Chairman Stevens – Opening Statement
Hearing on Net Neutrality
February 7, 2006
Thank you all for coming. 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 and the telephone companies can generate the revenue needed to justify billions of dollars in investment to deploy fiber and upgrade existing broadband networks. It will also determine whether the Internet remains a free marketplace of ideas with no gatekeeper and free of interference or private 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 the 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, and Vonage on the other side.
All sides are exploring 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 net neutrality 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 will hear arguments firsthand today from both sides and we will take them into consideration as we further examine updating telecommunications legislation upon completion of our hearings.
Q & A with Witnesses
Chairman Stevens: Thank you very much. I’ve got to say the five of you have given us statement that I personally think I could sit and ask you questions on for two hours and still not be finished. But, we do thank you all for coming and thank you for the time that you have spent with us in trying to really figure out what to do about this proposal to change the ’96 Act. If there’s no disagreement we’ll limit ourselves to five minutes. We have another panel coming and I would urge Members to stay within the timeframe. Mr. Cerf, why doesn’t it make sense for a company like Google to invest broadband pipes to ensure delivery of content?
Mr. Cerf: I’m sorry when does it make sense for Google, I didn’t hear…
Chairman Stevens: To invest in their own pipes for the delivery of content, broadband pipes. Why wouldn’t you do that?
Mr. Cerf: In fact, Google does invest in broadband facilities, but it does it 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. We’re certainly, 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 and build the entire broadband network for the whole world. What we’re trying to do is to build a system that will service those people through others who already are making money out of access, building access to the Internet.
Chairman Stevens: You’ve got a magnificent search engine out there. There is 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?
Mr. McCormick: 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 talking about offering movies? Can you offer voice without a network? Vonage is talking about offering voice without a network.” In fact, Google could offer movies without a franchise, but woe unto you if you build a network. If you build a network then you have to get a franchise. Or if you build a network you’re going to be subject to lots of other regulations. So, the question we constantly get is, “If you’re going to expand 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 to 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 that investment.
Chairman Stevens: 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 having access?
Mr. McCormick: 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.
Chairman Stevens: Thank you. Mr. Citron, I’ve 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?
Mr. Citron: Sure, Mr. Chairman. First, on the case of the provider block on Madison River, that occurred prior to the deregulation of DSL services. So should Madison River reengage 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 services, yes. We do come from time to time across small providers who do block or degrade our services either purposely, either explicitly or implicitly, and we do contact those network providers to try to provide work around solutions for our customers. In some cases there is no work around and the customer cannot subscribe to our service.
Chairman Stevens: I really don’t have time to ask another question so let me say, I’m sort of reminded of my own history up my way in the oil patch when we had people build pipelines and some other companies came along and made discoveries and wanted access to pipelines. Aren’t we entering the same situation her in terms of your industry now? That there has to be someone, the FCC probably, that has greater power to be the umpire rather than a gatekeeper, Earl?
Mr. Comstock: 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 wire line infrastructures reaching every home. And, you know, you’ve heard mention by Mr. McCormick that Verizon is spending $25 billion. Well, the interesting thing is, 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 past five years than they are planning on spending in 2005. They’re actually disinvesting as an accounting matter relative to their wire line facilities, including fiber. So, they claim more in the depreciation and the value of their assets…
Chairman Stevens: I’m over my own time. Sorry, my friend.
Chairman Stevens: Mr. Cerf, you mentioned the problem I think inferentially of distance in terms of the speed. I’m sort of at a loss over the comment that they’re into gigabytes in other countries and 100 megbytes 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 ability of universities to deliver 100 megabytes to four million college students, but the highest were getting in terms of the average range as I understand it is about 15 megabytes on other systems. Now, somehow or other that question is 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.
Mr. Cerf: In writing, yes, alright certainly.
Chairman Stevens: We do appreciate your courtesy in coming and your contribution. You certainly leave us a lot to think about.
Chairman Stevens: 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 you to do us one favor and that is later if you have time, give us your feeling about does the ’96 Act need replacement or are amendments sufficient? There are some people who think it doesn’t need change at all, but I would like, you have different experience and background, particularly those of you from law school and Mr. Dixon from the FCC, Mr. Bachula you’ve got Internet2 concepts. The Committee would be very interested to know if you feel it is really necessary to replace the ’96 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 and appreciate what you’re saying about looking at 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 making similar comments. We would very much appreciate your advice on the basic problem, should we replace this Act, should we amend it, or should we just go onto other subjects in terms of some of the basic problems that we have that are in the general area, 911, so many other things, interoperability. The Telecom Act itself is 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, super fast broadband, you serve colleges, research institutions like NIH, is it possible to expand that to the public and if so what’s the future?
Mr. Bachula: We think the principles, the design of our networks that we serve those constituencies with is not based on anything different than what could be provided by the telecom providers or even the cable companies.
Chairman Stevens: Are there engineering limitations to the existing systems that prevent you from extending out just generally?
Mr. Bachula: There are not engineering limitations. We were created to essentially serve the university research community and that is what we have been doing. But the kind of Internet we that we provide to our universities could be provided to every American in their homes by the companies that were represented here today if they simply follow the right principles.
Chairman Stevens: I represent an area that is one-fifth the size of the United States and has less than a million people. Is Internet2 ever going to serve Alaska?
Mr. Bachula: Internet2 is very active at the University of Alaska, sir.
Chairman Stevens: That’s the university. I’m talking about the consumers in the state.
Mr. Bachula: Well, the build out that is required requires investment. Internet2 is not in the business of serving everyday consumers.
Chairman Stevens: It’s not a replacement then for the Internet in terms of the general public?
Mr. Bachula: No, not the network that we run, but the network that we run is an example of what the public should get in a few years.
Chairman Stevens: Well then how about these announcements we’re hearing about in other countries? They’re getting such enormous speed and enormous content and it’s at lower cost.
Mr. Bachula: That’s exactly right. Vienna, Austria, just announced last week that they were going to create a partnership between the city and a power company and a cable company to provide a gigabyte to every household, 967,000 households and 70,000 businesses and it was going to be a completely open network. You can buy 100 megabytes in Hong Kong for $49 and I think you can buy a gigabyte for $200. It’s available elsewhere. We’re 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.”
Chairman Stevens: Don’t we serve a nation that is different? That nation will fit in one of the peninsula’s south of my house in Girdwood, Alaska.
Mr. Bachula: That’s very true, but we’re not even doing it in New York or Chicago or San Francisco these days here.
Chairman Stevens: It’s density sensitive though isn’t it?
Mr. Bachula: Density affects the cost that’s sure, but we’re not even doing it in New York today.
Chairman Stevens: Again, I would urge, if you will, give us your judgment of the basic structure of the Act itself and what needs to be done to it, if anything.
Daniel K. InouyeSenator
Tomorrow will mark the 10th Anniversary of the Telecommunications Act of 1996. In those brief ten years, the Internet has evolved from a hobby for computer enthusiasts into a central pillar of communications and commerce in the new economy.
Its rapid evolution has spawned applications and services that, even ten years ago, could hardly have been imagined. However, we cannot forget that this innovative explosion was no fortuitous accident. The Internet did not just happen on its own.
It was nurtured by those who built and designed it to allow creative advances at the edges of the network from the maximum number of innovators. It was sustained by a legal framework that allowed consumers to connect to Internet access providers through low cost telecommunications services.
Now, these early successes are met with new challenges. Despite the FCC’s efforts to establish Internet freedoms through its recently released Policy Statement, its classification of broadband services has called into question the FCC’s authority to prevent unfair discrimination by broadband network operators.
According to recent press reports, network operators are planning to charge application providers additional fees for access to their broadband networks. This is ample cause for concern.
Almost 10 years to the day after the Telecommunications Act of 1996 was signed into law, we are confronted with new challenges. The question is, how will we respond? Will future generations thank us for preserving and protecting neutrality and nondiscrimination on broadband networks? Or will they condemn us for breaking the Internet?
These are indeed weighty and complex issues. So it is fitting, Mr. Chairman, that we begin to consider them today. I look forward to the testimony from today’s witnesses and to working with my colleagues on these issues in the weeks and months ahead.
Witness Panel 1
The Honorable Ron WydenUnited States SenatorOregon
Mr. Chairman, 10 years ago in this room a bipartisan group of Senators decided that while we had not invented the Internet we wanted to help it prosper.
Our bipartisan group determined that the Internet was being subjected to discriminatory taxation, and we wrote the Internet Tax Freedom Act, which really should have been called the Internet Nondiscrimination Act. The principle behind the bill was technological neutrality – you shouldn’t tax the online world differently that the off-line world.
The law has been a success, and in my view a significant catalyst for the Net’s growth.
Now there is another challenge facing the Net that also needs to be tackled in a bipartisan way. Powerful interests who own the pipes and access to the Internet are trying to break the Net. These special interests want to expand their control over Internet access to the limitless world of content, where consumers play online games, watch online TV and enjoy video.
At present, consumers use the high speed access to the Net that they have paid for to visit whatever content they want, whenever they want without having to worry about having a cable company or a phone company interfering with their use of the Net.
Some of these cable and phone companies are trying to discriminate in the delivery of content. They are saying that instead of making available to everyone the same content at the same price, they want to set up sweetheart arrangements to play favorites.
This is a fundamental shift in the way the Internet works. Small start up companies and scores of others have been able to start small and dream big because every user has had equal access to all websites.
I want to keep it that way. I will shortly introduce legislation that will make sure all information is made available on the same terms so that no bit is better than another one. First, it will assure that information from a company like J. Crew is not treated worse than information from a company like LL Bean. Second, it 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 another company, like Yahoo. Third, broadband service providers should not be able to create private networks that are superior to the Internet access they offer consumers generally. These principles 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.
Consumer groups and the technology community are four-square behind the notion that neutrality is the best policy when it comes to the Internet, and I will continue to work closely with them on this legislation. I also look forward to working with the members of this Committee to make sure there is no discrimination against consumers on the network.
Witness Panel 2
Mr. Vinton CerfVice President and Chief Internet Evangelist
Mr. Walter McCormickPresident and CEOUnited States Telecom Association
Mr. Jeffrey CitronChairman and Chief Executive OfficerVonage
Mr. Kyle McSlarrowPresident and CEONational Cable & Telecommunications Association
Mr. Earl ComstockPresident and Chief Executive OfficerCompTel
Witness Panel 3
Mr. Kyle DixonSenior Fellow and Director of the Federal Institute for Regulatory Law & EconomicsProgress & Freedom Foundation
Professor Lawrence LessigStanford Law School
Mr. J. Gregory SidakProfessor of LawGeorgetown University Law Center
Mr. Gary BachulaVice President for External AffairsInternet2