[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
NET NEUTRALITY: IS ANTITRUST LAW MORE
EFFECTIVE THAN REGULATION IN
PROTECTING CONSUMERS AND INNOVATION?
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
REGULATORY REFORM,
COMMERCIAL AND ANTITRUST LAW
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
SECOND SESSION
__________
JUNE 20, 2014
__________
Serial No. 113-111
__________
Printed for the use of the Committee on the Judiciary
Available via the World Wide Web: http://judiciary.house.gov
______
U.S. GOVERNMENT PRINTING OFFICE
88-377 PDF WASHINGTON : 2014
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COMMITTEE ON THE JUDICIARY
BOB GOODLATTE, Virginia, Chairman
F. JAMES SENSENBRENNER, Jr., JOHN CONYERS, Jr., Michigan
Wisconsin JERROLD NADLER, New York
HOWARD COBLE, North Carolina ROBERT C. ``BOBBY'' SCOTT,
LAMAR SMITH, Texas Virginia
STEVE CHABOT, Ohio ZOE LOFGREN, California
SPENCER BACHUS, Alabama SHEILA JACKSON LEE, Texas
DARRELL E. ISSA, California STEVE COHEN, Tennessee
J. RANDY FORBES, Virginia HENRY C. ``HANK'' JOHNSON, Jr.,
STEVE KING, Iowa Georgia
TRENT FRANKS, Arizona PEDRO R. PIERLUISI, Puerto Rico
LOUIE GOHMERT, Texas JUDY CHU, California
JIM JORDAN, Ohio TED DEUTCH, Florida
TED POE, Texas LUIS V. GUTIERREZ, Illinois
JASON CHAFFETZ, Utah KAREN BASS, California
TOM MARINO, Pennsylvania CEDRIC RICHMOND, Louisiana
TREY GOWDY, South Carolina SUZAN DelBENE, Washington
RAUL LABRADOR, Idaho JOE GARCIA, Florida
BLAKE FARENTHOLD, Texas HAKEEM JEFFRIES, New York
GEORGE HOLDING, North Carolina DAVID N. CICILLINE, Rhode Island
DOUG COLLINS, Georgia
RON DeSANTIS, Florida
JASON T. SMITH, Missouri
[Vacant]
Shelley Husband, Chief of Staff & General Counsel
Perry Apelbaum, Minority Staff Director & Chief Counsel
------
Subcommittee on Regulatory Reform, Commercial and Antitrust Law
SPENCER BACHUS, Alabama, Chairman
BLAKE FARENTHOLD, Texas, Vice-Chairman
DARRELL E. ISSA, California HENRY C. ``HANK'' JOHNSON, Jr.,
TOM MARINO, Pennsylvania Georgia
GEORGE HOLDING, North Carolina SUZAN DelBENE, Washington
DOUG COLLINS, Georgia JOE GARCIA, Florida
JASON T. SMITH, Missouri HAKEEM JEFFRIES, New York
DAVID N. CICILLINE, Rhode Island
Daniel Flores, Chief Counsel
C O N T E N T S
----------
JUNE 20, 2014
Page
OPENING STATEMENTS
The Honorable Bob Goodlatte, a Representative in Congress from
the State of Virginia, and Chairman, Committee on the Judiciary 1
The Honorable Henry C. ``Hank'' Johnson, Jr., a Representative in
Congress from the State of Georgia, and Ranking Member,
Subcommittee on Regulatory Reform, Commercial and Antitrust Law 2
The Honorable Spencer Bachus, a Representative in Congress from
the State of Alabama, and Chairman, Subcommittee on Regulatory
Reform, Commercial and Antitrust Law........................... 4
The Honorable John Conyers, Jr., a Representative in Congress
from the State of Michigan, and Ranking Member, Committee on
the Judiciary.................................................. 5
WITNESSES
The Honorable Joshua D. Wright, Commissioner, Federal Trade
Commission
Oral Testimony................................................. 9
Prepared Statement............................................. 11
The Honorable Robert M. McDowell, former FCC Commissioner, and
Visiting Fellow, Hudson Institute, Inc., Center for the
Economics of the Internet
Oral Testimony................................................. 17
Prepared Statement............................................. 19
Bruce M. Owen, Morris M. Doyle Centennial Professor in Public
Policy, and Director, Stanford Public Policy Program, Stanford
University
Oral Testimony................................................. 42
Prepared Statement............................................. 44
Tim Wu, Professor of Law, Columbia Law School
Oral Testimony................................................. 70
Prepared Statement............................................. 72
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
Material submitted by the Honorable Henry C. ``Hank'' Johnson,
Jr., a Representative in Congress from the State of Georgia,
and Ranking Member, Subcommittee on Regulatory Reform,
Commercial and Antitrust Law................................... 78
Material submitted by the Honorable Suzan DelBene, a
Representative in Congress from the State of Washington, and
Member, Subcommittee on Regulatory Reform, Commercial and
Antitrust Law.................................................. 90
APPENDIX
Material Submitted for the Hearing Record
Supplemental Material submitted by the Honorable Robert M.
McDowell, former FCC Commissioner, and Visiting Fellow, Hudson
Institute, Inc., Center for the Economics of the Internet...... 98
Supplemental Prepared Statement submitted by Bruce M. Owen,
Morris M. Doyle Centennial Professor in Public Policy, and
Director, Stanford Public Policy Program, Stanford University.. 141
Letter from The American Antitrust Institute (AAI)............... 155
NET NEUTRALITY: IS ANTITRUST LAW MORE
EFFECTIVE THAN REGULATION IN
PROTECTING CONSUMERS AND INNOVATION?
----------
FRIDAY, JUNE 20, 2014
House of Representatives,
Subcommittee on Regulatory Reform,
Commercial and Antitrust Law
Committee on the Judiciary,
Washington, DC.
The Subcommittee met, pursuant to call, at 9:03 a.m., in
room 2141, Rayburn Office Building, the Honorable Spencer
Bachus, (Chairman of the Subcommittee) presiding.
Present: Representatives Bachus, Goodlatte, Farenthold,
Issa, Marino, Collins, Smith, Johnson, Conyers, DelBene,
Jeffries, and Cicilline.
Staff Present: (Majority) Anthony Grossi, Counsel; Ashley
Lewis, Clerk; Christine Bealer, Law Clerk; (Minority) Slade
Bond, Counsel; James Park, Counsel; and Rosalind Jackson,
Professional Staff Member.
Mr. Bachus. The Subcommittee on Regulatory Reform,
Commercial and Antitrust Law hearing will come to order.
Without objection, the Chair is authorized to declare a
recess at any time.
At this time, we will have our opening statements.
Would the Chairman of the full Committee like to go first?
Mr. Goodlatte. If you like, Mr. Chairman, I would be happy
to.
Mr. Chairman, thank you for holding this hearing.
Regulation and antitrust law have long had an uneasy
relationship. Antitrust law serves to protect a competitive
process by prosecuting anticompetitive conduct if and when it
occurs. Regulation typically dilutes or casts aside reliance on
antitrust enforcement and attempts to constrain or direct
market forces by imposing new rules of conduct.
These approaches generally are at odds with each other and
a natural tension has arisen between the two.
There are few more important issues that will impact the
future of the Internet than the question of whether to apply
antitrust law or regulation to protect the Internet from
anticompetitive and discriminatory conduct.
I want to thank Chairman Bachus for holding today's hearing
on this critical question.
Proponents of imposing additional regulation on the
Internet marketplace argue that it is needed to encourage
competition and promote innovation. I am deeply skeptical of
these claims.
In my experience, regulation generally stifles rather than
facilitates competition and innovation. In fact, it is my
belief that the Internet has flourished precisely because it is
a deregulated market.
That is not to say that we should stand by and allow
companies to engage in discriminatory or anticompetitive
activities.
I believe that vigorous application of the antitrust laws
can prevent dominant Internet service providers from
discriminating against competitors' content or engaging in
anticompetitive pricing practices.
Furthermore, antitrust laws can be applied uniformly to all
market participants, not just to Internet service providers, to
ensure that improper behavior is prevented and prosecuted.
In 2007, the Department of Justice expressed its preference
for antitrust enforcement over regulation when it warned that,
``The FCC should be highly skeptical of calls to substitute
special economic regulation of the Internet for free and open
competition enforced by the antitrust laws.''
DOJ further stated that regulation ``could in fact prevent,
rather than promote, optimal investment and innovation in the
Internet, with significant negative effects for the economy and
consumers.''
I understand that the nature of the Internet and the speed
at which the market evolves could present challenges to
enforcing the existing antitrust laws in the Internet context.
We may need to consider amending the current antitrust laws to
ensure that they can be applied promptly and effectively to
protect the competitive nature of the Internet marketplace.
The Judiciary Committee has long played a role in ensuring
that antitrust laws are properly equipped and can be applied
effectively in the telecommunications industry. This Committee
will continue to play a key role advocating for strong
antitrust enforcement and, certainly, will examine these issues
closely to the extent telecommunications laws are rewritten
over the coming years.
I look forward to hearing from today's witnesses on this
important debate, and I yield back the balance of my time.
Mr. Bachus. I thank the Chairman of the full Committee, Mr.
Goodlatte.
Now I recognize the Ranking Member, Mr. Hank Johnson of
Georgia, for his opening statement
Mr. Johnson. Thank you, Mr. Chairman.
The modern Internet is a powerful engine for social
enrichment and, I would argue, for basic freedom in America and
perhaps in other locations throughout the world, where the
culture has attained this degree of intellect and innovation.
Whether it is educational opportunities like the Khan
Academy channel on YouTube, Starbucks' recent announcement to
offer its employees a free college education online through
Arizona State University, or online hackathons that equip young
minorities with tools to thrive in the innovation economy,
consumers everywhere benefit from content services that
educate, enrich, and connect us together.
It is no mystery why the United Nations lists Internet
penetration as a key metric in reducing poverty. We all succeed
when more members of society have access to such important
tools online for productivity, education, and, indeed, personal
well-being.
That is why today's hearing is such an important
opportunity to discuss the best path forward to advance an open
Internet. I strongly and unequivocally believe in an open
Internet.
Openness goes beyond economic concerns like growth and
competition. Openness embraces our very core value as
Americans, equality of opportunity. If our ideas are good
enough, they should have a chance.
Openness also separates us from closed, autocratic
societies that limit the educational and social opportunities
of their people.
Look no further than the Great Firewall of China, which has
established barriers to free expression, education, and
cultural enrichment, and stunted the opportunity and growth of
China's people.
Undoubtedly, antitrust agencies have certain advantages--
like a prosecutorial mindset and a removal from political
influence--that make them attractive as regulatory watchdogs.
But as Tim Wu will testify later in today's hearing, the
current framework for antitrust law is designed for every kind
of business in the world, but is a poor fit for noneconomic
values like openness, freedom of expression, and, indeed,
equality and freedom.
It is also abundantly clear that the remarkable success
stories of the first large Internet startups--Google, Amazon,
and Yahoo--were not written in a regulatory vacuum. Rather,
these companies all benefited from a regulatory ecosystem that
encouraged the widespread deployment and adoption of broadband
Internet.
As an expert agency with 80 years of expertise over
telecommunication services and, more recently, information
services like the Internet, the Federal Communications
Commission has been at the forefront of crafting regulations
that not only encourage growth and competition, but also
advance noneconomic values like equality of opportunity and
fairness.
Indeed, as the D.C. Circuit recognized earlier this year in
Verizon v. FCC, regulations that ensure Internet openness have
fostered a ``virtuous circle'' of both social and economic
fruit. Although the court ultimately vacated the open Internet
order in Verizon, the D.C. Circuit strongly upheld the
commission's basis for promulgating net neutrality rules under
Section 706 of the Telecommunications Act of 1996, precisely
because Congress mandated the commission to encourage broadband
deployment to advance this virtuous cycle of social and
economic growth.
There is little doubt in my mind that the D.C. Circuit
blueprint in Verizon aptly demonstrates the commission's
authority to promulgate rules to protect the open Internet
through its Section 706 mandate.
But the commission shouldn't have to rely on this authority
alone to uphold a common goal that countless Americans share.
There is wide bipartisan agreement that updating the
Telecommunications Act of 1996 is long overdue.
Yes, we all enjoyed the thrill of logging on to AOL or
other Internet service providers over our dial-up modems in the
1990's, but the Internet has changed since then. So should our
laws.
In closing, I thank the Chair for holding today's hearing.
As the sole Committee with jurisdiction over antitrust law, I
look forward to working together with my Republican colleagues
to ensure that the next great communications act upholds the
common principles of competition and opportunity and equality
and freedom, these being things that we all share.
I look forward to today's testimony, and I yield back.
Mr. Bachus. I thank the gentleman from Georgia.
I want to welcome you to the hearing today. The hearing
today is entitled ``Net Neutrality: Is Antitrust Law More
Effective than Regulation in Protecting Consumers and
Innovation?''
So we are not dealing with the whole subject of net
neutrality or some time maybe more descriptive ``network
neutrality.'' A lot of people don't know what the ``net'' is,
but I think it refers to the network.
Let me say from the onset that our focus of the hearing is
not on any specific agency proposals or any regulatory
proposals, although they will undoubtedly be referred to during
the hearing.
Rather, the interest of the Judiciary Committee is whether
the application of antitrust laws would be a more effective
approach to protecting consumers and promoting innovation in
this arena than the long, frequently contentious, and sometimes
arbitrary, Federal regulatory process.
It is becoming increasingly hard to recall when the
Internet was not an integral part of our lives. It spurred new
technologies, created jobs, established dynamic marketplace for
goods and ideas. It is a wonderful educational tool.
Fast-spreading technologies have always attracted
significant interest because of public policy issues they
raise. As a railroad attorney, I have studied the history of
the railroads, and that was always a struggle between
development of rails and regulation.
And many of you who know that industry, overregulation
almost killed the industry before the Staggers Act. It revived
itself only because of the scaling down of regulation. But even
today, there are tremendous issues in that industry, as well as
this industry, public interest, public safety, et cetera.
And these issues with the network deal with issues
including access, competitive balance, and the tension between
the private interest and public interest, between regulation
and innovation. So it is always a balancing act.
On May 15, the Federal Communications Commission proposed a
rule, marking its third attempt to address the issue of net
neutrality. Its two previous attempts were struck down by the
courts.
As regulatory proceedings continue to stretch on, a
question I have is whether there may be a more efficient and
more effective way to safeguard against potential
discriminatory behavior than Federal rulemaking. That is where
antitrust law comes in.
Antitrust law has a number of benefits to consider.
Antitrust law and the standards applied by the courts have
developed, evolved, and been refined over decades. This stands
in contrast to newly proposed regulations that include untested
definitions and approaches, which would be interpreted and
enforced by a constantly rotating commission. And the courts,
on many occasions, would be dealing with cases of first
impression, as opposed to established case law.
Antitrust law uniformly applies to all participants in the
Internet marketplace. Recent FCC regulations, by comparison,
would only apply to a smaller group of Internet service
providers. Antitrust law prosecutes conduct once it occurs, and
determines on a case-by-case basis whether a violation has
occurred. Regulation is a one-size-fits-all approach, and
imposes a burden on all regulated parties, regardless of
whether the parties actually engaged in improper conduct. These
regulations could also stifle legitimate and necessary
innovation before it happens.
And then you have the different approaches that different
countries take, although the network or the Internet is a
worldwide system.
Antitrust law violations may be brought by both private
actors and enforcement agencies equipped with lawyers,
economists, technicians who have decades of experience policing
anticompetitive conduct. Regulatory violations typically may be
pursued only by a select group of defined parties and the
regulatory agency.
Notably, the FCC only has one single administrative law
judge, and that is something that I was even not aware of
before this hearing.
These are only some of the factors that should be
considered when determining whether an antitrust or regulatory
approach should be taken to protect Internet users from
anticompetitive conduct.
Today's witnesses are very distinguished and have
perspectives from each of the relevant agencies, the FCC, the
Federal Trade Commission, and the Department of Justice.
And I noticed Commissioner Wright is here, so we actually
have one of our sitting commissioners. We are glad you are
joining.
I look forward to hearing their testimony on the benefits
and limitations of using antitrust law to protect consumers and
innovation.
At this time, I recognize the gentleman from Michigan, Mr.
Conyers, the Ranking Member of the full Committee, former
Chairman, for his opening statement.
Mr. Conyers. Thank you so much, Chairman Spencer Bachus,
for holding what I consider an important hearing on net
neutrality and the role of antitrust in ensuring a free and
open Internet. This should be a very interesting hearing, to
say the least.
This Committee has a central role in studying the issue of
net neutrality, and more generally, competition on the
Internet, and I appreciate the Chairman's decision to assert
our jurisdiction.
Turning to the specific question of whether antitrust is
more effective than regulation in addressing net neutrality, we
should keep in mind that we need a regulatory solution to
address potential threats to net neutrality, and must allow the
Federal Communications Commission to do its job.
Congress created the FCC to develop expertise so that it
could properly regulate the complex telecommunications
industry. Any FCC rules to address net neutrality would have
the benefit of addressing some potential threats to net
neutrality before they fully materialize. And it could do so in
a manner that would be more comprehensive than the piecemeal
approach of antitrust enforcement.
Additionally, having a set of best practices enshrined in
rules would provide certainty for the industry. The FCC's
efforts, therefore, must be given the opportunity to develop.
And in developing its rules to ensure a free and open
Internet, the FCC should incorporate the following principles.
Broadband network providers should be prohibited from
failing to provide access to its broadband network for any
provider of content applications or services on reasonable and
nondiscriminatory terms.
Broadband network providers should be prohibited from
blocking, impairing, or discriminating against or otherwise
interfering with the ability of anyone to use a broadband
service to use or access lawful content applications or
services on the Internet.
And there should be strong transparency requirements
regarding clear disclosure to users of information concerning
any terms, conditions, or limitations on the broadband network
service.
The FCC began its latest rulemaking process only a month
ago, and so we must give time to allow this process to proceed.
To the extent that we do look to antitrust law as a way of
ensuring net neutrality enforcement of existing antitrust law,
it would be insufficient. Under current antitrust law, there is
relatively little that antitrust enforcers can do outside the
merger review context to address the conduct of a regulated
industry like broadband Internet service with respect to
enforcing net neutrality principles.
Through a series of decisions, the Supreme Court has
limited the potential to successfully pursue claims under the
Sherman Antitrust Act arising in the net neutrality context.
Moreover, exclusive reliance on antitrust enforcement, while
having the benefit of a more nuanced and fact-specific approach
to the problem, would also be a cumbersome, more limited, more
resource-intensive, and after-the-fact way to develop a
regulatory regime for net neutrality.
Another potential approach would be for the Federal Trade
Commission to use its authority under Section 5 of the Federal
Trade Commission Act to stop unfair methods of competition.
While I hold an expansive view of Section 5, to the extent
that this approach goes beyond the scope of the Sherman Act or
other antitrust laws, it would be very controversial, as some
of my friends on the other side of the aisle would be the first
to note. Moreover, antitrust law is not sufficiently broad in
scope, as it does not address the noneconomic goals of net
neutrality, including the protection of free speech and
political debate.
Our former Chairman of Judiciary, James Sensenbrenner, and
Zoe Lofgren and I introduced bipartisan legislation in 2006 to
strengthen antitrust law to address net neutrality in part
because the FCC was doing too little at that time, in my view.
And I certainly am open to suggestions on how antitrust law
can be better tailored to address net neutrality concerns. But
if we go down that path, current law must be modified to codify
net neutrality principles.
So whether one supports a more antitrust approach or a more
regulatory approach, inaction by Congress and regulators is not
an option, as potential threats to net neutrality remain
present.
And in my opening statements in 2008 and 2011 on this very
same issue, I noted that in many parts of our country,
consumers have the choice of only one or two broadband Internet
service providers that effectively function as monopolies or
duopolies. I noted then that the market power that these
broadband providers enjoy could lead to deferential treatment
of content carried by the provider, depending on how much a
customer pays or the financial incentives for discriminating
for or against given content.
The concerns I noted may have only grown since then,
particularly in light of increasing consolidation in the
telecommunications industry that may result in even less
choice, less innovation, higher costs, and more power in the
hands of fewer broadband providers.
And having given you that impartial view of my position on
this matter, I yield back the balance of my time and thank the
Chairman of the Subcommittee.
Mr. Farenthold [presiding]. Thank you very much.
And I have taken the Chair for Mr. Bachus, who was called
away for votes in another Committee that he serves on.
Without objection, other Members' opening statements will
be made part of the record.
We really have a great panel today, and I would like to
begin by introducing our witnesses.
Commissioner Josh Wright is a sitting Commissioner at the
Federal Trade Commission. He was sworn in January 1, 2013, to a
term that expires in September 2019. Prior to joining the
commission, Commissioner Wright was a professor at George Mason
University School of Law and held a courtesy appointment in the
Department of Economics. He is a leading scholar in antitrust
law, economics, and consumer protection, and has published more
than 60 articles and book chapters, coauthored a leading
casebook, and edited several books and volumes focusing on
these issues.
Commissioner Wright also served as coeditor of the Supreme
Court Economic Review, and was a senior editor of the Antitrust
Law Journal.
Commissioner Wright previously served the FTC in the Bureau
of Competition as its inaugural scholar in residence from 2007
to 2008.
He is focused on enforcement matters and policy. His return
to the FTC marks his fourth stint at the agency after having
served both in the Bureau of Economics and Bureau of
Competition from 1997 and 1998, respectively.
Prior to his tenure at George Mason, Commissioner Wright
clerked for Justice James Selna of the U.S. District Court for
the Central District of California. Commissioner Wright
graduated with honors from the University of California, San
Diego, and received his J.D. and Ph.D. from UCLA.
Mr. Robert McDowell, Commissioner McDowell, is former
Commissioner of the Federal Communications Commission. He was
appointed by Presidents George W. Bush in 2006 and Barack Obama
in 2009, and unanimously confirmed by the U.S. Senate each
time. His second nomination made him the first Republican
appointed by President Obama to an independent agency.
During his tenure at the FCC, Commissioner McDowell worked
continuously to forge a bipartisan consensus in adopting
policies to promote economic expansion, investment, innovation,
competition, and consumer choice.
The Washington Post called him an independent force at the
FCC, while Broadcasting & Cable magazine described his tenure
as statesmanlike.
Commissioner McDowell has also been an official member of
the U.S. diplomatic delegation working on treaty negotiations
and international conferences covering global spectrum and
telecom policies.
Prior to joining the FCC, Commissioner McDowell worked in a
senior position in the telecommunications industry for 16
years.
He graduated cum laude from Duke University and received
his law degree from the College of William and Mary School of
Law.
Professor Bruce Owen is Morris M. Doyle Centennial
Professor in Public Policy at Stanford University and a senior
fellow in the Stanford Institute for Economic Policy Research.
He directs the Stanford Public Policy Program, which offers
undergraduate and graduate degrees in public policy analysis.
Professor Owen was the chief economist in the office of
Telecommunications Policy at the White House under President
Nixon, as well as chief economist in the Antitrust Division of
the Department of Justice under President Carter.
Following his public post, he taught economics at both Duke
and Stanford. Professor Owen has published numerous books and
articles on mass media, economics, telecommunications, and
regulatory policy, among other topics.
Professor Owen received his B.A. from Williams College and
earned his Ph.D. at Stanford. Welcome.
Professor Tim Wu is a professor of law at Columbia Law
School in New York City, where he teaches courses in, among
other things, communications law and intellectual property.
Professor Wu has also taught at the law schools of Harvard,
Stanford, University of Chicago, and the University of
Virginia.
Professor Wu recently served as senior adviser in the
Competition and Consumer Protection Division at the Federal
Trade Commission. He is also widely credited with coining the
term ``net neutrality'' through the publication of his paper,
``Network Neutrality, Broadband Discrimination.''
Professor Wu clerked for Judge Richard Posner at the
Seventh Court of Appeals, and Supreme Court Justice Stephen
Breyer.
Professor Wu received a bachelor of science degree in
biochemistry from McGill University and his law degree from
Harvard, magna cum laude.
Each of the witnesses' statements will be entered into the
record in its entirety, and I ask that each witness please
summarize your testimony in 5 minutes or less.
You have some indicators in front of you. Much like the
traffic signal, green means go, yellow means hurry up, and red
means stop.
So we will get going, and we will start with Commissioner
Wright. You are recognized for 5 minutes.
TESTIMONY OF THE HONORABLE JOSHUA D. WRIGHT, COMMISSIONER,
FEDERAL TRADE COMMISSION
Mr. Wright. Chairman Goodlatte, Chairman Bachus, Ranking
Members Conyers and Johnson, and Members of the Subcommittee,
thank you for the opportunity to appear before you today. My
name is Josh Wright, and I am a Commissioner at the Federal
Trade Commission.
I am pleased to join you to discuss competition and
regulation in the broadband sector and, more specifically, the
issues highlighted by the ongoing debate surrounding net
neutrality.
I should make clear at the outset that the views I express
today are my own and do not necessarily reflect the views of
the Federal Trade Commission or any other commissioner.
Today, I will focus my comments upon competition policy and
regulation in broadband markets from a consumer welfare
perspective. Consumer welfare is the lodestar of competition
policy and antitrust, and it guides decisionmaking at the FTC.
The consumer welfare approach harnesses the power of
rigorous economic analyses to inform competition policy and
antitrust.
This emphasis on consumer welfare makes antitrust
particularly well-suited for tackling complex issues and
questions related to broadband competition, and for addressing
the important issues raised in the net neutrality debate.
More specifically, the ``rule of reason'' analytical
framework that lies at the core of antitrust analysis can be
deployed effectively to analyze business practices in the
broadband sector and to separate conduct that increases
consumer welfare from those business practices that make
consumers worse off.
I would like to begin by discussing net neutrality from an
economic perspective. At its heart, the net neutrality debate
concerns the competitive effects of what economists would
describe as vertical contractual arrangements between broadband
providers and content providers.
Put another way, net neutrality is about the fear that
broadband providers will enter into business arrangements that
disadvantage certain content providers, harm competition, and
thereby leave consumers and Internet users worse off.
For example, a broadband provider might enter into an
exclusive contract with an online video site to foreclose a
rival video site's access to the broadband provider's
subscriber. This type of potential competitive concern is
grounded in antitrust economics, and more specifically, in the
``raising rivals costs'' literature familiar to students of
antitrust.
Proponents of net neutrality traditionally have responded
to these types of concerns by favoring a rigid, categorical ban
or other significant restrictions upon broadband providers'
ability to enter into vertical contractual relationships.
Fearing that any network discrimination by broadband
providers creates undue risk of competitive harm, they often
have argued for a one-size-fits-all approach prohibiting such
arrangements. This approach, however, fails to recognize the
fundamental economic point that most vertical contractual
relationships benefit consumers.
The economic literature is replete with examples and
empirical evidence that vertical contracts create consumer
benefits by reducing double marginalization, preventing free-
riding, facilitating new business models on entry, and aligning
manufacturer and distributor incentives.
Consumers benefit from these efficiencies because they are
passed on to them in the form of lower prices, increased
output, more content, higher quality, and greater innovation.
Moreover, considerable empirical evidence further supports
the view that vertical contracts are more often than not
procompetitive. These empirical studies cut sharply against the
idea that broadband providers necessarily will use such
arrangements in a way that harms competition.
The marketplace experience and learning also demonstrates
that so-called non-neutral business models deployed by
providers have proven highly beneficial to consumers.
For instance, in 2002, a fledging Google was able to
strategically achieve economies of scale by beating out its
competition in a bid to become the default search engine on
AOL, then the country's leading Internet service provider, by
offering a substantial financial guarantee.
To be clear, the economic literature and empirical evidence
does not claim that vertical contracts never create competitive
concerns. The correct regulatory question is not whether
vertical contracts can harm consumers, but rather what
regulatory structure and legal rules will best promote consumer
welfare in this context?
Any economically coherent answer to that question must, in
my view, begin with the fundamental observation and market
experience that the business practices at the heart of the net
neutrality debate have generally been procompetitive.
In light of the economic theory and evidence, in my view,
antitrust offers a superior analytical framework--one that
focuses upon consumer welfare--to address any potential
anticompetitive concerns in the broadband sector.
Over the past century, antitrust jurisprudence has evolved
a highly sophisticated ``rule of reason'' balancing approach
for investigating whether vertical arrangements are
anticompetitive in practice. The ``rule of reason'' framework
is a flexible one that allows consumers to benefit from the
vast number of vertical agreements that help consumers while
also creating a means, grounded in sound economics and
evidence, for identifying those contracts that harm consumers.
In closing, it is my belief that antitrust offers a
superior approach to addressing anticompetitive concerns in
broadband markets in a manner that achieves the best result for
consumers.
I will be happy to answer any questions. Thank you.
[The prepared statement of Mr. Wright follows:]
__________
Mr. Farenthold. Thank you, Commissioner Wright.
We will now go to Commissioner McDowell.
TESTIMONY OF THE HONORABLE ROBERT M. McDOWELL, FORMER FCC
COMMISSIONER, AND VISITING FELLOW, HUDSON INSTITUTE, INC.,
CENTER FOR THE ECONOMICS OF THE INTERNET
Mr. McDowell. Thank you, Mr. Chairman, Ranking Members, and
Members of the Committee. It is an honor to be back here before
your Committee again today.
At the outset, I should make clear that it is my hope that
the Internet remains open and freedom-enhancing, as it has been
since it was privatized in the mid-1990's.
As the Internet migrated further away from government
control, it proliferated beautifully, growing from just under
90,000 users in the late 1980's to approximately 3 billion
users globally today.
Its success as the fastest-growing disruptive technology in
human history was the direct result of the Clinton
administration's bipartisan policy to keep the government's
hands off the Internet sector. In short, the Internet is the
greatest deregulatory success story of all time, in my view.
When it comes to the net neutrality debate, it is important
to remember that nothing is broken that needs fixing. The FCC
is pursuing new rules without the benefit of a comprehensive,
peer-reviewed economic study, something I have called for time
and again over many, many years.
If there is systemic market failure, let's discover that
through a data-driven process.
In 2007, the Federal Trade Commission examined the market.
And in a unanimous and bipartisan fashion, found that there was
no market failure, while eloquently warning against creating
new rules that may produce harmful, unintended consequences, a
report whose lead staffer was another FTC Commissioner, Maureen
Ohlhausen.
Instead of making a new and untested body of law that would
produce uncertainty and potentially collateral regulation of
the entire Internet sector, our public policy should rely on
what has worked so well for virtually every other aspect of the
highly complex American economy: our antitrust and consumer
protection laws.
Those laws are effective, enjoy a century of court-tested
legal precedent, and can be administered by the Federal Trade
Commission at the same speed, or lack thereof, as the Federal
Communications Commission.
Additionally, other State and Federal statutes and common
law offer powerful consumer protections, such as those covering
breach of contract, tortious interference with contract,
deceptive trade practices, fraud, and much more.
For instance, if ISPs were to breach their terms of service
with customers, the plaintiffs bar would have a field day
launching an uncountable number of class action lawsuits. These
are powerful deterrents against anticompetitive practices.
Additionally, having been part of official U.S. diplomatic
delegations to negotiate treaties in the communications space,
as well as recently being a member of the international blue
ribbon panel on Internet governance, I can personally attest to
the influence of the American net neutrality debate on
international efforts to regulate all corners of the Internet.
The ongoing prospect of new net neutrality rules has
generated thinking throughout the world that more regulation in
the Internet ecosystem should be the norm. Recent initiatives
in Europe, covering all types of Internet-related companies,
underscore this point.
In sum, Internet regulation appears to be a one-way
ratchet.
Lastly, today, I offer a warning. Some technology companies
that are pushing for classification of Internet access as a
telecommunications service under Title II of the Communications
Act of 1934 should be careful what they wish for.
This section of the Communications Act is not only
antiquated--in fact, the FCC just celebrated its 80th birthday
yesterday--but it is particularly powerful, prescriptive, far-
reaching, and, by some counts, has over 1,000 requirements. As
market forces caused the technical architecture of tech and
telecom companies to converge, companies that today are calling
for the regulation of their rivals, and naively think they will
not get swept up in Title II regulations themselves, could wake
up one day having to live under its mandate.
As a technical and business matter, transmission services
and information services are quickly becoming
indistinguishable.
So across the globe, content and application companies are
falling under the purview of more and more regulations and
court orders.
In conclusion, whether creating new rules or foisting
antiquated laws on new technologies, the end result would be
counterproductive and create uncertainty and unintended
consequences. A better path would be to rely on time-tested
antitrust and consumer protection laws that have helped make
the American economy the strongest and most innovative in the
world.
Thank you for the opportunity to testify today, and I look
forward to your questions.
[The prepared statement of Mr. McDowell follows:]
__________
Mr. Farenthold. Thank you, Commissioner McDowell.
We will now recognize Professor Owen for his 5 minutes.
TESTIMONY OF BRUCE M. OWEN, MORRIS M. DOYLE CENTENNIAL
PROFESSOR IN PUBLIC POLICY, AND DIRECTOR, STANFORD PUBLIC
POLICY PROGRAM, STANFORD UNIVERSITY
Mr. Owen. Thank you, Mr. Chairman, Ranking Member, and
Members of the Committee, for this opportunity to testify
today.
Net neutrality is a seductive slogan. It seems to have many
people in favor of it, many of whom I suspect don't know
exactly what it means. Its meaning seems quite protean. It
adjusts like a mutating virus to fit the defenses of the body
against it.
I think the most common current definition or usage of net
neutrality involves what is more commonly called common carrier
regulation. That is a public utility to which anyone has a
right of access on nondiscriminatory terms.
Now, we have a lot of experience with common carrier
regulation in the United States, starting with the first
Federal regulatory legislation in 1887, the Act to Regulate
Commerce, which created the Interstate Commerce Commission, and
began the regulation of railroads. Later, trucking and other
modes of transportation were included, all under a common
carrier rubric.
The fact is that none of that regulation stopped
discrimination. In fact, discrimination 20 and 30 years into
regulation of transportation under the act was much worse, or
at least much more extensive, than when it began.
Moreover, like many other industries, the transportation
industries became embedded in the political economy of the
regulatory structure. The loudest voices affecting
transportation policy in Washington were the railroads, and the
trucking industry itself.
And before very long, before the Depression, in fact, we
had a series of regional monopolies or cartels overseen and
refereed by the regulator. And the results for consumers were
not good.
Consumers were clearly worse off. They paid higher prices,
output was reduced, entrants were kept out, and innovation was
resisted, because you had to get a license from the ICC to
compete in the transportation business. And one of the things
the ICC took into consideration was whether the current
incumbents would be harmed.
The issue was not whether customers would be benefited, but
whether incumbents would be harmed.
The same thing happened in telecommunications and telephone
regulation, in particular. It came to be true that the
interests of AT&T, the old Bell monopoly that was broken up in
1982, were primary at the FCC, and the interests of consumers
were definitely secondary.
Entrants were excluded. Technology was excluded or slowed.
And consumers lost in order to benefit the incumbent monopoly.
We don't have a good history with regulation, even where
there is a lot of concentration in the industry.
I think, therefore, we have to be very careful before
imposing regulation. The first stop, the presumption in our
economy is competition, and the promotion of competition by the
government is the ideal way to go. And if that fails, which it
can do, then we turn to regulation reluctantly as a last resort
to solve serious and otherwise irremediable market failures.
We don't start with regulation. We start with competition.
So there is no particular evidence that competition isn't
working in the parts of the telecommunications industry devoted
to Internet supply. And there is every evidence that
competition is in fact increasing, largely because of
technology and, in particular, the growing use of portable
devices supported by broadband wireless service.
The capacity of wireless broadband service to serve the
needs of consumers in competition with wireline Internet access
providers is limited only by the FCC, which is in control of
the amount of spectrum that can be devoted to that use.
If we would like to see even more competition than we
already have in local broadband access to the Internet, the
first thing to do is to increase the spectrum available to
wireless providers.
Technology will also help with that. As we move to the
fifth generation of wireless service, we will be able to
provide greater amounts of service within roughly the same
bandwidth.
Antitrust policy promotes and protects competition.
Regulation, whatever its intent and however well-meant, has the
practical effect of suppressing competition. Antitrust promotes
and protects innovation that makes it easier to enter an
industry, when that would benefit consumers. Regulation,
whatever the intent of it may have been, tends to suppress
innovation in the interests of the incumbent regulated firms.
It seems clear that antitrust is an effective way to
preserve competition. One of those great victories of antitrust
in the last century was breaking up the Bell System monopoly,
the result of which was a huge increase in competition, both at
the local level and in long-distance service. And, more
important, unleashing the forces of innovation.
The Bell telephone monopoly was a great inventor. Bell Labs
was a wonderful source of----
Mr. Farenthold. Professor Owen, if you could wrap it up. We
need to try to stay on our time here.
Mr. Owen. I am sorry.
But it was a reluctant innovator. AT&T didn't become an
innovator until after it was largely deregulated after the
breakup.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Owen follows:]
ATTACHMENT
__________
Mr. Farenthold. Thank you, Professor.
We will now go to Professor Wu.
TESTIMONY OF TIM WU, PROFESSOR OF LAW,
COLUMBIA LAW SCHOOL
Mr. Wu. Chairman, Ranking Member, Members of the
Subcommittee, thanks so much for holding this hearing. I
welcome the opportunity.
I can summarize my comments in a few sentences. I have the
highest admiration for the antitrust laws and the agencies
enforcing antitrust laws. But I simply don't think they are
equipped to handle the broad range of values and policies that
are implicated by net neutrality and by the open Internet.
Just to take a sample, what I am suggesting is that when we
consider Internet policy, what we are really considering is not
merely economic policy, not merely competition policy, but also
media policy, social policy, oversight of the political
process, issues of free speech.
There are a wide range of noneconomic values that I fear
the antitrust law, despite its expertise, despite the decades,
indeed, over a century of lawmaking in that area, simply does
not capture.
And for that reason, I think that, despite its
imperfections, we should stick with the process of FCC
oversight of the Internet and enforcement of net neutrality
rules.
So let me break some of these ideas out a little bit.
First, as I said, I have enormous appreciation for the
antitrust laws and the agencies that enforce them. I served for
some time at the Federal Trade Commission.
And I think there are some advantages that the FCC could
learn from in this area. There is a commendable insulation from
influence. The adversary process is very well handled. I think
the FTC does a good job at what it does.
The problem is with the FTC and other antitrust agencies is
that they are optimized for one kind, or two kinds in the case
of FTC, two kinds of problems. And that is the protection of
consumer welfare through the competitive process.
And this is obviously a worthy goal. I am not going to sit
here and say we shouldn't protect the competitive process. That
is terrific.
And this is typically accomplished by focusing on a complex
and very sophisticated economic analysis, which, again, I
commend when we are considering only the issue of competition.
The problem is that in its day-to-day operations, the
Internet implicates a whole host of noneconomic values, which
are simply not well-captured by antitrust processes.
Let me just give an example. Let's imagine we had an
Internet service provider that for its own reasons decided it
did not like political speakers on one or another side of the
spectrum. Let's say we had a different ISP that for whatever
reason believed that local news sources were less valuable than
national news sources and decided to favor them. Or let's say
we had an ISP that had a bias in favor of big speakers as
opposed to small speakers, for whatever reasons. Or maybe just
something totally irrational, like it favored one sports team,
it just thought the New York Rangers were a better hockey team
despite losing the Stanley Cup than the L.A. Kings, and so
tried to adjust coverage around sports.
Whatever it was, these are the kinds of issues, whether
political, social, sports, whatever, you name it, that simply
do not register in the antitrust analysis, because if you have
political bias, it doesn't necessarily give a competitive
advantage to the ISP.
And so what I am trying to suggest here is that at stake in
the net neutrality debate is really protection of the American
political process and protection of the United States as an
open society. And we can't accomplish that simply--we can't
leave a matter that important to the economists. That is what I
am trying to suggest.
I have great respect for economists. I have a great respect
for economic analysis. But I want to suggest we cannot leave
the multiple values at stake in American society and in our
political process to mere economic analysis.
And I will close my comments right there. Thank you very
much.
[The prepared statement of Mr. Wu follows:]
__________
Mr. Farenthold. Thank you very much.
We will now recognize the Chairman of the full Committee,
the gentleman from Virginia, for the first round of
questioning.
Mr. Goodlatte. Thank you very much, Mr. Chairman, for your
forbearance.
And, Professor Wu, while I disagree with much of what you
just said, particularly the thought that, as has been attempted
in the past, regulating the content offered by broadcasters on
television and radio, which was a very popular thing to do in
the past, and now that that has been pushed aside to allow for
freer speech, I would suggest to you that we have far greater
diversity of opinion expressed in that traditional market. And
the thought that we would need to have FCC commissioners
regulating content on the Internet to make sure that somebody's
avenue to access to the Internet was fair and balanced would
be, to me, an extraordinarily harmful thing to do.
But I want to commend you on one thing and that is you have
picked a name for this subject, ``net neutrality,'' that stuck.
I have been at this issue for a dozen years. Congressman Rick
Boucher and I introduced legislation before Congressman Conyers
and Congressman Sensenbrenner did several years ago. We called
it ``open access.'' And I think we would probably agree on the
principle that the Internet should have open access to all the
competitors and all of the consumers that have access to it.
So let me direct a question first to Commissioner Wright.
It has been reported that, during peak hours, Netflix traffic
accounts for approximately a third of all Internet traffic.
When I saw that recently, I was amazed. I think that is a great
credit to the popularity of Netflix, of whom I am one of their
customers.
This amount of traffic could indicative of a significant
market position. One of the reasons that antitrust law holds
more appeal than regulation is its ability to prosecute
improper conduct by all market participants, not just a select
few. And I am not in any way suggesting that Netflix has an
improper market position.
But to the extent that Netflix were to use its market
position to engage in anticompetitive behavior, would antitrust
law, or existing or proposed regulation, be more effective at
policing improper conduct?
Mr. Wright. Thank you, Chairman. I appreciate the question.
And ``House of Cards'' is quite a show. Whether it grants
Netflix market power I think is a question that is one--the
place where antitrust analysis began with such a question is
what the antitrust laws do with respect to market power is say
that if a firm achieves its market position by innovation, by
building a better mousetrap, by making content that benefits
consumers, this is the type of conduct that the antitrust laws
celebrate rather than condemn. Antitrust laws step in when a
firm with market power abuses it in such a way to make
consumers worse off.
Those sorts of concerns, that a Netflix, for a hypothetical
example, or any firm in the broadband space with market power
would discriminate in such a way to harm consumers would set
off a set of standard analyses. The FTC and other antitrust
agencies and courts, for that matter, have analyzed these
problems for decades upon decades in a variety of industries.
And the formula, the algorithm, for analyzing these problems
are now sort of well-known.
I will say, with respect to the methodology rather than
boring you with its details, that it is focused upon asking a
central question of whether the conduct at issue makes
consumers better off--in this case, Internet users--better off
or worse off.
Mr. Goodlatte. I am going to interrupt you there, because I
want to direct one more question, and I have 1 minute left. I
am going to direct it to Commissioner McDowell.
Antitrust law has the benefit of being available for
prosecution of improper conduct, if and when it occurs. In your
view, has there been a demonstration of widespread abuses by
Internet service providers or other market participants that
justifies deploying a before-the-fact regulatory approach to
potential improper conduct on the Internet?
And a follow-up question is, can you explain why the FCC is
unwilling to conduct a cost-benefit analysis before regulating
such an important component of our national economy? Is it
fearful of the potential results?
Mr. McDowell. No, I am not aware of widespread market
failure. And that is why for years I called for a bona fide,
peer-reviewed market study to be put out for public comment
time and time again. The FCC is 0-and-2 in the appellate
courts. I can't speak to their motivations.
The courts have now handed the FCC a very tiny legal
needle, and it is trying to put a big, fat regulatory rope
through that eye. I think they will fail again in court unless
they are very, very careful.
And if anything, this is an issue for Congress to look at,
if there were a market failure to begin with, which there is
not.
Mr. Goodlatte. Thank you very much.
Thank you, Mr. Chairman.
Mr. Farenthold. Thank you, Mr. Chairman.
We will now recognize the Ranking Member, Mr. Johnson, for
5 minutes.
Mr. Johnson. Thank you, Mr. Chairman.
I would ask unanimous consent to include a letter from
Consumers Union on the importance of rules to protect net
neutrality, for it to be placed in the record.
Mr. Farenthold. Without objection, so ordered.
[The information referred to follows:]
__________
Mr. Johnson. And I would also, for clarification, just note
that, Commissioner Wright, you are testifying before us today
only in your individual capacity, and that your oral and
written testimony do not necessarily reflect the views of the
Federal Trade Commission.
Is that correct?
Mr. Wright. That is correct.
Mr. Johnson. All right, thank you, sir.
Now, Professor Owen, you stated that most consumers are
confused about the definition of the term ``net neutrality.''
Would you give us your definition?
Mr. Owen. I don't have my own definition.
Mr. Johnson. Okay, well, I will tell you what, then----
Mr. Owen. I do my best to infer it.
Mr. Johnson. All right, let me ask, then, for Professor Wu
to give us his definition of the term.
Mr. Wu. Net neutrality is a principle that suggests that
Internet carriers should give consumers what they want when
they want it, and not stand in the way, not to block some
sites, and not to favor some sites over others. It is just a
basic principle of nondiscrimination, which we have in many
public accommodations, inns, hotels, airlines, and so forth, as
applied to the basic transportation facilities of the Internet.
Mr. Johnson. All right, thank you.
Commissioner Wright, the U.S. Supreme Court's recent
decision in American Express v. Italian Colors upheld the
rights of companies to force arbitration of antitrust terms
through adhesive clauses hidden in contracts in companies'
terms of service online.
Are you familiar with that decision?
Mr. Wright. I am vaguely familiar with that decision.
Mr. Johnson. Well, in her dissent, Justice Kagan clarified
the issue. She said that as a result of that decision, AMEX's
contract will succeed in depriving Italian Colors of any
effective opportunity to challenge monopolistic conduct
allegedly in violation of the Sherman Act. The Federal
Arbitration Act, the majority says, so requires. Don't be
fooled, she says, only the Supreme Court so requires. The
Federal Arbitration Act was never meant to produce this
outcome. In the hands of today's majority, arbitration
threatens to become more nearly the opposite, a mechanism
easily made to block the vindication of meritorious Federal
claims and insulate wrongdoers from liability. The Court thus
undermines the Federal Arbitration Act no less than it does the
Sherman Act and other Federal statutes providing rights of
action.
So, Commissioner Wright, in your written testimony, you
argue that the courts should set the rules of the road for
Internet openness through antitrust law. But how could a
complaint of anticompetitive behavior even reach the courts if
it is lawful to force every consumer, small business, and
employee to arbitrate their claims in a foreign venue that is
secret, that is for profit.
You are familiar with arbitration process--no jury trial,
no right to appeal.
How does your opinion about how the Internet should be
regulated fare in light of that Supreme Court ruling?
Mr. Wright. I appreciate the question, and I am going to
give you two quick answers. One is, there is nothing in that
decision that would preclude the FTC or DOJ from bringing a
case. We are not in arbitration agreements with any of the
companies at issue. We bring investigations in areas where
there are arbitration clauses all of the time.
Mr. Johnson. The public, though, would be banned,
essentially, from a jury trial.
Mr. Wright. The second reason--so that speaks for the
public agencies, like the FTC and DOJ.
Mr. Johnson. We would need the public subject to the
government going to court.
Mr. Wright. The second part of the answer, with respect to
private rights of action, I can tell you, perhaps not on an
industry-by-industry basis, but private rights of actions, both
before and after the Supreme Court's decision in Italian
Colors, are alive and well.
There is no downtick in exercise of private rights of
antitrust action. In fact, over the last 30 years, private
rights of action are at an all-time high.
Mr. Johnson. Well, they are going to be at an all-time low,
as we proceed forward under this U.S. Supreme Court ruling,
which actually snuffs out the constitutional right, Seventh
Amendment right, to a jury trial where the case in controversy
exceeds $20 or more.
So I will, at this time, yield back the balance of my time.
Mr. Farenthold. Thank you very much.
The gentleman from Southern California has indicated that
he is under a time constraint, and out of the good sense of
yielding to my full Committee Chair on Oversight and Government
Reform Committee, I will now recognize Mr. Issa.
Mr. Issa. Thank you, Mr. Chairman. And as a result, I will
go to a different Subcommittee on the other side of this wall
in just a few minutes, and I thank you.
Professor Wu, I really appreciate your being here. I think
you have given us the appropriate characterization of the true
reason for net neutrality. You said it was social media policy,
speech policy, political policy. You used words including
control. All of that, you did voluntarily here, right?
So what you are saying, in effect, is that if the FCC gets
ahold of this, we would go back to the ``Leave It to Beaver''
times, times in which two married adults had to be in twin beds
in order to get past the social norms of the day, times in
which even today Bill Maher, who I often disagree with, can't
be on broadcast, because the FCC won't let him on because he
uses the ``F'' bomb too often, times in which complaints are
being considered today and in the last year against ``Two and a
Half Men'' because they are too sexually explicit.
This is the FCC's role. They are a regulatory policy entity
that actually does limit free speech, carefully questions moral
norms and the like.
Do you have any way to tell me that that is not true, after
your opening statement?
Mr. Wu. What I am trying to suggest----
Mr. Issa. Please answer the question, then you can pivot to
your suggestion.
Mr. Wu. I am suggesting that if the antitrust agencies
overtake----
Mr. Issa. No, no. You were telling me the good reasons for
the FCC to have this kind of control. And I have countered with
you are absolutely right. Everything you said about social
policy, speech, political, these are things the FCC has
controlled over the airwaves for my entire life.
Commissioner McDowell, you probably have the best
perspective, because you are a former commissioner. And there
is nothing like somebody who has been on both sides of it.
Do you have any question but that, in fact, that is still
today a part of how the FCC views its mandate, when it takes
complaints on whether ``Two and a Half Men'' is crossing the
line in broadcast?
Mr. McDowell. Absolutely. The FCC has control over speech
over broadcast licensees under a doctrine called spectrum
scarcity, which its days may be numbered at the Supreme Court.
We don't know yet.
But it does have control over speech.
And to build on Professor Wu's comments, and a lot of other
net neutrality proponents, this is about bringing such controls
to the Internet as well. It is social policy, speech policy,
political regulation policy. And I think that actually does
summarize it quite well, just as he said.
Mr. Issa. Well, I have been in Washington for nearly 14
years----
Mr. Wu. With respect, if I can answer the question?
Mr. Issa. Well, I think you answered it wonderfully in how
you phrased it.
Mr. Wu. No, I would just say that I----
Mr. Issa. Professor, Professor, Professor, I will ask the
Chair to remind you this is my time. I got an answer to your
question. I will come back to you in a moment.
Mr. Wu. All right.
Mr. Issa. In my 14 years, the one thing I have noticed is
that we like to harmonize things.
So, Commissioner Wright and Commissioner McDowell, do you
have any question but that there would be, if the FCC takes
full net neutrality authority, if you will, that the FCC, by
definition, will tend to want to harmonize other spectrum, such
as broadcast and its limited cable role, with the Internet?
In other words, the rules of the road for broadcast that
have given us not having things on broadcast inevitably would
be applied, at least in some part of the Internet, maybe
similarly to how we regulate cable can only go so far. And I am
just going to give you a simple question: You can't put what
some people consider pornography on broadcast television, can
you?
Mr. McDowell. No.
Mr. Issa. And it is extremely limited as to what can be on
cable? It cannot be a free-for-all?
Mr. McDowell. It cannot be obscene. It is a different
constitutional standard.
Mr. Issa. Right. But on the Internet today, it is limited
only to criminal acts, is that correct? You can put anything on
the Internet, no matter how much somebody doesn't like it, as
long as it is not a crime, is that correct?
Mr. McDowell. Correct.
Mr. Issa. And if it is a crime, then law enforcement
regulates it?
Mr. McDowell. Correct.
Mr. Issa. Okay.
Professor Wu, I will give you the last word. Do you see any
inconsistency with exactly that? Because you are talking about
in your statements about speech policy, social policy, control?
Isn't that part of the concern the American people should have,
that much of what they see on the Internet could be regulated
out of existence?
Mr. Wu. No, I disagree. Net neutrality prevents the exact
opposite. Net neutrality protects the----
Mr. Issa. Net neutrality doesn't exist. Net neutrality is a
concept, isn't it?
Mr. Wu [continuing]. Platform for a diversity of freedom of
speech. We have had net neutrality rules, de facto, for the
last 20 years. We have had an incredible outpouring of speech
from all across the political spectrum.
And I am suggesting that if we maintain----
Mr. Issa. Professor, Professor, your own words indict you.
One last quick question. It is an antitrust question. Isn't
our real ability to ensure competition in our control, if we,
as a Congress and this Committee, define the relevant market,
so that in fact it is intended--and promote competitiveness by
defining a relative market to a low enough level to always
ensure free flow of competition?
Mr. Johnson. Mr. Chairman, I would ask for regular order,
if we are not going to allow Professor Wu to answer the
question.
Mr. Farenthold. It is Mr. Issa's time. I indulged you
with----
Mr. Issa. To be honest, any of them can answer any of the
questions, and the last question is one.
I think I got the answers from Professor Wu.
Mr. Johnson. The time has expired, Mr. Chairman.
Mr. Issa. Mr. Johnson, when the gentleman goes off of the
actual question, it is not his time. And Chairman Conyers is
over there, and he knows well. I ask a question. I asked
Professor Wu to answer the question and be succinct. Now the
fact is the pertinent question right now, and I don't care how
much time the Chairman gives to Professor Wu to go on
disagreeing with us, but the pertinent question is the
antitrust relevant market question.
I would appreciate all four witnesses answering.
Mr. Farenthold. We will give them a short time to answer.
And as your time is up, we will allow each witness a couple
seconds to go in, and then we will recognize the gentleman from
Michigan, if anyone wants to tackle that.
Mr. Wright. I hate to do it at this point, but can you
repeat the question?
Mr. Farenthold. No.
Mr. Issa. It is short. The relevant market, in other words,
how we define competition--is competition an entire State or is
competition what is available to you in your home. Those kinds
of relevant markets we can set, which, of course, would make
antitrust harder and harder to circumvent, which would push for
more antitrust control over entities that have 60, 70, or 100
percent market share in your particular rural home.
Mr. Wright. That is a--yes, that is correct. There is a
standard mode of market definition analysis with antitrust that
I think has very sound economic principles that I think would
serve just fine here.
Mr. McDowell. So the definition of markets is very key with
what the FCC does in defining the public interest under its
public-interest standard. And when it comes to broadband, there
is coaxial cable, there is fiber, there is copper, there is
DSL.
There is also wireless broadband, the fastest-growing
segment of the broadband market. And there is unlicensed
wireless broadband, which I have been a big proponent of for a
long time.
But also what is important here is how these companies are
converging. These and no longer dumb pipes. As everything
migrates to Internet protocol, there is intelligence embedded
in networks. And if you are a content delivery network, you
have networks. And if you are a traditional telco or cable
company, you have networks, and you have intelligence and
content embedded in those.
And from an engineer's perspective, they are starting to
look a lot alike. And so the danger for the government trying
to parse this and with a scalpel somehow outguess the
marketplace, that is the big danger that will undermine
innovation and investment, and our competitive advantage.
Mr. Farenthold. Professor Owen, if you could be real quick,
we are way over on time here, if you want to take a stab at it.
You are welcome to pass.
Mr. Owen. I have been invited to pass. I pass.
Mr. Farenthold. Professor?
Mr. Wu. All right. I will answer the question.
Market definition is essential to the antitrust policy, and
it would determine everything we do in this area. And it is one
of the problems in this area, because the FCC is equipped to
deal with issues like regionalism, like localism, like
diversity, which are important American values that aren't
captured by an analysis that only focuses on market definition.
Mr. Farenthold. Thank you very much, Professor Wu.
And we will now recognize the Ranking Member of the full
Committee, the gentleman from Michigan, Mr. Conyers.
Mr. Conyers. Thank you, Subcommittee Acting Chairman
Farenthold.
Mr. Issa. He looks good in that chair, though.
Mr. Conyers. I am impressed with the fact that we have
three very distinguished witnesses taking one position, and
Professor Wu, I would just like to go through a few things in
the minutes that I have.
Would the FCC be regulating content, as was suggested by
our full Committee Chairman Goodlatte?
And isn't antitrust regulation weak and slow, and can't
operate in a preventive way?
Mr. Wu. The answer to the question is the FCC would not be
regulating content. Net neutrality is not a call for content
regulations. It is a call for nondiscrimination norms on the
Internet, which everyone on this panel seems to agree with in
one form or another.
And my suggestion is that by having a neutral platform, it
has served as an incredible platform for free and diverse
speech, and threats to the neutrality network ultimately
threaten speech environment and the political process of the
United States.
I mean, how many political outsiders have come from nowhere
from an Internet campaign? I would suggest, with respect to the
Chairman of the full Committee--he seems to have left--that he
has things precisely wrong, 180 degrees wrong, and doesn't seem
to understand the Internet very well, because, under net
neutrality, over the last 20 years, we have an incredible
flourishing of speech, including his speech, which would
probably not have been heard in an earlier era.
He owes and all speakers owe the Internet an incredible
debt of gratitude for getting their voices out there, all of
the speakers in our society.
And so what I am suggesting is net neutrality has supported
and upheld this network as a platform for speech and a platform
for innovation and a platform for noneconomic values. None of
this is well-captured by antitrust scrutiny.
The FCC has taken--it hasn't always been pretty, but over
the last 20 years, it has taken a light-handed approach that
has had incredible benefits for the entire society.
And I agree with your suggestion that the antitrust laws,
had they been in place over the last 20 years, probably would
not have been adequate to oversee and create the kind of
incredible speech and innovation environment we have seen over
the last 20 years.
So I thoroughly agree with your suggestion, and I think
that the FCC, despite its imperfections, remains the right
agency to oversee this network.
Mr. Conyers. I would like now to turn to our other three
witnesses and ask if there was anything objectionable that was
just uttered by Professor Wu?
Yes, former Commissioner?
Mr. McDowell. It is great to see you again, Congressman, by
the way.
So I am not going to say an objection, but I think there is
a fine point of distinction, especially for the House Judiciary
Committee, which has jurisdiction over the First Amendment,
which is when we are talking about speech, what I think the
professor is offering is speech balancing. In the broadcast
context, historically at the FCC, we call that the fairness
doctrine. That would probably be ruled unconstitutional by the
Supreme Court today.
So when you have private parties speaking on private
platforms, the constitutional precedent says the government
can't balance the speech, that that is actually censorship.
When private parties shout down one another, that is not
censorship. Censorship inextricably is intertwined with state
power and state involvement.
Now, we want the Internet to be open and free and a great
platform. That is going to come through abundance and
competition. And that is what regulation actually subverts.
Mr. Conyers. Could I ask Professor Wu my last question?
Mr. Farenthold. Sure.
Mr. Conyers. Why can't most people see what I think I have
heard? Why is antitrust, which is slower and weaker and can't
get in front of a problem, why would it be advocated over the
FCC?
Is there something I don't understand going on underneath
this discussion?
Mr. Wu. I, certainly, don't advocate it.
Antitrust is slower and sometimes weaker. It is not always
weaker. The AT&T breakup was pretty strong.
But I think what it does is it would turn, as opposed to
being a public debate over the open Internet, it would turn to
an economists' debate where you have one set of economists with
one set of data and another with another.
And as I have suggested, many of the important values,
which I think are values in our communication network, values
of our media, would be neglected.
Mr. Conyers. But there is more than that?
Mr. Wu. Yes, there are important values--localism,
regionalism, diversity, technical expertise, all of which are
lost when we turn to a purely economic analysis that only
considers economic, financial aspects of the Internet.
Mr. Conyers. Thank you very much, Mr. Chairman.
Mr. Farenthold. Thank you, Mr. Conyers.
I will now recognize myself for 5 minutes for questions.
I am going to start with Professor Wu. I was going to not
engage, but you have drawn me on.
So what is broken now? Give me some examples of where you
see Internet service providers regulating political speech or
shutting down potential speakers? I don't see a big public
outcry that this is happening.
Mr. Wu. Right, I would point to the countries outside the
United States where they don't have net neutrality to suggest
where you see the problem.
Now, in the United States----
Mr. Farenthold. But it is countries themselves that are
doing that through their Internet policy, not so much private
sector ISPs.
Mr. Wu. Often it is a mixture of the two, whether it is the
private ISP or the government involved. I also don't think the
government should discriminate, should censor the Internet
either.
Let me say, the reason we haven't had a problem over the
last 20 years is that we have had du jure or de facto net
neutrality policy in place.
Mr. Farenthold. Again, I have limited time, so I want to
get to some other people.
This sounds like an ``if it ain't fit broke, don't fix it''
kind of argument. I have been on the Internet for a very long
time. Back when I was in college in the 1980's accessing USENET
and things like that. And whenever there was some sort of
content regulation or something that wasn't deemed fair, there
was a huge outcry. And I don't think there is a more vocal
advocacy group out there than Internet users. We need look no
further than we were looking at SOPA and PIPA in this Committee
to see how effective an advocate Internet users are.
You have the ability, even though we are seeing a
consolidation in the number of providers in the vast--outside
of rural areas, you typically have two or three providers. You
have a cable provider, a wireline provider, and a wireless
provider of broadband.
So, Commissioner Wright, Commissioner McDowell, do you see
it broken? Do you see a problem here?
Mr. Wright. I don't. And the FTC has studies in this
regard.
But I want to focus on one part of your question, which is
the values. We heard a lot about the values of Internet users
in a variety of ways, reflecting on the debate.
I think that is important to note that what consumers value
in their activities on the Internet is in fact what lies at the
center of antitrust analysis. I have heard now, I think,
something that needs correction with respect to how cramped a
view of antitrust sort of is out there.
Antitrust is a consumer welfare-based system. This means
what economists do is not merely focus on the things we can
count, but also on what consumers value.
And to the extent in antitrust analysis that things like
the amount of content, the quality of content, innovation,
things other than price and quantity, these are captured within
an antitrust analysis.
Mr. Farenthold. Commissioner McDowell, did you have
anything you wanted to add?
Mr. McDowell. So, first of all, I would like to say the
Federal Trade Commission can act at the same speed as the
Federal Communications Commission, or lack thereof. So the idea
that antitrust law is slower moving is just not the case.
But also, I think it is important to point out that those
countries where the Internet is regulated more, there is less
freedom overall, but especially less freedom of speech. There
is a direct correlation between more regulation, more state
involvement with the net and less freedom, because these
countries are balancing--it is really censorship.
Mr. Farenthold. So potentially, could some of these net
neutrality regulations get in the way of innovative offerings?
I pay close to $100 a month for my Internet access. I like
it fast. I have four people in my house who are typically all
streaming at the same time. But my mother, before she passed
away, was email and Facebook. With net neutrality making these
streaming services equally available, as opposed to somebody
who just wants to use the Internet and email, doesn't it force
Internet service prices higher and take away my options to buy
a limited account?
Mr. Wright. The case for antitrust overregulation is as
simple as this: The general economic view is these types of
contracts across many industries help consumers. What the
antitrust ex post approach allows you to do is have the
benefits of those contracts when they help consumers and
reserve enforcement for those instances where we can find, and
we do, abuses of market power. It allows consumers to have
both.
Mr. Farenthold. All right. And Professor Wu and some net
neutrality advocates have suggested that antitrust law is ill-
equipped to deal with this. While I disagree, are there any
tweaks that we should be looking at in antitrust law that would
perhaps address these problems and be there, should the problem
arise?
Mr. Wright. Antitrust over the last 50 years has evolved
significantly a fine-tuned approach based on modern economics
that focuses on consumer welfare. That approach is one that
incorporates things like nonprice dimensions, quality and
innovation, exactly the things that we would want an antitrust
policy to do.
In my view, the consumer welfare approach has served
antitrust incredibly well. It is flexible enough to reach these
types of concerns, and, in my view, doesn't need any tweaking.
It does what it does well. What it does well is broader than
some of what we have heard. And I don't think it should do more
than what it already does well.
Mr. Farenthold. Thank you.
I see my time has expired. We will now recognize the
gentlelady from Washington, Ms. DelBene.
Ms. DelBene. Thank you, Mr. Chair.
And thanks to all of you for being here today. Appreciate
it.
It is clear that we have bipartisan interest in ensuring a
free and open Internet. And we all appreciate how essential it
is to innovation and economic growth. And I appreciate that
there are very different views on how we get there.
I believe that it is critical for the FCC to implement
strong, enforceable rules that will protect consumers and make
sure there are clear protections against blocking and
discriminating on content.
Commissioner Wright, your testimony suggests you believe
that the fears that network discrimination via broadband
providers could lead to competitive harm are unwarranted. I am
not sure I agree with that, but can you please talk more about
what you see as the potential benefits or efficiencies that
these type of contracts will create for consumers, and how
consumers are going to actually see that?
Mr. Wright. Sure. The idea of discriminatory what we call
vertical contracts--for example, between broadband providers
and content providers--these types of contracts have been the
focus of antitrust inquiries and economics for a century.
Sometimes what they do, when we have close relationships
between folks in different parts of the supply chain, is align
their incentives more closely to provide new types of services
by combining, not by merger, but by contract.
Ms. DelBene. But specifically, a consumer today, what do
you think they are going to see today in terms of benefits?
When I hear from consumers, I hear concerns about net
neutrality and violating the principles of net neutrality. I
hear concern about pricing.
When you say there are benefits?
Mr. Wright. So, for example, business models that charge--I
mean, the heart of discrimination. Business models that charge
different prices to consumers can allow lower prices to
disadvantaged consumer groups for different types of services
that might be charged for higher prices. That discrimination
gives some people cause for concern, and I understand that
concern.
But it also provides, and I don't think that there is any
debate in economic literature about this, that it provides real
benefits to consumers by facilitating the growth and entry of
new products, new business models, sometimes differentially
priced or differentially designed. But those provide real
benefits.
Ms. DelBene. So I guess I have a question for Professor Wu,
then.
Did the regulation of the Internet today prevent venture
capitalists or others from investing in startups like Google
and Yahoo? Have we seen a lack of innovation?
Mr. Wu. No. We have had a net neutrality policy for the
last 20 years, maybe 30, depending how you count.
And we have had, during this period, the most astonishing
period of economic growth and development centered on the
Internet that we have ever seen in telecommunications. And it
has been a tide that has risen all boats.
The telecommunication sector itself, cable and telephone
companies, are very profitable. And we have just had one great
innovation after another.
I have suggested that under the net neutrality policy, we
have approached what economists aspire to, which is a market
with very few barriers to entry.
Ms. DelBene. And we, de facto, today have a net neutrality
policy that has been in place that folks have been operating
under.
Mr. Wu. Right.
Ms. DelBene. Maybe not formally, but in some ways formally,
but also informally.
Mr. Wu. Yes. I am going to agree with the sentiment, if it
is not broken, don't fix it. We have had net neutrality policy
for the past 20 years, and it has been terrific.
This is no time to jettison it, jettison the FCC and turn
to antitrust instead, which is unproven and will likely lead to
disappointing results as compared to a successful policy we
have had for the last 20 years.
Ms. DelBene. So doing that would be a change.
Mr. Wu. That would be a change. The change would be moving
to antitrust.
The FCC oversight has been terrific, both in terms of
economic development and innovation.
Ms. DelBene. I also want to say that may be why we have a
letter from over 100 Internet companies, from large companies,
startups, services, who wrote the letter to the FCC last month,
arguing that the commission's rules should protect users and
Internet companies on both fixed and mobile platforms against
blocking, discrimination, and paid prioritization.
Mr. Chair, I ask for unanimous consent to submit this
record for the record.
Mr. Farenthold. Without objection, so ordered.
[The information referred to follows:]
__________
Ms. DelBene. So that is an example of folks feeling like we
have a competitive environment today where they have been able
to thrive and innovate, and want to make sure that we continue
to maintain that.
So with that, Mr. Chair, I yield back.
Mr. Farenthold. Thank you very much.
We will now recognize Mr. Smith.
Mr. Smith of Missouri. Thank you, Mr. Chairman. Thank you
for holding this hearing.
I think it is important that we examine the importance of
the antitrust laws can play in the discussion of the Internet,
and particularly net neutrality debate.
In my first question is for Mr. McDowell. How would
additional regulation impact small and midsize Internet
providers?
Mr. McDowell. Well, there is evidence in the record at the
FCC during various rounds in 2008 and 2010, and I think coming
in now under the current proceeding, wireless Internet service
providers, WISPs we call them, and others were very concerned
about this. Explicit evidence in the record, statements by
owners saying they have been questioned by their banks as to
what their future would look like, as to whether or not they
could get loans from banks and build out and continue to
improve their networks and serve their customers.
Mr. Smith of Missouri. Would these companies be similarly
impacted by the application of antitrust law?
Mr. McDowell. No, I don't think so. They wouldn't.
So one of the questions here is creating a new body of law.
By the way, I disagree with the premise that there has been
de facto net neutrality policy of the government. There has
been maybe de facto net neutrality policy in the private sector
to maximize freedoms so that you are actually creating
abundance and competition. But not by the government.
But in any case, no is the answer to that question.
Mr. Smith of Missouri. Okay. Well, in your view, do you
believe the FCC is properly equipped to handle the enforcement
of improper conduct over the Internet?
Mr. McDowell. What do you mean by improper conduct? Like
anticompetitive conduct?
Mr. Smith of Missouri. Yes.
Mr. McDowell. So the courts have cabined in the FCC's
authority here in part because Congress did not contemplate
this.
I disagree with the D.C. Circuit in the Verizon case that
Section 706 gives the FCC authority to add more regulation; 706
is about the FCC reducing regulations to stimulate broadband
infrastructure deployment. So I disagree. It was a 2-to-1
decision. Judge Silberman's dissent is very compelling in that
regard.
But the FCC has very limited authority here, and I think
will fail again in court, if it goes outside the bounds of what
Judge Tatel was drawing, which, again, I disagree with, but he
is talking about commercially reasonable agreements, and that
is something in the data-roaming context, which has worked so
far.
But in any case, to answer your question more succinctly, I
think the FCC has almost no authority in this space.
Mr. Smith of Missouri. Thank you.
Professor Wu, outside of the free-speech concerns outlined
in your testimony, do you believe the FTC would be effective at
protecting consumer interests and procompetitive behavior over
the Internet?
Mr. Wu. I think the FTC would do some things very well. I
admire, as I said, the FTC and I think they are a good agency,
and I think they are well-equipped to deal with violations of
the Sherman Act and other unfair methods of competition.
But I don't think they have adequate scope to deal with the
full scope of harms, including noneconomic harms that we might
see arise from discriminatory practice by Internet service
providers.
I have given the example of political bias, of regional
bias, of localism concerns, diversity concerns. And so I think
they would do a good job with a certain form of harm, but I
don't think their review encompasses all the harms that we care
about in the Internet space.
Mr. Smith of Missouri. Commissioner Wright, would you want
to answer that same question?
Mr. Wright. The Supreme Court has described antitrust laws
in the United States as the Magna Carta of free enterprise. The
idea behind the antitrust laws is that competition is what
tries not just a lower price for a gallon of milk or increased
output, but increased quality, proliferation of content
variety, and a number of things that have been described in
this context as noneconomic values.
I disagree that they are noneconomic values, but the
fundamental idea of the antitrust laws is a belief that
competition drives these things is the basis for having strong
antitrust enforcement.
In my view, the evolution of the antitrust laws attached
and tethered to sound economics have given antitrust
enforcement at the FTC and other agencies a real strong
intellectual, analytical basis for analyzing precisely this
type of conduct, allowing the conduct that benefits consumers,
over which there is basically no real debate, and preventing
competitive harms.
Mr. Smith of Missouri. Thank you, Mr. Chairman. I yield
back.
Mr. Farenthold. Thank you very much.
We will now recognize the gentleman from Rhode Island, Mr.
Cicilline.
Mr. Cicilline. Thank you, Mr. Chairman.
Thank you to our witnesses.
I think we are all interested in preserving the Internet as
an open platform for innovation and for free expression, and,
obviously, as a tool for investment and economic growth.
I do think that it is very clear that the Internet plays a
very special role in a free and open society, as Professor Wu
says. So the notion is that the Federal Trade Commission has
real expertise in ensuring competition on the sale of
commodities and trades of widgets, of goods and services, but
may not be the best agency when we are talking about a very
different entity, and that is the Internet, which is a vehicle,
a platform, for a whole series of other important democratic
values.
So the first question I have is to you Commissioner Wright,
to follow up on Congresswoman DelBene's point, or question
rather, which I don't think you answered.
You said that vertical contractual arrangements between
broadband providers and content providers are beneficial for
innovation and for consumers because they create certain
efficiencies.
Tell my constituents what benefits you believe would arise
from those contractual arrangements.
Mr. Wright. Okay. So to give an example, a broadband
provider and a content provider can have an arrangement where
they are going to jointly, through their contract, offer a
service to some group of consumers.
For example, we can have a service--MetroPCS had this a
couple years ago, where they were going to offer a service at a
reduced price, but because of concerns about congestion on the
network take off the use of the video downloads. I think they
had YouTube off of it.
But they were going to offer it at a lower price. There was
a significant demand for that product. It was at a lower price
to a consumer group that maybe couldn't buy services that would
have the sort of full scale and be at a higher price.
We have that sort of----
Mr. Cicilline. Okay, but again that all relates to an
economic benefit.
And I guess this is where I would like, Professor Wu, for
you to talk a little bit more about it. It seems to me that
analysis is helpful as it relates to a strictly economic
analysis.
What is the danger with approaching the Internet with that
sort of narrow view? And what are the values that are at stake
here, if we don't preserve vigorously an open, accessible
Internet? What are the implications here and around the world?
Mr. Wu. Yes, the implications are serious. I think the
United States would no longer be the leader of Internet
openness, which is in fact part of our foreign policy. The
State Department has spent an enormous amount of time trying to
say to authoritarian regimes that you need to be like us, you
need to be an open Internet country.
If we abandon the open Internet, and our rules for the open
Internet, and say, well, we decided it is an economic issue, I
think that sends a bad message.
I also want to say that most of the most valuable uses of
the Internet actually are not commercial uses. For example,
probably one of the most valuable uses of the Internet is when
extended family shares pictures. Parents send pictures of
grandchildren to the grandparents. And that doesn't show up in
an economic analysis, in a commercial analysis. It is very hard
to measure these kinds of values.
I am concerned that things like families, just friends,
totally noncommercial interactions will be the kind of things
that won't get properly factored into an analysis that is just
focused on trade. It is the Federal Trade Commission, or
antitrust laws, which are focused on things you can measure
that have a clear commercial value.
Mr. Cicilline. And, Professor Wu, should we draw any
inference from the fact that the overwhelming number of
technology companies, as the letter that was introduced by
Congresswoman DelBene from over 100 technologies companies who
are calling on the FCC to protect net neutrality, as compared
to the folks who are the service providers, sort of the smaller
group in the business of selling the products on the Internet,
should we draw any inference from the different positions of
those two sets?
We heard a lot of discussion that it is going to impede
innovation, impede investment from entrepreneurs. It seems as
if there has been a very loud signal from the innovators and
entrepreneurs that, in fact, it is critical to them and to the
growth of this sector of our economy that there be an open
Internet.
Mr. Wu. I thoroughly agree with you. I am going to return
again to this idea that if it is not broken, don't fix it.
What is being proposed here is moving away from net
neutrality policy as overseen by the FCC and toward an untested
antitrust method. And we have seen very clearly that the
incredibly vibrant economy, which has grown up on the Internet
and in fact has been enormously beneficial to cable and
telephone companies, they want net neutrality protected using
the FCC.
So why would we mess with that by experimenting with
antitrust enforcement, which is untested and will have results
that we can't predict? And as you earlier indicated, it does
not protect some of the most important noncommercial values at
stake.
Mr. Cicilline. Thank you very much sir.
I yield back. Mr. Chairman.
Mr. Farenthold. Thank you very much.
I think that since we have been through the complete round
of questioning, we will ask the witnesses, if anybody else has
any additional questions, within the next 5 days, and we submit
them, would you be willing to reply to those in writing?
So, without objection, all Members will have 5 legislative
days to submit additional written questions for the witnesses,
or add additional material for the record.
hat concludes today's hearing. Thank you all very much. It
was an informative and fun hearing.
[Whereupon, at 10:44 a.m., the Subcommittee was adjourned.]
A P P E N D I X
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Material Submitted for the Hearing Record
Supplemental Material submitted by the Honorable Robert M. McDowell,
Visiting Fellow, Hudson Institute, Center for the Economics of the
Internet
APPENDIX A