We apologize for the room. We tried to get a larger
room for the hearing, but it’s just not possible today. We will try,
for the other hearing.
I’ve had a letter from some of our colleagues about urging us to
move forward on the legislation on communications. We’re going to
finish our hearings first. We’ve got another nine hearings, I believe,
nine more after today? Nine? I think it’s nine. And we published
that schedule, we’re going to go through it. And when it’s finished,
we’ll start marking up the bills.
This hearing on Internet neutrality is one of the most difficult,
but most important, issues before this Committee as we consider
revisions to the Nation’s communications laws. How we decide the
issue will determine whether cable companies—the Bells, the local
telephone companies, others—can generate the revenue needed to
justify billions of dollars in investment to deploy fiber and upgrade
existing broadband networks. We will also determine whether the
Internet remains a free marketplace of ideas with no gatekeeper,
and free of interference from regulation.
As new services, particularly video, stretch the limits of today’s
broadband capacity to the home, we are confronted with net-neutrality
arguments from providers of broadband access, like cable,
telephone companies, and wireless providers, on one side, and arguments
from Internet-content and -application providers, like
Google, eBay, Amazon, Vonage, and others, on the other side. All
sides are exploring new businesses, new business models, providing
new offerings to their customers. Groups for and against regulation,
both, make compelling arguments that their way is the best
way to encourage investment, innovation, and job creation. Cable
and phone companies argue against net-neutrality regulation,
while content and application providers generally argue for netneutrality
regulation. The FCC has announced net-neutrality principles,
but Chairman Martin has stated that regulation is not needed,
and that it will not be needed. We’ll hear arguments firsthand
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today from both sides, and we will take them into consideration as
we further examine updating telecommunications legislation, upon
completion of our hearings.
Now, our Co-Chairman is not going to be here today. He’s asked
that he—he cannot be here, for personal reasons.
First, Senator Dorgan, do you have an opening statement?
I do, Mr. Chairman.
STATEMENT OF HON. BYRON L. DORGAN,
U.S. SENATOR FROM NORTH DAKOTA
Let me be very brief, but I think this is one of
the most important hearings that we will hold this year in this
Committee. I was eating some Cheerios this morning, Mr. Chairman,
when I read the business section of the Washington Post. It
says, ‘‘Verizon Executive Calls for End to Google’s Free Lunch.’’
That was a free breakfast, then.
Well, my Cheerios weren’t free, but——
—apparently my lunch is going to be free. ‘‘A
Verizon Communications Inc. executive accused Google, Inc., of
freeloading for gaining access to people’s homes using a network of
lines and cables the phone company spent billions of dollars to
You know, the fact is, I’ve had both DSL and broadband from
cable. Consumers pay for both of those. I paid for the opportunity
to have DSL and cable broadband, and this is not a free lunch. The
reason I would have paid that is, I want access to content that exists.
And I really believe that net neutrality is a very important
concept. Four years ago, I wrote to the FCC on this subject. I understand
where the equities are from various companies. I understand
why they advocate as they do. But, it is not a free lunch for
any one of these content providers to come into the Chairman’s
home or to my home or any home of anybody in this country over
the lines of cable companies or telephone companies. Those lines
and that access is being paid for by the consumer. And I worry very
much if we start moving down the road of deciding that ‘‘the Internet
shall not be free.’’
I think the refrain of this Committee ought to be keep the Internet
free, provide for net neutrality. Were it not for the decision by
the FCC to decide that this was an information service, we
wouldn’t be needing this hearing. But, because they did that, we
do need to have this hearing and make judgments about the future.
Will the Internet be kept ‘‘free? ’’ I hope so. The answer is, I hope
And, once again, I’d just conclude by saying, when I read the
paper this morning that suggests that that which I call up on my
broadband, asking for information from Google or eBay or any
number of providers, it is not a free lunch. I’ve already paid the
toll, the monthly toll to be able to do that over a DSL line or over
a cable modem.
Mr. Chairman, thank you for calling this hearing. I think it’s
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STATEMENT OF HON. CONRAD BURNS,
U.S. SENATOR FROM MONTANA
Thank you, Mr. Chairman. It seems like I’m involved
in a couple of issues today, so I won’t get to stay and listen
to the whole thing, but we take a high interest in this particular
During the time of intense market deregulation, concerns over
fair business practices by the Internet service providers that control
the pipe to the consumers’ homes have prompted corporations
and activists to call for a regulation when the market fails. This
concerns me, and it’s been a gathering storm out there, and there’s
been swirl of information in the press, especially the communications
press. And now there is quite a lot of concern among all of
us that this is an issue that we’re driven to deal with. And I’m not
real sure that we’re prepared to do it yet.
The concern by both companies and citizens alike, is that the
ability to provide an access content on the Internet is not dictated
or restricted by the consumer’s choice of an ISP. The guiding principle
of this discussion today is a belief that there should be an unfettered
access without discrimination or courtesy to a particular
type of transmission, business, or software. The Internet should remain
open to all users and should have access to its—all users
should have access to its content. At the same time, however, we
must recognize and balance a company’s interest in managing its
own—therein—there, when you go to jumping into that briar patch,
therein lies the challenge. How do we strike the balance? A company
must remain certain—at a certain level of service quality on
its network to stay in business. At the same time, consumers demand
liberated access to the content on the Internet. My concern
is that if we legislate prematurely in this area, we will not let these
different approaches play out in the marketplace.
I’m hopeful that this hearing will start the debate here in this
town of 17 square miles of logic-free environment, and——
—because it is a debate that has to be started
and completed and completely aired before Congress makes a step,
in one way or the other. The answer to the question—there’s going
to be more questions in—coming out of this hearing than there will
be answers, I’ll guarantee you that. But I look forward to working
with the Members of this Committee and the parties interested in
this, because the Internet—we’ve been around it a long time. We’ve
seen it grow. We’ve seen it prosper. We’ve seen it become a marketplace
and an information place, something that a lot of people rely
on. And free and open access, and the availability of it, should be
free to all Americans, and the same with us who pay for the services—
like Senator Dorgan said, we all pay the fee every month for
that access and that freedom.
Thank you, Mr. Chairman, and I look forward to hearing from
the witnesses. And now I must go over and deal with asbestos. It’s
a little old issue over there that’s not——
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STATEMENT OF HON. JOHN ENSIGN,
U.S. SENATOR FROM NEVADA
Thank you, Mr. Chairman.
I want to applaud you, first of all, for the aggressive schedule of
hearings that you’ve laid out for the Committee this year. I have
introduced, as many people know, the Broadband Investment and
Consumer Choice Act—and every topic that’s contained in my legislation
is covered in your hearing, so I want to thank you for that.
We just signed up our 16th cosponsor for our legislation, so we’re
getting a lot of support building on that.
But one of the things that has to be pointed out here, that when
we’re talking about the idea of net neutrality and consumer choice
and all of the issues that we’re going to be dealing with, is the fact
that the country that invented the Internet is now 16th in the
world in broadband deployment. That is a fact, and that—it is not
something that is getting better; it is getting worse. Just a couple
of years ago, we were 11th. Now we’re 16th. And many other countries
are taking a different approach than the United States. We’re
more of a free-market country. And I think that we should be that
way. But the fact is, is that our regulations and our laws need to
be modernized to reflect the realities of technology today, to create
more incentives for companies to invest so that we have that—
those broadband networks that are higher quality, that are faster,
that give consumers more competition.
In today’s marketplace, while we have competition, we don’t have
nearly the type of competition that could be had that would benefit
the consumer, and that would benefit American competitiveness in
The idea of net neutrality is going to be one of those sticky issues
that we deal with, because everybody here says that we should—
and everybody agrees that we want the Internet to be free, and nobody
wants anybody to block the access to any website, for instance.
You know, I mean, everybody can agree on that. But we
also have to recognize that there is a balance. And, Senator Burns,
you mention the balance, and that is going to be—the critical aspect
is how we strike this balance when we’re dealing with net
If you are a company that is going to be borrowing money from
Wall Street, and Wall Street is looking at, ‘‘What kind of return are
you going to have on that investment?’’ and we have a law that
says that you cannot have somewhat control—not who—what
websites and things like that, but, for instance, if a—if the phone
companies are building out their networks, and going to fiber, and
they want to have IPTV, for instance—well, let’s just say, for instance,
that they offer 30 megabits per second. IPTV may take up
a fairly significant portion of that, and they want to guarantee that
they can offer their IPTV. That’s the incentive for them to build out
their network. The problem is, is that if there are other Google or
Yahoo!, or whatever, that wants to do the same thing, and they
have to guarantee them access through that at the same—it may
take all of their bandwidth, is what I’m trying to say.
Now, technology in the future is probably going to answer all
this, and we’ll have all the bandwidth that we need, but to give the
initial incentive for the companies to build that network, this is
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the—this is where the balance is going to have to come in. And
we’re going to have to pay attention to that, because you do deserve
a return on your investment, is the bottom line, if you’re going to
build out these networks. Otherwise, if we can’t give them a return
on their investment, Wall Street is not going to loan them the
money to do this.
Thank you, Mr. Chairman.
Senator Lott, do you have a comment?
STATEMENT OF HON. TRENT LOTT,
U.S. SENATOR FROM MISSISSIPPI
No, I don’t, Mr. Chairman. I came to hear the
panel and get some wisdom. So, I’m looking forward to hearing
Senator Pryor, do you have a comment?
I don’t, thank you.
Thank you very much.
Our former member, Senator Wyden, asked for a comment—an
opportunity to make a comment before the hearing.
STATEMENT OF HON. RON WYDEN,
U.S. SENATOR FROM OREGON
Thank you very much, Mr. Chairman. I want to
thank you and your staff for being so kind to me, as a frustrated
ex-member of this Committee. I think you’re dealing with some of
the most important issues, and I want to thank you for this opportunity.
The reason I wanted to come today, Mr. Chairman and colleagues,
is that 10 years ago a bipartisan group of Senators from
the Commerce Committee decided that, even though we hadn’t invented
the Internet, we wanted to make sure that we were taking
steps so it would prosper. And our bipartisan group came together
10 years ago to deal with the fact that the net, at the time, was
being subject to discriminatory taxation. So, we wrote a law, the
Internet Tax Freedom Act—really ought to have been called the
Internet Nondiscrimination Act, because it had a simple principle.
There ought to be technological neutrality and, in terms of taxes,
you ought to do to the online world what you do to the offline
world. In my view, that law was a real success. It’s been a catalyst
for the net’s growth. And I just wanted to suggest, today, that we
ought to be dealing in a bipartisan way with another important
In my view, there are powerful interests who own the pipes and
access to the net that are trying to break the net. These interests
want to expand their control over Internet access to the limitless
world of content, where consumers play the games and watch online
TV and enjoy video. Now, we all know consumers use highspeed
access to the net now, that they’ve paid for, for whatever content
they want, and they don’t have to worry about someone such
a cable company or a phone company interfering with the use of
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Now, some of these cable and phone companies are saying that
they ought to be able to discriminate in the delivery of content.
They’re saying that, instead of making available to everyone the
same content at the same price, they ought to be allowed to set up
sweetheart arrangements to play favorites.
Now, in my view—and I’ll wrap up with this, Mr. Chairman—
I think this is a fundamental shift in the way the Internet has
worked and prospered. The small startups and the scores of others
that began tiny and dreamed big were able to succeed because
every user has had equal access to all the websites. So, I’m going
to introduce legislation to try to keep it that way, and the legislation
is essentially built on the idea that all information ought to
be made available on the same terms, so that no bit is better than
another one. We need to assure that information from a company
like J. Crew is not treated worse than information from a company
like L.L. Bean.
Second, my legislation will assure that a company like Comcast,
that offers Internet access, does not give preferential treatment to
its own information bits, compared to information bits from, say,
another company, like Yahoo!
Third, broadband service providers should not be able to create
private networks that are superior to the Internet access that they
offer consumers generally. This principle is important, because it
would prevent Internet access providers from tipping the competitive
advantage toward their own services, such as phone calls over
the Internet, VoIP, or television over the Internet.
What it comes down to, Mr. Chairman, is, we ought to build on
the good bipartisan legislation of 10 years ago, with respect to
taxes. Act now to preserve the spirit of the Internet, which is fair
treatment for everyone.
Again, I want to thank you for the opportunity to come. You’ve
been very kind to me to let me come on several occasions in the
past. We got it right with the Internet Tax Freedom Act, 10 years
ago. I think we can do it again by working together.
And I thank you.
Thank you very much, Senator.
I made the mistake of leaving this Committee for one Congress.
Maybe you made one, too.
Our first panel is Vinton Cerf, the Vice President and Chief
Internet Evangelist of Google; Walter McCormick, President and
Chief Executive Officer of the U.
S. Telecom Association; Jeffrey
Citron, Chairman and Chief Executive Officer of Vonage; Kyle
McSlarrow, President and Chief Executive Officer of National
Cable and Telecommunications Association; Earl Comstock, President
and Chief Executive Officer of COMPTEL.
Gentlemen, we welcome you. Again, I apologize for the size of the
room—probably 150 people out in the hall. But that’s—we’re still
having rooms up there in the Senate redone, and it’s just impossible
to get another room.
I’m going to go just in—the way we put them on the schedule,
so, Mr. Cerf, we’d be pleased to have your statement.
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All of your statements will appear in the record in full. We look
forward to listening to you, and hope that you will understand our
time limitations. And we’ll have questions when you’re finished.
STATEMENT OF VINTON G. CERF, VICE PRESIDENT/CHIEF
INTERNET EVANGELIST, GOOGLE, INC.
Good morning, Mr. Chairman, Members of the Committee.
Thank you very much for allowing me to testify this morning.
I’ll try to be brief and concise.
Let me begin by pointing out that our Nation’s policies on important
issues related to Internet access involve consumer choice, economic
growth, technological innovation, and global competitiveness.
These are very important national concerns which this Committee——
Mr. Cerf, would you pull that mike up to you?
I’m sorry. Is that better? Shall I start one more time?
I’ll try to be brief about this. Thank you, again, for allowing me
The matters before you involve a broad range of issues: consumer
choice, economic growth, technological innovation, and global competitiveness.
These are very important and very major issues that
this Committee and the rest of the Congress face. Nothing less
than the future of the Internet is at stake in these discussions.
I was fortunate to be part of the original team that designed and
built the Internet. We’ve learned some lessons from its design over
the last 30 years. The first lesson is that it was structured as a layered
architecture, like a layer cake. Certain parts at the bottom
were for physical transport of bits moving over wires, or over optical
fibers, or over radio channels. The next layers up supported
packet switching. The next layers up, beyond that, supported the
actual transport of information. These various layered structures
allowed for changes in underlying transmission systems and
switching systems over the course of the 30-year period so that new
kinds of technology could be integrated into the system and everything
would still work.
More critically, we had an end-to-end principle which said that
most of the intelligence in the network was at the edges of the net,
where all of the applications were implemented. The core of the
network was fairly ‘‘stupid,’’ actually; it just moved packets back
and forth, like little electronic postcards.
The standards for the Internet were published and open and
globally available, even from the very beginning, when the Defense
Department was supporting this system, because we wanted this to
be an open standard that anyone could use to implement and to
test new kinds of applications.
The overarching rationale for all of this was to make the system
completely open and completely distributed, with no central control.
This, actually, was important to the military to make sure
that it was a highly resilient system.
There were key decisions made by the executive branch and by
the legislative branch, some of which you’ve heard about earlier
this morning, that helped to commercialize the Internet. Your decisions
coming up in this debate are equally important.
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There are something like 250,000 networks around the world
that make up the Internet. Every one of them is compensated by
its users for access to those systems. They are fully interconnected
in order to create this gigantic network of networks.
The FCC had some very important elements in its policies: safeguards
for user choice and nondiscrimination. We’ve heard a bit
about that earlier this morning. That’s terribly important. Users
got to decide which ISPs serviced them, and no ISP determined
what a user did with access to the network.
What we have today is innovation without permission. For example,
Tim Berners-Lee, in the invention of the World Wide Web, did
not have to ask permission of any ISP to invent this new and wonderful
idea. Yair Goldfinger did not with IM, and David Filo, and
Jerry Yang didn’t have to ask permission for the creation of Yahoo!
Jeff Bezos didn’t have to ask permission for the creation of Amazon.
And Larry Page and Sergey Brin didn’t have to ask permission
for the invention of Google. What we seek is to continue this very
successful policy, this engine of innovation, which openness and
freedom of access permits.
The challenge we have is that there isn’t enough competition in
the broadband world. If there were enough competition, you
wouldn’t have me sitting here expressing these concerns. According
to the statistics from the FCC in 2004, only 53 percent of Americans
had a choice of broadband access, either from cable companies
or from the telco’s with their DSL service. Only 53 percent. Twenty-
eight percent have only one choice, either cable or DSL. And 19
percent don’t have any choice at all; there is no broadband. There
are alternate transport techniques—for example, radio access and
broadband over power lines—but they occupy maybe about 1.5 percent
of the market. So, there aren’t any competitive alternatives,
other than cable and DSL, and they don’t necessarily compete head
It’s very important for us to understand what’s going on in the
rest of the world. If you look at places like Hong Kong and Singapore
and Japan and South Korea, you discover extremely highspeed
service is available, up to 100 megabits a second, for $50 a
month, with no constraints as to how that bandwidth is used. That
is an engine of innovation which we cannot afford to lose. We must
preserve neutrality in this system in order to allow new Googles of
the world, new Yahoos!, new Amazons to form.
Mr. Chairman, we risk losing the Internet as a catalyst for consumer
choice, for economic growth, for technological innovation,
and for global competitiveness. We thank the Committee for its
leadership, and we look forward to helping it fashion carefully tailored
legislation that protects the interests of America’s Internet
users. And that includes the future interests of the next Google just
waiting to be born in someone’s dorm room or garage.
Thank you very much, Mr. Chairman.
Thank you very much, Mr. Cerf.
Our next witness is Walter McCormick, President and Chief Executive
Officer of U.S. Telecom Association.
STATEMENT OF WALTER B. MCCORMICK, JR., PRESIDENT/
CHIEF EXECUTIVE OFFICER, UNITED STATES TELECOM
Mr. Chairman, thank you very much. On behalf
of our 1,200 companies, it’s a pleasure to be here before you
and this Committee today, and I appreciate the honor of being able
Mr. Chairman, there is a lot of debate today about whether or
not the Internet will change. Senator Dorgan really began this
hearing by asking, Is our Internet going to change? And so, I want
to be clear about the position of our companies.
Our companies have a 100-year tradition of connecting people to
each other over our networks. We are 100 percent committed to
continuing this tradition. Our commitment to our customers, our
commitment to you, is this: We will not block, impair, or degrade
content, applications, or services. That is the plainest, most direct
way I know to address the concerns that have been raised about
Now, how can you be assured of our commitment, in the absence
of a legislative mandate? Well, first, you can be assured of this
commitment, because our culture, our history, our business has
been focused, for more than a century, on connecting our customers
with those they choose. If one of our customers wants to call Sears,
we don’t connect them with Macy’s.
Second, because there already exists oversight by the Federal
Communications Commission. The FCC’s oversight has proven to
be effective. The Commission has made it clear that it has the au-
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thority and the appetite to move swiftly to intervene to protect consumers.
And, finally, because consumers aren’t experiencing any problems
today, and there isn’t any statute in place, there isn’t a problem
that Congress needs to address.
Mr. Chairman, consumers expect Internet freedom. And if we
don’t provide it, then the consumer will choose to do business with
someone else. Today, consumers have choices in the marketplace.
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 power line is developing.
This competition results in benefits to consumers, the latest
evidence coming just in the past week, with AT&T announcing
$12.99-per-month DSL service.
As Mr. Cerf said, the Internet operates on networks that are operated,
in part, by our companies, networks that interconnect with
other networks. That is, in fact, as he said, what the Internet is,
networks interconnecting with other networks. And have we sought
to control, restrict the Internet? No, we have not. We have, instead,
invested, grown, and increased the scale and the scope of the Internet.
Indeed, we have sought to advance public policies that will
lead to increased investment in networks—broadband networks,
networks that make the Internet even more robust.
The next-generation Internet holds enormous opportunities. I
refer not just to movies and entertainment, but to telemedicine
that can improve the accessibility and affordability of healthcare,
particularly in rural areas, to telecommuting opportunities that can
enhance our environment and reduce our dependence on foreign oil,
and other innovations that our best minds have yet to imagine.
But the promise of the next-generation Internet is dependent
upon there being investment in next-generation networks. Without
broadband networks, these exciting opportunities will remain beyond
our reach. Therefore, public policy must encourage and reward
investment in networks. This is the 21st century, the information
century, and telecommunications is at the heart of the information
Again, I appreciate the Committee’s interest in these issues, and
appreciate the opportunity to be here today.
Well, thank you very much.
Our next witness is Jeffrey Citron, the Chairman and Chief Executive
Officer of Vonage.
STATEMENT OF JEFFREY A. CITRON, CHAIRMAN/CEO, VONAGE
Thank you. Good morning, Chairman Stevens, Co-
Chairman Inouye, and Members of the Committee. My name is Jeffrey
Citron. I’m the chairman and CEO of Vonage Holdings Corporation,
the largest Internet-phone provider in the United States.
I am grateful for your invitation to address what I believe is one
of the most important technology policy questions this Committee
At root, the network neutrality debate is about who will control
innovation and competition on the Internet. Will innovation be controlled
by a few network operators, or will the Internet remain
open, with minimal barriers to entry for entrepreneurs and garage
Imagine if the electric company could dictate which toaster or
television you plugged into the wall. Imagine if Pepco said, ‘‘Plug
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in our pre-approved affiliated toaster, and your power will work
great; but, if you don’t, we can’t promise the same level of service.’’
Of course this sounds ridiculous. Power companies don’t care who
makes our toasters or our televisions. We plug them in, and they
just simply work. The power grid delivers the same level of service
to every appliance, and, as a result, the market for appliances and
consumer electronic devices is vibrantly competitive. The same
should be true for the Internet.
Innovations enhance the value of networks. People buy
broadband because applications like Vonage cut their phone bills in
half, applications like Google improve their ability to find information
on the Internet. Plain and simple, it’s the applications that
give the network its value, and the applications are driving demand
As the Nation’s leading Internet voice provider, with 1.4 million
lines in service, Vonage offers subscribers Voice-over-IP phone service.
Vonage and the VoIP industry are providing consumers with
new choices for telephone service that the 1996 Telecommunications
Act did not contemplate. It is innovation, not legislation,
that created our service and brought this competition to consumers.
For Vonage, the discussion about net neutrality is not theoretical,
but practical. The very existence of the Internet phone industry
disciplines the prices traditional phone companies can
charge. Because Vonage competes directly with the telephone service
of the network operator that also provides high-speed Internet
access, the incentives to discriminate against us are very clear. In
fact, Vonage has already seen several smaller network operators
block our service. Most recently, major phone-company executives
have suggested that our service isn’t going to work as well if we
don’t pay them an extra fee.
Now, as a businessman, I don’t get, nor do I expect, a free ride
on anyone’s network, but the truth is, these network operators are
already getting paid not once, but twice. Vonage pays network operators
tens of millions of dollars every single year to transport our
services over the Internet to our subscribers. On top of that, consumers
spend billions of dollars a year every year to get access to
these high-speed Internet connections. No one gets a free ride.
I’m also not suggesting that companies should not be able to offer
a tiered service to subscribers. The power company charges more
or less, depending on how much electricity or power is used. But
the power my toaster uses and the performance my toaster gets
does not come at the expense of my refrigerator. Once we have paid
for it, the power company doesn’t pick winners and losers.
In the same regard, customers already purchase varying
amounts of bandwidth; however, it would be a disaster if a network
operator were able to choose how much bandwidth the customers
could use for a given application on their broadband. What would
happen if, tomorrow, one of the network operators decided to block
Google, Vonage, Yahoo!, or Amazon? What would be the legal recourse
for applications that are being blocked or degraded by a network
provider? The regulatory landscape has changed. If a network
operator chooses to block these Internet applications, there does
not appear any legal recourse. Innovation and competition would
be left behind, with no possibility of due process.
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Let me underscore this point. There is nothing in a statute or a
regulation today that protects consumers or Internet application
providers from potential network discrimination. I believe providing
marketplace certainty to prevent discrimination is as important
as taking actions once a problem already occurs.
Network operators maintain they will never engage in this behavior.
If, indeed, that was the case, why can’t we work toward a
solution that ensures flexibility for network operators while preserving
the openness for application providers? If the Bells are allowed
to pick winners and losers amongst the vast array of services
available on the Internet, I can guarantee one outcome. The customer
will lose. The customer will always lose. The customer will
lose choice, flexibility, and quality of service if the Bells can dictate
how the Internet is used.
The Internet gives tremendous freedom to individual users and
innovators. It has given consumers access to an unprecedented variety
of content, services, applications, and devices. As entrepreneurs
that use the Internet to change the way people communicate
and conduct business, I am increasingly concerned that the
inherent economic incentives of network operators will put the creativity
from the Internet in serious jeopardy.
Can the government trust the phone companies to be the exclusive
gatekeepers of innovation and competition on the Internet,
given their history of anti-competitive practices and customer
abuse? If you do not address this issue, the Bells will exclusively
decide what you read, what you see and buy, and how you ultimately
use the Internet.
I look forward to working with the Committee to ensure that the
Internet remains an open and competitive foundation for innovation.
Thank you, Mr. Chairman.
Our next witness is Kyle McSlarrow, President
and Chief Executive Officer of National Cable and Telecommunications
STATEMENT OF KYLE MCSLARROW, PRESIDENT/CEO,
NATIONAL CABLE AND TELECOMMUNICATIONS ASSOCIATION
Mr. Chairman, thank you very much for having
me here this morning.
Lost in this debate sometimes is a simple reality, which is that
Internet service is a relatively immature marketplace. Ten years
ago, most of us had not even heard of an Internet browser. Five
years ago, the phenomenon of peer-to-peer networking, with its
huge implications for bandwidth consumption, was an unknown. It
was only last year that the—for the first time, more American
households had broadband than dial-up. Thus, the business models
that are developing right now are really in their infancy.
Given the explosion of the Internet and its importance to our
competitiveness, the creation of jobs, indeed, our quality of life, the
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right call, I believe, is to let the marketplace develop, as it has,
without government regulation. A very heavy burden should be
placed on those who would have the government intervene for the
I think we can all agree that consumers should have reasonable
expectations from the companies that deliver high-speed Internet
service to them. So, let me be clear, NCTA’s members have not,
and will not, block the ability of their high-speed Internet service
customers to access any lawful content, application, or services
available over the public Internet. As the FCC and Chairman Martin
have noted, this commitment should be consistent with tiers, in
terms of a customer-service agreement, and subject to an operator’s
ability to manage its network. As an association that includes programmers,
as well as operators, we are also mindful that lawful access
includes respect for the rights of content owners.
As the industry which largely created the residential broadband
market with $100 billion of investment over 10 years, we fully embrace,
and will seek to protect, a vibrant Internet. The world described
by Senator Dorgan and others this morning, the goals of
being able to pay for access and to get on Internet and go anyplace
you want, that is the world we live in today, and that is the cable
business model. So, we share the goals that have been set forth
today. The issue is whether or not we should do something in statute
to constrain how the marketplace develops.
Putting so-called ‘‘net-neutrality principles’’ into law may sound
warm and fuzzy, but they are not neutral, in any real sense. They
represent a choice and a departure, with serious consequences.
Mr. Chairman, in 2002 this Committee held a hearing in which
proponents, including some who are here today, pushed the concept
of net neutrality. And, at that time, some of those proponents were
saying unless we did something, the Internet, as we know it, will
end. And where are we 4 years later? Companies like Google have
come out of nowhere to build a global empire with a market cap
of over $100 billion or something close to the entire cable industry’s
market capitalization. And if you consider other companies which
push net neutrality, like Yahoo! and Amazon.com, you’re talking
about some of the most successful companies on Earth. It is obvious
that they were wrong 4 years ago. All of them have flourished.
And the irony is that they have flourished, in part, because cable
companies, telephone companies, wireless broadband providers
have built a broadband infrastructure that supports their business
Right now, innovation is exploding down the broadband highway,
and, perhaps unwittingly, proponents of net neutrality have chosen
the right phrase: they would risk throwing all of that into neutral
and freezing innovation and investment. And one has to ask why.
The large Internet companies have succeeded with the current
network architecture, and have made an undeniably great contribution
to our Nation. But who is to say what the next network
architecture might look like? With net neutrality and little or no
incentive to invest in capital-intensive networks, we will likely
never find out. As some have noted, by not allowing experimentation
you force all networks to compete only on size and price, and
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that benefits only the larger players, limiting the types of competition
and innovations that are emerging today.
Just as Google and Yahoo! have an incentive to invest, as they
are now, in new broadband platforms like broadband over power
lines or Wi–Fi, broadband providers have incentives to invest in entrepreneurs
who have a new application which might compete successfully
with today’s Internet market leaders in order to bring
more customers to the network.
What is really going on here is that companies that started as
entrepreneurs and innovators are now so invested in the status quo
that they fear not cable or telephone broadband providers, but that
next idea, that next search engine that takes off. What they are
asking you to do is freeze the Internet in place with their position
in the marketplace locked in. There are many possible outcomes of
doing so, but the one thing I am confident of is that it would not
be the consumer who benefits.
Mr. Chairman, thank you. I look forward to answering any questions
The next witness is Earl Comstock, President
and Chief Executive Officer of COMPTEL.
STATEMENT OF EARL W. COMSTOCK, PRESIDENT/CEO,
Thank you, Mr. Chairman and Members of the
Committee. It’s a pleasure to be here today.
I think it’s quite fitting that it is almost 10 years, to the day—
tomorrow will be the 10th anniversary of the 1996 Act, which many
of you spent a lot of time on, and I did, as a staffer. And I think
it’s quite fascinating to hear the views that are being expressed
today. What no one has mentioned is that the Internet today succeeded
because of decisions that Congress made in 1996.
And I think it would be very instructive for the Committee to go
back and review two reports that the General Accounting Office, at
the time, now the General Accountability Office, put out and sent
to every Member of Congress, one in September 1994, one in January
1995. What’s fascinating in reading those reports—and I just
reread them over the weekend—is that much of what’s being discussed
today was being discussed then.
With all respect to the other witnesses, we did talk about Voiceover–
IP. We did talk about the Internet. Many people forget there
were was an entire title of the 1996 Act having to do with Internet
pornography, so it’s fascinating to me that we knew nothing about
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the Internet, yet the members were prescient enough to look at
So, clearly, people did know about the Internet. We called it the
‘‘Information Superhighway,’’ back then. And the only thing that
wasn’t really firmly planted was whether or not TCP/IP was going
to be the victor in the marketplace, or whether it would be, what
the Bells were pushing, which was called ISDN, integrated services
But that same fight, the ISDN fight versus the TCP/IP fight, is
instructive for today. What the Bells are doing, and what the cable
companies have already done, is engineer their networks to create
scarcity so that they can then manage the network in a way that
favors their content and services.
Today, the Internet2, which you’ll hear from later on today, they
are building the next-generation network. They have been since
1995. And what they discovered, through their own research, looking
at this question of quality of service which you hear a lot about,
is that the answer to quality of service is bandwidth. And the reality
is that you don’t need quality of service, that what you want
is an Internet that does precisely what Mr. Cerf said, it’s very simple,
it’s very robust, in that sense, it doesn’t favor one service over
the other, it’s all best efforts. And as long as you have the bandwidth,
that’s not a problem. Other countries today—consumers in
other countries today can get 100 megabits-a-second. Millions of
university students today can get 100 megabits-a-second. And all
of you know universities are not rolling in cash, yet they’re able to
come up with the ability to get to the desktop in dormitories, just
like a small community, 10 megabits, 100 megabits, and sometimes
So, it’s just fascinating to me that we’re reinventing the wheel
here, and once again you’re being presented with promises. I will
say, the Bell companies seem to be the best at making the promises,
and the worst at keeping them. If you review many of your
States, if you look back, they promised to build out a broadband
network 12 years ago. In California, for example, they committed
to building out a network by 2005 that was going to get 45 megabits
to every consumer. They haven’t met that promise, not by a
long shot. I think there’s something in Senator Boxer’s front office,
a press clipping about that. So, we’ve heard these promises before.
I think you should take credit, too, for the success of the 1996
Act. Cable was deregulated on price in the upper tier in exchange
for building out a broadband network. They have largely succeeded.
According to their own statistics, now more than 105 million homes
are capable of receiving broadband—or, rather, they pass 105 million
homes, and 88 percent of those are capable of receiving
Now, the question—you know, somebody made the statement
that we’re 16th in broadband deployment. We’re not 16th in
broadband deployment by that statistic. We’re far ahead of most
nations of the world. We’re 16th in broadband penetration. And so,
the point that you need to keep in mind here is, the Internet was
built on a framework called ‘‘common carriage.’’ It assured interconnection,
reasonable access to service, attachment of devices.
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These are all critical elements that are not being addressed by the
FCC today in their net-neutrality program.
And so, we have been successful. There was a framework in
1996. Is it time for a few changes? Absolutely. Things like the cable
section could probably be gotten rid of if we had bandwidth in the
home. You could do cable a la carte. We can do telemedicine. And
this is about the future. But all I can say, looking back from the
1996 Act and that experience is, we still don’t know, today, until
some various court cases are settled, what the final shape is of that
Act, based on the FCC and the court’s interpretations. So, whatever
you do now, it’s not going to be about 2007 or 2010. It’s going to
be about 2015 or 2025. So, you really have to look down the pike.
And I do think you should look back very carefully over the promises
and commitments that have been made by the network operators,
particularly the Bell companies, and how they’ve done it. And
this is a fight about who’s going to control innovation. Is it going
to be controlled by a few network operators, the gatekeepers on the
Internet, or is it going to be controlled by the devices at the edge,
and, therefore, allow innovation throughout the country?
Thank you very much.
I’ve got to say, the five of you have given us statements that I
think I personally could sit here and ask you questions for 2 hours,
and still not be finished. But we do thank you all for coming, and
thank you for the times that you’ve spent with us in trying to really
figure out what to do about this proposal to change the 1996 Act.
If there’s no disagreement, we’ll limit ourselves to 5 minutes.
We’ve got another panel coming. And I would urge members to stay
within the time frame.
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Mr. Cerf, why doesn’t it make sense for a company like Google
to invest in broadband pipes to ensure delivery of content?
I’m sorry, ‘‘When does it make sense for Google to’’—
I wasn’t hearing you, Senator.
—invest in their own——
Oh, to invest.
—pipes for delivery of content, broadband pipes.
Why wouldn’t you do that?
In fact, Google does invest in broadband facilities, but
it does so to build its own internal network in order to connect all
of its computer centers together. We interconnect to the rest of the
Internet in order to interact with consumers, people who use the
Google services. We’ve been relying on the telcos, the cable companies,
and others all around the world to service those customers.
Despite the market cap, we’re not in a position to build broadband
throughout the world, but our constituencies, our users, a billion of
them, are everywhere. So, it doesn’t make sense for us to try to
build the entire broadband network for the whole world. What
we’re trying to do is to build the system that will service those people
through others who already are making money out of access—
building access to the Internet.
You’ve got a magnificent search engine out there.
There’s no question about that.
Mr. McCormick, we’ve got some testimony that suggests that network
providers could offer more capacity if they wanted to. Are any
of your companies limiting capacity just to restrict access?
Absolutely not. We are not, in any intentional
way, limiting capacity to restrict access. Just the opposite. We’re
looking to build new networks and to capitalize the investment
that will allow us to build those new networks. And the question
that we constantly get from investors is, ‘‘Well, why in the world
would you build a network?’’ Are you able to offer movies? Google’s
going to—talking about offering movies. Vonage is talking about offering
voice without a network. In fact, Google could offer movies
without a franchise. But woe unto our companies if they build a
network and want to offer video. Then you have to get a franchise,
or subject yourself to other regulations.
So, the question we constantly get is, ‘‘If you’re going to expand
to these networks, how are you going to earn a return on that investment?’’
And with America being 13th in the world in
broadband deployment, one of the big public-policy questions that
faces this Congress is, how do we incentivize, how do we reward,
investment in networks? How do we encourage investment in networks?
Our companies, as you know, are investing. Verizon is spending
over $20 billion to build out the FiOS network. So, we are investing,
and we are looking for new ways of being able to capitalize
Well, that wasn’t quite my question, but I, again,
say, Are you attempting, in any way, to limit, artificially, the capacity
to prevent others from having access?
No, Mr. Chairman, and we will not artificially
limit capacity, nor will we block or impair or degrade any content,
any service, or any application.
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Mr. Citron, I have been told that there was one company that
blocked the ability of end users to subscribe to VoIP. And there was
a consent decree that said that that could no longer take place. Are
any U.S. providers, other than that one, blocking the ability of end
users to subscribe to VoIP?
Sure, Chairman. First, on the case of the provider
who blocked us, Madison River, that occurred prior to the deregulation
of DSL services. So, should Madison River re-engage in blocking,
today, the FCC may not be able to act appropriately to stop
them from doing so.
As it relates to other providers blocking our services, yes, we do
come, from time to time, across small providers who do block or degrade
our services purposely, either explicitly or implicitly, and we
do contact those network providers to try to provide workaround
solutions for our customers. In some cases, there’s no workaround,
and the customer cannot subscribe to our service.
I really don’t have time to ask another question.
I’m sort of reminded of my own history, when we, up our way, in
the oil patch, had people build pipelines, and some other companies
came along and made discoveries and wanted access to pipelines.
We’re—aren’t we entering the same situation here, in terms of your
industry now, that there has to be someone, FCC probably, that
has greater power to be the umpire, rather than a gatekeeper?
Well, Mr. Chairman, I just want to comment. I
think you heard testimony from Mr. McSlarrow talking about the
$95 billion—he called it $100 billion—that the cable industry has
spent since 1996 upgrading their networks. And to respond to your
question on Google, the point is, no one is going to build new ubiquitous
broadband infrastructure in this country when there are already
two wireline infrastructures reaching every home.
And, you know, you’ve heard mention by Mr. McCormick that
Verizon’s spending $25 billion. Well, the interesting thing is, this—
these are evolutionary expenditures. They’re not building a new
network, they’re upgrading an existing network with an existing
revenue base from their customers.
And just to give you an idea, in the case of Verizon this is not
a risky investment. They keep talking about Wall Street. They
claimed more in depreciation for every year in the past 5 years
than they’re planning on spending in 2005. They’re actually
disinvesting, as an accounting matter, relative to their wirelines facilities,
including fiber. So, they claim more in the depreciation in
the value of their asset——
I’m over my own time. Sorry about that.
Senator Burns is gone. Senator Dorgan?
Mr. Chairman, first of all, I was on this Committee
in 1996, with you and others, when we wrote the legislation.
And, Mr. Comstock, I think you’re right, I think that there are
things that we ought to legitimately take credit for in the 1996 Act.
Some things have worked the way we expected, some not, perhaps.
But we did, in fact, anticipate advanced telecommunications services—
i.e., broadband—in fact, we wrote the provisions dealing with
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universal service, not just for basic service, but for advanced services,
identical services at comparable prices through universal service
to bring the charge down. But I—5 minutes is hardly justice.
I understand why you have to do that, Mr. Chairman, but these
witnesses have provided just, I think, excellent testimony giving us
an excellent sample of what the issues are.
Mr. Cerf, you talked about other countries. And I think Mr. Comstock
also described this issue of us ranking 16th. You know, we’re
41st in life expectancy, by the way, in the United States. But we’re
—we’re 16th in broadband—penetration. Is that
—it may pass many homes, but not everybody is taking
All right. So, a number of other—16 other
countries have done better than we have. Tell me about the record
with respect to those countries and the preservation of net neutrality.
My impression is that all of those countries have very
open networks. There are no constraints with regard to who is allowed
to put content onto the network or implement applications.
I might point out that we could learn something from the United
Kingdom. There is a comparable agency—it’s called Ofcom, which
is like the FCC—they’ve taken a very strong position that the underlying
broadband system is a transport medium and should be
distinguished from any of the applications that run on top.
British Telecom, for example, offers wholesale access to their
broadband facilities, with no constraints, and then they also offer
advanced services on top of that, through which they compete with
others for customers. But the underlying transport system is open.
Every one of those systems, as far as I am aware, is financially
Now, I’m just an engineer, so I suppose asking accounting questions
of an engineer is—you get the answer you deserve. But to be
quite honest with you, my impression is that these organizations
have found a way to make this a going concern.
Well, Mr. Cerf——
So, I am a little confused why we can’t do it here.
I’m sorry, I didn’t—just didn’t want you to take
the entire 5 minutes.
Let me say, the—Mr. McCormick and Mr.
McSlarrow and others have talked about encouraging the investment
in the networks. Now, I’m—I understand that point, because
I believe, from the last information that we had from the FCC, 49
percent of North Dakotans, my home State, have access to only one
So, half of the people don’t have any choices,
no competition with respect to—so, I’m sympathetic to the notion
of investments in network; however, I’m not sympathetic to that
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issue, relative to destroying what I think is basic uninhibited freedom
on the Internet—freedom of content, freedom of choice.
And I mentioned earlier that I have had both DSL and also cable
broadband, and I paid for both, on a monthly basis—still do—paid
on a monthly basis. So, that—I might ask both of you to comment.
‘‘A Verizon executive says Google is freeloading.’’ No, no, I’m calling
up Google as a search engine, because I happen to like Google, and
I pay a monthly fee in order to be able to do that over an Internet
service provider. What’s wrong with that?
There’s absolutely nothing the matter with
that. And, as I said in our testimony, we will not block, impair, or
degrade any content, service, or application. The High-Tech
Broadband Coalition, several years ago at the FCC, espoused principles
that say any consumer should be able to access lawful content
of their choice, there should be no impairment of competition
among providers on the networks, they should be able to connect
any devices of their choice, they should be able to run applications
of their choice. We absolutely agree with that.
I wasn’t privy to those comments, so I don’t know what context
that Verizon official’s comments were made, but I do note that an
awful lot of this debate occurs in hypotheticals. What if Google
wants to offer movie services that use up enormous bandwidth?
What if the telephone companies want to start blocking? How will
people capitalize the deployment of networks? What are you up to?
I mean, the questions that you see fired back and forth constantly
is, ‘‘What are you up to? ’’ And it’s very difficult to set policy or to
legislate in hypotheticals.
So, I come back to the commitment that we have made, which
is, we will not block, we will not impair, we will not degrade any
content, any service, or any application. And the Internet that you
know today is the Internet that we want to see you have tomorrow,
and, in fact, our investments will allow you to have a faster, more
robust Internet tomorrow than you have today.
Mr. Chairman, if I might just observe, as I relinquish
my time here in a moment, the decision by the Federal
Communications Commission to decide that this is an information
service rather than a telephone service—or telecommunications
service is the reason we’re here. If they had made the decision this
was a telecommunications service, the common-carrier rules would
apply and we wouldn’t have these basic questions, because the
issue of neutrality and content and so on would not be before us.
So, let me, again, say, I come down on the side of freedom on the
Internet. And my hope is that when we finish these hearings, Mr.
Chairman, we can address a range of these issues. And I do think
the testimony given us is very instructive, from all the five witnesses.
I appreciate very much their being here.
Well, you’re right, Senator. That’s why I mentioned
the question that—comparison to pipelines. You know?
Where is that line on common carriers? I think we have to explore
Thank you, Mr. Chairman.
An interesting debate going back and forth, and it, I think, indicates
the difficulty of this issue. And when we try to compare our-
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selves sometimes with other countries, Japan and Great Britain
both have monopoly phone companies, and it’s difficult, sometimes
you’re comparing apples to oranges. And that’s why I mentioned in
my opening statement that we are much more of a free-markettype
country, and our Government, first of all, couldn’t afford to
build that network out, you know, all across the country, or maybe
we’re just choosing not to do it. And so, it gets back to what Senator
Dorgan was talking about, is—and I think this is the fundamental
question—we would all like to see what, Mr. Cerf, you have
talked about. I mean, everybody—that would be the ideal situation
if there was the financial incentive to build the networks. If those
financial incentives were there, if the networks were being built—
and I think that the problem that we see today is that we don’t
have 100 megabits per second—or maybe in Sweden, where I’ve
heard that it’s a gigabit per second——
A gigabit, that’s right.
—that we don’t have that here in the United
States, you know, being built quickly enough. The Bell companies
have talked about it. And I talked with some of the cable folks this
morning, saying that I want the Bell companies—one of the reasons
I believe in deregulating as much as we possibly can is, I want
the cable companies to be forced by the Bell companies to upgrade
their networks, you know, to fiber as close to the home as possible,
and then Bell companies have to get a little better, and the cable
companies have to get a little better, and whoever else is out there,
just like Yahoo! makes Google better, and Google makes Yahoo!
better. I think the competition—it mentioned the promises, you
know, that Bell companies are making today. I don’t trust the Bell
companies. I don’t trust any of ’em. I want competition, to force
those promises to be kept, because competition is the best way. I
don’t—you know, we can’t afford to take anybody’s word.
So, Mr. Cerf, if you could—or, Mr. Citron—if you could try to
help me understand how the financial incentives would be there to
build the networks without doing some of the things that cable and
the phone companies want to do, as far as guaranteeing, at least
the services they want to have, have access on their networks.
Senator Ensign, it seems to me that—and remember,
now, this is the engineer trying to answer an economic question,
but it seems to me that these other companies who have managed
to build, in some cases, full duplex—in other words, symmetric—
100-megabit-per-second service, apparently recover the cost of that
from the consumers. And they do so at what sounds to me like reasonable
consumer rates, $50 a month. So, what puzzles me is why
Aren’t those monopoly situations, though, the
ones that you’re talking about, the——
—my understanding is that there is competition in
Japan, and there is competition in the U.K. So, perhaps I have—
you and I have a different understanding of that.
Sure. Well, I think, yes, there is competition in the
countries that are specified. But I think Vinton has, sort of, gotten
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it right, consumers pay, and that’s the investment that occurs. You
look at a company like Verizon, Verizon throws off billions of dollars
per year in cash-flow after it makes its investment in its
broadband networks. It returns a great return to its investors, and
its stock is worth, you know, $88 billion today. The Bell companies,
at large—just the Bell companies—throw off tens of billions of dollars
of cash after the investments in—that they make to upgrade
their networks. Wall Street is financially sound and pleased. Matter
of fact, people are now quoting that AT&T stock might rise to
above $30, post-merger.
We’ve seen consolidation with—inside the industry. The real
question is, What creates the proper economic incentives to make
those investments? Charging consumers for higher speeds is always
clearly the best way to go. I roll out a faster-speed product
at a lower price, my competitor rolls out another faster product at
a even lower potential price, continually benefiting the consumer.
Well, what happens if we make that commodity, the commodity
of bandwidth, incredibly scarce, like oil becomes incredibly scarce?
Only thing—one thing happens. Prices rise. Prices for access. And
so, I think by creating the incentive system that allows people to
go ahead and incentivize the scarcity, or to sort of cut the taps off
a little bit, you will cause prices to rise very, very quickly. And
whether those prices are subsidized by governments or subsidized
by content providers or, of course, borne by the customer, ultimately
the customer will pay a higher fee.
Just—I only have a couple of seconds left, but,
Mr. McCormick or Mr.
McSlarrow, would you care to comment?
Yes, I think that the free market has brought
us the greatest innovation, the greatest social progress, and the
highest standard of living the world has ever known. And what we
have is that we have a marketplace today that is not characterized
by any bottlenecks with regard to access to the Internet. There are
a variety of last-mile technologies and services, and the barriers of
entry can’t get any lower once you make available unlicensed spectrum.
So, not only do we have a competitive market, but we have
a market that is contestable. And if companies are going to be expected
to upgrade their networks to invest greatly in their networks,
they have to have the freedom to develop business plans
that will convince investors that it’s a good investment to invest in
those companies that are building out networks.
So, public policy has to allow for a recoupment of your investment
My time’s expired. I didn’t know if you wanted
to let Mr. McSlarrow answer. It’s up to you, you’re the Chairman.
Go ahead, Kyle.
I’ll be real quick.
I think the answer is, we can get the investment with the model
we have today. Just taking the cable industry, we invested $100
billion to put fiberoptic technology into the ground over the last 10
years, and all of these services—Google—I use Google every day;
I’m sure Dr. Cerf will be happy with that—I mean, all of these
services exploded over the last 10 years. So, this model works. Why
change it, in the face of hypothetical fears?
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A little aside here. Mr. Cerf, I notice that you’re listed as an
Internet evangelist. If an engineer can be an evangelist, an engineer
can be an economist, too, so——
I’m sorry I’m not wearing my ecclesiastical robes this
STATEMENT OF HON. MARK PRYOR,
U.S. SENATOR FROM ARKANSAS
Thank you, Mr. Chairman.
I want to follow up, just for a moment, on what Senator Ensign
said a moment ago about competition. And I agree that competition
is very, very good for the marketplace, and that’s the way Adam
Smith, you know, figured that out, back a long time ago, that if we
have real competition, that is very, very good for the consumer and
good for the marketplace, good for the country. But, also, I think
that real competition is fair competition. And that’s where I’m trying
to—that’s where I’m searching, is trying to make sure that
whatever system we set up, like they did back in 1996, that the
system we set up is fair, that we don’t give an advantage, or don’t
place a disadvantage on any one company or one technology or one
whatever it may be. So, I appreciate the panelists being here today
and talking to us about your perspectives on this.
Let me start with Vonage, if I may. And I have a question about
Vonage and the Universal Service Fund. You all pay into the USF?
Yes, we do.
And how do you do that?
When we need to connect our network to the existing
PSTN to get calls on that network, we are charged a universalservice
fee. We, today, do not have a statutory right to gain access
to the underlying network, and are forced to use third-party providers.
OK. And you pay both Federal and State USF?
Yes, we do.
So, whenever you’re in a State, you’re paying the
State portion and the Federal portion.
The underlying telecommunications provider who
provides us our services has an obligation to charge us universal
service for the calls that we transmit over their networks.
And is that true with all the VoIP providers?
As far as I’m aware, if a VoIP provider is purchasing
services from an underlying licensed telecommunications
provider, it would be true for them, as well.
I want to ask you about USF and your company’s
position on USF. Do you all support USF? Do you want to see it
continue? Do you want to see it changed? What—tell me about
Vonage and USF.
I think USF is an incredibly difficult topic. I do believe
our company should be supportive of USF, along with all companies,
on an equal and fair basis. But what USF should be sup-
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porting is really the question, and how, of course, you go about recouping
those funds from individual stakeholders.
Today, consumers are charged via a variety of methods, both on
the State and Federal level. There are a number of proposals today
that would shift the burden to be on a number basis or shift the
burden to a revenued-based basis. And each of these have their
pros and cons. I believe that Congress should really hold hearings
to establish the best methods of establishing a vibrant Universal
Service Fund, and then dictate what that fund should be used for.
But, clearly, it should be used for not just existing telecommunications
services, but for new and advanced communications, maybe
ones that are not even deployed yet.
But do you have—does Vonage have a specific
proposal, or a specific set of ideas, on USF? And do you have a
wish list, basically, of what you’d like to see Congress do on USF?
Our only wish list is that, as you said in your opening
remarks, it be fair, that it treat all providers equally, so that
if we are chosen to pay into the fund for deploying and supporting
universal services in rural markets where we have deployed rural
markets, we should be able to draw from the fund, as well. That
level of fairness is about the only thing that we’re seriously concerned
As for legislative policy around the social agenda, we’d really
leave that up to the people in this room to make that decision.
So, in other words, what you want to do is, you
want to make sure it’s fair for people paying in and fair for people
Exactly. One who pays in should also have the ability
to draw out of the fund if they’re willing to take on the obligations
and provide services. We provide services throughout the entire
United States in many very rural markets, yet we have no subsidy
provided to us for delivering those services. The market has
created competition that has incentivized our company to deploy
services without the need for a subsidy. So, the question that
comes, Is the subsidy still needed? And, if so, what is it really supporting?
And that’s a question for Congress.
All right. If I may ask you, because you were involved
in the 1996 Act, and apparently, as I understand it, spent
hours and hours, days and days, months and months, years and
years working through that, so let me ask you about the USF. Your
view of the USF? Should we change that, given the realities of today’s
marketplace? And what should that look like?
You’re absolutely right. It does need to change—
and I think Senator Dorgan mentioned it earlier, the FCC’s decision
to treat Internet access as entirely an information service—in
other words, remove the transmission element out—does have dynamics
for the Universal Service Fund. And I think that’s the real
challenge in front of the Committee, is the fact that all of these
services ride over networks, as we’ve been discussing. There’s a
cable network and a telephone network that eventually get you to
the customer, and so you need to find a mechanism for all services
that ride over those to pay. And I would agree with Mr. Citron, I
mean, the point is to make it fair. So everything that uses the network
pays, and you distribute that cost fairly to the customer.
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Thank you, Mr. Chairman.
Thank you very much. I appreciate the questions.
Our next—Senator Allen?
STATEMENT OF HON. GEORGE ALLEN,
U.S. SENATOR FROM VIRGINIA
Thank you, Mr. Chairman. And thank you to all
the witnesses here, including an actual father of the Internet, Mr.
Cerf, who was really one of them.
Everyone’s throwing around the word ‘‘freedom,’’ which they hear
a lot from me. And it’s freedom on the Internet, and it’s freedom
of enterprise. Each and every one of you is very articulate and
touched strings and strains of my philosophy. And the policy of this
country on the Internet has been that it was invented by DARPA,
it was given out to the private sector. The private sector has operated
it. People, obviously, are getting and using different methods
and delivery. And competition does help a great deal. The competition
presently, as a practical matter for broadband, is cable or DSL.
The question I would ask Mr. Cerf and others, as far as in the
future with Wi-Fi, something that Senator Boxer and I actually
worked together on, but we’re going to get even better wireless and
WiMax in the future, which I think will be very helpful for out in
the country where there is a lot of dirt between light bulbs. And
it’s one of the reasons cable isn’t out in the country, you know,
rural areas; there’s not many customers for all that investment, to
Now, how do you see WiMax, or even potentially satellite or
broadband over power lines, ultimately getting to those faster
speeds and thereby creating the competition, which, of course, is
good for the consumer, but also meaning that there doesn’t have
to be the heavy hand of government, or the hand of government involved
Let me distinguish, Senator Allen, between the technology
and its current deployment. I mentioned earlier that there
are very modest statistics for the deployment of broadband over
power lines or alternative wireless access, compared to DSL and
cable. In the long run, I think there’s a high probability that
broadband over power lines might actually work well. There are
still things in the lab, so to speak, that are not yet productized,
that suggest to me that hundreds of megabits per second, or a hundred
megabits per second perhaps, could be reasonably delivered
through the power lines. However, that has not yet entered the
marketplace in a serious way.
With regard to radio access, Wi–Fi, in the 2.4 gigahertz band, is
getting very cluttered. That’s because it’s a band which doesn’t require
any kind of registration or payment.
There are higher-frequency bands, up in the 95
gigahertz range, which some companies, like GigaBeam are looking
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at, which could deliver on the order of hundreds of megabits per
second of capacity over short distances, a mile or so. Those are all
potential alternatives to——
What about the—once we get from—the transition
to digital from analog, how would—what are the distances on
that unused analog spectrum—could be used for wireless?
Are you thinking of the 700 megahertz spectrum, for
example, or television channels that are——
That spectrum has the benefit that it will penetrate
better than some of the higher frequencies will, so that you could
reach into a home with a 700 megahertz transmitter. In terms of
data rates, depending on what the bandwidths that are available,
one could see tens of megabits per second, potentially, being accessible
by that means.
All right. Well, it seems like there is a—the possibility
for some competition.
Senator, if I might just comment on that briefly.
COMPTEL represents companies that have basically tried every
single method of possibly getting around the last-mile facilities
owned by other companies. And, unfortunately, the success rate is
really low. I think the thing the Committee needs to keep in mind
is, whether you’re talking about wireless or BPL, these are people
that have to build out networks against an entrenched incumbent.
This is not a case of going to fertile fields, where there’s a customer
available if you can serve them. You have to actually take somebody
from someone who’s already being served by someone who already
has a network that’s built and partially depreciated. So, it’s
still a tremendous obstacle. It may come in the future, and we all
hope it will, but I do think there are some real practical realities
that you need to address, in terms of that.
Understood, thank you. But the point is, right
now we don’t have a problem. The Googles, the Vonages, the
Yahoos!, and others are doing well. The question is, do you pass a
law, presently, as Mr. McSlarrow cautioned against? And, in the
event, though, that there is this—restrictions, then do you pass a
law, retroactively, trying to put—let the genie back out of the bottle?
That is, to me, the way I see this arising. And I do think we
also ought to understand better—and we don’t have time—a concept
of this tiered service and tiers of services, have that understood.
Mr. Citron mentioned it, but my time’s expired.
This debate and discussion will go on much longer, and I thank
all our witnesses for really outstanding testimony. And we’re going
to have to work this through.
Thank you, Senator.
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STATEMENT OF HON. BARBARA BOXER,
U.S. SENATOR FROM CALIFORNIA
Thanks, Mr. Chairman, for this hearing. I want
to welcome the panel. You’re all really good spokespeople for your
Mr. Chairman, I’d like to place in the record a BusinessWeek article
that appeared online February 2nd, if I might, on this subject,
just one page.
I want to read some of it. ‘‘Last November,
Vinton Cerf wrote a letter of warning to Congress. The legendary
computer scientist argued that major telecom companies could take
actions to jeopardize the future of the Internet. The phone companies’
networks that carry net traffic around the U.S. are much like
a highway system. Cerf wrote that they may begin setting up the
equivalent of toll booths and express lanes, potentially discriminating
against the traffic of other companies. Such moves, Cerf
warned,’’ ‘‘would do great damage to the Internet as we know it.
Now Cerf and his net compatriots have new ammunition to back
up their fears. Documents filed with the FCC show that Verizon is
setting aside a wide lane in its fiberoptic network for delivering its
own TV service. According to Marvin Sirbu, an engineering professor
at Carnegie Mellon who examined the documents, more than
80 percent of Verizon’s current capacity is earmarked for carrying
this service, while all other traffic jostles in the remainder. Leading
net companies say Verizon’s actions could keep some rivals off the
road. As consumers try to search Google, buy books on Amazon, or
watch videos on Yahoo!, they’ll all be trying to squeeze into the
leftover lanes on Verizon’s network. On Feb 7, the net companies
plan to take their complaints about Verizon’s plans to the Senate
during a hearing on telecom reform. ‘The Bells have designated a
broadband system that squeezes out the public Internet in favor of
services or content they want to provide,’ says Paul Misener, vice
president for global policy at Amazon.
The reason I’m reading this is, I think it’s a very good explanation
of where we are. Sadly, the story ends with the following:
‘‘Net neutrality faces more debate in both the Senate and the
House. Cerf and Company’’—that’s you, sir—‘‘certainly have a difficult
task. After all, the phone companies employ armies of lobbyists
and donate millions to Congress. Google hired its first lobbyist
just last year.’’
Well, let me tell you, I think this Committee is going to get above
the fray on who’s lobbying for what. I think, under the leadership
of our chairman, we are trying to figure this thing out.
And so, I guess what I’m confused about, Mr. McCormick, Mr.
Comstock, and Mr. McSlarrow, is, Can you not admit this is an
issue? Because, as I heard you and read what you wrote, you’re acting
as if this is a nonissue.
Well, I think that there is an issue.
I think there is an issue. The issue is that the
United States, in the information century, is behind. The United
States needs to deploy new broadband networks. The United States
desperately needs investment in broadband networks.
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I hear you. But you don’t think it’s an issue for
consumers to worry about, that some of them could get squeezed
I think, Senator, that what-ifs are always
issues. Here’s a what-if issue. Google, which is a company talking
about net neutrality, has absolutely abandoned the concept of
Internet freedom with regard to its customers in China. Google
controls half of all Internet searches.
OK, just a second. That’s another hearing and
another topic. I’m talking about this issue of net neutrality. I want
to make just one point, because, gosh, that 5 minutes goes so fast.
There’s a new policy by a lot of physicians in California. This is
what it is. Physicians take insurance, and they’re not doing as well
as they want to do, so what a lot of them are doing—I pass no
judgment on this—is say to their patients, ‘‘If you give me $2,500
a year, on top of what your insurance gives to me, and on top of
your copayments, you get first in line.’’ And a lot of patients are
signing up. Now, what happens, at the end of the day? The patients
that pay that extra money get terrific service, they’re first
in line, and the people left out of this system get the leftover time
of the physician. Now, if the people who pay the $2,500 don’t get
that sick, everybody’s OK, they’re all going to get the physician’s
time, but if they get sick and the physician has no more time, the
other patients will get a lot of help from the nurses in the office.
That may be OK, but it’s not the same quality.
I think what some of us are worried about—I think all of us are
trying to balance what you say about ‘‘let the market do its thing’’
with what happens at the end of the day to the people that we represent.
Will they not be able to use—utilize the Internet, except in
ways that Mr. McCormick, Verizon, decides is good, or Mr.
McSlarrow, the cable companies, or the smaller telecom companies?
And so, freedom is an issue here, you’re right. It depends on how
you look at what freedom is.
So, all I can say, because my time is almost up, is that I am very
worried. I, personally, am very worried about this. That’s why I did
join with Senator Dorgan in 2002. And I think we ought to, Mr.
Chairman, listen to everyone. But the voices that brought us this
great revolution, I think we should really hear them, because I
think at this stage we don’t want to do anything to stifle them. And
so, that’s very important to me.
Thank you very much. And we thank you very
much. The reason for the time limit is obvious, we have four other
witnesses, and we——
Yes, I’m not complaining——
—expect to be done by——
—about it, I’m just saying it’s hard.
Mr. Cerf, you mentioned the problem of—I think, inferentially—
of distance, in terms of the speed. I’m sort of at a loss over the comment
that we’re in the gigabits in other countries, 100 megabits are
common, and yet we’re still in the engineering phase. Now, I don’t
have time to ask you to answer that, but we have asked the engineers
from all parties to brief our staff on the reasons for the abil-
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ity of universities to deliver 100 megabits to 4 million college students,
but the highest we’re getting, in terms of the average range,
as I understand it, is about 15 megabits on other systems. Now,
somehow or other that question’s going to come up again and
again, so if any of you want to make any comments about that to
us, we would appreciate it in writing. All right?
Oh, in writing?
Yes, certainly. I’ll be happy to respond.
Thank you very much.
We do appreciate your courtesy in coming, and your contribution.
You certainly leave us a lot to think about.
Mr. Chairman, would it be possible for us to
send you some questions in writing for this panel?
I think within some limitation, yes, because we
have a time limit, in terms of when we’re going to get around to
try to deal with all these bills. But, yes, I——
Just about four questions, if I could submit them
for the record.
That’s up to the—we hope the witnesses will respond
to Senator Boxer.
Thank you very much, everybody.
Our next panel—and we thank you very much.
We’ll take about a 5-minute station break so people can shift, here.
Thank you very much. We’ll turn to our second
panel now—and we thank you for coming—Kyle Dixon, Senior Fellow
and Director of the Federal Institute of Regulatory Law and
Economics, The Progress & Freedom Foundation, of Washington;
Lawrence Lessig, the professor of law at Stanford Law School; J.
Gregory Sidak, professor of law at Georgetown University Law
Center; and Gary Bachula—and I hope I pronounced that right—
Vice President for External Affairs at Internet2, in Washington.
Gentlemen, we thank you very much for coming, and we’ll proceed
with the statements. As I indicated, your statements you’ve
submitted will be printed in the record in full.
And we’ll turn first to Mr. Dixon.
STATEMENT OF KYLE D. DIXON, SENIOR FELLOW/DIRECTOR,
FEDERAL INSTITUTE FOR REGULATORY LAW AND
ECONOMICS, THE PROGRESS AND FREEDOM FOUNDATION
Good morning, Chairman Stevens and Members of
As Chairman Stevens said, I am a Senior Fellow with The
Progress and Freedom Foundation, and I direct its Federal Institute
for Regulatory Law and Economics. But before joining PFF in
2004, I worked for 7 years at the Federal Communications Commission,
most recently as special counsel to Chairman Michael
Powell for broadband policy.
As a former regulator, I’m always careful to evaluate policy
issues in terms of their prospects for implementation, the goal
being to avoid rules that may do more harm than good. Proponents
of network neutrality hope to convince you that regulating these
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issues would be simple and harmless, but imposing a network-neutrality
mandate would be neither simple nor harmless.
For all its flexibility, the Internet has some technical shortcomings.
For example, the Internet suffers from a variety of security
and safety vulnerabilities—worms and viruses, authentication
problems, inappropriate content, and the like. The Internet also
tends to transmit data in short bursts. This approach works well
for things like e-mail, but does not work well for applications that
require a steady flow of information over the network, like
To address problems this pressing, consumers need help from all
aspects of the Internet, including network providers. The Wall
Street Journal just reported that AOL and Yahoo! will combat junk
mail and identity theft using a new service that gives preferred
treatment to certain e-mails for an additional charge. Suppose, instead,
that a company like AOL seeks to buy services from Verizon
or Comcast to address some of the same technical shortcomings. A
network-neutrality mandate could prohibit Verizon or Comcast
from doing that deal, based on the notion that the deal would discriminate
in favor of AOL. In that case, a network-neutrality mandate
harms consumers by denying them the opportunity to get
more out of the Internet with less frustration. Essentially, a mandate
could force broadband networks to disarm unilaterally when
the battle against security and other technical limitations has
hardly begun. It also harms consumers by denying them the benefit
of additional investment in broadband networks that revenues
from the service might have supported.
Now, certainly Congress could attempt to craft a more flexible
standard for network neutrality that allows network owners to contract
with content and applications companies, at least in some
cases, but such flexibility would generate more ambiguity and litigation
and push consumers and the industry down a slippery slope
toward further regulation and consumer harm.
Ironically, most network-neutrality proposals presume that cable
modem and DSL providers will use their supposed market dominance
or power to undermine robust competition to develop Internet
content applications and devices. But even if presumptions of
market power were valid, which they are not, it is clear that a network-
neutrality mandate will do nothing to increase broadband
competition beyond current levels. Rather, by imposing costs, uncertainties,
and constraints on how network owners address security
and other technical limitations, a network-neutrality mandate
likely would undermine incentives to invest in competing
broadband networks. It also may delay the rollout of new content
and applications that are disfavored by the current Internet.
All that said, the goal of maximizing consumer welfare suggests
that the best answer to the question of network neutrality is not
always ‘‘yes’’ or always ‘‘no,’’ but ‘‘maybe,’’ under certain circumstances.
Specifically, if broadband providers were to obtain and
abuse market power in the future, some sort of network neutrality
might prove beneficial to remedy consumer harm. Congress could
accomplish this either by relying on existing antitrust enforcement
or by giving the FCC a rigorous competitive standard by which it
could identify and remedy abuses of market power in specific mar-
kets. The latter approach tracks recent proposals by Senator
DeMint, of this Committee, as well as by The Progress and Freedom
Foundation, in collaboration with several university scholars
from across the country.
In closing, I would just urge Congress to remain cautious about
imposing network-neutrality mandate at this early stage of the
broadband Internet. Imposing neutrality where it is not necessary
to remedy abuses of market power could be far more damaging
than endorsing a problem in search of a solution. Doing so could
make network neutrality itself the problem.
I thank the Committee for this opportunity, and I ask that my
remarks be added to the record.
Thank you very much.
Our next witness, Lawrence Lessig, professor of law, Stanford
STATEMENT OF LAWRENCE LESSIG, C. WENDELL AND EDITH
M. CARLSMITH PROFESSOR OF LAW, STANFORD LAW SCHOOL
Thank you, Mr. Chairman. You have my testimony.
I worked very hard to prepare it. I want to put it aside and address
four points which the testimony this morning seems to leave vague
in the minds, I’d suggest, of this Committee—two points, or two
principles, no one should disagree about, and two points, or two
facts, that I don’t think anybody, with a straight face, can deny.
The two principles are, first, that Congress should be conservative
in whatever regulation it adopts, or whatever policy it adopts,
about networks, especially the Internet, meaning Congress should
learn from the past. And, second, Congress should promote competition.
It should promote competition not just in broadband service,
but also in applications and content that run on top of the
Now, against the background of those two principles, I suggest
there are two facts that make the issue that this Committee is considering
today extraordinarily important. The first fact is that the
proposal that is being promoted right now to deregulate in this context
is a radical change in the regulatory environment governing
telecommunications for at least the past 40 years. In one of the
submissions that’s before this Committee, someone credits me with
the term ‘‘network neutrality.’’ It’s crazy to suggest the ideas that
we’re talking about today are new. These are extraordinarily old
principles. They’ve been part of telecommunications law for the last
40 years, at least. And it’s under these principles that the Internet
itself was originally created. It’s under these principles that the
most important competition in applications occurred. It’s under
these principles that Internet2 asks that you continue to produce
an environment that will encourage innovation.
And when we look to foreign countries—in particular, Japan,
Korea, and France—it is under these old principles that those
countries have architected a broadband network that has produced
broadband networks that are much more efficient and cost effective
than what we have. As The Wall Street Journal reported last fall,
France offers its citizens broadband at $1.80 per megabyte—megabit
per second. That’s about 11 times cheaper than the service offered
by Verizon in the United States.
So, this new—so these old ideas are now being replaced by new
principles, new principles that are backed by theory, by theory offered
by a bunch of academics and a bunch of economists that have
nothing more than the hand-waving of theories before them.
Now, I’m an academic, but I feel a little bit like the stableboy
who spends his whole life shoveling—I guess I can’t use that word
here, right?—but shoveling whatever, and I’m surrounded by a
bunch of academics offering a bunch of theories about how we
should remake telecommunications law to get to the grand new
age. And I say, you should look to the past and learn the lessons
from the past before you radically change the infrastructure within
which innovation has occurred.
And the fourth point that I don’t think anybody can really deny,
the changes that are being described, not by the very reasonable
people who testified in the earlier panel, but by the leaders of
Verizon and the leaders of AT&T, the changes that are being described
would radically reduce competition in applications and content
on the Internet, radically reduce that competition because as
they set up fast lanes on the Internet, the only companies that
could afford to buy access to the fast lanes on the Internet are companies
like Google and Yahoo! and Microsoft and the content com-
panies that already have succeeded in the marketplace. The nextgeneration
Yahoos! and Googles cannot buy access to the fast lane,
because they would face a barrier to entry that would restrict competition.
This restriction in competition would fundamentally weaken
the growth of the Internet.
Now, you have a bunch of theories before you, and I want to just
end with a frame to think about these theories.
I was criticized many years ago for using a quote from one of my
favorite musicians, Jill Sobule. She has a fantastic song in which
the slogan is ‘‘sold my soul, and nothing happened.’’ And I’d suggest,
10 years from now, if we follow the regulatory strategy that
we’re going right now, which says ‘‘Give up the framework of regulation
that has governed telecommunications for the last 40 years,
give up the principles of neutrality that has governed telecommunications
for the last 40 years,’’ then, 10 years from now, we will look
back, and we will say, ‘‘In order to get what the broadband providers
promised, we sold our soul, the soul of neutrality that has
governed the Internet since its birth, and we got nothing in return.’’
Thank you very much.
The next witness is J. Gregory Sidak, Professor
of Law at Georgetown University.
STATEMENT OF J. GREGORY SIDAK, PROFESSOR OF LAW,
GEORGETOWN UNIVERSITY LAW CENTER
Thank you very much, Mr. Chairman.
Well, I’m tempted, also, to toss aside my prepared remarks after
that inspiring testimony by Professor Lessig. I agree with him that
there’s a lot that we already know about this problem. I have spent
the last 20 years working as a lawyer and economist on regulatory
and antitrust problems in the telecommunications industry. It’s
clear to me that economics understands the distinctive cost and demand
characteristics of telecommunications networks better than
just about any industry that I can think of.
The common problem that we see again and again in telecommunications
is, How do you create the incentives to build the
network while at the same time making use of the network affordable
for as many people as possible? That is the critical issue that
this Committee faces.
In my view, there is not a problem of net neutrality that requires
legislation. We know, from economics, that there are six essential
characteristics of telecommunications networks. If the Committee
will take cognizance of those, I think it will see that there are
strong market forces that will prevent the harms that are asserted
to exist here.
The first unique characteristic of a telecommunications network
is that it requires substantial sunk investment. Networks are not
build overnight. Sunk investment is made sequentially over time.
As soon as it becomes clear, through the imposition of something
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like a net-neutrality regime, that the recovery of the sunk investment
of the network is in jeopardy, the funds that come forward
to build the network will become more expensive, the cost of capital
goes up, and the scale of the network is curtailed.
Second, networks display economies of scale. That means that
the marginal cost of another user using the network is very low.
But if you price on the basis of marginal cost, you can never recover
the sunk costs.
A third and related point is that networks have what are known
as economies of scope. They have common costs, because they
produce multiple products. Those products have costs incurred in
common. That means that there should be a contribution from each
one of those products to the recovery of the sunk costs of the network.
The way that economists have figured out to do this in the
least distortionary way—in other words, in the way that affects
consumer choice the least—is something known as ‘‘Ramsey pricing.’’
It’s been known since 1927. Ramsey pricing is one form of differential
pricing; in other words, charging prices based on the intensity
That is important, because a fifth characteristic of telecommunications
networks is joint demand. A telecommunications network is
an example of a two-sided market. There is value to someone placing
a call, and there is value to someone receiving the call. There
is value to someone browsing the Internet, and there is value to a
Google of providing the search engine, because it sells advertising
to customers who value the information that is revealed when the
person doing the search reveals that he or she is interested in particular
So, there are two sides of the market. Each one has an interest
in the product being produced. There are two willingnesses to pay
in that situation. There is no basis in economic theory to presume
that it would be socially optimal for the end users to pay for all
the costs of building a high-speed network, while the companies
that deliver content or applications to those same end users over
the network, and who therefore derive substantial economic advantage
from the use of the network, would pay nothing. But that is
the proposition that’s been put to us this morning.
A sixth consideration is congestion. Just like highways, telecommunications
networks are subject to congestion. That’s why
pricing signals are very important. We know that if there is differential
pricing of products—something, incidentally, that we see
in many, many competitive markets, so it’s not unique to a monopoly
in any way—then the price can be lowered to the consumer who
has the most price-sensitive demand. In that sense, the scale of the
network can be expanded. It can be made more inclusive. That is
a good thing, because we believe that the larger the network—as
universal-service policy, for example, illustrates—the greater the
So, it’s important to realize that we have, already, a toolkit that
we have been using for decades in telecommunications to understand
these problems of common costs of networks and finding the
way to pay for the building of the network in the least
Thank you very much.
Our next witness is Gary Bachula, Vice President, External Affairs,
STATEMENT OF GARY R. BACHULA, VICE PRESIDENT,
EXTERNAL AFFAIRS, INTERNET2
Thank you, Mr. Chairman and Members of the
Internet2 consists of over 300 universities, corporations, and government
labs working on an advanced Internet. Our Abilene network,
a private 10-gigabit research-and-education network, today
enables millions of researchers, faculty, and students to live in the
future of advanced broadband. Internet2 students and faculty already
routinely use technologies like TV-quality videoconferencing
and are hard at work at creating more advanced, potentially lifechanging
technologies in areas such as telemedicine and distance
These innovations are not being developed by telephone or cable
companies; they’re being developed the way the web browser, the
search engine, and instant message were developed the first time
around, by end users. That requires an open, standards-based, non-
discriminatory Internet. That is why we support net-neutrality provisions
in law and regulations.
Now, some argue against net neutrality, saying that they must
give priority to certain kinds of Internet bits, such as video, to
guarantee quality. Let me tell you about our actual experience at
When we first began to deploy our Abilene network, our engineers
started with the assumption that we, too, should find technical
ways of prioritizing certain bits, such as streaming video, in
order to assure that they arrived without delay. We explored various
quality-of-service schemes. As it developed, though, all of our
research and practical experience supported the conclusion that it
was far more cost effective to simply provide more bandwidth. With
enough bandwidth, there is no congestion and video bits do not
need preferential treatment.
Today, our Abilene network does not give preferential treatment
to anyone’s bits, but our users routinely experiment with streaming
HDTV, hold thousands of high-quality two-way video conferences
simultaneously, and transfer huge files of scientific data routinely
around the globe without loss of packets.
We would argue that, rather than introduce additional complexity
into the network fabric, and additional costs to implement
these prioritizing techniques, the telecom providers should focus on
providing Americans with an abundance of bandwidth, and the
quality problems will take care of themselves.
At Internet2 universities today, we routinely provide 100 to 1,000
megabits per second of connectivity to the desktop, the laboratory,
the research lab, the classroom. Today’s typical home broadband
connection is only 1 to 5 megabits, at best.
We would like to see Congress set a national goal of 100 megabits
of symmetrical bandwidth to every home, business, and school
in America in 5 years, and a gigabit in 10. This is absolutely doable
using coaxial cable and fiber to the home. That would allow plenty
of bandwidth for telephone, video, e-mail, and many other new
uses, without requiring these costly prioritization and partitioning
Higher bandwidth will also enable exciting new uses for the
Internet. Home medical monitoring, for example, could save billions
in healthcare costs, reduce hospital stays, and keep people from
needing nursing homes earlier. Education and telework are two
other areas where a high-bandwidth Internet could have major impact.
Our foreign competitors get this. They are adopting high-bandwidth,
open, simple, low-cost designs for their networks. We are the
only nation looking at making the network more, rather than less,
complex and expensive. We believe this is the wrong choice.
If we lose the open Internet, the Internet controlled by users, the
Internet that allows innovation and entrepreneurial investment, we
will lose something very important to our national economic wellbeing.
Keeping network design open, inexpensive and simple is better
than costly, complex, and closed.
If you do the right thing, we believe you will be enabling another
wave of amazing innovation and economic growth in this country.
We know, because every day in our university campuses we see
part of that future.
Thank you for your consideration.
Thank you very much.
We have a real problem here, in terms of time. And I do want
to thank each of you for taking the time to be here. I’d like to ask
that you do us one favor, and that is, later, when you—if you have
time, give us your feeling about whether the 1996 Act needs replacement,
or would some amendments be sufficient—are amendments
sufficient? There are some people who think it doesn’t really
need to be changed at all. I would like your different experience,
background—particularly those of you from law school and Mr.
Dixon, from the FCC—Mr. Bachula, you’ve got the Internet2 concepts—
the Committee would be very interested to know if you feel
that it is really necessary to replace the 1996 Act, or to amend it,
and how. What problems really that we’re talking about this morning
stem from the Act itself?
And, Mr. Lessig, we appreciate your putting the statement aside.
I’ve looked at your statement, but I appreciate what you’re saying
about looking to the past, and not throwing out the door all of the
experience that we’ve had that has brought us where we are now.
I think you and Mr. Dixon are saying somewhat similar—are making
similar comments about it.
We’d very much appreciate your advice on the basic problem.
Should we replace this Act, or should we amend it, or should we
just go on to other subjects, in terms of some of the basic problems
we have that are in the general area—911, so many other things,
interoperability? The Telecom Act, itself, has been a major problem
that we face, as far as this is concerned.
I can tell you that as far as my questions, I’d like to come back
just to you, Mr. Bachula, and that is, you’ve got Internet2,
superfast broadband. You serve colleges, research institutions like
NIH. Is it possible to expand that to the public? And, if so, what’s
We think the principles that—the design of our
networks that we—that serve those constituencies is not based on
anything different than what could be provided by the telecom providers
or even the cable companies.
Are there engineering limitations to the existing
systems that prevent you from extending out, just generally?
There are not engineering limitations. We were
created to essentially serve the university research community, and
that is why—that is what we have been doing. But the kind of
Internet that we provide to our universities could be provided to
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every American in their homes by the companies that were represented
here today if they simply follow the right principles.
Well, I represent an area that’s one-fifth the size
of the United States, and it has less than a million people. Is
Internet2 ever going to serve Alaska?
Oh, Internet2 is very active at the University of
That’s the university. I’m talking about the consumers
in the State.
Well, the buildout that is required requires investment
by the private sector. Internet2 is not in the business of serving
everyday home consumers.
It’s not a replacement, then, for the Internet, in
terms of the general public.
No, not the network that we run, but the network
we run is an example of the kind of network the public should get
in a few years.
Well, then how about these announcements we’re
hearing about in other countries, they’re getting such enormous
speed, enormous content at such lower cost?
That’s exactly right. Vienna, Austria, just announced,
last week, that they were going to create a partnership
between the city, a power company and a cable company, to provide
a gigabit to every household, 960,000 households and 70,000 businesses,
and it was going to be a completely open network. You can
buy 100 megabits in Hong Kong for $49. And I think you can buy
a gigabit for $200. It’s available elsewhere. We are operating under
a different scenario here, where we have scarcity, we’re preserving
scarcity, and we seem to be trying to say, ‘‘But if you want to pay
us more, then we’ll get rid of the scarcity.’’
But don’t we serve a nation that’s different—that
country will fit in one of the peninsulas south of my house in
That’s very true, but we’re not even doing it in
New York or Chicago or San Francisco these days, here.
It’s density-sensitive, though, isn’t it?
Density affects the cost, that’s true, but we’re
not—we’re not even doing it in New York today.
Well, again, I would urge that you, if you will,
give us your judgment about the basic structure of the Act, itself,
and whether—what needs to be done to it, if anything.
Thank you, Mr. Chairman, for your questions,
and all of these witnesses, as well.
The guiding principles have been, for the Internet, that it—the
term is more of common carriage. It’s open. What’s great about the
Internet is—I’ve always said it’s the greatest invention since the
Gutenberg press for the dissemination of information and ideas.
And no one would have read Martin Luther’s ‘‘95 Theses’’ that he
nailed onto the church at Wittenberg if it wasn’t for the printing
press. We’re not asking the Internet service providers, though, to
print everything that is written. However, the Internet is that
printing press, and it’s an individualized enterprise zone, or indi-
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vidualized system, and an individual makes those decisions. And
that’s what makes it compelling.
The net neutrality is—saying that net neutrality would harm recovery
of sunken costs, that Professor Sidak said, indicates that,
OK, well, there are going to be limits now, and there’s not going
to be that open opportunity for creativity or whatever access to information
individuals would want. The open standards that Mr.
Bachula was talking about, the net neutrality, the higher bandwidth,
for teleworking, which I think is so important for congested
areas, for quality of life, for families to actually be able to see their
kids, and also reduce congestion and air pollution, is very important.
The bandwidth also, though, is for video, primarily; it’s not
for reading newspapers or reading publications or e-mailing or instant-
messaging. It’s mostly for that video quality.
I’m one who’s very much for competition, as well as standing for
freedom. To hear that other countries are further ahead than us is
worrisome. Mostly when we hear about foreign countries, they’re
talking about limiting access to the Internet. You have China limiting
discussion of Taiwan or the Falun Gong or Tibet, Tiananmen
Square, and so forth. Then you have the other problem with some
of the—some of these international or other countries wanting governance
of the Internet by governments. And I don’t want governments
regulating the Internet. Leave it free.
Now, internal organizations may want to limit what their employees
are saying, but ultimately we don’t want the United Nations
or anybody governing the Internet. It should be the private
sector and individuals. The only real role of the government is the
domain-name registry. It’s like a telephone book. Other than that,
leave it free.
Now, insofar as France is concerned, how does France—you say
France has better and cheaper—less expensive Internet. Now,
did—was that built out by the government in France, or was it by
Alcatel or a private company?
Well, Senator, there’s a regulatory regime in France,
which is very much like the regulatory regime of the 1996 Act, that
requires, essentially, unbundling by what was a monopoly telecom
company. And it’s that unbundling requirement that has facilitated
extraordinary competition in providing broadband access in France.
All right. So, in other words, the—was this bandwidth
in France built out—now, the universities—the universities
doing that, and—or maybe some cities, in some cases. But in
France, as a country, was it built out by the private sector, or was
this built out by the government?
I think everything in France is a mix, private sector
and government. And I think that’s one of the points that this
Committee should keep in mind, that regulation, in this context,
has always been a mix. Right? We need extraordinary competition,
free of regulation, on top of the network. But telecommunications
has always had basic principles that have been subject to principles
of law. When Chairman Powell announced the four Internet freedoms,
those were, in my view, essential principles to how this network
should be regulated. And I think they’re very good and this
Congress should adopt them, because the critical change that’s
happened between the 1996 Act and today is that telecommuni-
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cations, as it exists in broadband service, has moved from Title II
to Title I. Title II is the principle of, as you called it, ‘‘common carriage.’’
I don’t think we have to go that far, but basic principles
All right. Under——
—and by giving that up, we’ve gone to the complete
opposite extreme, where no principles of neutrality get built into
the network design. We’ve never seen that network succeed. Every
network that’s succeeded, around the world, to produce the kind of
Internet that Internet2 would give us, has operated under a different
theory; in fact, the theory that’s governed telecommunications
in America for at least the last 40 years.
Mr. Dixon, you have to be able——
—I have to allow you to respond, since——
—since bringing up——
—for letting me respond.
I would say, in general, two things have changed. I
think the most important thing is that Congress, in the 1996 Act,
made a judgment that competition, as opposed to government regulation
in the form of common carriage, et cetera, was the preferred
way of bringing benefits to consumers. And I am not suggesting
that competition should be limited to networks; it should extend to
all layers of the network. The other thing that changed is that
technology, in fact, changed, and it made it more possible for more
competition to exist. So, what we’re—we no longer have, as we did
have in the original telephone network, is a legal monopoly, where
we had to really worry about abuses of market power and other
things that would harm consumer welfare. In a competitive environment,
where prices for broadband continue to come down to
$14.95, now $12.95, et cetera, technology is continuing to be invested.
I think it’s probably too early to call the game and say, ‘‘We’re
going to throw our hands up and abandon, in essence, the judgment
Congress made in the 1996 Act and go back to a world where
we assume there will be a monopoly.’’
Senator Allen, could I just add one point to that? I
published a book last year, with three economists, called
‘‘Broadband in Europe.’’ In the book we asked the following question,
What has determined the level of broadband penetration in
the different member states in the EU? We found that the most important
driver of broadband penetration was platform competition.
It was competition between DSL and cable. The role that
unbundling played in determining broadband penetration was
With respect to France Telecom, I think one consideration is that
it continues to be owned, in substantial part, by the French Government.
So, decisions about network investment that are being
made by a major shareholder that is, itself, the government, are,
in essence, a form of public subsidy of the network.
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Right. Thank you.
Thank you, Mr. Chairman.
Thank you, Mr. Chairman.
In one of the discussions that the Chairman was having with Mr.
Cerf, he kind of said as an aside, ‘‘You really have a—Google really
has a magnificent search engine.’’
Now, my question is to Professor Lessig. Suppose in the 1990s
Microsoft was able to pay to get faster service for consumers accessing
its search engine. What would the impact have been on the
development and expansion of Google?
Well, it would have been negative. It would have restricted
the opportunity for Google or new competitors to enter into
this marketplace. Now, whether it would have been enough to stop
it or not, who knows? But there’s no doubt of the effect. The effect
would have been to restrict application competition, which is exactly
what we should be encouraging in this context.
So, when Mr. Cerf says, ‘‘It’s the new Google, the
new innovation that’s—that could come, that could be stymied because
you can’t get your,’’ ‘‘ ‘product’ out in this pipe that’s been so
narrowed,’’ it’s a real problem. It’s a big problem for anyone who
cares about freedom and access and the ability of the American
people to learn. I think it’s a problem.
And I guess what’s confusing to me—and any and all of you
could respond to this; because, again, I like to start from a premise
that at least we agree on some things. So, I’d like to know, has
there been anything in any laws we’ve passed here, either a long
time ago or the recent Act, or any regulations coming out of the
FCC, that has fostered net neutrality? Because, on the one hand,
I hear some people saying, ‘‘Leave it alone. We never had—you
know, we got this net neutrality without any laws.’’ So, I’m just
wondering if we could have some consensus as to whether anything
we did, or the FCC did, brought about a situation of net neutrality.
I think you can point to many things that the FCC
has done that do not advance the vision of net neutrality, as it’s
been presented here this morning, in the sense that——
Well, I’m not asking you that.
No, No, not——
Is there anything——
I realize that, but——
—that they’ve done that has fostered net neutrality?
But the fact that there is differential pricing with respect
to many different services that are subject to tariffs is, itself,
evidence of a realization by the FCC that you have to pay for the
cost of the network by tapping all people who derive benefit from
the use of the network.
OK. So, you don’t think that we’ve ever done
anything to foster net neutrality.
Professor Lessig, do you agree with that?
I don’t. In fact——
Oh. I was afraid of that.
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Yes. In fact, in my view, the Government has done
a lot to foster what we now call net neutrality. If it weren’t for
what we would now call net-neutrality principles applied to the
original Bell network, you would never have had the Internet develop.
And we know that, because, in countries where those principles
didn’t occur, the Internet was slowed and stopped by existing
telecommunications networks. So, we have always adopted a principle,
which is referred to either as the ‘‘connectivity principles’’ or
Michael Powell’s ‘‘four freedom principles’’ with respect to each
technology that encourages new innovation. We have now changed
that. As we’ve gone from Title II to Title I, there is no such principle
in telecommunications law anymore.
And so, the question that I asked this Committee is, Why, when
it worked so well to produce the Internet and produce the kind of
competition we see around the world, why would we abandon it
now? Now, I respect Mr. Sidak’s academic work, especially his
work in economics, but I suggest his testimony was a perfect followup
to my charge that what we’ve got is a history of something
working, and now what we’re offered is a theory about what might
work in the future. And that theory is great academic work, but
I think this Committee should be guided by practices that have actually
Well, Senator, if I——
—could respond to that.
I don’t want to—I don’t want to prolong, because
I have one more question, but I would love to hear from you in
writing, all of you, on this.
But I’m just assuming the two of you, on either
end, that Mr. Dixon would probably line up with Mr. Sidak, and
Mr. Bachula would line up with Mr.
Lessig, basically. Is that correct?
Then let me ask my last question. And this really comes from
Senator Inouye, who is the ranking member here. He asked this to
The point is often made by opponents of networkneutrality
rules that if we do not allow network operators to charge
Internet application providers for so-called quality-of-service guarantees,
then network operators will lack the incentives to build out
these networks and make them available to consumers. How would
you respond to that?
There are two kinds of discriminating charges that
we’ve been talking about. One is consumer tiering, where you say
to a consumer, ‘‘You pay more, you get more.’’ And the other is access
tiering, where you say to Google, ‘‘You’ve been getting a free
lunch. You’ve got to pay to get onto our Internet.’’ In my view,
there’s nothing wrong with consumer tiering. Networks should be
able to say, ‘‘You pay more, you get more,’’ and they should be encouraged
to do that, because that will drive deployment of fast networks.
But the problem that we’ve identified, in the network-neutrality
work that I’ve been a part of, is the problem with access tiering,
where you start saying to large companies like Google, ‘‘Here, you
can buy the reserved lane, so that the reserved lane serves your
content well.’’ And I know Google can afford it. But when Google
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then rolls out something called Google Video that tries to compete
with the other video services out there, like YouTube TV or
YouAreTV. Those competitors will never have the opportunity to
compete effectively against Google Video if Google Video can buy
the fast lane. So, if you want to preserve the kind of competition
that made Google possible, you have to do what Google suggested
this morning, in the words of Vint Cerf, you have to preserve the
end-to-end neutrality principles that define the Internet and, in my
view, define telecommunications law for the last 40 years.
Thank you, Mr. Chairman.
Senator Allen, do you have any further question?
No, I do not. But I do think, Mr. Chairman, that
this whole issue on tier pricing didn’t get enough of an understanding
in the hearing, and it’s part of this. There is tier pricing
if you have dial-up versus DSL versus broadband over, say, the
cable modem, and it’s something that is happening already. The
whole question, to me, will be, in the event that there are restrictions
on this neutrality, whether or not we can let the genius—
when I said the ‘‘genius’’—or the ‘‘genie,’’ whether we can let that
genie out of the bottle, in the event that something happens and
we say, ‘‘Why was this ingenuity bottled up?’’ Can a Government,
a Congress, a Senate that moves at the speed of a wounded sea
—can—would that thwart innovation, competition,
and opportunity? And that’s, I think the—for me, as we go
through some of the details, will be some of my guiding criteria in
listening to evidence on it.
Thank you, Mr. Chairman. Thank you, all our witnesses.
Senator Boxer, do you have any further question?
Just to add my thanks, again, to both panels.
This is a very important topic. And I thank you, Mr. Chairman.
This is just a piece of an important topic, unfortunately.
May I ask the two professors this. You heard Mr. Comstock talk
about—and others—talk about the decision of the FCC with regard
to the difference between common carrier and the transmission of
information. Do you think that—either of you think that decision
needs to be re-examined by this Committee in connection with this
I think it absolutely does. I think the decision to
move everything out of the kind of neutrality regulation principles
that Title II created is what will create the problem for application
competition. So, whether you go back to common carriage, which I
don’t think is necessary, or you just simply implement principles
consistent with the net-neutrality principles that Chairman Powell
articulated, supplemented by one idea—and that is that access
tiering is forbidden, and consumer tier should be encouraged—that
would be enough, in my view. It’s a minimal amount of regulation,
but it would reestablish a principle that has been part of telecommunications
Well, I’d be happy to have a draft from you of
Mr. Sidak, what do you think?
My view is a little bit different. I think that the larger
problem that your question about information services versus
common carriage illustrates is that we have an historic pigeonhole
view of how the telecommunications industry functions and what
services it produces. The challenge that legislators and regulators
face today is that firms in telecommunications and content and applications
are devising completely new models for revenue generation
that do not conform to the old regulatory pigeonholes. So, in
a sense, that means that a re-examination of the basic distinction
between information service and telecommunications service is
We thank you very much. And if you have any
further comments, the Committee would be delighted to have them.
We thank you for the—taking the time to be with us. I know it’s
an imposition on you for—to come for such a short period of time,
in terms of your individual comments, but we do examine your
comments in full, and the statements, and appreciate your willingness
to help us. Thank you very much.
The Committee will meet again this afternoon in this room for
a series—consideration of a series of nominations to the Department
of Transportation at 2:30 p.m this afternoon.