SPEAKERS CONTENTS INSERTS
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27–225 PDF
2006
NETWORK NEUTRALITY: COMPETITION, INNOVATION, AND NONDISCRIMINATORY ACCESS
HEARING
BEFORE THE
TASK FORCE ON TELECOM AND ANTITRUST
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
APRIL 25, 2006
Serial No. 109–109
Printed for the use of the Committee on the Judiciary
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Available via the World Wide Web: http://judiciary.house.gov
COMMITTEE ON THE JUDICIARY
F. JAMES SENSENBRENNER, Jr., Wisconsin, Chairman
HENRY J. HYDE, Illinois
HOWARD COBLE, North Carolina
LAMAR SMITH, Texas
ELTON GALLEGLY, California
BOB GOODLATTE, Virginia
STEVE CHABOT, Ohio
DANIEL E. LUNGREN, California
WILLIAM L. JENKINS, Tennessee
CHRIS CANNON, Utah
SPENCER BACHUS, Alabama
BOB INGLIS, South Carolina
JOHN N. HOSTETTLER, Indiana
MARK GREEN, Wisconsin
RIC KELLER, Florida
DARRELL ISSA, California
JEFF FLAKE, Arizona
MIKE PENCE, Indiana
J. RANDY FORBES, Virginia
STEVE KING, Iowa
TOM FEENEY, Florida
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TRENT FRANKS, Arizona
LOUIE GOHMERT, Texas
JOHN CONYERS, Jr., Michigan
HOWARD L. BERMAN, California
RICK BOUCHER, Virginia
JERROLD NADLER, New York
ROBERT C. SCOTT, Virginia
MELVIN L. WATT, North Carolina
ZOE LOFGREN, California
SHEILA JACKSON LEE, Texas
MAXINE WATERS, California
MARTIN T. MEEHAN, Massachusetts
WILLIAM D. DELAHUNT, Massachusetts
ROBERT WEXLER, Florida
ANTHONY D. WEINER, New York
ADAM B. SCHIFF, California
LINDA T. SÁNCHEZ, California
CHRIS VAN HOLLEN, Maryland
DEBBIE WASSERMAN SCHULTZ, Florida
PHILIP G. KIKO, General Counsel-Chief of Staff
PERRY H. APELBAUM, Minority Chief Counsel
—————
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Note: The Task Force on Telecom and Antitrust was established on March 26, 2006 and consists of all the Members of the full Judiciary Committee.
C O N T E N T S
APRIL 25, 2006
OPENING STATEMENT
The Honorable Chris Cannon, a Representative in Congress From the State of Utah, and Member, Committee on the Judiciary
The Honorable John Conyers, Jr., a Representative in Congress From the State of Michigan, and Ranking Member, Committee on the Judiciary
WITNESSES
Mr. Paul Misener, Vice President for Global Public Policy, Amazon.com
Oral Testimony
Prepared Statement
Mr. Earl W. Comstock, President and Chief Executive Officer, COMPTEL
Oral Testimony
Prepared Statement
Mr. Walter B. McCormick, Jr., President and Chief Executive Officer, United States Telecom Association
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Oral Testimony
Prepared Statement
Mr. Timothy Wu, Professor of Law, Columbia Law School
Oral Testimony
Prepared Statement
APPENDIX
Material Submitted for the Hearing Record
Prepared Statement of the Honorable John Conyers, Jr., a Representative in Congress From the State of Michigan, and Ranking Member, Committee on the Judiciary
Prepared Statement of the Honorable Bob Goodlatte, a Representative in Congress From the State of Virginia, and Member, Committee on the Judiciary
Prepared Statement of Mark Cooper, Director of Research, Consumer Federation of America, on behalf of Consumer Federation of America, the Free Press, and the Consumers Union
Prepared Statement of Kyle McSlarrow, President and CEO, National Cable & Telecommunications Association
Press Release of the Federal Communications Commission, dated April 3, 2006
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Article from Communications Daily submitted by Walter B. McCormick, Jr., President and Chief Executive Officer, United States Telecom Association
Letter to the Honorable F. James Sensenbrenner, Jr., Chairman, Committee on the Judiciary, from Deborah J. Majoras, Chairman, Federal Trade Commission
A Public Knowledge White Paper by John Windhausen, Jr., entitled ''Good Fences Make Bad Broadband, Preserving an Open Internet through Net Neutrality''
NETWORK NEUTRALITY: COMPETITION, INNOVATION, AND NONDISCRIMINATORY ACCESS
TUESDAY, APRIL 25, 2006
House of Representatives,
Task Force on Telecom and Antitrust,
Committee on the Judiciary,
Washington, DC.
The Task Force met, pursuant to notice, at 2:05 p.m., in Room 2141, Rayburn House Office Building, the Honorable Chris Cannon (Acting Chair of the Task Force) presiding.
Mr. CANNON. The Committee will come to order.
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Just a note before we get started that we have a bill coming up on the—the Committee has a bill coming up on the floor at 2:45. We may have to recess this Committee. We're just trying to work out—it is the rule of the Committee that we recess when the Committee has a bill on the floor of the House. We are trying to work that out so that we don't inconvenience everyone with a 45-minute recess, and so we are going to get started here directly, and hopefully we will work that out so we don't have to recess.
In recent years, changing technology industry consolidation, and regulatory developments have fundamentally altered the telecommunications marketplace. With the changes in the industry, it is important that the pro-competitive goals that were the hallmarks of the 1996 act are maintained. Some have argued that these goals have gone unrealized, and it is essential that this Committee makes sure these goals do not slip away.
President Ronald Reagan boldly predicted that, ''The Goliath of totalitarianism will be brought down by the David of the microchip.'' He really was a visionary guy, you know? Substituting the word ''Internet'' for ''microchip'' is particularly appropriate given the unprecedented manner in which the Internet has revolutionized the manner in which we access and transmit a broad range of goods, services, and information. High-speed broadband Internet services have dramatically enhanced the ability of Americans to access the Internet, but the safeguards that we have allowed these services—that have allowed these services to flourish are under growing legal and regulatory assault.
The Committee on the Judiciary has a central role in ensuring that market power of firms that provide access to the Internet is not used to discriminate against the content or services of competitors that drive innovation and consumer choice. Many credit the rapid rise of the Internet to the open architecture that defines it. Observers have noted that a unique feature of the Internet is the nearly unrestricted ability of anyone with service to connect to it, access and post information, download content, and consume goods and services without discrimination. The open architecture of this medium is central to our understanding of the Internet and a fundamental attribute of its success.
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Most Americans think that open and nondiscriminatory access to the Internet is something to be taken for granted, but it is not. Broadband providers exercise considerable control over how information and services are accessed over the Internet, and the inference that some of these providers may restrict access to the networks is of concern to all. While considerable effort has been made to confuse the definition of ''net neutrality,'' the term refers to the fundamental architecture of the Internet that allows for uninhibited, end-to-end communication.
Former FCC Chairman Powell enunciated four Internet freedoms that provide a useful framework to understand this issue. These principles of Internet nondiscrimination are:
First, freedom to access content. Consumers should have access to their choice of legal content.
Second, freedom to use applications. Consumers should be able to run applications of their choice.
Third, freedom to attach personal devices. Consumers should be permitted to attach any devices they choose to Internet portals.
And, fourth, freedom to obtain service plan information. Consumers should receive meaningful information regarding their service plans.
Principles of net neutrality have been successfully articulated, but the mechanism to enforce them has not. The most notable example of Internet discrimination involved the Madison River Telephone Company obstruction of access to voice over Internet protocol, or VOIP, services provided by Vonage. In this case, the FCC investigated allegations that Madison River violated nondiscriminatory obligations contained in the Communications Act, but the redefinition of broadband as an information service dramatically reduces the authority of regulators to deter this kind of competitive misconduct.
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The House Committee on the Judiciary and the antitrust laws have played a critical role in fostering competition in the telecommunications industry. While the technological dynamics of the telecom industry have shifted the use of market power to deter competition and undermine consumer choice has not. The continued success of the Internet depends upon unfettered interconnection and the ability of consumers to connect and access online information, content, goods, and services in a nondiscriminatory manner. If consumers are going to continually migrate to the Internet and businesses are going to prosper because of the Internet, the House Committee on the Judiciary must be at the center of the debate defining competition—defending competition.
Today's hearing will examine whether the threats posed to net neutrality and whether the concerns that broadband providers have or intend to abuse their market power to violate these principles are substantive or speculative. The hearing will also examine whether broadband providers have an economic incentive to limit access to the Internet, the sufficiency of current legal and regulatory authority to preserve net neutrality, the competitive impact of proposals to provide Internet access on a tiered basis, recent legal and regulatory developments that affect broadband competition, and whether current legislative proposals being considered by Congress promote or undermine net neutrality.
Today's hearing marks the first in a series by the Committee's Task Force on Telecom and Antitrust. Over the next several months, the task force will conduct a number of hearings to examine competitive aspects of the telecom industry and to consider legislation to ensure that Americans are provided with the innovation and consumer choice that unrestrained market competition preserves and promotes.
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I want to thank the witnesses for appearing before today's panel and yield to the Ranking Member for his remarks. Mr. Conyers?
Mr. CONYERS. Thank you, Chairman Cannon. I'm happy to welcome the witnesses, as you have, and begin a Judiciary Committee undertaking of the subject of net neutrality.
I begin by noting that our colleagues Zoe Lofgren and Rick Boucher, as well as many other Members, have been working on this subject for quite a while, and I want to commend them and the Chairman of this Committee for making sure that our jurisdiction in this matter is put forward and that we can hold these kinds of hearings, because this is a very important subject, and it has to do with the issues that affect the state of competition in the telecommunications industry as applied to the Internet. And unless we have instances of a problem, it's not clear to me that we ought to be moving forward. But here, on the subject of net neutrality, I think everyone agrees that it has to be addressed. And without going into the Committee on Commerce's work in this area, it I think is to the credit of this Committee that we begin to examine the issues that are put forward in this matter.
As far as I'm concerned, we have telecom companies that have indicated that they do not intend to let companies like Google and Yahoo! or next generations of Internet entrepreneurs go free or use the pipes without significant payments. We have some very interesting quotations from Mr. Seidenberg at Verizon and Mr. Ed Whitacre at AT&T that illustrate that things are changing, and what we are trying to do with this hearing is to help determine what kind of changes should be made and whether or not we should allow the FCC to make the decisions through sometimes rather general statements as to what the policy ought to be, whether content should be controlled by those who are delivering the services.
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It's an important hearing. Network neutrality is something that should be very carefully considered as we move forward, and I think that the role of the Judiciary Committee is going to be very important, especially in the backdrop of a larger consideration of the questions involving commerce and communications. There are some large issues as we move toward the end of the 109th session of Congress that I'm not sure if we can handle all of this in the closing months. But there is no better and appropriate way to begin this than examining the question of net neutrality, and I'd like to have permission to put my statement in the record and welcome our witnesses and begin a very important hearing.
And I thank you, Mr. Chairman.
Mr. CANNON. I thank the gentleman from Michigan, who has worked together with me—and I've worked with him, I should say, at his feet learning on this issue for a very long period of time and look forward to working with him on this Committee. And without objection, his full remarks are entered in the record, and at this point, without objection, all Members' opening statements may be included in the record. Hearing no objection, so ordered.
Let me introduce our witnesses—would anyone like to make an opening statement?
[No response.]
Mr. CANNON. Good. Thank you.
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Let's go ahead and introduce the witnesses. The first witness is Paul Misener. Mr. Misener is the Vice President for Global Public Policy at Amazon.com. Prior to joining Amazon.com, Mr. Misener worked in both the Government as the senior legal advisor to FCC Commissioner Harold Furchgott-Roth and in private industry as a partner at Wiley, Rein & Fielding. He has the unique perspective of being both an engineer, graduating with a degree in electrical engineering and computer science from Princeton, and a lawyer, graduating from George Mason University. I thought that those were like incompatible. I gave up my law degree—or not the degree but my practice, largely because I love engineers. It's nice to see someone who actually embodies both.
Our second witness is Earl Comstock, the President and CEO of COMPTEL. Mr. Comstock previously served as the chief counsel and legislative director for Senator Ted Stevens, former Chairman of the Senate Commerce, Science, and Transportation Committee, and later served as the special counsel for telecommunications for the Senate Commerce Committee, where he negotiated and drafted key provisions of the Telecommunications Act of 1996. Mr. Comstock graduated with a political science degree from the University of California at Santa Barbara and earned a law degree from George Mason University.
Our third witness is Walter McCormick, President and CEO of the United States Telecom Association. He has previously served as the general counsel for the Department of Transportation and then Under Secretary Andrew Card. Mr. McCormick also has extensive congressional experience with over 10 years serving in the Senate, holding numerous positions including general counsel, chief counsel, and staff director for the Senate Committee on Commerce, Science, and Transportation. He obtained his undergraduate and law degree from the University of Missouri, studied international economics and political science at Georgetown University, and has completed the program for senior managers in government at Harvard University's John F. Kennedy School of Government.
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Our final witness is Timothy Wu, Professor of Law at Columbia University. He currently teaches copyright and trade and advance intellectual property and telecommunications at Columbia. Mr. Wu was formerly the Director of Corporate Marketing at Riverstone Networks, Inc., in Silicon Valley. He has written extensively on telecommunications and the issue of net neutrality and has been published in the Supreme Court Review as well as a number of Law Review journals, including those at Michigan, Virginia, and Harvard. Mr. Wu obtained his undergraduate degree from McGill University and graduated magna cum laude from Harvard Law School.
It is the practice in this Committee to swear in all witnesses, so if you wouldn't mind standing and repeating after me, raising your arm.
[Witnesses sworn.]
Mr. CANNON. The record should indicate that all of the witnesses indicated in the affirmative.
We will now proceed with witness opening statements. I think you all have probably testified here before, but we have a little system of lights. The first light will be green and that goes on for 4 minutes. You have a yellow light, and when the light turns red, we won't tap you down, but given the possibility that we may have to recess, we suggest—we would hope that you would keep it near 5 minutes.
Thank you and, Mr. Misener, would you please proceed.
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TESTIMONY OF PAUL MISENER, VICE PRESIDENT FOR GLOBAL PUBLIC POLICY, AMAZON.COM
Mr. MISENER. Yes, sir. Good afternoon. It is on. Thank you. Good afternoon, Chairman Cannon, Mr. Conyers, and Members of the task force. Amazon belongs to a coalition of companies that includes eBay, Google, IAC, Microsoft, and Yahoo! that is working closely with the growing assembly of well over 100 consumer groups, associations, and companies which share concerns about the topic of this hearing. I respectfully request that my entire written statement, which lists the organizations in this assembly, be including in the record. Thank you very much for inviting me to testify.
Mr. Chairman, we are here because things have changed. Within the past few years, the phone and cable companies have acquired the technical means, market power, and regulatory permission to restrict consumers' access to broadband Internet content, such as movies and music, and they've clearly announced their plans to do so. In short, the phone and cable companies will fundamentally alter the Internet unless Congress acts to stop them. And yet the response so far from Congress, the bill being considered in the House Energy and Commerce Committee, is wholly inadequate. Worse than failing to confront the threat, this bill would tie the hands of the expert agency. Surely, as it did a few years ago with the Tax Freedom Act, Congress can better thwart this clear and present danger to the Internet.
Mr. Chairman, rather than read all or part of my written statement, I would like to use my allotted time to describe what will happen if Congress fails to reinstate essential consumer safeguards recently abandoned by the FCC.
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For the next 5 to 10 years, phone and cable companies will maintain their duopoly market power over consumer broadband Internet access. The phone and cable companies also will continue to invest and deploy broadband, as they have for many years under nondiscrimination rules. And they will continue to realize returns on their investments by being handsomely paid for access by consumers and content providers alike. Although the network operators will continue to promise that they won't, quote, block access to websites, they will firm up their plans to degrade access to some websites as a consequence of giving priority, fast-lane access to others.
The telcos also will start providing proprietary video service and will continue to seek accelerated franchise grants without build-out requirements, based in part on the existence of Internet video competition which, simultaneously, they are moving to quash.
At some point, the phone and cable companies will present a simple ultimatum to major Internet content providers: Pay us for prioritization, or if you don't pay, your content will be degraded relative to those who do pay. Similar deals may be struck based on political or religious viewpoints or other non-technical discriminatory factors. In this way, the network operators will extend their market power over access to market power over content. They will use their monopolies to monopolize. A bidding war will quickly ensue. The top-tier Internet content companies will bid up the price of prioritization on each of the half dozen or so major Internet access networks. Smaller companies will recognize that they have no hope of competing in this bidding war, and independent venture capital for new online businesses will dry up.
The new way for an entrepreneur to take a business online will be to seek permission from the phone and cable companies. A flurry of antitrust actions will then be filed against the network operators, but even if the courts don't find that the plaintiffs failed to state a claim, these actions will take far too long to be effective.
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Meanwhile, the foreign network operators, such as Deutsche Telekom, almost all of which are wholly or partially owned by a foreign government, will follow through on their already announced plans to use discrimination as a great way to make more money off the world-leading American Internet content companies. In effect, foreign network operators will restrict access of American Internet companies to foreign markets.
Congress or the FCC will soon thereafter realize that it was a mistake to allow the network operators to control Internet content and will rush to pass remedial legislation. Unfortunately, it will be too late because the lost years of innovation will be forever lost, the network operators will have wastefully invested in equipment designed for discrimination instead of speed, and the foreign governments certainly won't reverse themselves just because America reconsidered.
So the result of Congress' unwillingness to address this clear and present danger will be to leave American consumers with dramatically reduced content choice, to stall American online innovation, and to wound U.S. global Internet competitiveness.
Mr. Chairman, this sorry tale is eminently avoidable. I urge you and your colleagues to recognize that, despite how much we wish it were otherwise, the market for broadband Internet access is not competitive and that the network operators, both domestic and foreign, fully intend to extent their market power over access to market power over content. I, therefore, urge that Congress act now to reinstate meaningful, enforceable, bright-line safeguards that preserve consumers' longstanding freedom of Internet content choice.
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Thank you again for inviting me to testify this afternoon, and I look forward to your questions.
[The prepared statement of Mr. Misener follows:]
PREPARED STATEMENT OF PAUL MISENER
Good morning, Chairman Sensenbrenner, Mr. Conyers, and Members of the Task Force. My name is Paul Misener. I am Amazon.com's Vice President for Global Public Policy. Amazon belongs to a coalition that includes eBay, Google, IAC/InterActiveCorp, Microsoft, and Yahoo!, that was formed to express our shared concerns about the topic of this hearing. Thank you very much for inviting me to testify on this important matter. I respectfully request that my entire written statement be included in the record.
I. INTRODUCTION
Mr. Chairman, the phone and cable companies will fundamentally alter the Internet in America unless Congress acts to stop them. They have the market power, and regulatory permission to restrict American consumers' access to broadband Internet content, including music and movies, and have announced their plans to do so.
Amazon.com is an Internet-based retailer and retail platform with over fifty million customers worldwide. We merely want to ensure that our customers retain their longstanding freedom to access the broadband Internet content of their choice, including that content available from Amazon.com. Currently, consumers pay network operators for Internet access, and have the freedom to select lawful content from providers like Amazon, who pay network operators millions of dollars a year for Internet access.
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In essence, we fear circumstances in which broadband network operators with market power are permitted—based on payments, political or religious viewpoints, or any other non-technical discriminatory factors—to prefer some content and thereby restrict consumer access to other content.
As already noted, many large Internet content companies including Amazon.com, eBay, Google, IAC/InterActiveCorp, Microsoft, and Yahoo! are very concerned about network operators' ability and plans to restrict content choice. Earlier this month, the chief executive officers of these companies, Jeff Bezos, Meg Whitman, Eric Schmidt, Barry Diller, Steve Ballmer, and Terry Semel, wrote the Honorable Joe Barton, Chairman of the House Committee on Energy and Commerce to say that
Until FCC decisions made last summer, consumers' ability to choose the content and services they want via their broadband connections was assured by regulatory safeguards. Innovators likewise have been able to use their ingenuity and knowledge of the marketplace to develop new and better online offerings. This ''innovation without permission'' has fueled phenomenal economic growth, productivity gains, and global leadership for our nation's high tech companies.
These six CEOs then urged that, in order ''[t]o preserve this environment,'' a bill should be passed ''that directly addresses broadband network operators' ability to manipulate what consumers will see and do online. It is equally important to pass a bill that fleshes out these consumer freedoms via rules of the road that are both meaningful and readily enforceable.'' Lastly, the CEOs expressed their desire to work for legislation ''to protect millions of Americans' legitimate expectations in an open Internet, as well as the innovation and competitiveness that it creates.''
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Our companies believe that Congress must act to preserve longstanding consumer freedoms. The telco and cable operators must not be allowed to extend their market power over broadband Internet access to market power over broadband Internet content.
This is not just a ''big Internet company'' issue, however. Ultimately, this is a consumer and much broader industry issue, and a coalition of well over 100 organizations have joined together to support legislative safeguards to preserve the openness of the Internet. These organizations include the AARP, Acopia Networks, Adaptive Marketing LLC, Adobe, Advancedmultimedia.com, Aegon Direct Marketing Services, Airespring, Amazon.com, American Association of Libraries, AnalogZone, AngleBeds.com, Ask.com, Association of Research Libraries, Awow Communications, Bandwidth.com, Bloglines, Borsetti & Co., BT Americas Inc., Business Software Alliance, CALTEL, Cendant, Chemistry.com, CinemaNow, Circumedia LLC, CitySearch, CommPartners Holding Company, COMPTEL, Comunicano, Inc., Consumer Electronics Association, Consumer Federation of America, Corliant, Cornerstone Brands, Inc., Dagdamor Media, Dave Pettito Direct, DiMA, Domania, Downstream, Dreamsleep.com, Dresses.com, EarthLink, eBay, eBrands Commerce Group, Economics & Technology, Inc., Educause, Elaine P. Dine, Electronic Retailing Association, Entertainment Publications, Evite.com, Excite, Expedia, Free Press, Free World Dialup, GetSmart, Gifts.com, Google, GotVoice, Inc., Graceline Canada, Hawthorne Direct, Home Shopping Network, Hotels.com, Hotwire, HSE24, IAC/InterActiveCorp, Iceland Health Inc., iFreedom Communications, iNest, InPulse Response, INS, Interactive Travel Services Association, InterMetro, Internet2, Interval International, Intervox.com, IntraISP, Invens Capital, Isen.com, LLC, IVR Technologies, iWon, J. Arnold & Associates, JohnnyZip, Lafayette Group, Inc., Law Offices of James Tobin, LendingTree, Lingo, Inc., Listyourself.net, Livemercial, Match.com, McFadden Associates, MCM Telecom, Media Access Project, Media Partners Worldwide, Mercury Media, Merrick Group, Microcom, Microsoft, Miller & Van Eaton, National Retail Federation, Nationalblinds.com, NetCoalition, Objectworld, Pac-West, PointOne, PRC, Primus Telecommunications, Product Partners LLC, Public Knowledge, Pulver.com, RealEstate.com, ReserveAmerica, Rifftone.com, S & B Technical Products, Savatar, Savvier, ServiceMagic, Shelcomm, Shoebuy.com, Skype, Sling Media, Sling Media Inc., SOHOlutions, Sonus Capital Management, Sony Electronics Inc., SunRocket, Symercy Financial Corp., Techviser, Telekom Austria, Telephia, TELLO, Ticketmaster, Tier1Research, TiVO, TNS, Tonystickets.com, Tranqulitymattress.com, Travelocity, udate.com, VI Technologies, Vivox, WCW Networks, and Yahoo!
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I hope that all of these entities' views and, most importantly to Amazon.com, the interests of our customers, will be thoroughly considered.
Moreover, this is not merely a dispute between American network operators on one hand, and American consumers and content providers on the other. Rather, it is the first and precedent-setting battle in a worldwide conflict. Recent news reports confirm that foreign network operators such as Deutsche Telekom and Telecom Italia also are interested in extending their market power over their networks to market power over content. Thus, if U.S. policymakers were to allow American network operators to extract oligopoly rents from American content providers, our policymakers would be simultaneously setting a precedent for allowing foreign operators to exercise the same leverage over world-leading American Internet content companies and their customers.
In my time this afternoon, I will describe the market power of network operators and the details of how they intend to extend that market power to limit consumer choice of content, such as movies, television, and music. I then will describe the need for Congress to require adoption of regulations to confront this clear and present danger; how failure to act will set a dangerous international precedent that will harm American competitiveness overseas; and how legislation that would grant national video franchising relief should not be enacted without such provisions. Lastly, I will propose modest safeguards to preserve Americans' longstanding freedom of Internet content choice.
II. NETWORK OPERATORS HAVE MARKET POWER: CONSUMERS HAVE LITTLE OR NO CHOICE OF BROADBAND INTERNET ACCESS
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Mr. Chairman, as much as we wish it were otherwise, consumers have little or no real choice of broadband Internet access. For the foreseeable future, nearly all Americans will have two or fewer providers available: the phone company, the cable company, or both. And, unfortunately, consumers will continue to face discouragingly high costs of switching between them; equipment swaps, inside wiring changes, technician visits, long term contracts, and the bundling of multiple services all contribute to these costs.
Despite the common misconception intentionally perpetuated by the network operators, the Internet did not grow up in an unregulated environment; its growth and success were due in large measure to the longstanding rules that governed its infrastructure until last year's FCC decision. Although many of the rules were outdated and worthy of deregulation, the Commission erred by completely abandoning non-discrimination requirements before the market became competitive.
The Commission's own semi-annually reported data on the competitive availability of broadband access are fundamentally misleading. These data, which purport to show multiple broadband service providers in many areas of the country, completely obscure the realities faced by individual consumers. Unfortunately, however, these data also were the basis for the Commission's recent actions.
In the first place, the data count as high-speed broadband any services that deliver as little as 200 kbps in one direction. Although this may have been a reasonable definition of broadband a decade ago, it is preposterously slow today, incapable of delivering even typical TV quality video, let alone HDTV, and is but one five-hundredth the speed being provided to millions of consumers in Korea and elsewhere. Second, the geographic areas analyzed are zip codes, not individual neighborhoods or households. So while there may be three or four true broadband network operators (for example, two telcos and two cable companies) serving small separate areas in a zip code, no one consumer may have access to more than two of them (one telco and one cable company).
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The result of these misleading FCC data is that the amount of broadband consumer choice is wildly overstated, particularly when the aforementioned high switching costs are considered. If it really were easy for Americans to switch among five, six, or more true broadband Internet access providers, the market would be competitive and legislated consumer safeguards would not be necessary.
Unfortunately, what exists for the vast majority of Americans is, at best, a duopoly of the local phone and cable companies. Widespread deployment of alternative broadband technologies capable of high quality video remains a distant hope and, with yet another mega-merger in the works (this time AT&T and BellSouth), the promise of inter-regional local phone company competition is all but dead. In such oligopolistic conditions, consumers are left with fewer services, higher prices, or both.
The FCC's most recent semi-annual broadband deployment data, released earlier this month, verify this bleak assessment. Perhaps the most salient fact revealed in the data is that, of the 34.3 million advanced services broadband lines serving primarily residential end users, only one half of one percent use other than telco or cable technology. Given that telco-telco and cable-cable overbuilds are so very rare, this fact confirms that nearly all American consumers are stuck with the telco-cable duopoly.
To be clear, we don't begrudge the phone and cable companies their current market power over broadband Internet access networks. Despite the longstanding desires and noble aspirations of policy makers, America is stuck with this super-concentrated market for the foreseeable future.
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Moreover, although we oppose the collection of oligopoly rents, we certainly don't seek to deny network operators a healthy return on their investments. But there are two obvious considerations: what are their investments and are they getting a return? While it is true that there are new investments being made (well before any discriminatory pricing regime has been established), even the operators like to remind regulators that they are, in Verizon's words, potential video service providers ''who already have access to the rights-of-way'' around the country. But, of course, they did not obtain these incredibly valuable rights-of-way on the competitive market but, rather, by government grant to a monopoly service provider. In sum, much of their ''investment'' was either given to them or explicitly protected from competition by the government.
Just as importantly, content providers currently pay network operators for the amount of connection capacity they use, and network operators can charge consumers different prices depending upon how much bandwidth they use. This sort of connectivity ''tiering'' makes perfect sense. And, of course, network operators will charge consumers for the provision of any ancillary services, such as affiliated video content.
Perhaps the best way to gauge whether they believe their investments without discrimination are providing an acceptable return is to note that the FCC data indicate that telco and cable broadband services are being deployed and taken by consumers at a rapid pace. Given the network operators' claims (which I believe) that they are not currently engaged in much, if any, content discrimination, this is a clear indication that network operators need not discriminate to deploy broadband in America.
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We also welcome broadband network operators' innovations within the network. With Moore's Law at work, network operators ought to be able to deploy innovative new technologies and services that, with increasing efficiency, provide benefits to operators and users alike. And we certainly don't oppose network operators' entry into competing businesses so long as they are not allowed to leverage their market power over broadband Internet access to favor these ancillary endeavors.
What we seek is more modest, yet far more important: We ask that Congress keep the telco and cable operators from taking their market power over broadband Internet access and extending it to market power over broadband Internet content.
III. UNLESS CONGRESS ACTS SOON, NETWORK OPERATORS WILL USE THEIR MARKET POWER OVER ACCESS TO RESTRICT CONSUMER CHOICE OF BROADBAND INTERNET CONTENT
Mr. Chairman, unless Congress acts soon, American consumers will receive artificially restricted choice of broadband Internet content. Leveraging their market power, phone and cable companies plan to restrict American consumers' access to such content based in large part on lucrative deals they intend to cut with third parties. And it will be just as easy for the operators to favor content based on political or religious viewpoints or other non-technical discriminatory criteria. By constraining consumer access to content providers, the network operators also would create an artificial ''channel scarcity''—essentially a bandwidth cartel—where none previously existed.
After years of administrative proceedings and litigation, last year the FCC reclassified broadband Internet access by wireline service providers, both telco and cable. Although the Commission simultaneously adopted a policy statement that confirms the agency's statutory authority and possible intentions to act, the statement fails to address some likely discriminatory behaviors and, in any case, is explicitly unenforceable. So, with the exception of weak merger conditions that apply the FCC's equally weak policy statement to a few network operators, and expire for no apparent reason in 18 months (the market certainly won't be competitive by then), telcos and cable companies may restrict consumer access to content at will. Because American consumers' access to Internet content is in jeopardy, Congress needs to act.
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Just as it is clear that the network operators have the market power to restrict consumers' choice of broadband Internet content, it has become equally clear that they fully intend to do so. Not only have the telcos and cable companies stridently and steadfastly opposed any meaningful network neutrality rules, their most senior executives have, over the past six months (noticeably, beginning only after the FCC's final reclassification actions), issued scary yet refreshingly honest statements that reveal their plans for restricting consumer access to content. Simply put, the network operators are planning to restrict consumer choice of broadband Internet content based on deals they intend to strike with content providers and, perhaps, editorial viewpoints or other non-technical discriminatory criteria. This is precisely the opposite of ''a la carte'' pricing being sought from current, vertically integrated video service providers. Indeed, rather than enhancing consumer choice and flexibility, the network operators are moving retrograde to constrain such choice and flexibility and create an artificial scarcity of content outlets.
Although the network operators have been somewhat less clear on exactly how they intend to limit consumer access, their FCC filings and public statements reveal that they plan to do so in three key ways. But before I describe these, please allow me to summarize their technology plans. There are many differences among the technologies the duopoly network operators intend to use (hybrid fiber-coax by the cable operators and either fiber-to-the-home or fiber-to-the-node plus DSL over copper twisted pair by the telco operators), but all three technologies have been designed to operate the same way in practice, with two downstream components: a very high capacity (''fast lane'') cable-like private network component, and a much lower capacity (''slow lane'') downstream broadband Internet access component. The fast lane will be operated as a closed network, while the slow lane will be more (but not entirely) open.
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A. Specific Network Operator Plans
The network operators apparently plan to restrict consumer choice of broadband Internet content in three essential ways: by providing (1) a closed fast lane and an open slow lane; (2) paid 'police escort' within the slow lane; and (3) preferential ''local on-ramps'' into the slow lane.
1. Closed Fast Lane and Open Slow Lane. First, as noted before, each network operator has or is constructing a fast lane for their affiliated broadband content provided by a sister company and a slow lane for broadband Internet content provided by others. The fast lane they reserve for themselves is a closed, private network. This has always been the case for cable operators and, even for the telco operators deploying broadband, make no mistake: the overall broadband pipes they're deploying are mostly just another version of cable TV, not broadband Internet. Consumers should recognize that despite the nearly ubiquitous and puffy advertising, it's not about ''your world, delivered,'' it's mostly about their world.
2. Paid Police Escort within the Slow Lane. Second, the network operators intend to offer Internet content providers paid prioritization (essentially a paid ''police escort'') in the slow lane. Their plan is that, as content enters the operators' slow lanes from an Internet or other network access point, the speed with which this content transits their network will be determined, in part, based on whether the content owner paid for prioritization. The terms of art the network operators use to describe this prioritization include ''quality of service'' and ''tiering.'' Each term is intentionally confusing. I am not suggesting that certain types of services be denied prioritization, just like certain kinds of road traffic, like emergency services, deserve police escort. But such police escort should not be made available for a fee; otherwise those unable to pay the fee will always be stuck in traffic. Put another way, to prioritize some traffic is to degrade other traffic. It's a zero-sum game at any bottleneck. This fact is intentionally obscured by network operators, who incorrectly claim that they will not degrade anyone's content. Neutral prioritization (for example, network management whereby all live video streams receive priority above all text files) would be perfectly acceptable. But for an operator to sell priority to the highest bidder, the degradation of service to content providers who can't or don't pay would be anticompetitive. Fortunately, it also is predictable and, with modest legal safeguards, avoidable.
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As should be obvious, small businesses will have a very hard time innovating if they need to pay for 'police escort' prioritization to compete. When some companies like mine have noted this previously, some of the network operators respond with something to the effect of ''beware when big companies are looking out for the interests of little ones.'' That response seeks to change the subject and obscure three key points. First, it doesn't change the underlying fact that small entrepreneurs—facing a possible bidding war among big companies—are going to be hurt unless Congress does something now. Second, many of the big companies noting this imminent throttle on small company innovation were, indeed, innovative small companies only just a few years ago. And, third, on behalf of our customers, we want to ensure that our innovations—essentially new businesses operating in start-up mode by our employees—are not hindered in the same way. We merely want, as Internet pioneer Vint Cerf so clearly puts it, ''to innovate without permission'' of the network operators.
3. Preferential Local On-Ramps into the Slow Lane. Lastly, the network operators intend to offer downstream content injection (essentially ''local on-ramps'' to the broadband slow lane) to content providers who are willing to pay. This would enable content to be delivered from geographic locations closer to consumers and provide better user experiences. Such local on-ramps already are provided in a competitive access market by companies such as Akamai, which has servers distributed throughout the United States so that content can be delivered quickly to consumers, rather than having to traverse great distances on the Internet. Although content providers have no expectation that such local on-ramps must be provided for free, network operators must not offer local on-ramps on discriminatory terms.
B. Network Operator Claims
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So how do the network operators discuss these plans? They obfuscate. For example, most network operators say they won't, quote, ''block'' websites. This relatively new concession is neither noble nor comforting and, in fact, is quite misleading. While they may not actually block access to a particular website, they easily could make that site's content unusable, either by overly constraining capacity (making the slow lane too slow); by providing prioritization only to those willing and able to pay (the paid ''police escorts'' that make everyone else wait); or by providing downstream injection (the local on-ramps) only on unreasonable or discriminatory terms. So it's a matter of semantics: they may never block content, but still could make it unusable.
Wireless network operators and their representatives are seeking exemption from any non-discrimination requirement enacted, but it is difficult to see on what basis such an exemption would be justified. Technology neutrality dictates equal treatment of copper, glass, and the ether. Consumers need not, and should not, have their access via such various means treated differently by regulation, unless there is some difference among them that legitimizes disparate treatment. The possible differences for wireless are bandwidth, mobility, ''closed network,'' and competition.
If the concern is bandwidth or mobility, wireless providers can rest assured that a non-discrimination requirement would neither require certain levels of bandwidth or performance but, rather, that all sources of technically-similar Internet content be treated equally. And if a wireless carrier wants to offer a purely private network, without Internet access, then non-discrimination rules would not apply.
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It is important to recognize that, as competitive as the mobile wireless market may appear on the surface, it would not exist on this issue because the competing wireless providers are almost all owned by the uncompetitive telcos who oppose non-discrimination rules. Although Sprint/NexTel is independent, T-Mobile is owned by Deutsche Telekom (which has announced its intention to discriminate), Cingular is owned by AT&T and BellSouth, and Verizon Wireless is owned by Verizon. On the issue of Internet content non-discrimination, therefore, policymakers cannot expect the wireless market to behave competitively.
Other network operators say, dismissively, that this is a ''solution in search of a problem,'' or that policymakers should wait for a problem to arise before acting. This wait-and-see approach was endorsed by the FCC last year. But what further proof is needed? The time to act is now. To ignore the network operators' market power, their strident and steadfast opposition to meaningful safeguards, their boldly announced intentions, and their increasingly clear specific plans, is truly to turn a blind eye to a clear and present danger to consumers.
This situation is eerily similar to that facing Congress a few years ago with respect to Internet access taxes. Congress correctly foresaw the future problem of state and local governments imposing burdensome taxes on Internet access and moved peremptorily to ban such taxes by enacting then extending the Internet Tax Freedom Act. Today, the functional equivalents of the state and local tax collectors are the oligopolistic telco and cable network operators, and Congress should likewise recognize and peremptorily thwart the threat they pose to the Internet.
IV. FAILURE TO PROTECT AMERICAN CONSUMERS ALSO WILL ENABLE FOREIGN NETWORK OPERATORS' ANNOUNCED PLANS TO RESTRICT AMERICAN CONTENT COMPANIES' ACCESS TO OVERSEAS MARKETS
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To make matters worse, foreign broadband Internet access network operators have plans to restrict world-leading American content companies' access to overseas consumers. Deutsche Telekom and Telecom Italia have already announced their plans. Earlier this year, for example, Kai-Uwe Ricke, the CEO of Deutsche Telekom said that ''the Googles, Yahoos, eBays and Amazons'' ''need infrastructure''; that ''[i]t cannot be that infrastructure providers like [Deutsche] Telekom continue to invest, while others profit from it''; and that ''Web companies that use infrastructures [sic] for their business should also do their part.'' But, of course, Amazon.com and others already do their part by paying for Internet connections. What Mr. Ricke actually wants, of course, is exactly what our domestic network operators want: to use market power to charge consumers once and American content providers twice, all for the same thing.
American policymakers must consider the effects of our domestic regulatory actions on our global competitiveness. American content companies like Amazon.com are world leaders today, in part because our access to consumers in other markets has not been impeded. If foreign network operators, almost all of which face no competition and are fully or partly owned by foreign governments, with obvious incentives to favor non-American content companies, are allowed to extract discriminatory rents from American content companies, our competitiveness both as an industry and a nation will suffer. Put another way, even if it were sound policy for Congress to allow American network operators to extract oligopoly rents from American content companies, it could not be sound policy to set the precedent for foreign network operators to extort payments from world-leading American content companies. How could our trade representatives challenge such actions abroad if we permit them here at home? Clearly, we must not lay the groundwork for every network operator around the globe to extort payments from American Internet companies. The only way we can hope to prevent this outcome is to hold the line domestically: we must not allow consumer choice of content to be artificially restricted by network operators with market power.
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V. ANY LEGISLATION GRANTING VIDEO FRANCHISING RELIEF MUST ALSO AFFIRMATIVELY PRESERVE CONSUMER FREEDOM OF CHOICE OF INTERNET CONTENT
Mr. Chairman, the preservation of American consumers' longstanding freedom of choice of Internet content should be addressed in the context of national video franchising relief. The reason for granting such relief is, of course, the introduction of additional video competition for consumers, so it would be counterproductive to facilitate the delivery of content of one additional competitor (the phone company), while limiting the availability of thousands of other competitors via the Internet.
Moreover, in support of their opposition to requirements for system build-out and service to rural areas, the telcos recently have repeatedly cited the competition from Internet content providers (''Internet streaming video'' and ''Internet-downloaded video,'' in AT&T's words). As Verizon reported to the Commission in opposition to video build-out requirements, there is ''significant competition in access to video programming through myriad means, including internet and satellite sources. . . .'' BellSouth went so far as to tell the FCC that Internet content competition would diminish unless telcos were given video franchising relief: ''[i]f LFAs [local franchising authorities] are permitted to delay or prevent broadband providers from also [in addition to cable] offering video service, then competition will be greatly (and probably permanently) impeded. This is particularly true given the plethora of new [Internet-based] video offerings that require robust broadband networks.''
So the network operators have the temerity to cite the presence of competitive Internet-based video programming as justification for preempting local government rules and dodging reasonable build-out obligations, all while planning to quash that competition by restricting consumer access to Internet content.
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In the interests of competition and consumer choice, therefore, video franchising relief must not be granted without meaningful broadband Internet content safeguards; otherwise, consumers will receive less, not more, choice of content.
These safeguards must keep the network operators from cutting ''paid police escort'' deals that would adversely affect the traffic of other content providers who can't or don't pay. And they also should keep the operators from insisting upon unreasonable or discriminatory terms for leasing ''local on-ramps.'' In short, the most likely and dangerous anti-consumer discriminatory behaviors of broadband network operators must be thwarted in advance by legislation and regulation.
Mr. Chairman, your Committee's interest in this matter is greatly appreciated. We seek bright line rules that would avoid unnecessarily lengthy litigation, especially given how easily foreseen—even forthrightly announced—the network operators' anticompetitive actions are. As I noted in testimony before Congress almost three years ago, and as the FCC recognized in its final broadband reclassification order last August, that agency does not need new authority to act in this area. Congress needs either to direct agency action under current authority, or to enact another mechanism for protecting American consumers and competition.
VI. CONGRESS SHOULD REINSTATE LONGSTANDING REGULATORY SAFEGUARDS TO PRESERVE CONSUMER FREEDOM OF CHOICE OF INTERNET CONTENT
Mr. Chairman, we respectfully ask that Congress enact modest but effective safeguards to reinstate limited protections that the FCC recently abandoned, and thereby preserve American consumers' longstanding freedom of choice of Internet content. Without much effort, these regulatory safeguards can be narrowly drawn so that operators' private networks are not invaded and so that operators are appropriately compensated for the services they provide.
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Two essential consumer safeguards we seek can be summarized as follows:
(1) Content transiting an operator's broadband Internet access network may be prioritized only on the basis of the type of content and the level of bandwidth purchased by the consumer, not ownership, source, or affiliation of the content. (That is, for traffic within the broadband network's Internet access lane, ''police escort'' may be provided only based on the technical nature of the traffic or whether the consumer has a paid more for a somewhat higher speed limit.)
(2) The terms for local content injection must be reasonable and non-discriminatory; network operators must not be allowed to give preferential deals to affiliated or certain other content providers. (That is, ''local on-ramps'' into the Internet access lane need not be free, but the road owner must not charge unreasonable or discriminatory rates to favor their own or only some others' traffic.)
Note that we are not seeking to have broadband Internet access reclassified as common carriage. To the contrary, we think that with modest safeguards, appropriately drafted and clarified, and with mandatory and meaningful agency enforcement, American consumers could be confident that their longstanding choice of lawful Internet content will not be limited by network operators.
VII. CONCLUSION
In conclusion, Mr. Chairman, the phone and cable companies will fundamentally alter the Internet in America unless Congress acts to stop them. They have the market power, technical means, and regulatory permission to restrict American consumers' access to broadband Internet content, and they've announced plans to do so.
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For the foreseeable future, American consumers will have little or no real choice of broadband Internet access. And—unless Congress acts soon to reinstate modest and longstanding consumer safeguards—consumer freedom to choose broadband Internet content will be artificially limited. I urge you and your colleagues to recognize that, despite how we wish it were otherwise, the market for broadband Internet access is not competitive and that the network operators—both domestic and foreign—fully intend to extend their market power to restrict consumer choice of content by discriminatorily constraining consumer access to American content companies. I also urge that, simultaneous to any grant of video franchising relief, Congress enact safeguards to preserve American consumers' longstanding freedom of Internet content choice.
Thank you. I look forward to your questions.
ATTACHMENT
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Mr. CANNON. Thank you, Mr. Misener, for a very compelling statement. We appreciate that.
Mr. Comstock?
TESTIMONY OF EARL W. COMSTOCK, PRESIDENT AND CHIEF EXECUTIVE OFFICER, COMPTEL
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Mr. COMSTOCK. Thank you, Mr. Chairman and Members of the Committee. It's a pleasure to be here. I'm Earl Comstock, the President and CEO of COMPTEL. We represent a diverse mix of competitive providers. We have everything from cable overbuilders to wireless companies to Internet companies. We basically represent the entire spectrum of application and network operators that seek to serve consumers.
I would like to build a little bit on what Mr. Misener just said. I think, you know, he is speaking from an Internet content company side, and now we're looking at the folks that are primarily in my organization, actually seek to provide competing transmission services. Many of them do have their own facilities, and the keys that are here and the reason why Congress needs to act is that the reality of the situation today is in this United States we have two facility-based operators that reach essentially all homes and one facility-based operator that reaches essentially all businesses. And that has not changed. Both of those operators built their networks in a protected environment. They had at least a decade, if not several decades, in which to build out their facilities with the guarantee that if they built those facilities, they would get the customers. And here I'm talking about not only the incumbent phone companies, but the incumbent cable companies as well.
And I think it's important for the Committee to recognize that the network dynamics lead to inevitable discriminatory practices if Congress sets the law the wrong way. Right now today, you have the possibility that residential consumers might actually enjoy two facilities-based options while most businesses enjoy only one. Without some kind of rules that provide access to that infrastructure that was built across public rights-of-way and using public spectrum, we will not have competition that allows the content providers that Mr. Misener was speaking about, the innovators of all the innovative services and applications that everyone seeks to get access to today, we won't have any competition in the provision of the vital transmission. That's the key ingredient that everyone needs, the essential facility, in antitrust terms, that has to be available. And it's something that can't easily be duplicated. It took a lot of time and a lot of money to build out infrastructure throughout the United States. The thought that a competitor in the face of an entrenched incumbent would be able to not only gain the capital but then construct facilities—which, again, can't magically appear everywhere at once but have to be built out over time. In the face of someone who has an entrenched revenue stream and an entrenched network and the very customers that competitor is seeking to serve, that's an incredible barrier to entry unless there are some rules that make it possible for you to do that.
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Now, this Committee doesn't necessarily set the common carrier rules, but you do have oversight over the antitrust rules. And I'd point out the parallels here between what's happening now and we're seeing the re-establishment of the very kind of monopoly that led the Reagan administration Antitrust Division to break up AT&T. It was an effort that actually started 10 years before in the Nixon and Ford administrations and was carried through to the Reagan administration, and thankfully they followed through it. And what that case illustrated—the divestiture from AT&T illustrated was the incredible loss to this country, the lost opportunity that came about from having that kind of monopoly control of a network. It wasn't until after the divestiture that we saw all the benefits, the innovation of the Internet, wireless companies, all kinds of new broadband services, none of which the incumbent would have employed or deployed because it would have threatened their revenue stream.
And the same is true of cable operators. Cable modem service came about largely because of an opportunity that Congress provided in the 1996 act, where the cable industry believed that the phone companies were going to come into their market immediately, so they sought to respond to that potential competition by offering Internet access service.
Now they're in a situation where, gee, if I just continue to do what I'm doing, maybe the Bell Company gets in and offers video, but I'd much rather have a cozy duopoly than I would see competition. So what you're seeing is an effort to get the cable rules applied to everybody, and those rules tie transmission and content, and that's what's so dangerous to the United States. If you allow that essential facility, the transmission, to be tied together with the content you will create the very gatekeepers that we broke up the AT&T monopoly to prevent.
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So I hope that you'll look at enforcing some antitrust provisions, and I think antitrust is a possible remedy. But to do that, you really need to spell out some very clear violations, because I think as Mr. Misener said, the problem for most start-up companies is it's a matter of time. If they don't know up front that there's going to be some relief from the kind of anticompetitive abuses, the exclusionary practices that network operators traditionally will engage in, then they've got no opportunity to get in the market in the first place.
So it's the opportunity foregone, the opportunity lost, that really is at issue here, and it is going to take some rules to make the Internet work. The Internet grew up on common carriage, and if we're not going to have common carriage, we need a stronger antitrust remedy to solve that problem.
Thank you.
[The prepared statement of Mr. Comstock follows:]
PREPARED STATEMENT OF EARL W. COMSTOCK
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Mr. CANNON. Thank you. I appreciate that. That was also very insightful.
And now for a slightly different perspective, I believe, Mr. McCormick?
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TESTIMONY OF WALTER B. McCORMICK, JR., PRESIDENT AND CHIEF EXECUTIVE OFFICER, UNITED STATES TELECOM ASSOCIATION
Mr. MCCORMICK. Thank you, Mr. Chairman. Chairman Cannon, Congressman Conyers, Members of the Committee, thank you for the opportunity to be here today and to appear before this task force to discuss net neutrality.
Mr. CANNON. You know, I think that box will slide closer to you, if you'd like.
Mr. MCCORMICK. Is that better? Okay.
As you know, our association represents about 1,200 innovative companies that range from the smallest rural telecoms in the Nation to some of the largest corporations in the United States economy.
What unites us is that we have a 100-year tradition of connecting people to each other over networks. We are 100 percent committed to this tradition as we invest billions of dollars building out our new, next-generation broadband networks that are capable of meeting America's rapidly increasing ''need for speed.''
Today, I make the same commitment to you that our companies have made to their customers: We will not block, impair, or degrade content, applications, or services.
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If you can go there today on the Internet, you'll be able to go there tomorrow. The functionality that you have today on the Internet, you will have tomorrow.
For more than a century, our businesses have connected customers with those whom they choose to connect with. If a customer wants to call Sears, we don't connect them to Macy's.
And the FCC has made it abundantly clear that it will move swiftly to protect consumers' right to be in control of their Internet experience.
But more fundamentally, consumers' Internet experience is today unimpeded—in the absence of virtually any regulation of the Internet—because there exists a powerful consumer mandate for Internet freedom.
In a new communications era defined by multiple choices—numerous communications pathways—consumers simply will not continue to purchase Internet service from a provider that seeks to block or restrict their Internet access.
When consumers have choices in the marketplace, consumers have control. There is vigorous competition between DSL, cable modem, wireless, satellite, and other Internet access providers. In some areas free Wi-Fi access is available. In others, access over powerlines is available. This results in numerous benefits to consumers, including DSL prices as low as $12.99 a month. These benefits, of course, contribute to the FCC's recent announcement of a 60-percent year-over-year increase in U.S. broadband subscriptions, which is, of course, good news for our Nation's economy and global competitiveness.
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But continued progress, continued technology advancements, continued expansion of consumer communications and entertainment choices, rests on continued investment in these next-generation networks.
Mr. Chairman, the Internet exists today on networks. That is, in fact, what the Internet is—networks connecting with networks. Have network operators sought to control or restrict the Internet? No. Our companies have invested and grown and sought to increase the scale and the scope of the Internet. And we have sought public policy that encourages increased investment in networks that will make the Internet even more robust tomorrow than it is today.
All sides of the network neutrality debate agree that what will be required in the future is more investment in networks. Indeed, Internet traffic is multiplying. Network traffic is now growing about 100 percent annually. Further acceleration is expected soon. Cisco CEO John Chambers predicts that broadband video and other bandwidth-intensive applications will drive a four-fold to six-fold increase in network traffic over the next decade.
The answer is investment, not legislation that would discourage it.
Congress has an important role in promoting competition. It should facilitate investment in next-generation broadband, investment from across today's competitive landscape, along the lines of the legislation that's now being developed by the Energy and Commerce Committee. We appreciate the vigilance of this task force, and we look forward to our continued work together.
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Thank you, Mr. Chairman.
[The prepared statement of Mr. McCormick follows:]
PREPARED STATEMENT OF WALTER B. MCCORMICK, JR.
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Mr. CANNON. Thank you, Mr. McCormick.
And now for sort of the higher view, I suspect. Mr. Wu, you're recognized for 5 minutes.
TESTIMONY OF TIMOTHY WU, PROFESSOR OF LAW, COLUMBIA LAW SCHOOL
Mr. Wu. Thank you, Mr. Chairman, Mr. Conyers, and Members of the Committee. Thanks for having me testify, and thank you very much also for directing your attention to this issue.
What I want to emphasize in my remarks today is, as you suggested, the long view. I want to suggest that the issue the Committee faces here and the Congress faces here is really not a new issue, despite the fancy label of ''net neutrality.'' It is a very old problem that this Nation has always had—the problem of the abuse of market power on information networks. This is a problem that's been confronted as far back as the telegraph, through the Bell networks, through every stage of telecommunications history, and it has at every stage been important that Government do the minimum that it needs to do to prevent the worst anticompetitive practices from occurring.
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Now, I want to start by discussing why there's been such a popular reaction to this issue of network neutrality, and I think we live in an era where the Internet has become part of the infrastructure of American life. That is to say, people rely on the Internet the way they rely on the electric network, the way they rely on the roads, the way they rely on the telephone. They plan their lives around it. They plan weddings. They buy airplane tickets. People use this network for their daily life. And I think that's why there was such a surprise and reaction when the Bells began to announce plans that they would be considering plans and situations where they would be picking and choosing favorites, trying to decide which companies should get favored access and which should get less favored access. And I think that cannot fail but to provoke a reaction.
You know, if you allow an analogy, it might as if pne day the electric company were to say from here on forth your refrigerator you purchased from Samsung isn't going to work quite as well as the one purchased from General Electric. That might make more money for the electric company. It might make more money for General Electric. But it's obvious that this would be a bad outcome for competition between refrigerators. And that's exactly the situation we face today.
The problem with network discrimination is it is inherently a tax and a distortion on competition in the network. The situation we have today, the basic layout, is that you have an extremely vigorous market operating on top of the Internet, operating on top of the infrastructure. It's a market where someone with very little resources, just a good idea, a website, and people willing to invest, can almost overnight become a billion-dollar company. Companies like Amazon, companies like eBay, companies like Google started very, very small, with almost nothing. Today, if you write a good blog, if you're clever and smart enough to say funny things or have insight into politics, you can get more readers than the Washington Post or the New York Times.
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This is how the free market is supposed to work. The markets on top of the Internet are probably the best examples in our current economy of markets working the way the free market is supposed to work. They're low barriers to entry, they're entrepreneurial, they're innovative, and they are a driving part of the American economy.
The only problem with this market is it has one Achilles heels, and that is the infrastructure. The access side of this market has never been competitive. It is not competitive today. Over 90 percent of Americans have a choice between one or two companies. And the threat, the real threat, is that the anticompetitive, the noncompetitive side of this network will spill over into what is the best functioning market in the United States today, the infrastructure—the market that is on top of the Internet's infrastructure. That is the trade-off.
Now, Mr. McCormick and the Bell Companies will explain that greater profit is needed because they need to make investments in their network, and no one denies that. The question for the Committee and the question for Congress is: What is the best way to fund these kind of things? And I suggest to you the worst way is to tax innovation and tax competition. I suggest that among the alternatives to Government, the worst way to try and promote a network build-out is allow the network owners, as gatekeepers, as crown corporations, to distort what is the strongest and one of the most vigorous parts of the American economy.
Now, not all the plans that have announced are so bad, but some of the worst ones amount to what I would call a Tony Soprano model of networking; that is to say, they're simply a threat by companies who are in a position to hurt other companies to make their life difficult. If you are offering some companies better service and degrading others, you are saying pay us or we will ruin your business. That's simply a protection scheme and not a market strategy. That's anticompetitive conduct, a threat of anticompetitive conduct, and even if you believe, as I do, in limited Government, there must be a role of Government to guarantee the very basics of a fair market and prevent the worst anticompetitive conduct.
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Thank you very much.
[The prepared statement of Mr. Wu follows:]
PREPARED STATEMENT OF TIM WU
INTRODUCTION
Mr. Chairman, and Members of the Committee,
Over the last several months, the debate over Network Neutrality has provoked rather more of a reaction than I think anyone might have thought, and I want to begin by considering why.
I think there are several reasons. First and foremost, this is an issue that affects people directly. Once upon a time the internet was a kind of toy, used by hobbyists, scientists, and geeks. But today it's something different: it has become part of America's basic infrastructure. It has become as essential to people and to the economy as the roads, the electric grid, or the telephone. It's an infrastructure that people and firms depend on for everyday activities, whether planning weddings, managing investments, or running a small business.
Given this infrastructure, Americans are accustomed to basic rights to use the network as they see fit. That's why there's been surprise and indignation over plans, advanced by the Bells, to begin deciding what consumers want, by slowing down disfavored companies, and speeding up favored companies. It's as if the electric company one day announced that refrigerators made by General Electric would henceforth not work quite as well as those made by Samsung. That would be a shock, because when it comes to the electric grid and the internet, people are used to a network that they are free to use as they wish.
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Second, whatever AT&T and others may claim as motives, the potential for abuse of market power is obvious to everyone. Ninety-four percent of Americans have either zero, one, or two choices for broadband access.(see footnote 1) Many of us wish things were otherwise, but they are not.
Given today's market, it's obvious that a firm like AT&T may earn, at the margin, more money by distorting competition among internet firms. It can, through implicit threats of degradation, extract a kind of protection money for those with the resources to pay up. It's basically the Tony Soprano model of networking, and while it makes some sense for whoever is in a position to make threats, it isn't particularly good for the nation's economy, innovation, or consumer welfare.
The problem faced here is actually not new at all—it is a familiar problem of market power on networks that government has grappled with since the days of the telegraph. What I want to make clear is the central economic tradeoff involved in these kinds of cases. Letting the internet or any infrastructure become discriminatory may offer marginally more profit for operators. But it does so at the cost of a tax on network competition and innovation. Whether it's a nation's ports, roads, canals, or information networks, discrimination comes at a price to the activities that depend on the infrastructure.
That's why at nearly every stage in the history, governments have maintained at least a basic anti-discrimination rule to block the worst forms of anti-competitive behavior. And today, that's all that's needed—a simple ban on the worst kinds of behavior; a basic rule whose goal is simply to guarantee basic consumer rights and let the free market work.
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NETWORK DISCRIMINATION PROBLEMS IN HISTORY AND TODAY
Problems of network discrimination are nothing new. Network owners with market power have always been tempted to use their gatekeeper position to discriminate between favored and disfavored uses.
The history, in fact, goes as far back as the 1860s, when Western Union, the telegraph monopolist, signed an exclusive deal with the Associated Press. Other wire services were priced-off the network—not blocked, but discriminated against.(see footnote 2) The result was to build Associated Press into a news monopoly that was not just dangerous for business, but dangerous for American democracy. As telecommunications historian Paul Starr writes ''Western Union had exclusive contracts with the railroads; AP had exclusive contracts with Western Union; and individual newspapers had exclusive contracts with AP. These linkages made it difficult for rival news services to break in.''(see footnote 3) The AP monopoly had an agenda: it didn't just favor Google or Yahoo—it went as far as to chose politicians it liked and those it didn't. As Historian Menahem Blondheim has documented, AP used its Western Union-backed monopoly to influence politics in the late 19th century, even going so far as to exercise censorship on behalf of the State. The method was simple: when faced with messages from disfavored politicians, the wires simply didn't carry them.
A much more recent example comes from the 1960s, when the Bells would not allow anyone to hook up anything to their telephone system other than a Bell telephone.(see footnote 4) It took the courage of the D.C. Circuit, and later the FCC, to force Bell to accept a consumer's right to attach anything to the network not dangerous to the network. To that courage we owe better choice in telephones, and over time much more. To the freedom of network attachments we also owe the answering machine, the fax machine, and finally the modem and the whole birth of personal networking. I don't want to overstate the point, but freeing network attachments from Bell control, as technical as that sounds, has played a part in making this country the leader of the world in information technology. Here's what two FCC economists, Jay Atkinson & Christopher Barnekov, said about freeing network attachments from Bell control:
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''we believe that the recent development of the Internet, and of much of Information Technology, would not have happened if CPE (for example, modems) were still marketed only by LECs. The blossoming of the CPE market into a highly competitive industry offering a wide variety of choice at low cost and rapid technological advances, and enabling previously unknown possibilities such as the increasingly numerous Internet services, is arguably a direct consequence of the deregulation of CPE.''(see footnote 5)
So what do we have today? In terms of market structure, you have a range of diverse and highly competitive markets operating on top of the internet's basic infrastructure. These markets are viciously competitive. Invent a new search engine, like Google did, and in a few years you can be a multi-billion dollar concern. Write a popular blog, and if you're lucky you can have nearly as many readers as the New York Times. Conversely, many more businesses and ideas have failed, like the famed ''pets.com,'' but usually on the merits.
These markets functioning on top of the internet are in many ways an economist's dream. Barriers to entry are low. Startup costs are minimal: many successful business began with just an idea and a good web site. Competition is mostly meritocratic—the best online stores win, not the ones with a famous names or the right connections. Meritocratic competition, in turn, leads to Darwinian or what economists call ''Schumpeterian'' innovation. That just means that new technologies supplant the old, in a constant process of industrial rebirth. In all, today's markets operating on top of the internet's neutral infrastructure may be some of the best examples of markets working like the free markets are supposed to.
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But this thriving market has an Achilles heel. For there's one part of the net which isn't competitive at all: broadband access. The access networks are part of the old telecom world—monopolistic, slow-moving, well-connected in Washington, and prone to anti-competitive behavior. They are the ''Broadband Bottleneck.'' And the Bells, who lead the way in their efforts to change the internet, are almost an extension of government, fed and raised on government subsidies and rate-setting since 1913 or so. It is no surprise that they should be leading the way, looking for a way to make the free market of the internet work more and more like the old Bell monopoly.
THE TRADEOFF
In any discussion of neutrality rules, the Bells and even the cable companies will always turn back to their one big argument: we need more money to build the infrastructure, and if you don't give it to us, we won't build it. I think the government needs to learn how to stand up to these kinds of threats. What we have here in truth is a tradeoff. The Bells want permission to discriminate in exchange for a promise that they'll use any money earned to build more infrastructure. But even if the Bells make more money, and even if that money is actually invested in infrastructure deployments, that doesn't mean the tradeoff costs don't exist. The tradeoff is a distortion, a tax, on the healthy markets that are on top of the basic network.
It is inevitable that a discriminatory infrastructure will affect competition and innovation in the markets that depend on it. Imagine, for a moment, that private American highway companies reserved a lane for Ford cars. That would be good for Ford, but obviously would affect competition as between Ford and General Motors. It would also slow innovation—for it would no longer be the best car than wins, but the one that signs the best deals and slows down their competitors. The race is no longer to build a better car, but to fight for a better deal with the highway company.
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That's the threat to innovation on the internet. Today, as I said early, you can start a business on the internet with relatively little capital. But in a world where AT&T or Verizon decides who gets priority access, entrepreneurs get a different message. Its not who has a better product: its who can make a deal with AT&T, Verizon, Comcast or Time-Warner. That's a different kind of market, one more like the old days of telecommunications. That's when starting a network business meant making a deal with a big Telco, or forget it.
In short, the long-term costs to the economy of allowing a discriminatory internet are real. Encouraging infrastructure investments is a serious challenge, but in the end one only tangentially related to the Network Neutrality debate. The real spur to network deployment and innovation will be market entry—whether municipal broadband, or otherwise, that scares today's providers into offering something better. Indeed, even given the limited competition we have today, it is the superiority of the cable network that has goaded the Bells into beginning fiber optic deployments. For these deployment decisions, facilities-based competition is the strongest answer, and letting gatekeepers tax application competition is really a sideshow. Taxing innovation is hardly the only, and probably the most expensive way to encourage infrastructure deployment.
ON THE CASE FOR MAINTAINING GOVERNMENT'S ROLE
I think many people agree instinctively that an open and neutral internet has been a good thing for the nation. It's been good for consumers, good for entrepreneurs, and good for the U.S. economy. Countries become rich through innovation, and need basic infrastructure to innovate. That's often the difference between rich nations and poor—access to basic infrastructures needed to start a business. In this respect the neutral internet has been a sterling example of an infrastructure that has driven the national economy. Perhaps, in U.S. history, only the early canals, railways, roads, railways and electric networks can compare as boosters to the U.S. economy and the well-being of citizens.
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Even if neutrality works better—something the cable operators, to their credit, agree with—there is a different kind of hesitation out there. It is as to whether government should be involved at all. After all, Congress has with some exceptions stayed away from trying to regulate the Net, and for the most part that's been a good thing. There's no rate-setting, and no long battles over ''internet unbundling.''
But in truth things are more complex. As everyone knows, the essential initial research and build-out of the internet was funded by the Defense Department. That funding of research and development was an astonishing success, in part because the resulting design was so good it hasn't much needed government. The internet is by design diverse and decentralized, making competition on top of the infrastructure viciously competitive. That competition has ironed out many of the problems government might otherwise be needed to solve.
But while Government hasn't acted much to regulate applications, at the infrastructure side the story is completely different. The initial build-outs, as we already said, were all government funded. Thereafter, through the entire history of the internet, the Government has maintained some kind of rules to maintain basic neutrality on the network—to control, in effect, the bottleneck it helped create. We already discussed the deregulation of network attachment in the 1960s—a matter essential for letting consumers buy modems and hook them up, and a right that helped lead to a mass consumer internet. Later, the Federal Communications Commission, through the 1980s and 1990s maintained rules that protected the rights of dialup ISPs to reach customers over the phone lines. That tradition continued when, in the early 2000s, Chairman Michael Powell announced the ''network freedoms'' rules. In 2005 the FCC fined a regional phone company that was blocking Voice over Internet services, the latest of a long tradition of efforts to protect Network Neutrality.(see footnote 6)
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What do these stories have in common? At each stage, the internet's vigorous competition has relied on one baseline government guarantee: consumers get the use their network as they like. That's the same deregulatory instinct that government needs now—to guarantee consumers access to whatever content and applications they want, free of discrimination and playing favorites.
Some of you may feel hesitant, feel that government's role will necessarily be complex. It need not be. All government needs to say is this: leave things the way they are. It needs merely to recognize consumers' rights to access the content and applications of their choice, free from discrimination, and give meaningful remedies when those freedoms are interfered with.
The best proposals for network neutrality rules are simple. They ban abusive behavior like tollboothing and outright blocking and degradation. And they leave open legitimate network services that the Bells and Cable operators want to provide, such as offering cable television services and voice services along with a neutral internet offering. They are in line with a tradition of protecting consumer's rights on networks whose instinct is just this: let customers use the network as they please. No one wants to deny companies the right to charge for their services and charge consumers more if they use more. But what does need to be stopped is raw discrimination that is nothing more than a tax on innovation taken by government-supported corporations.
CONCLUSION
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This mission—protecting consumer choice against market power—is a minimum and appropriate role of government. I wouldn't be here if there were five broadband providers, each competing to give customers the best and fastest service possible. If that were the case, I am certain that the best service would win out—if one company blocked or slowed some companies, consumers would run away. If a rental car company doesn't let you drive the car where you wanted, you'd choose a different company. The problem is the lack of choice in this market.
Let me close by looking at who's on each side. The Bell companies have taken the lead in moving things back to the world where they pick and choose who gets better access on the network. Who wants that? Very few people. Not bloggers, libertarian, conservative, or liberal, who know that larger media outlets will be favored over them. Not the application makers, among the most active sectors of the nation's economy. Not anyone who dislikes or distrusts excesses of centralized power. Not even cable operators. And, when made aware, certainly not consumers. In fact, no one wants this but the Bells themselves, and perhaps that tells us something.
Mr. CANNON. The Chair would note that all members of the panel concluded their remarks in remarkably good time. We appreciate that.
I'd ask unanimous consent that the following items be made part of the hearing record: testimony from Mark Cooper of Consumers Union; a letter to Chairman Sensenbrenner from the National Broadcasters supporting net neutrality protections; testimony from Kyle McSlarrow; an open letter from small, medium, and large Internet companies opposing the Energy and Commerce bill; and the Federal Communications Commission press release of April 3, 2006. Pardon me. That should be the National Religious Broadcasts. Somehow I skipped over that very important distinction. And without objection, so ordered.
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The Chair recognizes himself for 5 minutes to ask questions, and first, a subject dear to my heart that I'd like a quick opinion on from all of you. Should we extend and make permanent the Internet Tax Freedom Act's moratorium on the taxation of Internet access? Let's just go down the line?
Mr. MISENER. Yes.
Mr. COMSTOCK. Yes.
Mr. MCCORMICK. Yes.
Mr. Wu. I haven't thought about it before, but why not?
Mr. CANNON. Thank you for the quick answers. Do you have any rationale? This is not exactly the record we're building, but are we going to get investment—is the lack of a permanent moratorium chilling investment in any of your views? Mr. McCormick?
Mr. MCCORMICK. Well, Mr. Chairman, I think that, you know, consumption taxes were typically applied as a matter of policy on those areas of the economy where we want to discourage consumption. Internet is an area of the economy, and particularly the information economy, where we want to encourage further investment and consumption, so that the whole theory of tax policy in that area would be to keep hands off the Internet when it comes to taxation.
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Mr. CANNON. Thank you. I note that every other member of the panel is concurring. I agree with that, so let's cut that one off and move on to some other issues.
Mr. McCormick, you mentioned that consumers have a range of broadband options, but can you explain the apparent discrepancy between that in your remarks and the statistics provided by the FCC that 98.8 percent of advanced service lines—the advanced service line marketplace is cable and DSL?
Mr. MCCORMICK. Yes, Mr. Chairman. Under traditional competitive analysis, the immediate choice to the consumer and the contestability of the market are both restraints upon price. Market contestability is very present today. We have access to the Internet today over DSL, over cable modem. There's satellite access wherever you have a view of the Southern sky. There is wireless access to the Internet. There is now unlicensed spectrum available to those who want to invest, unlicensed spectrum through Wi-Fi and Wi-MAX technologies. In fact, Google has now entered into partnerships where it's providing, for a fee, Internet access.
So what you have is you have both consumer choice and you have market contestability. Indeed, even at a convention like the COMPTEL convention, you have individuals like Jeff Compton of Telscape Communications being reported in Communications Daily as saying that it would be a mistake for the Bells to push competitors off of wirelines because, he says, ''If the competitive industry is pushed off telecom wires, it will ally with cable, broadband over powerline providers, wireless carriers, or even satellite companies. The Bells will be sitting there with the infrastructure maintained and less of the market share.''
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I'd like to introduce this article for the record because of the variety of consumer choice.
Mr. CANNON. Without objection.
Mr. COMSTOCK. Mr. Chairman, if I might just respond very briefly to that?
Mr. CANNON. Certainly.
Mr. COMSTOCK. The statistics you cited are absolutely correct. There is no real competition in that, and I'd also note that that's in the residential marketplace. In the business marketplace, without the access rules imposed under the Communications Act, there would be relatively little competition; fewer than 3 percent of the buildings in this country have alternative fiber going into them. And with respect to satellite and broadband over powerline and other services, the reality is less than 1 percent of the services are being provided over that. These are not competitive alternatives at the moment, and they probably won't be in the foreseeable future.
And I'd just like to add for the record, on page 6 of my testimony we cited a Wachovia analysis that basically said there's a cozy duopoly structure here and that's what's allowing Verizon to raise their low-end DSL price from $15 to $18 and tack on a $20 surcharge. So if that's a competitive marketplace, then, you know, I think we're all missing something here.
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Mr. CANNON. Does anyone on the panel know how many consumers current access the Internet over powerlines?
Mr. COMSTOCK. According to the FCC's own statistics, it's less than 1 percent.
Mr. CANNON. Right. That's for all——
Mr. COMSTOCK. That's for all access over——
Mr. CANNON. Not just powerlines, which are——
Mr. COMSTOCK. Right.
Mr. CANNON. It seems to me that the point here is that we have lots of potential, but, in fact, we have sort of a duopoly. Can I just ask the panel their views on municipal build-out for access to the Internet? Starting with you, Mr. Misener, if you'd like.
Mr. MISENER. Well, certainly more competition is better. The sooner the better, the better for American consumers, American innovation, American industry. It's just not there yet. It won't be here anytime soon.
Mr. CANNON. Are you familiar with the Swedish model?
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Mr. MISENER. The Swedish model?
Mr. CANNON. Yes, of Internet build-out. [Laughter.]
It provides wonderful access.
Mr. MISENER. I have no recollection.
Mr. CANNON. They are—Sweden—— [Laughter.]
It was the after-dinner drinks, I suspect, but thank you. Does anyone know about Sweden, what's happened with the build-out in Sweden?
Mr. COMSTOCK. The municipalities are building out the infrastructure and——
Mr. CANNON. It's actually private, but has done—it's been a very interesting process. Do you have a comment, Mr. McCormick? Do you have any members who are municipals?
Mr. COMSTOCK. Well, we have members that are supplying the service to municipalities, and I second what Paul said. But I think the key point everybody has to remember, regardless of whether it's municipalities or someone else, all of these are smaller networks that need to connect to the larger networks.
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Mr. CANNON. Right.
Mr. COMSTOCK. And I think that's really the key, is without strong interconnection rules, a smaller network has no chance.
Mr. MCCORMICK. I guess my point, Mr. Chairman, is that——
Mr. CANNON. Let me just ask it this way, because my time is almost up. You can answer as long as you'd like, but I can't imagine that you guys would be opposed to the municipals building out and adding to your network.
Mr. MCCORMICK. Our view has been that as long as they come in and compete on an equal basis with the private sector. But as I said, I represent 1,200 companies. A number of them are smaller rural companies. In many of these areas, there is not Internet access today. What's standing in the way of Internet access is investment. The technology is there, whether it's broadband over powerline, whether it's unlicensed spectrum, whether it's cable modem or DSL, or whether it's wireless. There is no technological barrier to entry. The only barrier to entry is the willingness to invest and to deploy. And historically in this country, people invest and deploy if they feel that they can get a return on their investment.
So for everyone sitting here at the table, there is an opportunity for them to invest and deploy Internet access.
Mr. CANNON. I think the—could you just—pardon me, I've gone over my time, but just let me ask: Isn't deployment dependent upon many of your members connecting with these smaller networks?
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Mr. MCCORMICK. There is a history in the Internet of interconnection on a pairing arrangement. I am not aware of any problems relating to interconnection of Internet networks that has not been—the only one I'm aware of is the one that you mentioned, Madison River, which was dealt with immediately. But every Wi-Fi network that's being deployed is connecting with the Internet. There's been no problem whatsoever.
Mr. CANNON. I plead the panel Members to accept my apology for going over time and hope that none of them follows my example. I yield back now and recognize the senior Member of the Committee, the Ranking Member, Mr. Conyers.
Mr. CONYERS. Thank you, Mr. Chairman. This is a very important and informative set of statements that have come from the witnesses.
Professor Wu, what we're gathered here about in discussing market neutrality, net neutrality, is really a question of whether market power is going to be able to prevail over and intercept and control content; and that at the same time, the Federal Communications Commission has been moving away from this issue, making it very hard for consumers to seek a remedy without having to all get lawyers. Is that a fair interpretation of what I've been hearing from the majority of the witnesses at the table today?
Mr. Wu. I think it is, Congressman Conyers, and this is a situation with historical precedent. I'll give you one strong example from history.
In the 1860's, the telegraph companies, which were also a monopoly—Western Union—signed an exclusive deal with Associated Press that only allowed Associated Press to be carried over the wires; that is to say, they only allowed—they didn't actually block other companies. They just discriminated against other companies.
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That in turn led to a news monopoly in the late 19th century which was a threat not only to American business and competition but a threat to American democracy, because this was a combined action of the telegraph monopoly plus the news monopoly that would pick political favorites, choose politicians they liked, and run only their news and their information over the wires.
I don't want to suggest we're at that far of a stage, but what I'm suggesting is when network owners pick favorites, that's very dangerous for the American democracy and dangerous for American business.
Mr. CONYERS. Well, the idea of network neutrality, a few years ago I didn't see a problem but—I would argue that there wasn't a problem then. I've got statements now from people in the business who use—who have market power, control the pipes, who are saying we're going to start charging, we're going to start discriminating.
Is that, Mr. Misener, a fair appraisal of what the issues are that bring us to the table here this afternoon?
Mr. MISENER. Yes, sir, Mr. Conyers. Things have changed. It's not the case that this is a static circumstance. The market has radically consolidated over the past few years. Ten years ago, soon after my company started in business, there were dozens of ISPs in any major metropolitan area. Currently, at best, you'll get two broadband ISPs serving an area. As Mr. Comstock pointed out, something less than 1 percent of consumers are taking broadband Internet access from someone not on cable or a telco.
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The other thing is that the FCC has deregulated last year to allow longstanding nondiscrimination principles to be removed from the books before competition arrived. I think we all wish there were competition and all believe that, were there competition, the rules would not be necessary. But the Commission moved first before the competition arrived.
Mr. CONYERS. I just wanted to ask Mr. McCormick, we've got a number of quotations from industry leaders, from SBC—all friends of mine—Verizon—some less friendly—BellSouth. But the whole idea is that they're saying network operators must be free to control the type and quality of service on the system. How does that comport with what you've told us this afternoon, sir?
Mr. MCCORMICK. Mr. Conyers, I think what Mr. Whitacre and others in the industry like Mr. Notebaert have done over the course of the last couple months is respond to—try to respond in a very thoughtful way to that in two ways: First, they have said we will not block, degrade, or impair anyone's access to the Internet. With regard to operating the network, the way we currently operate it, by making sure that certain applications are afforded a level of security or privacy, we have to have the flexibility to do that in the future.
So, for example, today the Federal Government comes to us, and they say——
Mr. CONYERS. But you're telling me that I should sleep comfortably in my bed tonight because I shouldn't take these too seriously.
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Mr. MCCORMICK. No. I think that you should take them seriously, but I'm trying to explain what they meant by that.
Mr. CONYERS. Oh.
Mr. MCCORMICK. And what they meant was that there are network applications, for example, Bank of America comes and they want to have a virtual private network that is secured for privacy purposes. That network operates over the Internet, but we plug into that network certain security and quality of service applications. The Federal Government comes to us and needs secured applications for national security. Health care facilities come to us, and they need to have virtual private networks. We need to be able to continue to be able to manage the networks——
Mr. CONYERS. Well, I don't know if Ed Whitacre was thinking about that when he said, ''Now, what they''—Google and Yahoo!—''would like to do is use my pipes free, but I ain't going to let them do that.'' Those are—that's his vernacular.
I don't think he's talking about the concerns that you're explaining to me.
Mr. MCCORMICK. Well, I think that what he is relating is that, as Google and Microsoft and others move into new applications that require enormous amounts of bandwidth, that Google and Microsoft will be looking for what amounts to virtual private networks. And I think, Mr. Conyers, that terms like ''toll lanes on the Internet'' and others, those have not—that's not been our terminology.
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The network neutrality debate has two sides to it: one is the service provider side; the other is the content and application side. This Committee took its first look at search engines in connection with airline reservation systems and said there should be no screen bias. Today, if you wanted to buy a book, Trover Book Shop is about three blocks away. But if you go on Google and plug in that you would like to buy a book near 1st and Independence Avenue, S.E., you will get ten responses; nine of them—eight of them will be Barnes & Noble book stores, as much as 8 miles away, and Trover Books won't be listed until number eight down. If you plug in that you just want to buy a book, the first response you will get is Amazon.com out of more than 1 billion responses.
Now, the reason for that is that they have paid for priority. There is a screen bias in Google, and the screen bias with regard to ''buy a book'' is a priority that's paid by Amazon.com that disadvantages Trover.
So if the Federal Government is going to get into the business of regulating network neutrality, pursuant to these FCC principles, that applies both to the service providers and to the content providers. And this kind of screen bias is precisely the kind of screen bias that this Committee investigated in connection with computer reservation systems in the airline industry.
Mr. CONYERS. Well, this is—I'm way past my time, but——
Mr. Wu. Can I comment?
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Mr. CANNON. But asking very interesting questions.
Mr. Wu. Can I comment? There's a large difference in the search engine market and the Internet access market. The search engine market is a highly competitive market in which it is truly survival of the fittest. Google comes along, A9 comes along. There's an ongoing battle. And customers go to whoever gives them the best search results.
What we're talking about here is a completely different issue. We're talking about a noncompetitive market with one and two competitors, at most, with some others on the side. It's a completely different situation. The analogy is not apt.
Mr. MCCORMICK. Except the market share of Google in the search engine market far exceeds the market share of the Bell companies with regard to Internet access.
Mr. CANNON. The gentleman's time has expired, and the gentleman from North Carolina, Mr. Coble, is recognized for 5 minutes.
Mr. COBLE. Thank you, Mr. Chairman. Good to have the panelists with us today.
Mr. McCormick, telecom companies provide capital to build out and maintain the Internet's hard infrastructure pipes. Of course, we want more pipes. We want growing Internet access and lowering prices.
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If I'm a small businessman or small businesswoman or rural Internet provider paying to use your pipes, competing against one of your companies, is it your belief that that constitutes fair competition in an open market?
Mr. MCCORMICK. Mr. Coble, let me make sure that I understand. What you're saying is that you are a small business owner, like a furniture store, that would be trying to obtain Internet access over our pipes?
Mr. COBLE. Yeah.
Mr. MCCORMICK. And you want to sell furniture and you're concerned that because you're having to pay the local telephone company in North Carolina for Internet access that you might somehow be disadvantaged?
Mr. COBLE. Yeah, that's the direction in which I'm headed.
Mr. MCCORMICK. I cannot imagine a situation where they would, but I can tell you, just like with Trover Books, if you were to plug into the search engine that you want to buy furniture in a small town in North Carolina, what you're going to find is that out of hundreds of thousands of responses, you're going to get eBay and you're probably going to get Amazon.com and you're going to get a few other large companies that are paying for priority to be listed on that search engine as the first two or three examples.
So this part of net neutrality with regard to content and application providers is a very significant issue in the competitive realm and one that I know the Committee will want to take a look at with regard to the broader issue.
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Mr. COBLE. Now, the professor's body language tells me he wants to insert oars into these waters.
Mr. Wu. You know, I think you bring up a very important point, which is that small businesses are very dependent on infrastructure. They need roads to get to the rest of the country, they need phone lines, and they now need the Internet. They rely on getting neutral access to whatever they depend upon for the Internet. And the whole problem with the Bell Companies starting to pick and choose favorites is that small businesses cannot be sure that they'll get the access they need to the companies that they partner with. Or if the small business is a company itself that wants to succeed on the Internet, it needs to be in a position where it can enter the market really without having to make a deal with the Bells.
Mr. COBLE. Mr. Comstock, did I detect body language from you as well, or Mr. Misener won?
Mr. COMSTOCK. Absolutely, sir. What I think the important difference is—and while this Committee may well want to look into prioritization of screens and the practices of content providers, it's a totally distinct issue because the infrastructure that's essential for all of the content providers is that transmission network. And that's where the essential facility. That's where there's a bottleneck. This is like—very much like someone owning a road and getting to decide which cars will travel on it. And the problem in the furniture example would be if the Bell Company were also—or the cable company also owned a furniture store and then said, ''I'm going to favor my furniture store over someone else,'' this is becoming an essential medium for people to do their business. They're advertising, they're reaching consumers. And this is about making sure there's rules that allow people to get access to that infrastructure on a nondiscriminatory basis.
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Mr. COBLE. I want to ask the professor a question, but I don't want to cut Mr. Misener out. Okay. Professor, let me ask you this before my red light illuminates. Adequate infrastructure is vital to Internet access. How does net neutrality affect rural areas where smaller telecom providers maintain infrastructure, A? And let me ask you this: In the era—in this era of wireless phones and growing Internet services, what markets or regulatory measures protect the profitability of these rural telecom companies? And I ask that, gentlemen, because I'm subjective. I have rural outfits in my district.
Mr. Wu. Right. I don't think that they are the same issues. For rural areas,