the status quo in the
    United States is overwhelmingly one of an Open Internet. It is
    almost out-of-date to refer to the Internet as its own sector
    somehow detached from the rest of the economy. The Internet has
    truly become the Internet of everything. It is the medium that
    we use to carry on friendships, file our taxes, book vacations,
    talk to our doctors, watch movies, manage businesses, and
    increasingly coordinate our lives from the moment we get up
    until the time we go to bed. Ensuring that the Internet remains
    a fountain of innovation and disruption is at the heart of Open
    Internet policy.
        I don't view this as a situation in which the FCC's Open
    Internet order threatens to usher in some new and unproven
    market reality. Rather, it is the elimination of the Open
    Internet in this country that would put us in unchartered
    territory.
        Thank you for holding this hearing and for having me here,
    and I look forward to answering your questions.
        [The prepared statement of Ms. McSweeny follows:]
        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                       __________

        Mr. Goodlatte. Thank you, Commissioner McSweeny.
        Before we begin the questioning by Members of the
    Committee, I will ask unanimous consent to enter into the
    record a letter dated today from the Consumer Electronics
    Association on behalf of its more than 2,000 U.S. technology
    companies, indicating support for an Open Internet and
    expressing concern that the swath of Title II regulations and
    legal challenges to FCC authority will cause uncertainty, slow
    investment, reduce competition, and hinder innovation, and
    calling on Congress to take action in this area.
        [The information referred to follows:]

                                   __________
        Mr. Goodlatte. Secondly, I would ask unanimous consent to
    enter into the record the dissenting opinion of the FCC
    Commissioner Mr. Pai.*
    ---------------------------------------------------------------------------
        *Note: The submitted material, the dissenting opinion of the FCC
    Commissioner, is not printed in this hearing record but is on file with
    the Committee and can be accessed at:

          http://docs.house.gov/Committee/Calendar/
          ByEvent.aspx?EventID=103236.
        Without objection, they will be made a part of the record.
        And we will turn to the questioning.
        If I may, I will start with you, Chairman Wheeler. Can you
    please walk us through the many specific examples of
    anticompetitive actions taken by Internet service providers
    over the last 3 years that support issuing massive regulations
    on the Internet?
        To be clear, I am looking for actual examples of bad
    conduct rather than hypothetical conduct. To my knowledge,
    there were not any specific examples cited in the 300-plus page
    order.
        Mr. Wheeler. Thank you, Congressman. Yes, I would be happy
    to. I think the root is what the district court said when they
    said that there is the technological capability and the
    economic incentive to do something.
        Mr. Goodlatte. I am talking about actual examples where it
    has taken place in the last 3 years.
        Mr. Wheeler. So for instance, in 2007, a Republican
    commission moved against wireless carriers who were doing
    exactly the same kind of thing we are talking about here, and
    used Title II to deal with that. What was happening was the
    wireless carriers, the big guys, were saying to the small guys,
    ``Your customers can't roam onto our turf, onto our networks.''
        Mr. Goodlatte. Chairman Wheeler, let me interrupt because
    that was 8 years ago that that took place, and we are talking
    about in the last 3 years. But let me give you another
    question.
        To the extent that actual anticompetitive conduct was
    occurring on the Internet and the FCC chose not to intervene,
    why wouldn't the Federal Trade Commission be able to prosecute
    that conduct under current law?
        Mr. Wheeler. Thank you, Congressman. I was going to get to
    more recent things, if you are interested. I mean, there are
    examples of blocking of iPhone apps, iPad apps, Android apps,
    blocking a mobile wallet app that was put on the phone,
    limiting access to Google Voice. And as recently as last
    August, Verizon tried to throttle the data speeds for users who
    had bought unlimited access. So there is a list, and I can go
    through others, if you want.
        Mr. Goodlatte. Let me ask Commissioner Pai if he wants to
    shed light on that. Why is it that there were no examples cited
    in the report?
        Mr. Pai. That is a key question, Mr. Chairman. The answer
    is, as detailed in the FCC's decision, there is no evidence of
    a system-wide failure in the Internet marketplace. The fact
    that the agency has to rely on a decade-old example of a small
    ISP in North Carolina, of isolated niche examples since then,
    all of which were solved through private initiatives, not
    through the application of heavy-handed Title II rules,
    demonstrates that there was no problem to be solved here.
        Mr. Goodlatte. Will there be an increase in State and local
    taxes levied against Internet service providers as a result of
    the Open Internet order? And will the Internet Tax Freedom Act,
    something that has very strong bipartisan support here in the
    Congress, protect against all of these types of taxes?
        Mr. Pai. Mr. Chairman, I believe the answer to the question
    is no. The order explicitly opens the door to the imposition of
    billions of dollars of new taxes, the most notable of which is
    the assessment of Universal Service Fund fees or taxes on
    broadband. The only thing the order promises is that those fees
    won't go up on the effective date of the order itself.
        Moreover, there are a number of State and local fees and
    taxes which will be assessed. One example, which flows from the
    reclassification of broadband as a Title II telecom service, is
    pole attachment rates. Previously, a lot of the competitive
    providers were able to avail themselves of a relatively lower
    rate, applicable to cable companies. Now that rate will go up
    to a higher rate that telecom providers pay.
        All of those costs will be passed on to the consumer.
        Mr. Wheeler. Mr. Chairman, can I----
        Mr. Goodlatte. Let me turn to Commissioner Wright, and if I
    have some time left, I will come back to you, Mr. Chairman.
        The FCC adopted the one-size-fits-all regulatory approach
    in its Open Internet order. Why is it important to evaluate
    each anticompetitive action on its merits using decades of
    antitrust case law and deploying an economic analysis? At the
    end of the day, what is better for consumers?
        Mr. Wright. Thank you for the question, Mr. Chairman.
        I think it is important to note that sometimes this idea
    that antitrust is ex post and regulation is ex ante is a bit
    overplayed. Antitrust has ex ante regulations. For example, we
    ban all price-fixing. Sometimes, we have broad prohibitions
    like you see here. Sometimes we don't. We used to have ex ante,
    broad prohibitions on vertical restraints.
        The reason we don't, and the reason that antitrust,
    starting about 40 years ago, went to a case-by-case approach is
    because an economic revolution of both theory and empirical
    data on vertical restraints hit the world in the '60's and
    '70's and '80's. And what we learned was not only were these
    types of contracts unlikely to harm competition, but
    importantly, oftentimes, they offer serious benefits for
    consumers.
        The virtue of a case-by-case approach isn't just how often
    that you can attack or detect anticompetitive conduct. It is
    allowing consumers to reap the benefits of the conduct when it
    is procompetitive. And that is the difference between a case-
    by-case approach and a per se prohibition, and why it is
    important to retain the former.
        Mr. Goodlatte. Thank you.
        My time has expired, but, Chairman Wheeler, we will give
    you a moment to add what you wanted to add a moment ago.
        Mr. Wheeler. Well, I was just going to say that what
    Commissioner Pai said about taxes isn't quite as portrayed. The
    reality of property taxes is that they are on telephone
    companies ``and utilities.'' And we do not reclassify and
    specifically address in the order that that does not deal with
    this.
        The second issue----
        Mr. Goodlatte. It could be done in the future, though,
    could it not?
        Mr. Wheeler. It specifically says in the order that we are
    talking about telecommunication----
        Mr. Goodlatte. Once you go down this road, a future FCC
    could change that order and go that direction as well, could
    they not?
        Mr. Wheeler. Mr. Chairman, future companies can behave in
    ways that they tell us that they are not going to behave as
    well. We all live with this.
        Mr. Goodlatte. And future Congresses.
        Mr. Wheeler. Valid point.
        One other point is the issue of application of Universal
    Service against broadband. Commissioner Pai sits on the
    bipartisan Federal-State board that will deal with that issue.
    So there will be a recommendation coming from them, which
    Commissioner Pai, in which he will be participating. But even
    if they come back and say you should change the contribution,
    it is not an increase in the amount collected; it is just that
    it gets applied to different things.
        So, essentially, in a household, it becomes the same kind
    of a number.
        Mr. Goodlatte. We will follow up on that in a moment, but
    my time has expired, so we will turn now to the gentleman from
    Michigan, Mr. Conyers, for his questions.
        Mr. Conyers. Thank you.
        Well, I am very interested in this discussion. Let me just
    ask, Mr. Wheeler, how has FCC encouraged competition and
    innovation over communications networks?
        Mr. Wheeler. Thank you very much, Congressman.
        The joke around the FCC is that my mantra has been
    ``competition, competition, competition,'' or, more
    appropriately, spoken as ``competition-competition-
    competition,'' because it ought to be the ultimate mantra of
    everything we do.
        And the difficulty that we face today is that, insofar as
    high-speed networks in this country, about 80 percent of
    Americans have either only one choice or zero choice. About 25
    percent of them have zero choice for high-speed networks. And
    what we need to be doing is encouraging that.
        That is why specifically in this order we said that we will
    not have rate regulation, we will not have tariffing, we will
    not have unbundling, those kinds of things associated with the
    so-called utility status, because we want to create an
    environment in which carriers are investing in ever-faster,
    evermore ubiquitous, competitive broadband services.
        The interesting thing is that Wall Street seems to agree,
    because if this was the end of the world that everybody keeps
    talking about, then you would think you would see the stocks
    crashing. Instead, the stocks have been going up. And on the
    day of the vote even, when we adopted the rule, they went up.
        So it is very important that we build a strong economic
    base so that carriers are incentivized to build competitive,
    ever-faster networks.
        Mr. Conyers. One of your colleagues says the Internet is
    not broken, and there is nothing for the FCC to fix, and it is
    only based on hypotheticals. Is there much truth in that or
    any?
        Mr. Wheeler. Thank you, Congressman.
        You know, Mr. Walden and Mr. Upton and Senator Thune have
    all introduced legislation to ban blocking, ban throttling, ban
    paid prioritization--the three big things that we ban in our
    order. So there is, I think, a suggestion that at least some
    other people other than us feel that there are difficulties in
    the marketplace.
        We did have the instance of Comcast blocking. We did have
    the instance I told the Chairman about of Verizon throttling.
        Verizon, interestingly enough, went into court when they
    were suing to overturn the 2010 rules, and their lawyer said: I
    have been specifically instructed to tell the court that one of
    the reasons we are appealing is because we want to do paid
    prioritization.
        Then in a letter to Chairman Leahy, when he was chairing
    the Senate Judiciary Committee, the major ISPs, when asked if
    they would pledge to not do paid prioritization, they said we
    do not foresee. They did not say they would not.
        Our rule says you will not. And again, I go back to what
    the court said, which was that there is an incentive, an
    economic incentive, and a technological capability for these
    network providers to harm innovation, to harm competition, and
    to harm this virtuous circle of innovation driving new
    networks, which drive more innovation, et cetera.
        Mr. Conyers. Very interesting.
        Commissioner McSweeny, what are potential limitations in
    relying on antitrust enforcement to protect an Open Internet?
        Ms. McSweeny. Thank you for the question. I would note
    there are a couple of problems here.
        One, and it is not an insignificant one, is detection.
    First, it might be very difficult for antitrust enforcers to
    detect some of these problems because it is hard sometimes for
    consumers to even know that they are happening.
        The second would be just to note that because, by its
    nature, antitrust enforcement is after the fact, it is on a
    case-by-case basis after an intensive investigation. It can be
    very difficult to remediate harms.
        So if your concern is about the innovators who never get to
    consumers, or the consumers who never get to the innovators, it
    can be very difficult to rely solely on antitrust to protect
    that.
        Mr. Conyers. Let me ask you, finally, can we get FCC and
    FTC to cooperate in enforcement and regulation?
        Ms. McSweeny. Absolutely, sir. In fact, we already have a
    long history of cooperating together quite successfully.
        Mr. Conyers. Very good. Glad to hear it.
        Thank you, all.
        Mr. Goodlatte. Thank you, Mr. Conyers.
        The Chair now recognizes the gentleman from Virginia, Mr.
    Forbes, for 5 minutes.
        Mr. Forbes. Mr. Chairman, thank you.
        Commissioner Pai, you heard I believe Chairman Wheeler
    mention something about a redistribution of taxes to all
    companies. Do you agree with him? Or can you give us your
    thoughts on that?
        Mr. Pai. Thank you for the question, Congressman. I
    respectfully disagree with the Chairman.
        First of all, nothing the FCC says about the classification
    of broadband provided for tax purposes binds any State and
    local authority. The mere fact that they are now telecom
    providers means that the door is open for State and local
    entities to reclassify them as such.
        If I could enter into the record the Washington Post ``Fact
    Checker'' that just came out today, suggesting that a left-
    leaning Progressive Policy Institute study indicating that $11
    billion in State and local fees would be raised is, in fact,
    the case.
        Mr. Forbes. I would request that we allow that to be
    submitted.
        Mr. Goodlatte. Without objection, that document will be
    made a part of the record.
        [The information referred to follows:]
        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                   __________

        Mr. Pai. Secondly, in terms of the Federal taxes, in
    particular, the writing is on the wall. If you look at some of
    the promises the FCC has made in terms of the programs that are
    administered under the Universal Service Fund, last December,
    just to give you one example, the FCC decided to increase by
    $1.5 billion the amount of spending on the schools and
    libraries program. That money has to be funded from somewhere.
    It is going to be funded through Universal Service Fund
    contributions.
        So the pressure to apply it to broadband is tremendous. And
    now the FCC having indicated that the door is open, I think we
    clearly know the consumers are going to be paying from the
    bottom line.
        Mr. Forbes. Okay.
        Chairman Wheeler, even if everyone who is participating
    here today could agree that blocking, throttling, and paid
    prioritization by Internet service providers is not good for
    innovation and not good for consumers, don't you think the Open
    Internet rule that was passed by the FCC on a party-line vote
    is one dimensional and does nothing to prevent other
    stakeholders from violating the same principles of protecting
    an open Internet, specifically making interconnection
    negotiations one-sided and anticompetitive for ISPs, therefore,
    hurting Internet users?
        For example, on several occasions, edge providers have
    blocked Internet users from accessing their content on the
    Internet based off of their ISP.
        Mr. Wheeler. Thank you for your question, Congressman. I
    think that it is equally bad when edge providers block content.
    The question is whether the Congress has given us authority to
    deal with that. What Congress did give us authority to deal
    with was when an ISP connects to the public Internet.
        What we said in our order was that we would assert
    jurisdiction and be watching, that we would not assert
    regulation, which a lot of folks wanted us to do, we would not
    say we are going to do this or that, but that we would watch
    what was happening there. That goes to the concept that I think
    is at the core of what we are trying to do, which is how do you
    establish a set of basic concepts, which is the just and
    reasonable test which has stood the test of time and been well-
    established in the litigation, and have what I call a referee
    on the field, who can take a look at something and say, ``Now
    does that fit with inside that kind of circumstance?"
        I think that is in keeping with what was going on that
    Commissioner Pai referenced leading up to the Open Internet
    order, which was when various commissions were saying, ``Here
    are the rules of the road. Here are the standards we want you
    to adhere to. And we are holding the sword of Damocles over
    your head that if you don't, we have the ability to do
    something.''
        The problem was that when the Verizon court made its
    decision, it took away the sword. And it put us in a position
    where we have to say, what is it that we are regulating, and
    what are the standards, and how are we going to continue--on
    the point you made, and the point Commissioner Pai made--making
    sure that we are watching that marketplace to make sure that
    the behavior there does not hurt consumers and does not hurt
    innovators.
        Mr. Forbes. Commissioner Wright, I only have seconds left,
    but do you agree or disagree with Chairman Wheeler on that?
        Mr. Wright. With what portion of it?
        Mr. Forbes. Well, whatever you can do in 30 seconds, I
    guess, because that is all I have--or Commissioner Pai, either
    one.
        Mr. Pai. Congressman, I think your question targets exactly
    the reason why Title II regulation by the FCC is inferior to
    antitrust. The fact is that there is no evidence in the record
    of anticompetitive blocking sufficient to support industry-wide
    regulation.
        To the contrary, the FCC is also, by focusing myopically
    solely on ISPs, ignoring other potential threats that could
    come from edge providers.
        I provided the example in my written testimony of Meerkat,
    a very innovative live-stream application that, it argues and
    some have argued, has been crippled by Twitter refusing access
    to its social graph.
        Those are the kinds of threats that antitrust is perfectly
    well-suited to examine, but the FCC simply isn't able to do it
    based on Title II.
        Mr. Forbes. Thank you.
        Mr. Chairman, I yield back.
        Mr. Goodlatte. I thank the gentleman.
        The Chair recognizes the gentleman from New York, Mr.
    Nadler, for 5 minutes.
        Mr. Nadler. Thank you, Mr. Chairman.
        Along with President Obama and about 4 million other
    Americans, I urged the FCC to defend the principle of net
    neutrality and to reclassify broadband providers as common
    carriers under Title II of the law, in order to ensure that
    everyone has equal access to the Internet. Therefore, I am very
    pleased with the actions of the FCC. The FCC chairman, in
    particular, should be applauded for his actions and for his
    leadership.
        The FCC has a vital role to play in protecting the virtuous
    cycle of innovation by preventing broadband providers from
    blocking, throttling, or offering paid prioritization.
    Providers should be common carriers, and must not block
    content; slow, or degrade the transmission of content; or
    extract higher fees for faster transmission of content.
        The FCC must never allow for a pay-to-play Internet, where
    one company can refuse to allow fast access to another company
    unless they pay a premium. That could lead to anticompetitive
    behavior and the stifling of innovation.
        What if a smaller competitor with a great idea cannot
    afford to pay an additional fee for access to the Internet's
    fast lane? Innovation would suffer and, ultimately, consumers
    would be harmed. Everyone deserves equal access at equal
    speeds.
        I agree with the FCC chairman when he says that having an
    Open Internet and net neutrality is beneficial to consumers. I
    agree with the FCC chairman when he says he wants to prevent
    blocking. E.g., Comcast can't say no access to YouTube. I agree
    with the FCC chairman when he says he wants no discrimination.
    Comcast can't degrade Netflix in order to make Comcast's
    competing service look better. I use Comcast only as example,
    not an allegation.
        The best way to ensure that these rules are strong and
    enforceable is to use the Title II common carrier authority.
    The FCC has every right to do so and, in fact, was merely
    acting on the court's suggestion to reclassify broadband
    providers as common carriers.
        In addition, antitrust law is not sufficient on its own to
    prevent big Internet providers from harming consumers.
    Antitrust law is important, but so is regulation, and the two
    should work hand-in-hand to protect consumers and promote
    competition.
        We shouldn't have to wait until a monopoly starts beating
    up on consumers before the law steps in.
        As Gene Kimmelman and Allen Grunes put it in an op-ed in
    The Hill, ``The FTC is a bit more like a fire hose. It is there
    to put out a fire after it has started.''
        Well, we want to prevent forest fires, if you will, and we
    need the FCC there to help us at the front end.
        Commissioner Wheeler, Commissioner Pai says that Title II
    regulation will reduce competition among broadband providers,
    and that it will harm consumers by limiting the kinds of
    pricing and data plans that smaller and upstart broadband
    providers can offer. What would you say to that?
        Mr. Wheeler. Well, thank you very much, Mr. Nadler, for
    your comment.
        And I think Commissioner Pai and I have different views of
    the world. He tends to see a world full of small ISPs and
    behemoth edge providers, when I think the reality is there are
    three behemoth ISPs, and thousands, tens of thousands of
    innovative edge providers, and two guys and dog in a garage who
    got a new idea that will be up tomorrow, thanks to the openness
    of the Internet.
        The expectation a consumer should have should not be
    determined by the net revenue of the company they happen to do
    business with, which typically is the only choice they have to
    get high-speed broadband. But the rules should apply to
    everybody.
        Mr. Nadler. Thank you. Now, some have alleged that
    President Obama directed the FCC to reclassify broadband
    providers under Title II. Some have alleged that White House
    staff had inappropriately ex parte communications with the FCC
    prior to the President's public call for reclassification and
    strong Open Internet rules.
        What is your response to these two?
        Mr. Wheeler. No, sir, there were no secret instructions
    from the White House as to what we should be doing.
        Mr. Nadler. And no improper ex parte communications?
        Mr. Wheeler. And no improper ex parte communications.
        Mr. Nadler. Thank you.
        Commissioner McSweeny, do you think it inconsistent that
    some of your fellow witnesses complain about the supposed
    uncertainty stemming from implementation of Internet conduct
    rules? That is, the rule prohibiting unreasonable interference
    or disadvantaging of users' Internet access or use of lawful
    content that is contained in the Open Internet order on the one
    hand, but then trumpet a piecemeal, case-by-case approach to
    protecting net neutrality using antitrust enforcement on the
    other?
        Ms. McSweeny. Well, Mr. Nadler, as a consumer protection
    and competition enforcer, I strongly believe in both the role
    of enforcers, but I also believe in the role of regulators.
    That is why I think it isn't really a choice that we need to
    make, that the most ideal outcome here would be to have both
    the FTC and, to the extent it is relevant, the Department of
    Justice undertaking their enforcement mission to protect
    consumers, and the FCC similarly using its authorities with an
    Open Internet rule to provide the same kind of protection.
        Mr. Nadler. Thank you. My time has expired.
        Mr. Goodlatte. The Chair thanks the gentleman.
        The Chair now recognizes the gentleman from Iowa, Mr. King,
    for 5 minutes.
        Mr. King. Thank you, Mr. Chairman.
        I thank the witnesses for your testimony.
        And I turn first to Mr. Pai. I am just wondering this. Let
    us just say that I have an Internet service provider, and he is
    doing all of these things that seem to be crossing some of the
    philosophy within the commission itself, and that would be
    slowing down some traffic and billing more for faster traffic,
    and some of those things.
        What are my alternatives, if I have a fiber-optic landline
    that maybe comes through a municipal service provider? What can
    I do under the proposal that you have, which is let us not
    change it. Let us leave it, actually, the way it was. What are
    my alternatives?
        Mr. Pai. Congressman, if any consumer is facing what they
    consider to be a consumer-unfriendly practice by their
    provider, they can always seek recourse from the Federal Trade
    Commission to the extent that there is anticompetitive conduct
    involved. The Department of Justice and Federal Trade
    Commission always have authority.
        But I would argue that the best tonic to those kinds of
    problems is competition. Ranking Member Conyers put his finger
    on the issue. If you have sufficient choices, the issues of net
    neutrality vanish because there is no incentive, no ability
    whatsoever, to engage in that kind of conduct. You can simply
    switch.
        And that is why Title II takes our eye off the ball by
    reducing competition, making it harder for smaller ISPs to
    enter the marketplace.
        Mr. King. Okay, so I might have one or two or more landline
    providers. I might have a satellite provider. I might have more
    than that. I have two or so satellite providers, and I could
    have a wireless provider. Is it possible that people out there
    have as many as five or six different options to choose from
    now if they are unhappy with the provider that they have?
        Mr. Pai. It is, and I think one of the reasons why the
    American Internet economy is the envy of the world, is because
    we do have a multiplicity of providers in a lot of areas.
    Companies are spending billions of dollars to acquire spectrum,
    to deploy infrastructure.
        What is needed now is for the FCC to remove some of the
    barriers to infrastructure investment, to essentially do what
    Google Fiber has done in Kansas City, but on a national level,
    to allow every American to benefit from the broadband
    revolution.
        Mr. King. Well, then who is this FCC rule trying to help?
    What is the object?
        Mr. Pai. I am not sure what the object is, but I can tell
    you what the result is. The results will be simply less
    competition for the benefit of the American consumer.
        Mr. King. Could this be spawned from the idea that ``it
    isn't fair'' idea? It isn't fair that some people have more
    money than others. It isn't fair that some people can pay for a
    faster service than others. It isn't fair that everybody can't
    ride in first class.
        Mr. Pai. One could very well make that argument.
        And if I could respectfully disagree with the Chairman in
    his characterization of how I view the marketplace, just to
    give you one example, Google is worth more than Comcast,
    Verizon, and T-Mobile combined, so it is not as if we are
    dealing only with scrappy edge providers working out of their
    garages.
        But, secondly, I think the reason why we see Wall Street
    and other people perhaps inflating the values of these dominant
    company stocks is precisely because they know that Title II
    regulation is going to squeeze a lot of these providers out of
    the marketplace. It is going to make it impossible for the
    wireless ISP, for the small cable company, for even the
    municipal broadband provider, to provide a competitive
    alternative.
        Mr. King. Let me try another thing here. I spent my life in
    the business world, and I would invest capital. And if the
    government came in to try to regulate that capital, I would
    invest it under the rules we had, but when the rules changed,
    then the value of my assets might be diminished if it is more
    difficult for me to extract profit out of those assets.
        So is there any discussion on the commission about the
    rights to property that are being regulated into a diminished
    state of competitiveness? Was that part of the discussion?
        Mr. Pai. I don't think that concern was addressed
    adequately. I think the fact that the rules are so broad and so
    vague makes it very unclear how people who are in the private
    sector who have to take that risk are going to be able to pull
    the trigger and make that investment decision.
        Mr. King. The expectation to be able to make a profit on
    your capital investment though, would it be your opinion that
    it is diminished with this rule?
        Mr. Pai. I think it is diminished, and the question of
    whether it rises to the level of a regulatory taking for
    constitutional purposes is something that a court will have to
    sort out.
        Mr. King. Commissioner McSweeny, you have heard this
    dialogue. Do you have any comments on what might be rights to
    property, and the opportunity to get a return on investment,
    the comments that we have had in exchange?
        Ms. McSweeny. Sure, I mean it is my understanding that the
    action the FCC is taking is based on an extensive record
    grounded in trying to protect the virtuous cycle of innovation
    that it assessed exists here.
        When innovators create content, people want more broadband.
    When they want more broadband, more broadband gets built.
        So I would suggest, from my perspective, the evidence I see
    in the marketplace is that mostly in America, two-thirds of
    Americans have a choice of one broadband provider, and they
    don't have a lot of competition on the local level for these
    kinds of services. Very often, they can also be locked into
    plans as well that have switching costs for them when they are
    making those choices.
        So I think the evidence the FCC is acting on here is to
    protect that virtuous cycle of innovation and competition, and
    that the evidence is relatively well-established by an
    exhaustive record that has even been acknowledged by the D.C.
    Circuit.
        Mr. King. Thank you, Commissioner.
        I thank the witnesses and yield back the balance of my
    time.
        Mr. Goodlatte. The Chair thanks the gentleman, and
    recognizes the gentleman from Michigan for a unanimous consent
    request.
        Mr. Conyers. Thank you. I have five letters, one of which
    is addressed to both of us, plus an article from The Hill, and
    I ask unanimous consent to enter them into the record, sir.
        Mr. Goodlatte. Without objection, they will be made a part
    of the record.**
    ---------------------------------------------------------------------------
        **Note: The submitted material is not printed in this hearing
    record but is on file with the Committee and can be accessed at:

          http://docs.house.gov/Committee/Calendar/
          ByEvent.aspx?EventID=103236.
        Mr. Goodlatte. And the Chair now recognizes the gentlewoman
    from California, Ms. Lofgren, for her questions.
        Ms. Lofgren. Thank you, Mr. Chairman.
        As you know, I represent Silicon Valley here in the
    Congress, and I will say that the level of excitement and
    gratitude, Commissioner Wheeler, over the decision made by the
    FCC is immense. I brought this paper because the San Jose
    Mercury News is kind of the newspaper of record. Here it is, 2
    days after the commission vote, ``GOP, Valley Unable to
    Click.'' There is a picture of our colleague, Kevin McCarthy,
    and, ``Republicans react harshly to tech line in the sand over
    protections for Internet.''
        I mean, other than SOPA, this is the biggest issue that has
    been before the tech community in a long, long time.
        In the article, one of the founders of TechNet said this,
    ``The GOP seems to think that Orwellian language is going to
    work on the world's smartest people. If you say net neutrality
    is government regulation, and if you think there is anyone in
    the Valley who thinks that is a true statement, you are already
    dead in the water. They would be better off just saying we
    disagree.''
        So I hope that this hearing is just more whistling in the
    wind, and I do believe that your very wise decision will
    prevail.
        I have a couple of questions. The first is just for my
    enjoyment. I remember when SOPA was discussed here, and we had
    about 10 million phone calls and emails in half a day. How many
    Americans contacted the FCC to ask you to do this net
    neutrality rule that you did?
        Mr. Wheeler. About 4 million people, Congresswoman.
        Ms. Lofgren. Very good. And has anything else generated
    that level of input recently?
        Mr. Wheeler. It even broke the record of Janet Jackson's
    wardrobe malfunction.
        Ms. Lofgren. Wow. You know, in terms of Title II, I am
    interested in competition. As has been pointed out by
    Commissioner McSweeny, there isn't any in most of the country,
    in terms of broadband access.
        How might your ruling actually help in the deployment of
    broadband? One of the issues that I am sort of intrigued by is
    that common carriers now have access to utility poles in ways
    that they did not before.
        Just for one example, Google Fiber was looking at
    deployment in my town, and people are very eager because it is
    like 10 times faster than any other provider, but a big
    constraint is tearing up the streets, and they don't have
    access to the poles. But now, maybe they do.
        Do you have an opinion on that?
        Mr. Wheeler. Thank you, Congresswoman.
        Yes, Commissioner Pai talked about pole attachments as an
    imaginary horrible. I think it is actually a leveling of the
    playing field and quite good news.
        I happened to be involved in the cable industry when the
    Congress in 1978 said, ``Hey, the telephone companies are
    keeping cable companies from getting on the poles, and we think
    cable companies ought to get on.'' As the cable companies then
    became dominant, they turned around and said, ``Oh, the law
    says only cable, and so Google and other competitors can't get
    on.'' What we have done here is to level the playing field on
    that.
        There is talk about that increasing rates. The reality is
    in our order we say, we are going to be watching, and if
    utilities start playing around with that, we are going to step
    in and it is not going to happen.
        The point that you made is really important, however, and
    that is that every day we are seeing major ISPs step forward
    and say, ``We are going to build new competitive high-speed
    broadband.'' It is not just Google that is out building.
        Ms. Lofgren. No, I wouldn't want it to be just them.
        Mr. Wheeler. Exactly, it is not just them. It is over-
    building each other, and that is what we want to have. And the
    reason they are doing it is because there is no rate
    regulation, and we haven't affected their ability to get a
    return.
        Ms. Lofgren. Let me ask you this, in terms of municipal
    providers, does your rule affect them or are you taking other
    steps to allow municipalities that want to provide broadband as
    a utility to step forward?
        Mr. Wheeler. Thank you. It does not specifically address
    them. In the same meeting, we did happen to rule on two
    petitions we had from Tennessee and North Carolina where
    municipal providers were asking us to preempt State laws that
    kept them from expanding.
        Ms. Lofgren. So there is some hope.
        Let me just do, finally, the FTC Act does relate to common
    carriers, and Commissioner McSweeny recognized that a lot of
    things you do, the free speech issues and the like, have
    nothing to do with what she does. What do you think about
    amending the FTC statute so that the common-carrier carve-out
    was either diminished or eliminated? Would that make any sense?
        Mr. Wheeler. Thank you, Congresswoman. I think that that is
    an idea that is definitely worthy of review. We have had great
    working relationships with the FTC. We work in tandem on many
    issues. As you point out, it is going to require legislation to
    resolve it.
        We are trying to take steps in the interim and make sure
    that we have an MOU that says, ``Here's how we are going to be
    working together.'' But I think the point you have raised is a
    very good one.
        Ms. Lofgren. Mr. Chairman, I would like to ask unanimous
    consent to place in the record, ``GOP, Valley Unable to
    Click.''
        Mr. Goodlatte. We would be happy to place that in the
    record.
        [The information referred to follows:]
        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                       __________

        Mr. Goodlatte. The Chair recognizes the gentleman from
    Texas, Mr. Poe, for 5 minutes.
        Mr. Poe. I thank the Chairman.
        I thank you all for being here.
        Mr. Pai, let me start with you, and I have the same
    questions for everybody, but let me see if I can get through
    all the questions. What country has the best Internet service?
        Mr. Pai. The United States.
        Mr. Poe. If we implement the rule that you all have agreed
    to, the statement has been made that the Europeans, who are our
    competitor, would be glad because it would diminish our quality
    down to their quality. Is that a fair statement or not?
        Mr. Pai. I do think the playing field will be leveled in
    the sense that America's broadband marketplace will become less
    competitive, and Europe is actively trying to get rid of some
    of their utility style regulation to make themselves more
    competitive.
        Mr. Poe. This 300-page regulation doesn't mention any
    specific examples of abuse. Is there a reason for that?
        Mr. Pai. I think the reason is because there is no
    industry-wide evidence of abuse. There are isolated examples
    from 8 years ago, from 10 years ago. But one would expect a
    broken Internet to offer up a plethora of current contemporary
    examples.
        Mr. Poe. This is implemented. How much is it going to cost,
    counting all the lawyers, all the regulators, all the people
    viewing the Internet? How much is this going to cost taxpayers?
        Mr. Pai. The answer is unknowable, and that is because the
    application of the rules, is unknowable. I think it is telling,
    for example, with respect to the Internet conduct standard,
    that the FCC on the very date it adopted this standard, said,
    and I quote, ``We don't know where things go next.'' The recipe
    for regulatory uncertainty is there to see.
        Mr. Poe. That is based upon the concept of the general
    conduct rule, is that what you are talking about?
        Mr. Pai. That is correct.
        Mr. Poe. Basically, if I quote the Chairman correctly, we
    don't know what that general conduct rule really means.
        Mr. Pai. I think that is exactly the problem innovators and
    entrepreneurs are going to face. We are essentially going to be
    funneling their entrepreneurial spirit through a regulatory
    bottleneck.
        Mr. Poe. Okay, general conduct rule--no, sir, I am asking
    questions. You will get your turn in a minute.
        The general conduct rule is meaning that, basically, the
    FCC is going to determine what is fair, as far as Internet
    service access. Is that a good word to use, what is fair?
        Mr. Pai. Essentially, that is the standard because the
    agency lays out seven vaguely worded standards, says it is
    nonexhaustive, doesn't give you any indication of how it is
    going to be applied, and explicitly tees up what appear to be
    pro-consumer options, such as T-Mobile's Music Freedom, that
    are on the chopping block.
        Mr. Poe. You know, fair means different things to different
    folks. I was a judge in Houston a long time, and I heard that
    word a lot. It meant different things to whoever you were
    asking the question about, whether something is fair. That
    troubles me in a report starting new regulations that we don't
    really--the government, God bless us, the government is going
    to decide what is fair. That concerns me, just as a comment.
        What countries have the greatest control over their
    Internet's system?
        Mr. Pai. Certainly, I think some countries like North
    Korea, Cuba, and countries like that I think exercise a fair
    degree of control.
        Mr. Poe. How about China? Do they control their Internet?
        Mr. Pai. They do, and they actively block a lot of
    applications and services.
        Mr. Poe. Do the Russians? Does tsar Putin control his
    Internet? I am sorry, President Putin, control the Internet in
    Russia?
        Mr. Pai. I have heard instances of the Russian Government.
        Mr. Poe. Do they control who has access to the Internet?
        Mr. Pai. I am not clear to what extent.
        Mr. Poe. If you know.
        Mr. Pai. On that particular question, I am not sure.
        Mr. Poe. Will Internet speed, for those of us who use the
    Internet, will it increase or will it decrease if the FCC
    implements this 300-page rule?
        Mr. Pai. I believe it will decrease.
        Mr. Poe. Why?
        Mr. Pai. Because it will dis-incentivize companies from
    making the major investment decisions they have to make. It
    will impede them from deploying the infrastructure that carries
    some of this high bandwidth traffic, and especially to the
    extent that consumers are using bandwidth-hungry applications,
    it is going to make it more difficult for those applications to
    be delivered.
        Mr. Poe. FCC doesn't control content of Internet, does it
    not?
        Mr. Pai. It does not, thankfully.
        Mr. Poe. I agree with that. Thankfully, it does not.
        It concerns me that we may get to a point where the FCC
    decides in the name of fairness to control content, which I
    think is a constitutional violation.
        Let me ask you this, does a rule that is implemented and
    proposed, how do we get there? I see there is a conflict in
    statements. Were you told, or the commission told by the
    Administration, impose this, let FCC control net neutrality.
        Mr. Pai. Well, I think the President's statement on
    November 10, if you go to the White House Web site, it says,
    ``This is my plan, and I am asking the FCC to implement it.''
    That is a pretty direct statement.
        Mr. Poe. Was that before or after you implemented the plan?
        Mr. Pai. That was before we implemented the plan, but well
    after we adopted the proposal in May of 2014.
        Mr. Poe. I have the same question for the other three, and
    I will put these in writing so you all can answer them in
    writing.
        You think the plan will diminish competition? Is that what
    you said?
        Mr. Pai. I do.
        Mr. Poe. Okay. Thank you, Mr. Chairman, for your patience.
    I will have the same questions, if I may, for the other three
    in writing.
        Mr. Goodlatte. We will ask that they respond to them in
    writing.
        The Chair now recognizes the gentlewoman from Texas, Ms.
    Jackson Lee, for 5 minutes.
        Ms. Jackson Lee. Mr. Chairman, thank you, to the Ranking
    Member as well.
        It looks like a journey that we travelled some years ago.
    If you are on this Committee long enough, you will see some
    circular returns as we looked at dealing with some other, if
    you will, communication entities on another journey that we
    took some years ago dealing with how we would best serve the
    American public.
        Frankly, to the witnesses, I believe that this is what this
    discussion is about. They are our bosses, and this is about
    serving the American public.
        So I would like to ask Chairman Wheeler and Ms. McSweeny to
    help me walk through this journey. I am looking at some
    questions that I asked. We are trying to track the date, either
    2010 or 2011, and I assume it is public record. I can say that
    it was a witness by the name of Ms. Sohn, and we went through a
    journey dealing with issues of competition and what would best
    suit the consumer. The last answer indicated it would be
    anticompetitive.
        So, Chairman Wheeler, let me ask you the question, on net
    neutrality, where would it be on the scale of competitiveness
    or anticompetitiveness?
        Mr. Wheeler. Thank you, Congresswoman. It is a
    procompetitive activity, and at its core is the fact that it is
    not old-style utility regulation. It does not regulate rates,
    does not have tariffs, does not have unbundling.
        Let me give you a couple of examples of that. Here's a Wall
    Street analyst's report. He says, we think the path to retail
    rate regulation is so difficult that it is close to
    inconceivable.
        Now people keep talking about these imaginary horribles
    about there could be rate regulation in these unique
    circumstances.
        Ms. Jackson Lee. If I may stop you for a moment, I am going
    to let you finish. So in essence, net neutrality could provide
    a profit on both ends, those who access it and those who own
    the highway? Am I correct?
        Mr. Wheeler. Thank you for putting it that way. Yes, ma'am,
    because the goal here is how do we make sure that we have
    consumer protections and protections for those innovators in
    place and, at the same point in time, create incentives for the
    build-out of capacity and the competitive build-out for
    capacity.
        If you look at what is been going on, as I was saying
    before, when people knew that we were headed toward Title II,
    they are still building. The stocks are up. The analysts are
    saying there is not going to be these things pulling back.
        There was huge bidding in the AWS-3 spectrum auction,
    setting all kinds of records, about three times what we
    expected we would make, despite the fact that people knew they
    were going to be covered under Title II of the act.
        So, yes, this has been designed to make sure that carriers
    are allowed to charge the rates they need to justify the
    investment to build competitive and ever-faster broadband.
        Ms. Jackson Lee. But all those who have modeled their life,
    maybe the new Millennials, maybe the Generation X and beyond,
    after the likes of founders of the various techs that are out
    in California, per se, or in Austin, Texas, they all still have
    an opportunity. They can wake up one morning in a college dorm
    and have a brilliant idea and pursue it under this net
    neutrality.
        If I might get Ms. McSweeny, and I would like to come back
    to you, Chairman, in my short time.
        Commissioner McSweeny, if you would, answer the same
    question about competitiveness. But I then want both of you to
    follow up on the idea of how this differs from the garden
    variety enforcement of utilities. People are fearful that we
    are going to pounce down on them in an opposite way, which is
    net neutrality. They won't have any assistance from us.
        But, if you could, on the idea of competitiveness, very
    important. Consumers having access. The highway being in top
    shape.
        Ms. McSweeny. Yes, Congresswoman, and to your point, also
    the innovators. I would say it is virtuous on both ends of that
    cycle. So the edge providers, those students you referred to in
    Austin that have this great idea, having clear rules that
    provide them access is very important to making sure that that
    innovation pipeline remains open and available to people.
        So yes, I would say that that is part of why this Open
    Internet order is very important to maintaining the Open
    Internet.
        Ms. Jackson Lee. Commissioner Chairman, did you want to
    just get back on enforcement?
        Mr. Wheeler. There are 48 sections of Title II, and we have
    forborne from 27 of those, saying those are the old rules,
    those are what you did in the monopoly era, those are what you
    did when you were treating this as a utility. We have patterned
    it on the model that has worked so well for the last 22 years
    for the wireless industry.
        Interestingly enough, the wireless industry asked to be
    regulated under Title II, and to have old rules forborne, and
    the commission forbeared, forborne--whatever the word is--from
    19 of the sections. We did it for 27 sections, so we are
    actually 50 percent more deregulatory than the wireless
    industry has had for the last 22 years and been wildly
    successful.
        Mr. Goodlatte. Time of the gentlewoman has expired.
        Ms. Jackson Lee. Thank you, Chairman. Thank you.
        Mr. Goodlatte. The gentleman from Pennsylvania, Mr. Marino,
    is recognized for 5 minutes.
        Mr. Marino. Thank you, Chairman.
        Welcome, panel members.
        Commissioner Wright, it appears that the FCC's Open
    Internet order will prohibit smaller rival companies to compete
    with large companies. What say you about that?
        Mr. Wright. I think Commissioner Pai articulated this
    concern in a way that is consistent with my understanding a
    little bit earlier. I think he is correct that there is
    substantial risk that raising the cost of smaller rivals to
    compete, and thus entrenching existing monopoly power to this
    extent, is a real concern to be worried about under this order.
        Mr. Marino. The way I understand antitrust laws is they
    protect one's ability for free competition. Is that the main
    idea behind antitrust law?
        Mr. Wright. Yes.
        Mr. Marino. The FCC, again, Mr. Wright, the FCC has asserts
    that it can protect consumers and their privacy. Yet the FTC,
    and not the FCC, has a longstanding history of prosecuting this
    type of conduct. How many cases has the FTC prosecuted?
        Mr. Wright. If we are talking about both consumer
    protection cases in this space as well, I don't have an exact
    number, but we have been around prosecuting these cases for a
    long time.
        Mr. Marino. Do you know how many the FCC has pursued?
        Mr. Wright. I do not.
        Mr. Marino. Okay.
        Ms. McSweeny, do you know how many the FCC has pursued?
        Ms. McSweeny. No, sir, I don't.
        Mr. Marino. Okay. Well, my research shows me that the FCC
    has pursued two.
        Commissioner Pai, what do you have to say about the FCC's
    ability and experience with consumer privacy investigations and
    litigation, relative to the FTC?
        Mr. Pai. Congressman, that is a great question. Thank you
    for it.
        Our experience, as you pointed out in your colloquy with
    our FTC counterparts, is extremely limited because the FCC,
    until reclassification, simply didn't have that much authority
    in this space, in the broadband space.
        Mr. Marino. Mr. Pai, again, what happens with the fines,
    the money, that the FCC collects? Do you know what happens with
    that money, where it goes?
        Mr. Pai. My understanding is that those fines are deposited
    in the United States Treasury.
        Mr. Marino. What happens with the fines and the money that
    the FTC collects?
        Mr. Pai. I would defer to my FTC colleagues on that.
        Mr. Wright. They go back to consumers.
        Mr. Marino. Okay. Do we all agree that--and if you don't
    agree, raise your hand--that that money should be going back to
    the consumers and not into the Treasury?
        You don't agree, Chairman?
        Mr. Wheeler. I think that the answer to the FTC question is
    that it is both, and we have participated in some recent
    settlements with the FTC that have just done that. Some
    actually also goes back to States because we have done it
    collectively.
        Mr. Marino. Are you saying the FCC money goes to States and
    consumers? The FCC money, not the FTC.
        Mr. Wheeler. No, I am saying the FTC, we work together with
    the FTC, and in things that we have done together, it has been
    States, Federal Government, and consumers.
        Mr. Marino. But they have been initiated by the FTC, not
    the FCC. If you have a fine, where does it go? If the FCC has a
    fine----
        Mr. Wheeler. No, ours go to the Treasury.
        Mr. Marino. Okay, I think it is better off going back to
    the consumer, my personal opinion.
        Mr. Wheeler. Sir, could I correct one thing on the privacy
    question?
        Mr. Marino. Quickly, because I don't have much time.
        Mr. Wheeler. I think the two privacy actions you were
    talking about are in the last 6 months. We have had decades of
    CPNI, Customer Proprietary Network Information, rules and
    enforcement against that to protect what people watch, what
    people dial.
        Mr. Marino. Sir, I understand where you are going with
    that, but that is complete and distinct from the prosecution
    end of things. I am a prosecutor. I know these things. I have
    done these things. That is distinct of that.
        Mr. Wheeler. It is more than two. Those are the basics.
        Mr. Marino. Ms. McSweeny, for decades the FTC has used
    antitrust laws to protect against anticompetitive actions in a
    wide range of industries. Do you agree with me on that?
        Ms. McSweeny. Yes, sir.
        Mr. Marino. Why do you believe, or perhaps you don't
    believe, the FTC is ill-equipped to prosecute anticompetitive
    conduct on the Internet?
        Ms. McSweeny. Sir, I believe the FTC is well-equipped to
    prosecute it. My point is that I think consumers are better
    off, and entrepreneurs are better off, when there are clear
    rules in the Open Internet order, and also the FTC on the beat
    to protect consumers and to protect competition.
        Mr. Marino. Yes, but why do we need two forms of government
    for doing something like this? The government is big enough at
    this point. We don't need duplicative services.
        I am colorblind, sir. Has my time run out?
        Mr. Goodlatte. We will allow the witness to answer your
    question.
        Mr. Marino. Yes, please.
        Ms. McSweeny. Thank you.
        I mean, I would say that you are correctly pointing out
    that there are slightly different tools in the FTC toolbox than
    there are in the FCC toolbox. From my perspective as a Federal
    Trade Commissioner, I think the FTC tools are providing
    consumer redress, and the fact that we are not limited by a 1-
    year statute of limitation, are very good tools for protecting
    consumers, which is why support repealing the common carrier
    exemption in the Federal Trade Commission Act.
        Mr. Marino. Thank you.
        Mr. Goodlatte. It would be a good question how that matches
    up with the Supreme Court's decision in the Trinko case, but we
    will now recognize the gentleman from Georgia for his
    questioning.
        Mr. Johnson. Thank you, Mr. Chairman.
        Commissioner Pai, you do agree that open debate is healthy
    and that elected leaders should take sides on important issues
    so that voters can hold them accountable?
        Mr. Pai. Absolutely.
        Mr. Johnson. And public statements by the White House on
    the important subject of net neutrality were appropriate, were
    they not?
        Mr. Pai. I think that any citizen of the United States can
    weigh in, and the President is a citizen of the United States,
    like any other.
        Mr. Johnson. In fact, it was his comments that contributed
    to the more than 4 million public comments that were ginned up,
    and that the FCC was able to peruse and consider in its
    rulemaking process. Isn't that correct?
        Mr. Pai. Well, the President's comments postdated the bulk
    of those comments. The agency was considering a very different
    proposal when the President made his announcement on November
    10.
        Mr. Johnson. Well, my question was, though, that his
    comments contributed to the volume of in excess of 4 million
    comments that were actually received by the agency in the
    rulemaking process. Isn't that correct?
        Mr. Pai. My understanding is the vast majority of the
    comments came before the President's announcement.
        Mr. Johnson. Well, there were some though. Come on, give
    the President some credit. Can't you do that? And if you can't,
    I understand.
        Well, now, it is a fact that under the past four
    Administrations, both Republican and Democratic presidents,
    that they have publicly participated in the FCC rulemaking
    process. Isn't that a fact?
        Mr. Pai. I am not aware of anything on the level of the
    November 10 announcement.
        Mr. Johnson. Well, let me ask Chairman Wheeler, are you
    aware of that, sir?
        Mr. Wheeler. Yes, sir.
        Mr. Johnson. Certainly, there is nothing wrong with that,
    is there, Mr. Pai?
        Mr. Pai. Well, I think the concern comes when the agency is
    proposing X and the President instructs the agency to do Y and
    the agency does Y. I think that is a concern.
        Mr. Johnson. Well, you are kind of getting warm a little
    bit now.
        So the President publicly commented, which you say it is
    okay, he should do as a public official, and that actually
    helped to gin up more public comment, and others have done it
    in the past, other Presidents have done it in the past.
        Now, FCC rules, there are some exemptions that allow for ex
    parte communications between the FCC and other Federal agencies
    during the rulemaking process. That is correct, isn't it?
        Mr. Pai. That is correct, sir.
        Mr. Johnson. And the White House is also exempted.
        Mr. Pai. I can't recall whether the exemption covers other
    Cabinet departments, or whether it also includes the White
    House, the Executive Office of the President, but there is an
    avenue for White House participation.
        Mr. Johnson. Let me ask you this question, you have no
    evidence to refute the assertion that Chairman Wheeler made
    during this hearing that there had been no ex parte
    communications between the FCC and the White House on this
    particular issue during the rulemaking process. Is that
    correct?
        Mr. Pai. I have no personal knowledge of any consultations.
        Mr. Wheeler. Mr. Johnson, if I can do one clarification,
    there was an ex parte when Jeff Zients, an adviser to the
    President, came to see me to say the President was going to
    have an announcement and take a position. There was an ex parte
    filed on that.
        Mr. Johnson. I see, okay.
        Well, other than that, Mr. Pai, do you know of any evidence
    that supports the Republican charge or allegation that the
    President strong-armed the FCC in some way to issue the order
    that we are concerned with here today? Do you have any
    information or any evidence that you can share with us?
        Mr. Pai. Congressman, I know various congressional
    Committees are looking at that. I am solely looking at what the
    President actually said publicly.
        Mr. Johnson. You don't know of any evidence that the
    President has exerted any undue influence on the decision-
    making process. Is that correct?
        Mr. Pai. Other than the public statements that the
    President made, I am not aware of any.
        Mr. Johnson. Which was something that Presidents do, and it
    was entirely proper, I think you have already stated.
        Mr. Pai. Well, Congressman, as a former staffer under
    Republican and Democratic administrations, I cherish the
    agency's independence, and my concern comes when a political
    actor of any party instructs the agency as to what to do and
    even the legal theory that it is supposed to use.
        Mr. Johnson. Well, sir, you can't have it both ways, now.
        Mr. Goodlatte. Time of the gentleman has expired.
        The Chair recognizes gentleman from Georgia, Mr. Collins,
    for his questions.
        Mr. Collins. Thank you, Mr. Chairman. I appreciate it.
        Chairman Wheeler, thanks to you and the rest of this panel
    today. I appreciate you coming forward and discussing this
    reclassification on the commercial Internet as Title II, but I
    think even in light of the last questioning and line of
    questioning, and I want to go over a timeline, which I think
    may put this in perspective, because I have always operated off
    the perception in life, and I think it is true, that perception
    is reality. And that may not be the truth, but perception is
    reality, and it clouds most of what we do.
        So then going over the timeline, Mr. Wheeler, you had
    stated on February 19 in 2014 in response to the D.C. Court of
    Appeals ruling of Verizon v. FCC rejecting your assumption of
    authority to regulate the Internet, the FCC would accept the
    D.C. Court's invitation by proposing rules that will meet the
    court's test for preventing improper blocking of and
    discrimination among Internet traffic.
        Nearly 2 months later, you formally proposed the Chairman's
    draft of proposed rulemaking to your fellow commissioners.
    Notably, this draft did not propose to reclassify broadband
    under Title II.
        Then on May 14, 2014, the FCC's NPRM containing
    consideration of Title II reclassification passed by vote of 3-
    to-2.
        In the months that followed, things got really interesting.
    On November 10, 2014, President Obama publicly stated what he
    believed the FCC and independent agencies should do: reclassify
    consumer broadband under Title II of the Telecommunications
    Act.
        The day after the FCC vote, President Obama sent a thank
    you note to Reddit users for their advocacy for Title II
    reclassification. And the next day, Politico reported that DNC
    sent out an email stating the FCC approved President Obama's
    plan.
        As an independent agency--again, perception takes hold--you
    are under the highest scrutiny to act in a manner completely
    free from political influence and executive branch pressure. I
    am very concerned that this has been a failure.
        Legally, it appears the executive branch may have
    legislated de facto through your agency and is now implementing
    its policy, and you have allowed the credibility of the agency
    to suffer because of it.
        When the many lawsuits come, and I do not believe you will
    enjoy the presumption of the Chevron defense, and ultimately
    your flawed theory justifying this expansion will be struck
    down rightly.
        In the Utility Air Regulatory Group v. EPA, the Court made
    it clear that an agency must be grounded in the statute, which
    I do not believe you are, and the agency has no power to tailor
    legislation to bureaucratic policy goals to regulating ways
    unrecognizable to Congress that designed it, which in this case
    I believe you truly are.
        Now, Mr. Wheeler, I don't know if you want to be a Member
    of Congress. It is not a fun process to get here. But if that
    is what you want to do, then you know, find your application,
    run, spend a million, let your world know who you are, and come
    on and join us and legislate, because one of the things that
    you said earlier was that Congress, several legislators have
    put forward ideas in legislation to deal with this.
        Again, many of us do believe there is an Article I issue
    here, and that your role has been overstepped in this by doing
    what you are doing. You have applied the most antiquated
    regulatory framework to an area where innovation and growth
    have thrived. We cannot regulate our way to better innovation
    here. And we also can't do that by circumventing Congress to do
    so.
        So in light of that, let me go to Mr. Pai.
        Mr. Wheeler, if you want to jump in, that is fine. We don't
    have a lot of time.
        Basically, the order touts the FCC's substantial experience
    over the past decade on last-mile issues, but admits that the
    agency lacks similar depth in the Internet traffic exchange.
    The net neutrality order represents--and I am skipping here
    just a second--but, the net neutrality order represents a
    massive expansion of the commission's role and is a precursor
    to a larger, more costly bureaucracy overseeing and regulating
    Internet from the top to bottom.
        I want to know a comment how this monster that you have
    unleashed is going to be kept in check.
        Mr. Pai, and then just briefly Mr. Wheeler.
        Mr. Pai. Congressman, there is no question that before
    February 26, the FCC did not exert jurisdiction over Internet
    interconnection. After February 26, it does.
        Before February 26, the FCC didn't purport to have
    jurisdiction over such things as wireless service plans. After
    February 26, it does.
        Before February 26, the FCC had no arguable role in rate
    regulation. After February 26, there is ex post rate
    regulation, as we agreed last week.
        Mr. Collins. Mr. Wheeler, just a question here, do you all
    have a lot of free time over at the FCC? I mean, a lot of free
    people sitting around doing nothing to take on such an
    expansion?
        Mr. Wheeler. Congressman, thank you for the question.
        In 1996, the Congress changed the rules and said we want
    you to look both in terms of telecommunication services and
    information services. A telecommunication service is defined as
    a service that hauls an information service. When the
    commission first looked at the question of were these ISPs
    telecommunication services or information services, it was an
    entirely different world back in 2002.
        Mr. Collins. I am going to stop right there. I am going to
    reclaim my time for a second, because I think that is the heart
    of what we are dealing with here, is what was dealt with at
    that time, that is a congressional decision. That is something
    that should be debated in the halls of Congress, not in an
    executive agency.
        Mr. Wheeler. I am sorry, I wasn't making myself clear. I am
    sorry.
        Mr. Collins. I think that is the whole problem with this.
    It is not clear.
        Mr. Wheeler. Congress said to us to make the decision about
    whether it is a telecommunication service or an information
    service. In 2002, there were about a million Web sites, and
    what ISPs were doing was providing information services. Today,
    there are 1.25 billion Web sites, and what ISPs are doing is
    hauling traffic, not providing information services.
        So what we were doing was saying Congress said to us,
    ``These are the rules you should look at,'' and we looked at
    that, and we saw that in the intervening time, the activities
    of those regulated had changed substantially from one class to
    the other.
        Mr. Goodlatte. Time of the gentleman has expired.
        Mr. Collins. I yield back.
        Mr. Johnson. Mr. Chairman, I have a unanimous consent
    request.
        Mr. Goodlatte. Gentleman will state his unanimous consent
    request.
        Mr. Johnson. To insert an op-ed entitled, ``Why Presidents
    Advise the FCC'' by Harold Feld and Kate Forscey; another
    publication entitled, ``It Is Common and Legal Practice for the
    President to Weigh In on FCC Policymaking'' by Public
    Knowledge; and last, an article published by the Washington
    Post entitled, ``Will the FCC's Net Neutrality Decision Cost
    Americans $15 Billion in New Taxes? Nope,'' for the record.
        Mr. Goodlatte. Without objection, they will be made a part
    of the record, and I am sure they will be excellent reading.
        [The information referred to follows:]

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        Mr. Johnson. Thank you.
        Mr. Goodlatte. The Chair recognizes the gentlewoman from
    California, Ms. Chu.
        Ms. Chu. Commissioner McSweeny, you state in your testimony
    that the FCC considers noneconomic values that are not
    generally protected by antitrust laws. These values include
    free expression, diversity of political discourse, and cultural
    development, and antitrust actions take into account economic
    considerations.
        To what extent, if any, would antitrust actions taken by
    the FTC be able to take these factors into consideration?
        Ms. McSweeny. I think you are correctly pointing out that
    the FCC proceeding does balance some of these noneconomic
    values and that generally antitrust law isn't the right
    framework in which to protect those. Antitrust law is quite
    correctly grounded on very rigorous analysis of harm to
    competition, and that is its primary focus.
        Ms. Chu. Chairman Wheeler, when it comes to noneconomic
    values, the FCC is obligated to abide by national policy goals
    such as the goal that requires the FCC to seek to promote the
    policies and purposes of favoring diversity of media voices,
    vigorous economic competition, technological advancement,
    promotion of the public interest, convenience, and necessity.
    So basically, you have an obligation to promote diversity and
    competition in your regulations.
        Can you describe this obligation, how it applies in this
    order, and why it matters?
        Mr. Wheeler. Thank you, Congresswoman. I think that you
    have just identified the key issue that, and again, I want to
    emphasize, we work in tandem with the FTC; we should work in
    tandem with the FTC. It is a great one-two punch.
        Their job is statutorily defined with one set of criteria,
    and our job is statutorily defined with another. Then what we
    have the statutory authority, mandate, to do, is to create
    regulations that address the kind of issues you talked about in
    terms of how you expand and protect the public interest,
    convenience, and necessity.
        That is a big difference between us and the FTC, that we
    have this kind of regulatory authority on that kind of a set of
    standards to pass regulations that will govern how markets work
    different from the way the FTC has.
        Ms. Chu. Now I would like to ask you about innovation. One
    of our key goals is to ensure that new entrepreneurs are able
    to thrive and innovate. You state that there would have been no
    AOL without the FCC's openness mandate.
        Can you describe how enabling access for modems contributed
    to the growth of an entity like AOL?
        Mr. Wheeler. Thank you, Congresswoman.
        AOL was made possible by the fact that there were such
    things as commercially available modems. Remember the old Hayes
    modems that would squeak and screech at you?
        Before the FCC stepped in, AT&T said you couldn't attach
    something like that to the lines. It was a foreign attachment.
    An alien attachment, it was called. If that had been the case,
    Steve Case wouldn't have been able to go out and build his
    business.
        Openness is at the core of what built the Internet. And
    what we need to make sure continues is that that kind of
    openness is available for innovators who have an idea to reach
    their potential customers.
        If Steve Case had had to go around and go to Dayton, and
    then go to Poughkeepsie, and then go to Minneapolis, and one
    step at a time, say, ``Can I get on your network? Can I get on
    your network? Can I get on your network?'' it never would have
    been possible. But because there is openness, the innovators of
    today don't have to do that. The two guys and a dog in a garage
    tomorrow can be online and have 100,000, and a week later have
    a million people. And I have seen those businesses develop that
    way.
        When I was a venture capitalist for 10 years before coming
    to this job, I was involved in those. We would not have been
    able to invest money and create jobs had we not known that
    there was the opportunity for open access, that these
    innovators could take their idea out and test it in the
    marketplace, rather than have to go carrier to carrier knocking
    on doors and say, ``May I please get on your network?'' That is
    what is powerful about this.
        Ms. Chu. It seems as though Open Internet actions were
    taken under both Republican- and Democratic-led commissions.
        Can you give a prime example?
        Mr. Wheeler. Yes, ma'am. As I indicated before, there was
    what the Republican-led commission did insofar as the wireless
    industry is concerned, when the big wireless carriers said that
    they were going to shut out the customers of the small wireless
    carriers, and the commission came in and said, ``No, under
    Title II, you have to be open to roaming.''
        There was a situation where under a Republican
    administration, the commission said to Comcast, ``No, you may
    not disadvantage this service provider. You must provide
    service.'' I think that we are continuing that tradition.
        Ms. Chu. Thank you.
        I yield back.
        Mr. Goodlatte. The Chair thanks the gentlewoman.
        Recognizes the gentleman from Texas, Mr. Gohmert, for his
    questions.
        Mr. Gohmert. Thank you, Mr. Chairman. Thank you to the
    witnesses. Appreciate you being here.
        Mr. Wheeler, a Wall Street Journal on article February 4
    says about you that you wanted to leave some room for broadband
    providers to explore new business models. Is that correct?
        Mr. Wheeler. I am not sure the article you are talking
    about, but one of the key precepts that we have been working on
    is how do we make sure that broadband providers have the
    initiative to be creative and the initiative to invest.
        Mr. Gohmert. So you do want to leave some room for
    broadband providers to explore different business models,
    correct?
        Mr. Wheeler. Yes, sir. And we have also explicitly said
    that we do not cover what have been traditionally called
    specialized services or managed services. It was interesting to
    note that the Verizon CFO, about a week ago, said Verizon's
    growth opportunities are going to be in over-the-top services,
    and Internet of Things services, both of which it appears they
    are going to offer on their specialized services.
        Mr. Gohmert. We can find out those things from Verizon, but
    I was wanting to ask you directly about things that you
    specifically could answer from your own experience and
    knowledge.
        There was a court ruling in January 2014 that threw out the
    prior effort to control the rules to control the Internet. What
    makes the new rules more able to withstand court challenge,
    Commissioner Wheeler?
        Mr. Wheeler. Thank you for asking that question,
    Congressman.
        The basis of the court's decision was that we had imposed
    common carrier regulation on the ISPs without classifying them
    as common carriers. The heart of this decision is that, in
    fact, we did classify them as common carriers, thereby
    addressing the principle issue in the Verizon decision.
        Mr. Gohmert. Okay. So different facts, you just used
    different words to describe it, is the way it sounds.
        But I heard you just say Congress asked us to look at the
    rules. What from Congress asked the FCC to look at rules
    regarding the Internet?
        Mr. Wheeler. The 1996 Telecommunications Act.
        Mr. Gohmert. Oh, so it was recent. That was 19 years ago.
    You seized on that to say Congress was asking you to look at
    the Internet, 19 years later.
        Well, I would submit to you that something in 1996 had
    nothing to do with wanting you to take charge of the Internet.
        And I would also thank you for your willingness to leave
    some room for exploratory business models and new business
    models. That is really so gracious of you, because before the
    FCC stepped in, everybody was able to explore new business
    models. The only difference is now you are playing God with the
    Internet saying, ``I will decide. We will leave some room for
    you to come up with new business models.''
        That is not your job. The court said that in January 2014,
    and you can change the wording around, but it doesn't change
    the facts. And Congress is not asking you, was not asking you,
    to take over the Internet.
        I want to make that clear. You find something in the last 4
    years where Congress has passed it by elected officials of this
    country, and said, ``Please take over the Internet,'' then that
    would be good evidence before this Committee.
        But until that happens, some of us--most of us in the House
    and most of us in the Senate do not want you to decide who gets
    to develop a new business model and who cannot.
        I yield back my time. Thank you.
        Mr. Goodlatte. The Chair thanks the gentleman.
        Recognizes the gentleman from Florida, Mr. Deutch, for his
    questions.
        Mr. Deutch. Thank you, Chairman Goodlatte, and Ranking
    Member Conyers.
        Thank you to the witnesses for coming and subjecting
    yourselves to what we are providing.
        At Rice University in 1962, President Kennedy asked the
    American people to envision the progress of the first 50,000
    years of human history as if it took place in 50 years. And I
    quote, ``Stated in these terms,'' President Kennedy said, ``we
    know very little about the first 40 years. Only 5 years ago,
    man learned to write and use a cart with wheels. Christianity
    began less than 2 years ago. The printing press came this year.
    And less than 2 months ago, during this whole 50-year span of
    human history, the steam engine provided a new source of power.
    Last month, electric lights and telephones and automobiles and
    airplanes became available. Only last week did we develop
    penicillin and television and nuclear power. And now, if
    America's new spacecraft succeeds in reaching Venus, we will
    have literally reached the stars before midnight tonight.''
        Surely, if President Kennedy were with us today, he would
    count the transformative power of the Internet as the start of
    a brand new day in the history of human progress. By his
    measure, in the matter of seconds, we have gone from a clunky
    desktop dial-up to lightning fast data at our fingertips and in
    our pockets.
        From Google searches and PayPal transactions to Netflix
    shows and Facebook friends, I think we can all agree that the
    Internet has proven to be a platform capable of transforming
    every facet of our culture, our economy, and everyday life.
        I think we can also agree that when it comes to regulatory
    or legislative changes to how we govern the Internet, our
    guiding principle must be to preserve it as a platform for
    progress and innovation. For many years, that guiding principle
    has been net neutrality, the principle that consumers and
    businesses can use the bandwidth that they pay for however they
    choose.
        Mr. Chairman, protecting that freedom is a concern that
    transcends partisan boundaries. How do I know this? Because of
    the hundreds and hundreds of calls that we have received from
    constituents in recent months in support or net neutrality,
    they are not calling as Republicans or Democrats. They are
    small startups working on the next great social network. They
    are aspiring stars who are singing their hearts out on YouTube.
    They are professors collaborating with academics around the
    world on medical research. And they are seniors Face Timing
    with their grandchildren across the country.
        I know that is true because, in my district, I have a lot
    of those.
        They are Americans who don't want interference on the
    Internet, whether it comes from overly rigid regulations
    imposed by government, or anticompetitive agreements struck
    between corporations. And we can't blame them.
        I am glad the debate between consumers and academics and
    businesses and cutting-edge telecom companies has moved past
    whether or not net neutrality is a good thing. The question
    that remains involves how we enforce that widely supported
    principle.
        And to their credit, in the past decade or so, the FCC has
    attempted to enforce net neutrality using the lightest hand
    possible. Yet those strategies were slapped down by the courts.
        Like many of my colleagues, I have some questions about how
    the Title II reclassification ruling, recently announced by the
    FCC, will play out in practice. How can we ensure that new
    regulations keep up with the rapid pace of advancements on the
    Internet? How can we work to promote affordability for
    consumers and bring connections to underserved areas? How can
    we encourage investment in new infrastructure?
        These are the kind of questions, Mr. Chairman, that this
    Committee ought to be focused on in the coming weeks and
    months. Instead, I fear that some of my colleagues in the
    majority are more concerned with turning net neutrality, an
    issue of longstanding bipartisan support, into another wedge
    issue for which to attack the President.
        That being said, we don't have to treat Title II
    classification as the be-all and end-all solution to every
    issue regarding the Internet.
        I look forward, Mr. Chairman, to digging deeper into the
    many issues that impact the regulation of the Internet, from
    common carrier classification to our antitrust framework.
        Mr. Chairman, the space program created by President
    Kennedy may have aimed for the moon, but it yielded
    technological discoveries touching our lives in so many ways,
    and even contributed to the development and adoption of the
    Internet.
        Today, cyberspace remains a great frontier for discovery
    for all, and we must work to ensure the Internet's power as a
    platform for innovation accessible by all continues to thrive.
    That is why this hearing is so important.
        Chairman Wheeler, just two quick questions. Number one,
    does your action set rates and prices and regulate content? And
    number two, how will leveling the playing field for innovators
    and startups be good for my constituents?
        Mr. Wheeler. Thank you, Congressman. No, we specifically
    forbear from rate regulation, tariffing, unbundling, and the
    traditional components.
        Let me pick up on your----
        Mr. Goodlatte. Time of the gentleman has expired.
        The gentlewoman from Texas has a unanimous consent request.
        Ms. Jackson Lee. Yes, Mr. Chairman. I ask unanimous consent
    to put into the record a letter dated January 29, 2015, for
    about four pages of signatures from law professors from as far
    away as New York Law School and the University of South Dakota
    School of law. I ask unanimous consent to place this in the
    record.
        Mr. Goodlatte. Without objection, that will be made a part
    of the record.
        Ms. Jackson Lee. And I ask unanimous consent, Mr. Chairman,
    to put into the record testimony on pages 148 to 150--148, 149,
    150--from a hearing that we held on February 15, 2011, and
    questioning on the issue of competition. I ask unanimous
    consent.
        Mr. Goodlatte. Without objection, that will be made a part
    of the record.
        [The information referred to follows:]
        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                       __________

                    Excerpt from February 15, 2011 hearing.
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                   __________
        Mr. Goodlatte. We have Members who wish to ask questions,
    and we have a vote on the floor, so with the forbearance of our
    witnesses, we would ask, if you are able to remain, please do
    so. And we will return and resume the hearing as soon as these
    votes are completed.
        Committee will stand in recess.
        [Recess.]
        Mr. Marino [presiding]. The Chair now recognizes the
    gentlewoman from Washington, Congresswoman DelBene.
        Ms. DelBene. Thank you, Mr. Chair.
        Mr. Marino. From the State of Washington.
        Ms. DelBene. From the great State of Washington.
        Mr. Marino. The great State of Washington.
        Ms. DelBene. Thanks, everyone, for being here with us
    today. This is an incredibly important issue to make sure we do
    everything possible to maintain an Open Internet.
        As someone who has worked in technology, my background is a
    businesswoman and entrepreneur. I have definitely seen
    firsthand how we have had an evolution in how we connect and do
    business, and how that has completely transformed the way the
    world works, and how critical the Internet is now to everyday
    life.
        In my district in Washington State, we have everything from
    farming communities to high-technology hubs, and they all will
    benefit from responsible and forward-looking net neutrality
    policies that will promote equal treatment of content and
    affordable access for consumers and for businesses. While there
    may be vast disagreements on the best way to achieve this goal,
    I just want to thank everyone for working toward this goal,
    because it is an important goal.
        We now see legislation and changes that are taking place in
    the way the Internet works that really weren't anticipated when
    we put communications law in place. And I believe strongly, as
    a technology person, we need to do a better job of keeping laws
    up to date with the way the world works. Clearly, we haven't
    quite done that. We have a regulatory framework that is quite
    old.
        And, Chairman Wheeler, I wondered if you agree with that
    statement, and if you look at the framework that you are
    working with right now, would you like to see changes there, so
    that we could do the best job possible of putting together a
    great environment to support innovation in this area?
        Mr. Wheeler. Well, thank you, Congresswoman, and I agree.
    This is like that line in Through the Looking Glass that it
    takes all the running you can do to stay in the same place when
    you are talking about all the changes in the Internet.
        It is interesting that the Communications Act itself, the
    Congress was incredibly farsighted in 1996, in particular, when
    they put in flexibility for decision-making to be made by the
    commission along the way. I think it is always worthwhile for
    Congress to involve itself in making sure that the statutes are
    up to date, but the flexibility that Congress has put in the
    statute has also enabled us to try.
        But what we have tried to do is not to be prescriptive and
    say, ``We are smart. We know what is going to happen in the
    marketplace. We know what technology is.'' But rather to say,
    let's have a general yardstick that can be used to measure
    things that we have never thought about as they come along, and
    the authority to do something if, in fact, they fall short of
    that yardstick.
        Ms. DelBene. Now, I know there is a Republican draft piece
    of legislation that has been put together to actually put
    forward legislation on this issue, and the draft that I have
    looked at has some particular carve-outs in it, one for
    specialized services, which seems to be loosely defined, as I
    read it, and also a carve-out that seems to allow paid
    prioritization of certain Internet services where consumers
    specifically approve it.
        I wondered if you had feedback, if you have had a chance to
    see some of this, and if you had feedback on those carve-outs,
    and how you think those might impact competition in the market.
        Mr. Wheeler. Yes. Thank you, Congresswoman.
        We have had conversations with the sponsors of the bill,
    expressing some concerns about those carve-outs and about the
    limitation on the ability of the agency to deal with what I
    just talked about, which is how do you have that yardstick
    going forward.
        Ms. DelBene. Commissioner McSweeny, by reclassifying
    broadband under Title II, the FCC gains the ability to govern
    privacy issues, and it might appear that the FTC in some cases
    loses some of this authority as well. I wondered if you would
    comment on whether you agree that that is true, or if that is
    an accurate assessment, and whether you see room for the FCC
    and FTC to collaborate to protect consumer privacy under Title
    II?
        Ms. McSweeny. I absolutely see room for the FTC and FCC to
    collaborate on privacy. I think that would be very important.
    We already do work together and have had some recent examples
    of consumer protection cases where we have worked together very
    effectively.
        As you point out, reclassification may have an impact on
    FTC jurisdiction. This is why the legislative recommendation
    that I am prepared to make today is repealing the common
    carrier exemption in the Federal Trade Commission Act.
        I think that, as Chairman Wheeler has pointed out, it is
    wonderful when Congress takes the time to think about how to
    update the consumer protection laws. And from my perspective as
    an FTC commissioner, that would make a lot of sense.
        But again, we can work with the FCC. We do work with the
    FCC. And I think consumer privacy is a priority for both the
    FTC and the FCC.
        Ms. DelBene. Privacy is an area that we have definitely
    seen legislation that is out of date, whether it is the
    Electronic Communications Privacy Act or other areas where
    legislation that was put in place decades ago hasn't been
    updated.
        Do you think we can do it this way versus another
    legislative solution with respect to privacy?
        Ms. McSweeny. Well, there are several recommendations that
    have been put forward. The Administration has put forward
    privacy legislation as well. All of these are really valuable
    contributions.
        I would add that data security is a big priority of mine
    personally as well. And I would continue to support the passage
    of comprehensive data security legislation that would not only
    provide consumers with breach notification, but would lay out
    stronger security standards.
        Ms. DelBene. Thank you.
        Thank you, Mr. Chair. I yield back.
        Mr. Marino. Thank you.
        The Chair now recognizes the gentleman from Florida,
    Congressman DeSantis.
        Mr. DeSantis. Thank you, Mr. Chairman.
        Commissioner Pai, do you view this decision as being
    motivated by political pressure, the decision to regulate the
    Internet under Title II?
        Mr. Pai. Congressman, I think there is no question that the
    public pressure put upon the agency by the November 10
    announcement by the President was the defining factor in this
    proceeding. But for that announcement, we would not have made
    the decision we made.
        Mr. DeSantis. And in fact, once the decision was made
    public, you actually had the national Democratic Party praising
    the adoption of President Obama's Internet rules, correct?
        Mr. Pai. That is correct.
        Mr. DeSantis. Now, in terms of the Internet being as it has
    been one of the keys being permissionless innovation, is Title
    II going to further that value or undermine that value?
        Mr. Pai. I think it will undermine the value, Congressman.
    The best example of that is the Internet conduct standard. It
    throws seven vaguely worded factors up in the air, and says it
    is nonexhaustive. And when asked to clarify how exactly will
    this be applied, the FCC admitted on February 26, we don't
    really know. The FCC will sit there as the referee and throw
    the flag. That is the very definition of innovation only by
    permission.
        Mr. DeSantis. Absolutely, and when you don't have ex ante
    rules, I think it really stunts the ability of people to
    dedicate capital.
        What about the taxes issue? It seems to me that this opens
    the door for taxes, Universal Service Fund taxes on people's
    broadband. And so when my constituents ask what is going on
    with the Internet, can I tell them with a straight face that
    they will not pay more as a result of this?
        Mr. Pai. I don't think you can. I think the writing is on
    the wall. And I said on February 26, read my lips, more new
    taxes are coming. And it is going to be applied to broadband
    for the first time.
        Mr. DeSantis. And that obviously will be passed on to
    consumers, and it is going to make what they buy more
    expensive. There is just no way around that, right?
        Mr. Pai. Exactly, and I think the other effect, which
    hasn't gotten a lot of attention, is it is particularly the
    low-income and underserved populations who rely on broadband
    for all kinds of things who are going to be disproportionally
    affected.
        Mr. DeSantis. In terms of the process, do you think that
    this complies with the Administrative Procedure Act? I remember
    when the notice was put out, Title II, I mean it was mentioned,
    admittedly, and I think Chairman Wheeler had pointed that out
    in a previous hearing, but it was not a notice about Title II
    being the central issue.
        So you got a bunch of comments, true. But do you think that
    is the way the process should work?
        Mr. Pai. I don't. I detail in my dissent all the reasons
    why I think the agency's decision did not comport with the
    Administrative Procedure Act. Just to give you one of many
    examples, the application of Title II to mobile broadband,
    nowhere in the document, in the Notice of Proposed Rulemaking,
    will you find the phrase ``public switched network'' and how
    Title II reclassification could work with respect to mobile.
    For good reason: the Verizon court itself said explicitly you
    cannot define mobile providers as common carriers under Section
    332.
        And so I think for a variety of reasons, the agency just
    didn't give the public sufficient notice of what it was going
    to do.
        Mr. DeSantis. Now, much has been made that there has been
    nearly 4 million comments during this period, but weren't there
    a lot of comments opposing using Title II?
        Mr. Pai. There were, and my understanding is that the reply
    comment phase, the majority of those who weighed in, once the
    FCC's intentions became clearer, did oppose the application of
    Title II.
        Moreover, I would point out, Peter Hart, who runs Hart
    Research Associates, a very respected Democratic polling firm,
    found by a 21 percent margin, the American people disagreed
    with what the FCC was proposing to do.
        Mr. DeSantis. So at this point, what is the way forward? I
    mean legally, I know you wrote a very well-written dissent.
    Clearly, this is already sparking litigation. I know that
    previous rules have had trouble in the courts.
        Do you think that this is a legally flawed rule that will
    run into trouble with the courts?
        Mr. Pai. I do, unfortunately. If past is prologue, we have
    years of litigation in front of us. The 2008 decision that the
    Chairman mentioned was rejected in 2010. The 2010 rules were
    rejected only in 2014. And given the likelihood of Supreme
    Court review here, we might be at the end of the decade before
    we resolve the propriety of these regulations.
        Mr. DeSantis. So if somebody comes to you and says, ``Look,
    I don't want Comcast throttling my Internet service or doing
    this or doing that,'' what is your response as to how the
    Internet should work and the appropriate policy response, if
    any?
        Mr. Pai. My response is encapsulated in Congressman
    Deutch's statement. All of us want a free and open Internet.
    There has been a bipartisan consensus for 2 decades that the
    Internet would be free and open with light-touch regulation.
    And I would argue the fact we are where we are, with the
    Internet economy the envy of the world, is precisely because
    the government has been restrained, has let the free market
    flourish and, where appropriate, has allowed antitrust to
    govern. But I fear that we are going on a different path now, a
    partisan one, which shouldn't be the case.
        Mr. DeSantis. And I agree. I will yield back in a second.
    The Clinton-Gore administration, they established this light-
    touch approach, a Democratic administration. It was continued
    through, and I think this is a major departure, and I
    appreciate what you have done to highlight the problems.
        And I yield back.
        Mr. Marino. Commissioner Pai, would you please clarify
    something for me? You were asked the first question if you
    thought this was a political pressure, and you responded yes,
    public pressure. Did you mean public pressure or political
    pressure?
        Mr. Pai. Congressman, what I meant was that, based solely
    on the statements the President made publicly, and on the
    statement on his Website, which is public, that alone imposed a
    lot of pressure on this formerly independent agency because we
    were clearly heading down a different path until the
    President's public announcements. And those pronouncements
    obviously had a very significant political effect on the
    decision-making.
        Mr. Marino. Just wanted a clarification for the record on
    that. Thank you.
        Mr. Pai. Thank you.
        Mr. Marino. The Chair now recognizes the gentleman and my
    friend from New York, Congressman Jeffries.
        Mr. Jeffries. I thank the distinguished gentleman from
    Pennsylvania.
        If we can just pick up on that discussion, Commissioner
    Pai, you indicated that you thought it was public pressure
    brought to bear by President Obama in connection with what
    resulted in terms of the FCC order, is that correct?
        Mr. Pai. That is correct.
        Mr. Jeffries. So did the President engage in wrongdoing by
    articulating his position?
        Mr. Pai. Oh, I certainly don't embrace the view that there
    was any kind of affirmative wrongdoing. I think, from my
    perspective though, as someone who cherishes the agency's
    independence, ideally, we should make our decisions based
    solely on the law and the facts and record, not on extraneous
    political considerations. And that is where my concerns kick
    in.
        Mr. Jeffries. All right. Do you have any direct evidence,
    or even indirect evidence, that the decision that was made by
    the FCC is based on extraneous political consideration? What
    evidence do you have of that point?
        Mr. Pai. The best evidence is the fact that the agency was
    considering two very different proposals until the November 10
    announcement. Shortly after the November 10 announcement, the
    FCC publicly ruminated whether or not it needed to seek more
    comment because the President's plan had not been given
    sufficient attention by the agency.
        Mr. Jeffries. Right. Now, there were over 4 million
    comments received, a majority of which expressed support for
    the Title II position, correct?
        Mr. Pai. My understanding is the majority did, yes.
        Mr. Jeffries. And that was the American people expressing
    their opinion in terms of petitioning the government, correct?
        Mr. Pai. That is correct.
        Mr. Jeffries. So it is your view that that had nothing to
    do with the ultimate decision that the FCC reached, that it was
    all about what President Obama said, who, by the way, is the
    leader of the free world, elected by the people of the United
    States of America. But putting that small fact aside for a
    moment, you don't think that the FCC's decision had anything to
    do with public sentiment, which I gather in a representative
    democracy is pretty important?
        Mr. Pai. I think, Congressman, the agency as an independent
    agency should render its decisions based on the law set by
    Congress and the facts in the record. Where the agency was on
    November 9 was very different even given the fact that we
    already had almost 4 million comments on the record.
        The decisive event was what happened on November 10. And
    that is not something that is a fact. It is more an opinion
    expressed by a political actor.
        Mr. Jeffries. Okay. Thank you.
        Chairman Wheeler, I want to explore this concept of light-
    touch regulation. I think the previous questioner indicated
    that we have gone beyond that, but I wanted to actually explore
    that and drill down on that.
        There are 47 sections, I believe, that are part of Title
    II, correct?
        Mr. Wheeler. Yes, sir.
        Mr. Jeffries. And I think you have expressly engaged in
    forbearance with respect to 27 of those sections. Is that
    correct?
        Mr. Wheeler. It may actually be 48, and we have forborne
    from 27, yes.
        Mr. Jeffries. Okay, thank you for that clarification.
        In terms of what you have forborne, regulating the Internet
    providers as a utility or rate regulation, is that part of the
    forbearance that has taken place?
        Mr. Wheeler. That is what we have not done, sir.
        Mr. Jeffries. Exactly, that is what you have not done.
        Can you talk about what else you have not done?
        Mr. Wheeler. Yes, sir. You take a look at the classic
    components of utility regulation, and it starts with rate
    regulation. Then it is a process of tariffing. And then it is
    the process of ``here is how you are going to run your network
    in terms of unbundling and providing services.'' Then it begins
    to go even further into, ``Here is how you are going to operate
    your company. Here is how your board of directors will be
    structured. Here are the reports you will make to us. Here is
    the series of accounts. Here is how you will do your accounting
    and report to us.'' None of that is involved.
        Mr. Jeffries. Okay. There has been some legitimate concern
    raised about how a consumer confronting discrimination would
    navigate their way through the FCC process as compared to an
    FTC process, if that were to avail itself. So could you walk me
    through sort of how your Open Internet order would allow for
    the adjudication of a consumer who is alleging discrimination
    in the form of either blocking or throttling?
        Mr. Wheeler. Well, we are always responsive to petitions or
    information that we receive from consumers, and we have
    historically responded to both formal and informal complaints.
        Mr. Jeffries. Okay.
        Commissioner Wright, I think it is your position that the
    FTC's adjudication process may better serve a consumer. Could
    you elaborate as to why you think that may be the case, if that
    is your position?
        Mr. Wright. That is my position, and I appreciate the
    question. Thank you.
        My position in brief is that a large amount of conduct that
    is banned or deterred under the FCC approach would be
    scrutinized under a case-by-case approach under the antitrust
    laws. The antitrust laws circa 1960 adopted an approach very
    similar to what is in the FCC order with respect to
    relationships between Internet access providers and content
    providers.
        Over the last 50 years, that approach has largely been
    rejected out of an increase in economic learning. So it is my
    view that consumers benefit from the case-by-case approach
    because it allows them to accrue the benefits of conduct that
    helps consumers and increases innovation, but allows the
    antitrust laws to operate, to deter, to penalize conduct when
    it does harm consumers. I think that that is the right approach
    and the best balance for consumers.
        Mr. Jeffries. Thank you, my time has expired, but could I
    just ask the Chairman for leave----
        Mr. Marino. Without objection.
        Mr. Jeffries [continuing]. The Chairman for leave to ask
    Commissioner McSweeny if she could just respond. Thank you.
        Ms. McSweeny. Sure, thank you, Congressman.
        My position is that the optimal outcome for consumers is
    both the FCC having in place an Open Internet order, and the
    FTC being able to use its consumer protection expertise to
    protect consumers from deceptive advertising, unfair practices,
    and anticompetitive conduct.
        To do that, we would need the common carrier exemption in
    the FTC Act to be removed.
        Mr. Jeffries. Thank you, and I thank the Chair for the
    additional time.
        Mr. Marino. Thank you.
        The Chair now recognizes the gentleman from Michigan,
    Congressman Bishop.
        Mr. Bishop. Thank you all very much for your testimony
    today.
        I would like to go back to what Representative DeSantis
    started with regard to, Commissioner Pai, your dissent.
        He broached the subject about lawsuits, and in your dissent
    you state that the trial lawyers will be able to open the
    Internet. Can you tell me about that? Are you suggesting that
    this is going to lead to rampant lawsuit abuse? And if, indeed,
    that does happen, what is the impact on the consumer, in the
    aggregate?
        Mr. Pai. Thank you for the question, Congressman.
        The FCC in its order explicitly opens the door to
    complaints both to the FCC and in any Federal court in the
    country under Section 208 of the Communications Act, from which
    the agency explicitly does not forbear.
        As a result of also not forbearing from ex post regulation,
    but only ex ante regulation, the agency obviously invites
    litigation over the reasonableness of rates. And my concern is
    that litigation, as you know, generally does not produce
    anything good for the consumer at the end of the day, because,
    number one, those costs of litigation are passed on to the
    consumer, and number two, the companies, instead of having to
    spend their time innovating and delivering innovative services,
    have to spend time litigating.
        So I think that is part of my concern, that the agency
    didn't explicitly shut the door on some of the litigation, both
    at the commission and in court.
        Mr. Bishop. Thank you very much.
        Commissioner Pai, many of the FCC's conclusions regarding
    the competitive nature of the Internet marketplace are
    predicated on the notion that 25 megabits download speed is the
    appropriate threshold. That seems arbitrary to me. How did we
    get to that number and what does it mean?
        Mr. Pai. Congressman, I share your concern. In December,
    the FCC voted to spend billions of dollars over the next decade
    deploying what it then called broadband, which was defined as
    10 megabits per second for rural areas. In January, we suddenly
    decided that 25 megabits per second was the standard, which
    excludes most mobile broadband offerings, including 4G LTE.
    Suddenly, in February, we decided that everything, any kind of
    connection to the Internet was broadband.
        So my concern is that instead of looking at it objectively
    and trying to figure out what do consumers use the Internet
    for, and trying to tailor our benchmarks to that standard,
    obviously with a little bit of an uptick based on the increased
    usage of the Internet over time, instead, we have picked a
    standard that allows us to achieve the regulatory goal of the
    moment. And that is not something that I think is objective or
    reasonable.
        Mr. Bishop. So that is a completely random, arbitrary
    number, 25 megabits.
        Mr. Pai. Yes, if you look at the FCC's January decision, it
    was grasping for things like marketing materials, anything
    other than the actual uses of the Internet by the common online
    consumer.
        Mr. Bishop. Thank you, Commissioner.
        Commissioner Wright, after the Trinko and Credit Suisse
    decisions, can an antitrust claim survive against an entity
    regulated by Title II?
        Mr. Wright. It is possible under very narrow circumstances
    post-Title II for a claim by a Title II regulated entity to
    survive. The vision of the relationship between regulation and
    antitrust contemplated by Trinko and Credit Suisse I think
    raises an important question. A lot of the questions today have
    touched upon the issue of whether regulation and antitrust are
    complements or substitutes, or whether they can work in tandem.
    Certainly, it is true that sometimes they can.
        Here, however, I think that it is important to note that
    there is a real inherent conflict between the approach adopted
    in the FCC order and modern antitrust laws. Were it 1960, and
    1960's antitrust approach to vertical restraints governing, the
    orders would be complements. They would work together quite
    well. However, what the order does is take conduct that the
    antitrust laws generally presume as procompetitive and declare
    them to be illegal and anticompetitive in all circumstances.
        In a regime like that, where it is totally and plausibly
    the case that in other situations antitrust and regulation can
    coexist, here my fear is that there is an inherent and
    inevitable conflict that is going to result in marginalization
    of antitrust enforcement in favor of a view that looks much
    more like an antitrust era from the 1960's that virtually all
    antitrust scholars of any stripe have long since rejected.
        Mr. Bishop. Thank you, Commissioner.
        I yield back.
        Mr. Marino. Thank you.
        The Chair now recognizes the gentleman from Rhode Island,
    the former Mayor of the beautiful town of Providence, my
    friend, Congressman Cicilline.
        Mr. Cicilline. I thank the Chairman.
        Thank you to the witnesses for this very important hearing,
    and thank you for being with us this afternoon.
        Chairman Wheeler, I want to start with you. There was just
    reference made to this 25 megabits per second. I don't want to
    spend a lot of time on it, but would you just quickly explain
    why that isn't arbitrary, and that there is actually a basis
    for a use of that by the FCC?
        Mr. Wheeler. Thank you, Congressman.
        About 80 percent of America has access to that today, and
    that is kind of a definition of a performance standard.
        Mr. Cicilline. Great.
        Commissioner Pai, you mentioned in your testimony several
    times that the Internet here in the U.S. is the envy of the
    world. I am wondering, in light of the fact that, for example,
    Akamai, which does an annual survey of the state of the
    Internet, ranks the top 10 countries on a whole range of things
    including connectivity, speed, availability. It rates Hong
    Kong, Singapore, South Korea, Japan, Israel, Romania, Uruguay,
    Latvia, Taiwan, and Luxemburg. The U.S. isn't even in the top
    10. The World Economic Forum ranked the United States 35 out of
    148 countries in Internet bandwidth. Other studies ranked the
    United States anywhere from 14th to 31st, globally, in average
    connection speed. Other countries with much more regulated
    markets have more options for Internet access at faster speeds
    and at a lower cost.
        So I am wondering whether or not, in light of the fact that
    75 or 80 percent of American homes only have one option,
    whether you consider, not only it the envy of the world, but
    equally importantly, that that is a competitive marketplace,
    when 75 or 80 percent of the consumers have access to one
    provider?
        Mr. Pai. Thank you for the question, Congressman.
        There are two components----
        Mr. Cicilline. I am sorry, may I also ask unanimous consent
    that those two reports, and an article entitled, ``Why the U.S.
    Has Fallen Behind in Internet Speed and Affordability,'' in the
    New York Times on October 3, 2014, be made part of the
    record.***
    ---------------------------------------------------------------------------
        ***Note: The submitted material is not printed in this hearing
    record but is on file with the Committee and can be accessed at:

          http://docs.house.gov/Committee/Calendar/
          ByEvent.aspx?EventID=103236.
        Mr. Marino. Without objection.
        Mr. Pai. Thank you for the question, Congressman. There are
    two components to the answer.
        First, with respect to the overall Internet ecosystem,
    there is no dispute that America's online platform is the
    greatest in the world for innovation and investment. That is
    the reason why we see such great companies, such as Google,
    Facebook, Netflix, Twitter, et cetera, building on top of this
    broadband infrastructure that we have in the United States.
        Secondly, with respect to some of the countries you
    mentioned, the United States is in a very different situation
    from say Taiwan or Latvia. We have a very sparsely populated
    country by comparison. And part of the benefit of having the
    American communication system we have is that we have a
    commitment to universal service, and we try to connect as many
    people as possible in this country to the opportunities online.
    That is a difficult thing to do when you are talking about
    places like my home State of Kansas, for example.
        Nonetheless, however, as the Chairman pointed out, 80
    percent of Americans have access to 25 megabits per second
    speeds. That is remarkable when you think about how dispersed
    our population is.
        Now, with respect to the second part of your question, you
    put your finger on the exact problem that we should try to
    solve at the FCC. How do we get more competitive alternatives
    into the marketplace? That is why I focus on a variety of
    different policies making it easier to deploy wireless
    infrastructure, getting more spectrum out there, embracing the
    IP transition. Those are things that could give people more
    alternatives than just the one or the none.
        Mr. Cicilline. Chairman Wheeler, could you respond to that?
        Mr. Wheeler. This will shock everybody to find that
    Commissioner Pai and I are actually agreeing on something
    today. But I think there are multiple reasons. One is our
    geography. Two is the national investment that they have made
    that we have not.
        But the key that we are guiding on, Congressman, is what is
    it we are doing today to make sure that that chart doesn't
    exist tomorrow? Because the chart is the result of decisions
    made a decade ago.
        I think there are three things to it. One is competition.
    We have to have competitive broadband providers. Two is
    spectrum, because spectrum is the pathway of the 21st century.
    And three is we have to have openness, because if these
    entities are allowed to build and then act as gateways where
    they make the decision of how networks are used, we will
    continue to fall down that list.
        Mr. Cicilline. Mr. Chairman, one of the criticisms of the
    order of the FCC has been that it would either discourage or
    suppress capital investment in broadband, which is obviously
    necessary to accomplish just what you described.
        Would you respond to that? And have you seen any evidence
    of that?
        Mr. Wheeler. Thank you, Congressman. A couple of quick
    examples.
        Number one is if you take a look at investment over the
    last 18 or 20 years, what you will find is that the highest
    level of investment was when broadband--DSL at the time--was
    regulated under Title II. Then it kind of dips down and you are
    in a period where there is no regulation, and then the 2010
    Internet rule comes in and it goes back up. So the fact of the
    matter is that, one, it is cyclical, and, two, it doesn't seem
    to be impacted by these rules.
        The other thing that is interesting is to watch Verizon in
    the wireless space. Verizon paid $4.7 billion at auction to buy
    C Block spectrum, which was encumbered with a requirement by
    the commission that it follow certain Open Internet-like rules,
    the only piece of spectrum where that ever has applied.
        They paid top dollar for it. They built it out. And not
    only did they build it out, that is where they put America's
    first 4G LTE network. And clearly, those kind of openness rules
    neither held them back on their investment, nor held them back
    on putting the latest technology in place.
        Mr. Cicilline. Thank you.
        I thank you, Mr. Chairman. I yield back.
        Mr. Marino. Thank you.
        The Chair recognizes the gentleman from Texas, the former
    United States attorney, Congressman Ratcliffe.
        Mr. Ratcliffe. Thank you, Mr. Chairman.
        Thank you, Chairman Wheeler and all of the commissioners
    for being here today.
        I have only been in Washington for two and a half months.
    One of the reasons that I have the opportunity to be here is
    because the people back in my district, back in Northeast
    Texas, are extraordinarily frustrated with Washington. And that
    frustration can be summed up on two points: one, executive
    overreach; and two, intrusive government regulation.
        So as to that first point, my constituents overwhelmingly
    believe that this Administration has ignored the Constitution,
    changing, waiving, and entirely suspending laws. And in fact,
    it is beyond debate but that Obamacare has been waived or
    delayed more than 20 times. Now more recently, we are dealing
    with the fact that laws have been suspended, which allow 4 to 5
    million unlawful immigrants to remain in this country.
        To the second point, we are seeing an expanding government
    that tries to impose regulations into the everyday lives of the
    people that I represent. The Obama administration in the
    President's first term averaged seven new Federal regulations
    every single day, each one of those regulations a tax, each one
    of those regulations some abridgement of someone's freedom in
    this country.
        Which brings us to this most recent encroachment of freedom
    on the people that live in my district, and, indeed, this 300-
    page net neutrality rule really embodies the two things that my
    constituents dislike the most about Washington, frankly, a
    total disregard for the constitutional separation of powers and
    the government trying to reach further into their lives.
        It, certainly, appears to me that one of the most
    frustrating things about this regulation is that it is a
    solution in search of a problem that doesn't exist.
        So I have to ask, why did this happen? And it begs the
    question, did this happen for political reasons?
        So, I would like to ask this question, was this decision
    motivated by politics, Commissioner Pai?
        Mr. Pai. Congressman, I don't know what the specific
    motivation was. What I can tell you, however, is that it did
    not address a problem that actually existed in the marketplace.
        Mr. Ratcliffe. Commissioner Wright, do you believe that
    there were political motivations here?
        Mr. Wright. I, certainly, being a whole different building
    down the street can't speak to what was going on in the FCC, so
    I have no opinion on the decision-making process at that
    agency.
        Mr. Ratcliffe. Ms. McSweeny?
        Ms. McSweeny. Like Commissioner Wright, I don't have any
    visibility into the decision-making process of the FCC.
        Mr. Ratcliffe. So let me turn to the Chairman.
        Was this politically motivated?
        Mr. Wheeler. This was based on a record, an extensive
    record that had millions of comments in it and was, from the
    very beginning, an attempt to follow on in the precedent of the
    commission that had established under both Republican and
    Democratic Chairmen.
        We have talked about how previous Republican Chairmen and
    Republican commissions have moved to have openness in the
    wireless industry by invoking Title II, how they have moved
    against Comcast for blocking on the Internet, how the kinds of
    blocking, throttling, activities that are in our order are also
    in the bill that----
        Mr. Ratcliffe. Well, let me reclaim my time here, Mr.
    Chairman, because I heard your testimony earlier about
    throttling and blocking, and some of the examples. And
    obviously, you disagree with my opinion that this is a solution
    in search of a problem.
        So let me ask you this question, to the extent, and you
    went through some examples with Comcast and Verizon, but to the
    extent there was actual anticompetitive conduct occurring on
    the Internet, and the FCC simply chose not to intervene, what
    would prevent the FTC from prosecuting?
        Mr. Wheeler. I think that the issue for the FTC is whether
    the actions fall within the gambit of their authority. And as
    we have discussed earlier with another Member, there is a
    different set of authorities that we have. And we felt that
    they definitely did fall within our gambit.
        Mr. Ratcliffe. Well, let me move to the issue of cost here,
    and how this rule is going to affect the cost of the
    constituents that I represent.
        Let me start with you, Commissioner Pai. Is this going to
    make what people buy in my district on the Internet more
    expensive?
        Mr. Pai. Yes, it will.
        Mr. Ratcliffe. And what would be the reasons for that?
        Mr. Pai. The reclassification of broadband as a
    telecommunications service, and the consequent imposition of
    Universal Service Fund fees will increase consumer broadband
    bills. And it is just a question of when, not if, those
    increased fees are going to be passed on.
        Mr. Ratcliffe. Chairman Wheeler, do you agree with that?
        Mr. Wheeler. I have a different opinion, and as I said
    before, universal service is kind of a red herring.
    Commissioner Pai is on the joint board that will make a
    recommendation on that, and I think I have been gathering what
    his vote is going to be.
        But insofar as the other activities, I think that we are
    going to be promoting competition, and competition increases
    speed and drives down cost.
        Mr. Ratcliffe. Mr. Chairman, I would love to ask more
    questions, but my time has expired.
        I yield back.
        Mr. Marino. Thank you.
        Ladies and gentlemen, this concludes our hearing. Thanks to
    all of our witnesses for being here. I want to thank the people
    in the gallery for spending time here.
        Without objection, all Members will have 5 legislative days
    to submit additional written questions for the witnesses or
    additional materials for the record.
        This hearing is adjourned.
        [Whereupon, at 5:31 p.m., the Committee was adjourned.]
                                A P P E N D I X

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                   Material Submitted for the Hearing Record

     Response to Questions for the Record from the Honorable Tom Wheeler,
                  Chairman, Federal Communications Commission
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

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