*Pages 1--6 from  Microsoft Word - 28924*
 W.  KENNETH  FERREE,  CHIEF  MEDIA  BUREAU 
 FEDERAL  COMMUNICATIONS  COMMISSION  AT  THE 

 PROGRESS  &  FREEDOM  FOUNDATION  CONFERENCE  ON  NET  NEUTRALITY 
 FRIDAY,  JUNE  27,  2003 
 REMARKS  AS  PREPARED  FOR  DELIVERY 

 Good  afternoon.  Thank  you,  Randy,  for  that  kind  introduction. 
 Please,  go  on  eating.  Im  a  former  law  school  professor,  so  Im  well  accustomed  to  speaking  to  people  completely  focused  on  what  they  are  eating.  The  one  thing  I  wont 
 tolerate,  however,  is  if  you  fall  asleep  while  Im  talking    that  privilege  is  reserved  for  my  wife. 

 The  topic  of  the  conference  today,  as  you  know  by  now,  is  net  neutrality.  Before  I  offer  my  two  cents  I  need  to  make  one  point  absolutely  clear.  The  remarks  that  I  am 
 going  to  make  today  do  not  reflect  the  views  of  the  FCC  as  an  institution  or  of  any  individual  Commissioner.  The  views  are  my  own. 

 That  said,  I  was  thrilled  to  be  invited  to  share  these  views  with  you.  I  know  that  Randy  and  PFF  have  had  some  distinguished  luncheon  speakers  in  the  past,  so  I  am  honored  to 
 be  here  today. 
 What  I  dont  know  is  whether  any  of  my  predecessors  were  invited  to  talk  about  something  as  warm  and  fuzzy  as  net  neutrality.  What  a  lovely  notion.  Net  Neutrality. 
 Who  could  possibly  object  to  that?  The  Swiss  are  neutral.  Everybody  loves  the  Swiss,  right?  This  is  real  motherhood  and  apple  pie  stuff. 

 But  what  is  it  really?  Are  we  referring  to  neutrality  with  respect  to  government  intervention  in  the  market?  That  is,  after  all,  how  we  normally  think  of  neutrality. 
 Baseball  umpires  are  supposed  to  be  neutral,  i.  e.,  indifferent  as  to  the  outcome  and  impartial  with  respect  to  their  calls.  If  that  is  what  we  mean  by  net  neutrality,  were 
 done;  conference  over.  One  would  think,  and  in  this  case,  rightly  so,  that  we  would  not  be  having  this  conference  if  we  were  just  here  to  talk  about  the  status  quo. 

 Instead,  we  learn,  the  term  is  meant  to  capture  the  general  concept  of  openness,  which,  we  are  reminded  repeatedly,  has  characterized  the  Internet  in  the  dial-  up,  narrowband 
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 context.  At  its  most  basic,  the  notion  is  that  Internet  networks  should  be  agnostic  to  the  nature  or  origin  of  the  content  or  applications  that  people  use.  Thats  another  apple  pie-like 
 concept    openness.  Who  can  oppose  openness?  What  are  you  for  then,  closed-ness? 

 This  starts  to  sound  a  little  like  the  abortion  debate  with  the  pro-  choicers  against  the  pro-lifers.  You  dont  really  want  to  be  opposed  to  either  of  those  things.  But  what  do  they 
 really  mean  and  what  policy  and/  or  legal  structures  flow  from  either  basic  position?  Thats  the  problem  with  slogans,  or  maybe  it  is  their  attractiveness.  They  obviate 
 thought.  Once  you  have  a  slogan  you  can  survive  in  popular  debate.  I  just  had  my  fill  of  that  with  the  canaries  in  coal  mines  and  five  companies  owning  your  every  thought. 

 The  difficulty  for  the  proponents  of  an  openness  mandate,  however,  is  in  turning  the  general  concept  into  some  systematic  regulatory  approach.  When  you  sit  on  the  policy 
 making  side,  you  dont  have  the  luxury  --  or  at  least  you  should  not  succumb  to  the  temptation  --  of  simple  sloganeering.  Public  policy  formulation,  at  its  best,  should 
 involve  thorough,  serious  consideration  of  the  proposed  course  of  action  and  refined  sensitivity  to  the  balance  of  public  interest  harms  and  public  interest  benefits  that  will 
 follow.  Slogans  dont  get  you  there. 
 So  I  turn  to  the  question  on  the  table.  Should  the  government  --  presumably  the  FCC--  adopt  some  form  of  proscriptive  or  prescriptive  openness  rule? 

 Youve  heard  most  of  the  proposals    heard  them  all  already  and  heard  them  debated  from  both  sides  all  morning.  Im  not  going  to  rehash  the  arguments.  As  a  luncheon 
 speaker  I  suppose  my  role  to  be  half-  entertainment,  half-  summation.  I  feel  a  little  like  John  McLaughlin  at  the  end  of  each  segment  of  the  McLaughlin  group...  and  the  answer 
 is.... 
 So  what  do  I  think  of  these  calls  for  openness  regulation?  To  borrow  from  Milton,  license  they  mean  when  they  cry  liberty. 

 As  I  think  you  heard  earlier  from  some  of  the  economists    the  effect  of  the  regulatory  overlay  that  the  proponents  of  government-  mandated  openness  seek  would  be  to  shift 
 subtly  the  balance  of  power  and  hence  the  economic  power    from  the  owners  of  distribution  to  the  so-  called  fringe.  That  will  not  be  without  ramifications.  Most 
 importantly  from  my  perspective  is  that  investment  will  shift  along  with  it  away  from  platform  development.  It  is  a  regulatory  thumb  on  the  scales,  and    at  this  point  at  least   
 I  think  the  wrong  side  of  the  scales. 
 It  is,  in  substance,  surrendering  to  regulation  as  a  substitute  for  competition.  The  theory  of  this  model,  if  you  will,  is  that  there  is  not,  nor  will  there  soon  be,  sufficient 
 competition  at  the  distribution  level    ergo  government  must  regulate  access  on  the  currently  existing  platforms.  Its  very  much  common  carrier  thinking    its  very  much 
 19  th  Century  thinking. 
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 I,  for  one,  am  not  ready  to  surrender  to  the  easy  path  of  regulated  duopoly.  I  still  have  great  hope  for  a  world  in  which  there  are  multiple  broadband  pipes  into  homes  and 
 businesses.  And  that  is  one  very  important  reason  to  avoid  any  regulatory  structure  that  would  have  the  effect  of  shifting  investment  away  from  platform  development. 
 Competitive  broadband  distribution  will  allow  us  to  rely  upon  market  forces,  rather  than  government  regulation,  to  govern  market  structure  and  service  provision  in  this  space,  as 
 we  do  in  virtually  every  other  segment  of  our  economy. 
 Naive?  Not  at  all.  Pollyannaish?  Absolutely  not.  This  is  not  hope  floating  on  wispy  clouds  of  wish  and  desire.  This  is  hope  born  of  experience  and  grounded  in  real  world 
 technologies  that  even  now  are  rising  up  to  take  their  places  in  our  lives  and  works.  The  development  of  broadband  Internet  access,  while  still  in  its  early  stages,  has  been 
 remarkable.  Barely  ten  years  ago,  the  Internet  itself  was  a  novelty.  I  was  clerking  on  the  D.  C.  Circuit  then  and  my  judge    Judge  Edwards    was  one  of  the  few  people  I  knew 
 who  actually  used  the  Internet  on  a  regular  basis.  He  was  way  ahead  of  me  and  most  everyone  else.  And  this  was  an  entirely  narrowband  world  we  are  talking  about. 

 Five  years  ago,  my  wife  and  I  signed  up  for  cable  modem  service  in  our  home.  We  were  among  the  first  of  my  friends  to  do  so.  Just  five  years  ago  we  were,  I  think,  early 
 broadband  adopters.  I  dont  even  keep  my  motorcycles  that  long. 
 In  the  time  span  since  my  judge  was  first  getting  me  hooked  on  the  Internet,  more  than  half  of  American  households  (between  50  and  60  million  homes)  have  logged  on  to  the 
 Internet.  About  a  quarter  of  these  households  have  now  upgraded  from  cheaper  dial-  up  narrowband  service  to  broadband.  In  only  three  years,  broadband  Internet  access  has 
 jumped  from  under  3  million  subscribers  in  1999  to  nearly  20  million  by  the  end  of  last  year. 

 Now  we  all  know  about  the  technical  developments  in  distribution  that  are  either  upon  us  or  on  the  immediate  horizon,  whether  it  is  wireline,  powerline,  wireless,  or  satellite    the 
 next  generation  networks  will  not  be  put  off.  I  dont  need,  Im  sure,  to  rehash  developments  in  this  area  either.  And  although  I  cant  predict  very  much  about  the 
 future,  I  am  confident  that  the  gadgets  that  we  will  rely  on  ten  years  from  now  will  be  as  different  and  technologically  superior  to  those  we  use  today  as  ours  are  to  those  that  were 
 familiar  to  us  in  1993. 
 And  if  you  use  a  time  horizon  that  is  just  a  bit  longer    say  twenty  years    you  almost  exceed  the  reach  of  common  imagination.  Lets  play  time  machine  and  go  back  twenty 
 years  to  1983,  and  take  with  us  our  digital  wireless  phones,  rim  pagers,  palm  pilots,  laptops,  and  the  rest  of  our  gadgetry.  We  will  blow  them  away.  Satellite  television? 
 Satellite  radio?  The  Internet?  What  in  the  world  is  that? 
 And  yet  some  want  us  to  surrender  to  regulation  because  todays  technology  leaves  us  with  a  limited  number  of  broadband  systems?  Pshaw.  The  current  platforms  arent  even 
 broadband!  Im  in  time  travel  mode  ten  years  hence    I  want  100  megabit  speed! 
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 So  no,  Im  not  ready  to  roll  over  and  surrender  to  regulation.  The  future  is  big  and  bold  and  right  around  the  corner. 
 And  what  of  the  other  side?  What  would  we  make  of  these  calls  for  openness  were  we  to  stretch  beyond  the  sloganeering?  How  would  an  openness  regulatory  overlay  work? 
 How  much  openness  is  demanded?  How  much  access  is  acceptable?  Put  another  way,  what  types  of  restrictions  would  be  permissible  and  what  would  not?  Is  all  discrimination 
 of  any  sort  to  be  prohibited?  Some  appear  to  want  to  sweep  into  the  concept  of  net  neutrality  the  idea  that  users  should  be  able  to  attach  any  devices  that  can  be  used  within 
 the  bandwidth  limits  of  their  service  so  long  as  they  do  not  cause  harm  to  the  network.  But  what  is  harm? 

 Net  Neutrality  reminds  me  of  a  tennis  story  told  to  me  by  Deborah  Klein,  our  Media  Bureau  Chief  of  Staff,  who  is  an  excellent  tennis  player.  She  was  umpiring  a  tennis 
 match  between  two  junior  players  who  were  fighting  it  out  tooth  and  nail.  You'd  think,  perched  high  up  in  that  chair,  that  you  would  have  a  perfect  vantage  point.  The  problem 
 is,  she  told  me,  that  from  up  there  you  absolutely  cannot  see  the  lines.  Well,  you  can  see  the  sideline  directly  below  the  chair.  But  the  baseline,  the  far  service  line,  and  the  far 
 sideline,  forget  it.  In  a  heated  dispute  over  a  line  call  on  the  baseline,  they  looked  to  Deborah,  but  she  just  could  not  overrule  the  call  that  the  player  made.  She  could  see 
 some  space  between  the  line  and  the  ball  if  a  ball  was  clearly  out,  but  it  was  way  too  difficult  to  tell  in  the  close  cases  like  the  one  in  dispute.  One  player  started  screaming  at 
 her  in  disbelief.  She  said  that  she  now  knows  what  it  feels  like  to  be  on  the  receiving  end  of  a  tirade  like  those  John  McEnroe  used  to  deliver    he  once  called  umpires  the  pits  of 
 the  world. 
 The  moral  of  the  story  is  that  FCC  arbitration  of  commercial  disputes  over  Internet  access  may  sound  better  in  theory  than  it  turns  out  to  be  in  practice.  There  are  some  fairly  close 
 calls  to  make  and  when  the  pen  hits  the  paper,  you  may  not  get  the  answer  you  are  looking  for,  we  may  not  see  the  issues  the  way  you  do,  and  you  may  be  worse  off  than 
 before. 
 Then  Ill  have  everyone  screaming  at  me  and,  if  I  am  to  umpire  neutrality  on  the  web,  Im  going  to  insist  upon  being  called  ref-  ferree. 

 But  how  did  I  get  into  this  anyway?  Why  is  this  an  FCC  matter?  What  is  our  jurisdiction?  Ive  heard  the  arguments,  but  once  you  pin  them  down  to  something  of 
 substance  beyond  the  always  popular  ancillary  jurisdiction,  they  all  come  back  to  statutory  charges  that  are  fundamentally  and  inherently  deregulatory,  such  as  Section 
 230.  We  could  be  looking  at  some  strikingly  regulatory  requirements  if  we  were  to  proceed  down  this  path    all  marshaled  beneath  the  banner  of  openness.  I  dont  know 
 how  the  FCC  constructs  an  open  system  regime  pursuant  to  Section  230  or  its  kin. 
 But  the  most  glaringly  odd  thing  about  this  whole  openness  debate    it  seems  to  me    is  that  its  not  even  clear  that  a  truly  open  distribution  model  ultimately  will  benefit  the  part 
 of  the  Internet  economy  that  it  is  supposed  to  benefit    those  on  the  so-  called  fringe. 
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 Many  of  the  companies  on  the  fringe  are  those  who  still  seemingly  are  groping  for  a  business  model  that  actually  has  some  promise  of  success  over  the  long  term.  Weve 
 seen  the  Internet  bubble  burst;  weve  seen  company  after  company  fold-  up  like  a  cheap  tent;  weve  watched  as  the  financial  community  has  become  increasingly  calloused  and 
 skeptical  of  Internet  business  propositions  while  companies  try  to  run  from  their  internet  heritage  by  changing  their  names  to  eliminate  dot.  com  suffixes.  And  an  open  distribution 
 model  is  the  answer?  Hey,  weve  found  something  that  doesnt  work,  lets  do  more  of  it! 
 What  these  fringe  companies  may  discover  one  day  is  that  in  the  Internet  world,  just  as  in  the  brick  and  mortar  world,  some  sort  of  favored  access,  or  exclusivity,  or  marketing 
 partnership,  if  you  will,  between  those  with  content  and  those  who  handle  distribution  actually  makes  commercial  sense! 

 And,  of  course,  this  is  not  just  about  business  success;  its  about  providing  consumers  with  products  and  services  over  an  extended  period  of  time  because  the  provision  of 
 service  includes  a  return  on  investment.  As  ugly  as  it  sometimes  seems  in  the  pristine  world  of  Washington  regulators,  companies  actually  have  to  make  money  to  provide 
 consumers  what  they  need  and  want  in  a  market  economy    at  least  if  they  want  to  do  so  more  than  once.  Deal  making  between  content  providers,  application  developers,  and 
 distribution  system  operators  may  be  precisely  the  engine  for  innovation  and  success  on  the  web  that  weve  been  waiting  for    and  maybe  for  the  success  of  the  web  itself  at  this 
 early  stage. 
 Interestingly,  some  of  the  chief  proponents  of  what  might  be  called  net  neutrality,  in  fact,  eschew  true  nondiscriminatory  treatment.  In  their  view,  content  and  application 
 developers  should  be  able  contract  with  each  other  and  with  network  owners  to  gain  favorable  treatment  for  certain  content  and  applications,  including  featured  placement  on 
 web-  and  browser  pages.  I  read  recently  about  a  marketing  partnership  between  SBC  and  Yahoo!  which  gives  Yahoo!  content  favored  placement  on  SBCs  system.  These 
 contractual  arrangements  are  intended  to  drive  more  Internet  eyeballs  toward  selected  material  and  services.  Apparently,  as  in  Animal  Farm,  all  animals  are  created  equal,  but 
 some  are  more  equal  than  others. 
 That  is,  even  the  proponents  of  the  model  implicitly  understand  its  weakness    it  is  a  limiting  factor,  not  an  enhancing  one.  It  restricts  commercial  flexibility  rather  than 
 facilitate  it.  I  dont  care  what  business  you  are  in,  that  is  not  conducive  to  success  and  you  would  only  impose  such  restrictions  based  on  some  compelling  reason.  We  have 
 none  here.  We  dont  know  what  the  broadband  world  of  the  future  will  look  like,  but  for  now  it  seems  hardly  a  stretch  to  say  that  the  same  kinds  of  commercial  arrangements  that 
 work  in  the  brick  and  mortar  world    including  occasionally  exclusive  arrangements    will  be  a  key  to  success  in  the  virtual  world. 

 Gee,  I  feel  like  Ive  said  something  almost  controversial  and  yet  its  all  so  obvious. 
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 Now  the  objection  might  be  made  that  some  kinds  of  business  deals  are  good  and  benign,  and  others  are  not.  The  proponents  of  openness  regulation  presumably  would  tell  us  it  is 
 the  latter  that  call  for  regulation.  The  irony  of  course  is  that,  if  the  kinds  of  commercial  arrangements  that  the  proponents  of  openness  regulation  fear  actually  come  about    and 
 if  they  are  as  pernicious  as  suggested    no  regulatory  check  should  be  necessary.  The  kinds  of  conduct  that  have  been  posited  are  precisely  what  the  antitrust  laws  were 
 intended  to  combat.  If  distributors  actually  start  using  whatever  market  power  they  have  at  the  distribution  level  to  eliminate  rivals  or  favor  some  vertically  integrated  enterprise 
 in  an  anticompetitive  way,  we  would  expect  the  antitrust  authorities  to  have  more  than  a  little  interest. 

 Short  of  that,  commercial  arrangements  that  are  not  anticompetitive  can  be  expected  to  promote  competition,  provide  consumer  benefits,  and  serve  the  public  interest.  I  know  of 
 no  policy  justification  for  limiting  these  arrangements  or  otherwise  shackling  those  that  might  be  party  to  them.  And  I  know  of  no  way  of  distinguishing  in  advance  between 
 benign  commercial  arrangements  and  anticompetitive  ones.  The  proof  is  in  the  pudding  and  I  am  not  in  a  position  to  second  guess  the  cook. 

 Numerous  benefits  result  when  people  can  obtain  and  use  content,  applications,  and  devices  freely  over  the  Internet.  No  doubt  about  it.  At  this  point,  and  left  to  market 
 forces,  that  seems  to  be  the  way  the  broadband  Internet  world  is  developing.  Indeed,  its  not  entirely  clear  why  a  regulatory  openness  mandate  is  such  an  imperative  right  now. 
 The  only  clear  winners  are  the  lawyers.  Former  Senator  Sam  Irvin  used  to  tell  a  story  about  a  young  lawyer  who  showed  up  at  a  revival  meeting  and  was  asked  to  deliver  a 
 prayer.  Unprepared,  he  gave  a  prayer  straight  from  the  heart:  Stir  up  much  strife  amongst  thy  people,  Lord,  he  prayed,  lest  thy  servant  perish. 

 Putting  aside  all  of  the  wailing  and  gnashing  of  teeth,  there  seem  to  be  powerful  market  incentives  already  for  broadband  providers  to  make  their  systems  consumer  friendly   
 that  is,  to  ensure  that  their  networks  largely  are  open.  Pursuing  such  openness  through  unnecessary  or  premature  regulation,  however,  threatens  to  tip  the  scales  away  from 
 platform  development  and  to  the  fringe.  This  may  impede  investment,  stifle  innovation,  and  undermine  the  long-  term  policy  goals  of  the  Commission.  License  they  mean  when 
 they  cry  liberty.  I  am  not  inclined  to  grant  it  them. 
 Thank  you  for  your  attention    I  hope  Ive  been  at  least  a  little  entertaining  and  perhaps  helped  to  put  a  capstone  on  an  otherwise  terrific  conference. 

 -  FCC  - 
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