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WIRELESS INNOVATION AND

CONSUMER PROTECTION

HEARING

BEFORE THE

SUBCOMMITTEE ON TELECOMMUNICATIONS AND

THE INTERNET

OF THE

COMMITTEE ON ENERGY AND

COMMERCE

HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

JULY 11, 2007

Serial No. 110–61

(

Printed for the use of the Committee on Energy and Commerce

energycommerce.house.gov

COMMITTEE ON ENERGY AND COMMERCE

JOHN D. DINGELL, Michigan, Chairman

HENRY A. WAXMAN, California

EDWARD J. MARKEY, Massachusetts

RICK BOUCHER, Virginia

EDOLPHUS TOWNS, New York

FRANK PALLONE, JR., New Jersey

BART GORDON, Tennessee

BOBBY L. RUSH, Illinois

ANNA G. ESHOO, California

BART STUPAK, Michigan

ELIOT L. ENGEL, New York

ALBERT R. WYNN, Maryland

GENE GREEN, Texas

DIANA DEGETTE, Colorado

Vice Chairman

LOIS CAPPS, California

MIKE DOYLE, Pennsylvania

JANE HARMAN, California

TOM ALLEN, Maine

JAN SCHAKOWSKY, Illinois

HILDA L. SOLIS, California

CHARLES A. GONZALEZ, Texas

JAY INSLEE, Washington

TAMMY BALDWIN, Wisconsin

MIKE ROSS, Arkansas

DARLENE HOOLEY, Oregon

ANTHONY D. WEINER, New York

JIM MATHESON, Utah

G.K. BUTTERFIELD, North Carolina

CHARLIE MELANCON, Louisiana

JOHN BARROW, Georgia

BARON P. HILL, Indiana

JOE BARTON, Texas

Ranking Member

RALPH M. HALL, Texas

J. DENNIS HASTERT, Illinois

FRED UPTON, Michigan

CLIFF STEARNS, Florida

NATHAN DEAL, Georgia

ED WHITFIELD, Kentucky

BARBARA CUBIN, Wyoming

JOHN SHIMKUS, Illinois

HEATHER WILSON, New Mexico

JOHN B. SHADEGG, Arizona

CHARLES W. ‘‘CHIP’’ PICKERING,

Mississippi

VITO FOSSELLA, New York

STEVE BUYER, Indiana

GEORGE RADANOVICH, California

JOSEPH R. PITTS, Pennsylvania

MARY BONO, California

GREG WALDEN, Oregon

LEE TERRY, Nebraska

MIKE FERGUSON, New Jersey

MIKE ROGERS, Michigan

SUE WILKINS MYRICK, North Carolina

JOHN SULLIVAN, Oklahoma

TIM MURPHY, Pennsylvania

MICHAEL C. BURGESS, Texas

MARSHA BLACKBURN, Tennessee

PROFESSIONAL STAFF

DENNIS B. FITZGIBBONS, Chief of Staff

GREGG A. ROTHSCHILD, Chief Counsel

SHARON E. DAVIS, Chief Clerk

BUD ALBRIGHT, Minority Staff Director

(II)

(III)

SUBCOMMITTEE ON TELECOMMUNICATIONS AND THE INTERNET

EDWARD J. MARKEY, Massachusetts, Chairman

MIKE DOYLE, Pennsylvania

JANE HARMAN, California

CHARLES A. GONZALEZ, Texas

JAY INSLEE, Washington

BARON P. HILL, Indiana

RICK BOUCHER, Virginia

EDOLPHUS TOWNS, New York

FRANK PALLONE, JR, New Jersey

BART GORDON, Tennessee

BOBBY L. RUSH, Illinois

ANNA G. ESHOO, California

BART STUPAK, Michigan

ELIOT L. ENGEL, New York

GENE GREEN, Texas

LOIS CAPPS, California

HILDA L. SOLIS, California

FRED UPTON, Michigan

Ranking Member

J. DENNIS HASTERT, Illinois

CLIFF STEARNS, Florida

NATHAN DEAL, Georgia

BARBARA CUBIN, Wyoming

JOHN SHIMKUS, Illinois

HEATHER WILSON, New Mexico

CHARLES W. ‘‘CHIP’’ PICKERING,

Mississippi

VITO FOSELLA, New York

GEORGE RADANOVICH, California

MARY BONO, California

GREG WALDEN, Oregon

LEE TERRY, Nebraska

MIKE FERGUSON, New Jersey

(V)

C O N T E N T S

Page

Hon. Edward J. Markey, a Representative in Congress from the Commonwealth of Massachusetts, opening statement .................................................... 1

Hon. Fred Upton, a Representative in Congress from the State of Michigan,

opening statement ................................................................................................ 3

Hon. Mike Doyle, a Representative in Congress from the Commonwealth

of Pennsylvania, opening statement ................................................................... 4

Hon. Charles W. ‘‘Chip’’ Pickering, a Representative in Congress from the

State of Mississippi, opening statement ............................................................. 6

Hon. Hilda L. Solis, a Representative in Congress from the State of California, opening statement ........................................................................................ 7

Hon. J. Dennis Hastert, a Representative in Congress from the State of

Illinois, opening statement .................................................................................. 8

Hon. Jay Inslee, a Representative in Congress from the State of Washington,

opening statement ................................................................................................ 9

Hon. Cliff Stearns, a Representative in Congress from the State of Florida,

opening statement ................................................................................................ 9

Hon. John D. Dingell, a Representative in Congress from the State of Michigan, opening statement ....................................................................................... 10

Hon. Bart Stupak, a Representative in Congress from the State of Michigan,

opening statement ................................................................................................ 12

Hon. Gene Green, a Representative in Congress from the State of Texas,

opening statement ................................................................................................ 13

Hon. Jane Harman, a Representative in Congress from the State of California, opening statement ........................................................................................ 14

WITNESSES

Tony Clark, commissioner, North Dakota Public Service Commission, Bismarck, ND ............................................................................................................ 15

Prepared statement .......................................................................................... 17

Steven E. Zipperstein, general counsel, Verizon Wireless, Washington, DC ...... 28

Prepared statement .......................................................................................... 30

Answers to submitted questions ...................................................................... 156

Timothy Wu, professor of Law, Columbia Law School, Columbia University,

New York, NY ...................................................................................................... 39

Prepared statement .......................................................................................... 41

Answers to submitted questions ...................................................................... 154

Philip L. Verveer, partner, Willkie Farr & Gallagher, Washington, DC ............ 47

Prepared statement .......................................................................................... 49

Answers to submitted questions ...................................................................... 145

Jason Devitt, co-founder and former chief executive officer, Skydeck; member

Wireless Founders Coalition for Innovation ...................................................... 69

Prepared statement .......................................................................................... 72

Edward Evans, chief executive officer, Stelera Wireless, Oklahoma City, OK .. 81

Prepared statement .......................................................................................... 83

Answers to submitted questions ...................................................................... 152

Chris Murray, senior counsel, Consumers Union ................................................. 90

Prepared statement .......................................................................................... 92

SUBMITTED MATERIAL

Letter of June 29, 2007, from Mr. Barton, et al., to Mr. Martin ......................... 127

Letter of July 9, 2007, from Mrs. Blackburn, et al. to Mr. Martin ...................... 131

Letter of June 27, 2006, from Dennis F. Strigl to Senator Lautenberg .............. 134

Page

VI

Jessica E. Vascellaro, ‘‘Air War, a Fight Over What You Can Do on a

Cellphone,’’ Wall Street Journal, June 14, 2007 ............................................... 136

‘‘Reed Hundt’s Spectrum Play,’’ Wall Street Journal, July 11, 2007 ................... 140

Robert W. Crandall and Hal J. Singer, ‘‘Telecom Time Warp,’’ Wall Street

Journal, July 11, 2007 ......................................................................................... 142

(1)

WIRELESS INNOVATION AND CONSUMER

PROTECTION

WEDNESDAY, JULY 11, 2007

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON TELECOMMUNICATIONS

AND THE INTERNET, COMMITTEE ON ENERGY AND COMMERCE, Washington, DC.

The subcommittee met, pursuant to call, at 10:05 a.m., in room

2123 of the Rayburn House Office Building, Hon. Edward Markey

(chairman) presiding.

Members present: Representatives Doyle, Harman, Gonzalez,

Inslee, Rush, Eshoo, Stupak, Green, Capps, Solis, Dingell, Upton,

Hastert, Stearns, Shimkus, Pickering, Radanovich, Walden, and

Ferguson.

Also present: Representative Blackburn.

OPENING STATEMENT OF HON. EDWARD J. MARKEY, A REPRESENTATIVE IN CONGRESS FROM THE COMMONWEALTH

OF MASSACHUSETTS

Mr. MARKEY. Good morning. Today the subcommittee will explore several wireless issues, including the role of States in regulating the terms and conditions of wireless service, consumer protection, and enforcement issues, as well as how to promote greater innovation and consumer freedom in the marketplace for wireless devices and applications.

The wireless industry has suggested that Congress should preempt States from regulating the terms and conditions of wireless

services as it did over a decade ago with respect to prices for wireless services. Many States have initiated attempts to take action to

provide consumer protection policies for their residents, particularly with respect to regulations aimed at wireless contract terms,

early termination fees, privacy issues and several other issues.

To the extent that wireless service is by nature an interstate

service, this hearing will provide an opportunity for us to explore

whether further preemption is advisable, how consumer protection

can be enhanced if regulatory treatment is nationalized, and how

best to ensure rigorous enforcement of consumer protection policies

in such a regime.

With respect to wireless innovation, just over a week ago, people

stood in line, slept overnight, so that they could get one of these,

an iPhone. The iPhone highlights both the promise and the problems of the wireless industry today. On the one hand, it demonstrates the sheer brilliance and wizardry of the new technologies

2

which are available in wireless engineering today. This cuttingedge technology breaks new ground with regard to the technology

that consumers can have in their pocket, and undoubtedly consumers will cherish this device as though it is a part of their family.

But at the same time, the advent of the iPhone raises questions

about the fact that a consumer cannot use this phone with other

wireless carriers and that consumers in some areas of the country

where AT&T doesn’t provide service, that they can’t use it actually

in some neighborhoods at all. And that is because the iPhone is

used exclusively with AT&T’s wireless plan. Moreover, even though

consumers must buy this iPhone for the full price of $500 or $600,

AT&T wireless reportedly still charges an early termination fee of

apparently $175 for ending the service contract early, even though

the phone cost wasn’t subsidized and a consumer can’t even take

it to use it with another network provider.

This highlights the problems with the current marketplace structure where devices are provided by carriers, portability of devices

to other carriers is limited or non-existent, and many consumers

feel trapped having bought an expensive device or having been

locked into a long-term contract with significant penalties for

switching.

I would note that a witness today, Verizon Wireless, remains an

anomaly in the industry by prorating its early termination fees,

and I applaud them for taking such a step.

It is becoming increasingly clear, however, that wireless carriers

are exerting far too much control over the features, the functions,

and applications that wireless gadget-makers and content entrepreneurs can offer directly to consumers. I believe that this is stultifying innovation and unquestionably diminishes consumer choice.

The freedom to innovate in the wireless marketplace for gadgets

and applications could unleash hundreds of millions of dollars in

investment and create new jobs. Consumers would see more phones

with WiFi or WiMAX chips incorporated into wireless devices, and

application providers could avail consumers of the opportunity to

obtain new content and other technologies that enhance the consumer experience and provide additional competition.

Policymakers should try to figure out how to explore and promote

greater innovation in the wireless marketplace and empower entrepreneurs and consumers with greater freedom. This was the idea

behind the so-called Carterfone decision in the late 1960s when the

FCC broke the stranglehold that Ma Bell had over the black rotary

dial phone that consumers used and allowed unaffiliated manufacturers to provide such devices in the marketplace. The result was

incredible innovation and an unquestioned policy success.

The FCC has a rare chance to foster similar innovation in the

wireless marketplace in the upcoming auctions. As I have suggested previously, the FCC should seize this opportunity to create

an open-access opportunity for wireless service in this auction and

should insist upon Carterfone-like principles applying to a significant portion of the licenses to be offered. Recent comments by FCC

Chairman Martin that he is poised to embrace these policies in a

proposal for auction rules is a step forward and is welcomed news.

3

I encourage the FCC chairman and his colleagues on the FCC to

maximize the benefits these policies can bring to consumers and

the high-tech economy in their upcoming decision.

I look forward to hearing from our witnesses today.

I now turn to recognize the ranking member of the subcommittee, the gentleman from Michigan, Mr. Upton.

OPENING STATEMENT OF HON. FRED UPTON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN

Mr. UPTON. Well, thank you, Mr. Chairman. As we listen to today’s witnesses and as we debate the many issues confronting wireless, I think it’s important that we keep our focus on what is indeed best for the consumer. We need to ensure that sufficient spectrum is made available so that the wireless industry can continue

to innovate, like with the iPhone, thereby enhancing consumer

choice through the operation of market forces.

Unfortunately, many of the policy proposals that face us and the

FCC could well have the opposite effect of stifling innovation, and

it is the consumer that will ultimately lose. We need to take care

so as to not adopt policies that would set back the highly competitive wireless market. I don’t think that it would be productive to

adopt a regulatory posture that in any way emulates policies that

apply to the past to a monopoly. None of the nationwide wireless

providers have the ability to control the market for wireless devices

which is occupied by a wide variety of manufacturers. The wireless

service market is vigorously competitive with four national wireless

providers as well as several large regional providers. In fact, 98

percent of consumers in 2005 lived in counties served by at least

three facilities-based providers and 94 percent lived in counties

served by at least four, according to the FCC. Even more facilitiesbased competition is on the horizon from the winners of the recent

advanced wireless services auction such as cable operators and possibly from winners of the 700 MHz auction as well. So no matter

how you slice it, forced network neutrality smothers investment in

a competitive market and in the end would leave consumers worse

off and probably with fewer choices.

The iPhone is a wonderful and innovative new product and may

very well set a new industry standard for mobile devices, and its

early success is an indication that the wireless market is indeed

working. Competition in the wireless market spurs carriers to innovate. They’re forced to constantly build a better mousetrap in order

to attract customers to their services or to keep customers moving

to other competitors. The iPhone is the newest mousetrap, and now

other carriers will be working to top it. Each month it seems like

a new state-of-the-art device hits the store shelves. New products

foster greater innovation and consumer choice. The winners are not

just AT&T and Apple or the companies that come out with the next

hot device to top the iPhone, the winners are American consumers.

And if the FCC or Congress wanders down the wrong path and

makes the wrong policy choices, the ability of the wireless to live

up to its potential as the third pipe will be greatly hindered or

eliminated altogether. There is an old saying that no good deed

goes unpunished. Imposing Carterfone rules or other unnecessary

burdensome regulations on the wireless industry would certainly

4

punish the good deed that emanates from providing new, innovative services and devices to consumers. So we must tread carefully.

And in my view the most important issue facing us is the need for

the FCC to draft proper rules for the 700 MHz auction.

Recently a group of my colleagues joined with Ranking Member

Barton and myself in sending a bipartisan letter to FCC Chairman

Martin. In our letter we noted that placing conditions on the spectrum will reduce the revenues that the 700 MHz auction would

otherwise generate. More importantly, it would prevent us from realizing the spectrum’s true potential for consumers. That is especially the case with regard to both network neutrality and device

unbundling mandates. Keep in mind that anyone can bid on the

spectrum, anyone; and if they pay a fair market price, they are free

to follow an open-access model if they choose.

Mr. Chairman, I ask that a copy of the letter that we signed be

inserted into the record of today’s hearing, and I would also finally

note that the ITC, International Trade Commission, last month

issued a decision that is likely to have a profoundly negative impact on the wireless industry and this country. This decision, part

of a patent dispute between Broadcom and QUALCOMM, will prevent the introduction of new handsets that rely upon a chip that

the ITC found infringed on Broadcom’s patent. Thus, new wireless

technologies may well be kept from the marketplace, effectively

freezing wireless innovation. The U.S. Trade Representative, Ms.

Schwab, has been given the authority to overturn the decision, and

many of us are actively encouraging her to do exactly that. We are

not taking a position on the merits of the patent case, but we are

arguing that the remedies imposed in the ITC ruling will have an

unnecessarily severe impact on consumers and innocent third parties, and it would be truly ironic that despite the best effort of

those here in Congress and of the FCC that the ITC ruling could

undermine policies that are designed to spur innovation and enhance consumer welfare.

Mr. Chairman, I see my time is expired so I yield back.

Mr. MARKEY. Before we close on the gentleman, without objection, the gentleman’s letter will be included in the record at the appropriate point. The gentleman’s time has expired. The Chair recognizes the gentleman from Pennsylvania, the vice chairman of the

subcommittee, Mr. Doyle.

OPENING STATEMENT OF HON. MIKE DOYLE, A REPRESENTATIVE IN CONGRESS FROM THE COMMONWEALTH OF PENNSYLVANIA

Mr. DOYLE. Thank you, Mr. Chairman. Mr. Chairman, before I

start, I understand today is your birthday, am I right? Well, I just

want you to know that I saw you in line last night at the midnight

premiere of the new Harry Potter movie, and I hear you are a really big fan. So I pulled some strings, and I have got to tell you,

Eddie, K Street is falling all over themselves to make you happy.

And I was able to get a copy of the new Harry Potter book before

it comes out. Now, when they handed it over to me, I was kind of

surprised by the title. It seems kind of wonky, and the cover, I had

no idea that Harry Potter looks like Chairman Kevin Martin. The

resemblance is really quite striking. And this wizard guy, I can’t

5

place who he looks like. But anyway, I want to present you with

a brand new copy, hot off the presses, of Harry Potter and the

Order of the DTV Spectrum Auction. Can you put that up on the

television for us, please. I think we have some video of this, Eddie,

for people to see.

Mr. MARKEY. I have not aged well. No choice about it.

Mr. DOYLE. Now, Mr. Chairman, if you open up the book, and

I can’t get around why all the pages are blank, but the rumor is

that Harry Potter just finished the first draft but it still has to go

through some editing by other students at the Hogwarts eighth

floor. So luckily, Harry has promised me you will get the pages just

as soon as he is finished talking about it to the press. That being

said, I am not sure you are going to like the story he has to tell.

Well, happy birthday, Mr. Chairman.

All silliness aside, I think this is a great hearing, and I look forward to the witnesses’ testimony. In the latest Newsweek, Steven

Levy writes about the iPhone and says that if 1967 was all you

need is love, then 2007 is all you need is AT&T activation, and

therein lies the issue that we come to look at today.

Over the months and the years to come, what will drive the most

complaints about the iPhone, the lack of 3G speeds, no voice dialing, the risk of fingertip frostbite trying to make a call in winter,

or will it be that the phone costs over $2,300 over the life of the

contract and runs on what Consumer Reports says is the worst or

next-to-worst network in 19 of the top 20 markets?

The iPhone could still change the world and be available for any

consumer on any network, but we won’t know until 2012, the year

that AT&T’s American exclusivity reportedly runs out. Now, since

the iPhone is going to run on T-Mobile’s network in Germany, it

could be tweaked to run on T-Mobile stateside, but to do so would

require hacking and other tricks out of reach to the average user

like me.

There is a lot to talk about in Washington about who is really

the decider. Well, I think it is time the consumer becomes the decider of what they want their phones to do, not the cell phone carriers. The draft 700 MHz auction order at the Commission is a

good start, but as I read it, it’s not enough to ensure that consumers have a new provider to enjoy strong competition. As it stands,

grandma Bell has over half the wireless market using advantages

like free spectrum in the 1980s, the ability to get exclusives like

access to tunnels in the Metro in DC and others. The Bells are

back with vigor. As it stands now, our cell phone carriers buy the

phones from the manufactures, and those carriers decide what features we get to enjoy. Instead in Europe, that isn’t always the case.

But how can we judge if that is the model Americans would prefer

given the opportunity or the regulatory pressure? Do we know if

consumers pay less per minute they actually use to talk verses

what they get in a bucket of minutes? Do they pay less for a phone

when they buy it up front or over time? All that being said, Mr.

Chairman, and on the other issue coming before us today, I just

want to say that I don’t have any philosophical objections with a

national framework for wireless consumer protection standards. In

my State, the wireless industry lobbied successfully to prevent our

PUC from stepping in, and our attorney general didn’t sign a conVerDate 11-SEP-98 13:37 Sep 09, 2008 Jkt 000000 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 Q:\DOCS\110-61 SCOM1 PsN: SCOM1
6

sent decree with the wireless industry and 30 some-odd other

States to create a regulatory framework. So folks in my district

could very well be better off with robust consumer protections

available to all American consumers and businesses.

I hope everyone can work together in good faith. A state-by-state

patchwork might most severely affect smaller wireless carriers

which frankly have some of the most pro-consumer offerings including unlimited calling, no early termination fees, and affordable

rates.

Thanks, Mr. Chairman, and I yield back the balance of my time.

Mr. MARKEY. I thank the gentleman, and I thank the gentleman.

I will keep this forever. This is great, a lot of imagination. Thank

you.

The Chair recognizes the gentleman from Illinois, Mr. Shimkus.

Mr. SHIMKUS. I will waive, Mr. Chairman.

Mr. MARKEY. The Chair recognizes the gentleman from Mississippi.

OPENING STATEMENT OF HON. CHARLES W. ‘‘CHIP’’ PICKERING, A REPRESENTATIVE IN CONGRESS FROM THE STATE

OF MISSISSIPPI

Mr. PICKERING. Mr. Chairman, thank you, and happy birthday.

Let me first start by thanking you for this hearing. It is an important hearing addressing critical issues at a very pivotal time with

the FCC coming out probably today with a draft order concerning

many of these issues in the 700 MHz.

As we look at the context of where we are today, I do think, Mr.

Chairman, that it is appropriate that we move as we have in the

rest of the telecom policy to a Federal framework on the consumer

protections, and that is something that would eliminate the patchwork of regulations and gives consumers a safety net at a Federal

level of what they should expect as far as consumer protections.

And then as we look at the current context of the 700 MHz and

the Carterfone questions, it is important to remember where we

have come over the last 10 years as we went from a duopoly in cellular communications to a very robust, vibrant, and intensely competitive marketplace as we changed the policy through auctions. Instead of having two providers, having five to seven providers in a

market, having both national and regional and niche providers creating a very vibrant competitive sector. And it has led to an explosion of innovation, of investment, of build out, of opportunities for

consumers to choose. But we also find ourselves at a time as we

have had that explosion of competition, we are now seeing the realignment in telecommunications and the convergence but also the

consolidation. As we look at where we want to be in the future, I

think that we have a great opportunity in the 700 MHz to create

an open platform that will make sure that we have competition and

choice and innovation in the future, not only in the past but for the

future. And let me be very clear on what openness is and what

openness is not. Openness is not net neutrality. Openness is creating the wholesale market, it is creating interoperability for devices

so that you can use a device, whether it is an iPhone or another

device, with whatever function you choose. If you want to go to a

WiFi or WiMAX spot and use it or if you want to have the access

7

to other networks, you can do so. That is openness in wholesale.

We have done the same thing in energy, whether it is natural gas

or electricity in creating wholesale markets and the ability for independent power producers to connect to the grid, to the system, to

the network. And so that is all that we are doing here, actually,

the best way to ensure a non-regulatory solution and a new space

and a new opportunity with the 700 MHz to have the robust competition, innovation, and investment that we have had in the past.

So I really commend Chairman Martin for taking this opportunity to address and to get a space in our spectrum that would

be open, innovative, competitive. I also commend Chairman Martin

for addressing the significant need for a public safety network that

would drive interoperability and public safety and will for the first

time since 9/11 and Katrina give us our best hope of having a national public safety network.

As we look at the Carterfone issue, it is the equivalent of portability. I think that what we did in 1996 that a consumer could

choose if I am going to go with a cable company, a telephone company, or any competitor and I can take my number with me. Now

the question is in the wireless sector, can you take your phone with

you as you choose which network, which carrier, which device that

you want to. And as we look at the challenges and the threats of

maintaining competitiveness, I believe having an open space and

new space where you don’t have to impose regulatory burdens on

any incumbent carrier but you give a new network a chance with

new opportunities, I think this is the best way to go, and this is

the best time and opportunity.

Mr. Chairman, I yield back.

Mr. MARKEY. The gentleman’s time has expired. The Chair recognizes the gentleman from Texas, Mr. Gonzalez.

Mr. GONZALEZ. I will waive my opening statement.

Mr. MARKEY. The Chair recognizes the gentlelady from California, Ms. Solis.

OPENING STATEMENT OF HON. HILDA L. SOLIS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA

Ms. SOLIS. Thank you, Mr. Chairman, and happy birthday. And

I also want to thank the ranking member, Mr. Upton, for holding

this very important meeting today. I look forward to learning more

about the advances in the wireless industry, which has over 200

million subscribers. Many of my constituents consider a cell phone

a necessity now for their convenience and safety. According to a recent Pew Hispanic Center survey, 59 percent of all Hispanic adults

in the U.S. consider the cell phone a necessity rather than a luxury

compared with fewer than half of non-Hispanic whites at 46 percent and non-Hispanic blacks at 46 percent. Even more consumers

are now foregoing landline phone services in favor of cell phones.

We have seen an incredible rise in broadband wireless Internet

usage and a release of new, innovative products in recent years

such as the new BlackBerry models and the iPhone. Consumers are

relying even more on wireless devices and the networks that support them to meet their communications and entertainment needs.

The increasing wireless usage by all Americans will be directly imVerDate 11-SEP-98 13:37 Sep 09, 2008 Jkt 000000 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 Q:\DOCS\110-61 SCOM1 PsN: SCOM1
8

pacted by the innovation of the wireless industry and consumer

protection regulations. I look forward to hearing from our witnesses

about the positive and negative effects of State and Federal regulations on consumer services and innovation in the industry. I am

also interested in the concept of wireless net neutrality, and I hope

our witnesses can tell us more about whether they think the industry is moving toward an increased portability of devices on different networks. And I yield back the balance of my time.

Mr. MARKEY. The gentlelady’s time has expired. The Chair recognizes the gentleman from Illinois, Mr. Hastert.

Mr. HASTERT. I thank the chairman, and I too want to congratulate the chairman on his long, long life and great seniority on this

committee. And I understand you are now third in line geriatrically

on this committee, so I congratulate you.

Mr. MARKEY. Thirty-one years on this committee and I am still

considered a young man still waiting for my——

Mr. HASTERT. That is a long, long time.

Mr. MARKEY. That is a long, long time.

OPENING STATEMENT OF HON. J. DENNIS HASTERT, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS

Mr. HASTERT. Mr. Chairman, I want to thank you for holding

this hearing today, and I would like to certainly welcome the panel

and look forward to hearing about the new innovations in the wireless industry.

When I got my ears wet, I guess, on this issue was back in the

early 1980s when I wrote the Public Utility Act in Illinois and the

Telephone Act. Back then there was twisted wire and copper wire

and a little black thing that you dialed, and people picked it up and

really didn’t know how to use the punch buttons yet, but things

have changed so much. You couldn’t even begin in the 1980s to try

to think about smart buildings, PCs, and handheld telephones and

the things that we have today. This has happened partly because

there is competition. Competition in the wireless marketplace has

dramatically changed since 1993 when Congress created the classification of commercial mobile services. In the early 1990s there

were only 25 million cell phone users, and now the number has

grown to over 225 million according to the FCC. The number of mobile telephone subscribers have increased penetration rates of approximately 71 percent. The amount of time mobile subscribers

spend talking and texting on their mobile phones has also increased. The volume of text message traffic has grown to 48.7 billion messages in the second half of 2005, nearly double the 24.7 billion messages in the same period of 2004. Revenue per minute fell

22 percent during 2005 from 9 cents in 2004 to 7 cents in 2005.

These numbers speak volumes of an industry that is clearly shown

to be extremely competitive and able to provide for its consumers.

Wireless companies such as AT&T, Sprint, Verizon, and T-Mobile

offer a menu of other services along with the traditional mobile and

voice services, including text messages, data transferring, Internet

and television access on their mobile devices. These various capabilities have given consumers plenty of choices.

With as many options and plans as we have to choose from

today, it is certainly questionable to impose Government regulation

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and net neutrality mandates on an industry that is already aggressive. Government should not dictate how a current successful industry should run, and the Carterfone principles should not be extended to today’s competitive wireless industry. Congress must continue to promote policies that foster innovation in wireless technologies and not allow States to set policies that will stifle competition. It is critical that we do not enact regulatory burdens that

hinder an industry responsible for providing consumers choice in

telephony.

I thank you, Mr. Chairman, and look forward to hearing from

our witnesses today, and I yield back my time.

Mr. MARKEY. The gentleman’s time has expired. The Chair recognizes the gentleman from Washington State, Mr. Inslee.

OPENING STATEMENT OF HON. JAY INSLEE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF WASHINGTON

Mr. INSLEE. Thank you. I look forward to this hearing. I just

wanted to comment on two things that have fundamental ramifications for the development of this service, one is the development of

white spaces, and we won’t be talking about that much today, but

I think it is an important issue that all of us keep in mind that

we try to develop these technologies. The other, I want to reiterate

Mr. Upton’s comments about the injunction that really does threaten the industry of Broadcom and QUALCOMM issue, and I will be

active in talking to the Ambassador in attempting to find a remedy

that doesn’t potentially significantly affect services for millions of

Americans, and I look forward to working with others in this room

on that. Thank you.

Mr. MARKEY. The gentleman’s time has expired. The Chair recognizes the gentleman from California, Mr. Radanovich.

Mr. RADANOVICH. Thank you, Mr. Chairman. Happy birthday,

and I pass.

Mr. MARKEY. Thank you. I appreciate it. The gentleman will receive extra time for that. The Chair recognizes the gentleman from

Florida, Mr. Stearns.

Mr. STEARNS. Mr. Chairman, happy birthday several times.

Mr. MARKEY. Unlimited.

OPENING STATEMENT OF HON. CLIFF STEARNS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF FLORIDA

Mr. STEARNS. Obviously thank you for holding this important

hearing. We welcome the witnesses. It is interesting to go through

the witnesses and where they are from and so forth, so it is quite

diverse, and I compliment the majority for getting, I think, a very

balanced list of witnesses here.

I think of course as many on this side will say, we are interested

in focusing on the consumers’ welfare. It is a true American success

story, this wireless industry story. It was once thought to be perhaps a niche market appealing to maybe 900,000 people maybe by

the year 2000. Despite these predictions, the wireless industry has

become one of the fastest-growing and most competitive sectors of

the U.S. economy because Congress has more or less allowed the

consumers to rule the market. Many of us obviously feel the conVerDate 11-SEP-98 13:37 Sep 09, 2008 Jkt 000000 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 Q:\DOCS\110-61 SCOM1 PsN: SCOM1
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sumers are the best judges here, and we work for them, and so we

look forward to more competition.

Since Congress laid the groundwork in 1993 to create a competitive wireless industry, the number of wireless subscribers has

leaped from about 16 million to 230 million people today. In addition, the wireless penetration is now more than 76 percent of total

U.S. population. Competition in the wireless industry continues to

grow beyond what many of us could even imagine. The FCC recently reported that 97 percent of the United States’ population

lives in counties with at least three service providers, up from 88

percent in 2000. That is a huge success story we all should be

proud of. Consumers are also getting a great deal. In 1993 the average wireless bill was about $61.50, and consumers used their devices an average of 140 minutes per month. In 2005, the average

wireless bill of $50 was nearly 20 percent less, and the average

minutes of use was 708 minutes, a more than 400 percent increase.

The purpose of this hearing is to examine the relationship between wireless consumers and wireless service providers. As we

have seen, the wireless industry exists in a highly competitive environment. The best protection consumers can have is a competitive

marketplace. Wireless has four national competitors today. Congress needs to ensure a national framework for wireless so that one

or two renegade States don’t disrupt the status quo and harm wireless competition. In the event of market failure, the FCC should

have the exclusive responsibility of adopting consumer protection

regulations. The FCC is the most appropriate agency to do this because the wireless industry is a national service, and the Commission already licenses and regulates this industry.

So in closing, Mr. Chairman, the best consumer protection is

competition, and Congress must fight the urge to impose burdensome regulation on this industry. And I thank you, Mr. Chairman.

I yield back the balance of my time.

Mr. MARKEY. The gentleman’s time has expired. The Chair recognizes the gentleman from Michigan, Mr. Dingell.

OPENING STATEMENT OF HON. JOHN D. DINGELL, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN

Mr. DINGELL. The chairman thanks the chairman for holding

this important and timely hearing on your birthday. And by the

way, happy birthday.

Today, Mr. Chairman, we turn our attention to how consumers

are treated by the wireless industry and what consumers may expect in the future. We also consider the wireless industry’s call for

greater Federal control of consumer protection measures. Important questions.

I am pleased that so many American consumers have elected to

purchase wireless devices. Like many, I have come to rely on my

BlackBerry, and I am now enjoying a brand new iPhone. I am

pleased that the wireless industry has adopted a consumer code

whereby carriers have pledged to make certain information available to consumers and to follow certain pro-consumer practices. I

remain, however, concerned about some lingering consumer protecVerDate 11-SEP-98 13:37 Sep 09, 2008 Jkt 000000 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 Q:\DOCS\110-61 SCOM1 PsN: SCOM1
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tion issues and how these issues will relate to the licensing of new

spectrum shortly to be up for auction.

The first issue is the imposition of early termination fees on consumers who choose to terminate a wireless contract. I fully appreciate the need of carriers to recover the costs of providing consumers with new devices at low prices. Unfortunately, there are reports

that this practice has been abused. In some cases, consumers have

been forced to pay the fee even if their service never worked and

they were not properly served. It is puzzling to me that the amount

of the fee is not tied to the cost of the phone. Carriers typically

charge the same fee for subscribers with the cheapest handsets as

they charge for those with the most expensive handsets.

I am also concerned about the bills that consumers receive from

their carriers. These are almost always difficult to understand and

in some instances impossible to understand. Proper billing practices have long been a problem for all telecommunications customers, and this is a matter into which this committee must inquire I think now. The Federal Communications Commission received more than 12,000 consumer inquiries and complaints related

to wireless services in 2006. Many of these concerned billing issues.

This consumer protection issue clearly must be addressed and vigorously so.

Finally, I am concerned about the complaints of some small carriers that they have difficulty in obtaining roaming agreements

with large, national carriers. Clearly consumers are in need of protection in this matter so that they may receive the optimum

amount of choice in the service that they are afforded by the different suppliers. Technological limitations and increased consolidation sometimes leave small carriers with only one large carrier

with whom they may enter into a roaming agreement. This dynamic may produce abnormally high roaming rates for customers

of small carriers. It may also limit the area in which consumers

may expect to be served properly.

The major wireless carriers are asking Congress to preempt the

States on wireless consumer protection matters. In exchange, the

carriers ask to reestablish a national set of consumer protection

rules. This committee has carefully established the current regulatory framework for the wireless industry, and precluding a State

from protecting its citizens is not a matter that should be undertaken lightly. Many wireless carriers, however, operate national

businesses, and it is possible that consumers might gain more

under a federalized regime. I look forward to the testimony on this

topic, and I think it is again a matter for inquiry by this committee.

Finally, I expect to hear more about the controversy surrounding

the so-called Carterfone rules and wireless networks. This issue

has taken on a new urgency since USA Today reported that the

FCC may apply some form of Carterfone to new licenses in the 700

MHz band. When considering these developments, we should always seek to ensure that the Commission’s actions benefit consumers, because it is they to whom we have the greatest responsibility.

In the past, even the FCC’s most well-intentioned initiatives have

not always resulted in solid consumer benefits, some even operating to the detriment of the consumer.

12

I look forward to learning more about the witnesses’ views on

this matter and also to finding out what the FCC intends to do and

how it will impact upon the consumer. I welcome the distinguished

panel of witnesses who appear before the committee today, and

members of the panel, I express my thanks to you for your assistance and for the testimony that you will present in the hearing. I

thank you, Mr. Chairman.

Mr. MARKEY. The gentleman’s time has expired. The Chair recognizes the gentleman from Oregon, Mr. Walden.

Mr. WALDEN. Thank you, Mr. Chairman, and happy birthday,

and I am going to waive my opening statement in honor of your

birthday.

Mr. MARKEY. Thank you. I appreciate that. The Chair recognizes

the gentleman from Michigan, Mr. Stupak.

OPENING STATEMENT OF HON. BART STUPAK, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN

Mr. STUPAK. Thank you, Wizard Markey, and happy birthday. I

look forward to hearing the testimony of our distinguished panel

today. The home page of CTIA, the wireless association, poses the

question, who doesn’t have a cell phone these days. It is a rhetorical question as there are 260 million wireless customers today. Innovation and competition have been the hallmarks of the wireless

industry. Consumers have benefited tremendously, and the industry has grown rapidly. However, a different question in my neck of

the woods is often asked, who has cell phone coverage? Unfortunately, too often in rural America consumers lack dependable, affordable cell phone service that works for them at home, at work,

and everywhere in between. I know when I travel my huge district,

I have long periods of time when I cannot be reached. That is not

to say that the wireless industry has not made great strides in

rural America; it has. It is just that rural America continues to face

fewer choices and less coverage.

Today’s hearing is about taking stock of the marketplace and examining whether consumers would benefit from changes to our nation’s wireless policy. I look forward to a good debate on the issues

on the role of State regulators in requiring open access rules on

wireless. Consumers, especially those who live and work in rural

America, deserve accurate coverage maps when they are choosing

a plan. Rural consumers should be able to know if their coverage

is going to work when they travel out of the carrier’s service area.

Smaller, rural, and regional wireless carriers have raised concerns

about their ability to negotiate fair and reasonable roaming agreements with national carriers. The FCC first opened a proceeding on

this issue in 1999 and reopened it in 2005. I look forward to hearing the panelists’ thoughts on these concerns.

I would be remiss if I did not mention the upcoming auction of

the 700 MHz spectrum and the Federal-State Universal Service

Fund joint board’s proposal for an interim cap on wireless. This

committee held a hearing earlier this year on the upcoming 700

MHz auction. It was pronounced over and over, including by myself, that the spectrum is ideally suited to provide broadband to

rural America. As such, I was pleased that Chairman Martin proposed strong build-out requirements for the spectrum to be aucVerDate 11-SEP-98 13:37 Sep 09, 2008 Jkt 000000 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 Q:\DOCS\110-61 SCOM1 PsN: SCOM1
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tioned. I am hopeful that the chairman and the Commission remain committed to this proposal as the rules are finalized.

Finally, I believe this committee needs to begin some real oversight and work on universal service reform. A good place to start

is with wireless. The joint board recently proposed an interim cap

on USF support for wireless. While I agree that the growth in wireless deserves the Commission’s immediate attention, I have serious

concerns with the cap proposal. Interim policies at the FCC tend

to become permanent. Furthermore, the cap may freeze in place

the problems with the current system and effectively stall deployment of wireless in areas of the country that are still lacking coverage.

Mr. Chairman, I am hopeful the committee will turn to these

issues as you continue your series of hearings on wireless technology. Thank you, and I yield back.

Mr. MARKEY. The gentleman’s time has expired. The Chair recognizes the gentlelady from California, Mrs. Capps.

Mrs. CAPPS. Thank you, Mr. Chairman. I waive my opening remarks except to welcome the witnesses and try to figure out why

we are having this hearing on your birthday or vice versa.

Mr. MARKEY. I thank the gentlelady very much. The gentleman

from Texas, Mr. Green.

OPENING STATEMENT OF HON. GENE GREEN, A

REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS

Mr. GREEN. Thank you, Mr. Chairman, and happy birthday.

When you get to be our age, we are just happy to have them, but

we don’t want to count them. I would like to put my opening statement into the record, but I will give you an example about how

wireless has expanded so much in our country.

In 1999 I brought a very old car up here from Texas. I drove it,

and there were so many places between Texas and Washington, DC

that I lost cell phone service. That was prior to BlackBerries. But

I brought another one up this last week, and I was amazed that

driving in very rural areas all through the south, Mississippi, Alabama, Tennessee, and even in southern Virginia how the service

was never a problem at all with the BlackBerry or cell with two

different large carriers. So obviously from the consumer side we

know that, and it is great to experience it, because coming from the

very urban area in Houston and working in Washington, DC, some

of us don’t realize in the rural areas, like my colleague from Michigan said, that there are still gaps in it. And that is what I would

hope that we would look forward to. I know the coverage nationwide is good. 98 percent of the U.S. population lives in counties

with three or more wireless operators, and 51 percent of the population lives in counties with five or more wireless operators. So Mr.

Chairman, I would like to again place the whole statement in the

record, but thank you for holding the hearing, even if it is on your

birthday, but it is also Wednesday.

Mr. MARKEY. Thank you, Mr. Green, very much. And the

gentlelady from California, Ms. Harman.

14

OPENING STATEMENT OF HON. JANE HARMAN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA

Ms. HARMAN. Thank you, Mr. Chairman. On behalf of California

grandmothers, I join with Mrs. Capps in wishing you a happy

birthday.

To our witnesses and to the committee, I realize that the scope

of this hearing goes beyond just spectrum, but the biggest spectrum

in U.S. history is on the horizon. After the DTV transition, the importance of the consumer issues under consideration today will

grow exponentially. I am confident that the wireless industry, including the companies represented by our witnesses today, is doing

its best to offer cutting-edge services at competitive rates, but the

upcoming 700 MHz auction, the iPhone, and the QUALCOMM/

Broadcom patent dispute all show how quickly the wireless industry is changing. On the open access question, greater freedom for

wireless devices and applications can bring down the cost of

handsets and spur innovation in the industry. We should look hard

at this idea as the FCC is because wireless technology in the U.S.

is years behind other parts of the world.

But my priority, Mr. Chairman, and I think everyone on the committee is getting a little tired of this rant, is to assure that we don’t

blow it with respect to the 700 MHz auction for the public safety

spectrum. Mr. Pickering and I wrote again yesterday, and I am

sure he mentioned this, to the FCC urging that the auction include

open access, wholesaling, and a national not regional approach. I

believe he did speak to this earlier. I hope the FCC is listening.

On television yesterday, and actually in the press today, is information from the Department of Homeland Security Secretary Michael Chertoff and others that chatter is up and an attack on U.S.

soil by some terror group or terror groups or terror cells is likely

this summer. This is mid-July, so we have 6 anxious weeks to go.

I worry that when it comes, I didn’t say if it comes, we still may

lack the interoperable communications so necessary for first responders to respond adequately, especially if there are near-simultaneous attacks in different parts of the country, which is absolutely possible. This problem has to be fixed. This problem won’t

be fixed if we do business as usual. The clock is ticking. I am glad

that the FCC is acting promptly, but it is now necessary for the

FCC to make the right decisions; and I would urge this committee,

I would urge you, Mr. Chairman, and I would certainly urge others

listening in to get this right with respect to open access, wholesaling, and a national approach to this emergency spectrum. I yield

back the balance of my time.

Mr. MARKEY. The gentlelady’s time has expired. The gentlelady

from Tennessee, Mrs. Blackburn, is not a member of the subcommittee, but by unanimous consent, we would invite her to make

an opening statement if she would like.

Mrs. BLACKBURN. Thank you, Mr. Chairman. I will waive. I look

forward to the witnesses and opportunity for questions.

Mr. MARKEY. OK

Mrs. BLACKBURN. I yield back.

Mr. MARKEY. The gentlelady’s opportunity will be preserved, and

I do not see any other members of the subcommittee wishing to be

recognized for the purpose of making any opening statements. We

15

will turn to our very distinguished panel and will begin by recognizing Commissioner Tony Clark. Mr. Clark is commissioner of

the North Dakota Public Service Commission. He also serves as the

president of the Telecommunications Committee of the National

Association of Regulatory Utility Commissioners. Welcome, Mr.

Clark. You have 5 minutes to deliver your testimony.

STATEMENT OF TONY CLARK, COMMISSIONER, NORTH

DAKOTA PUBLIC SERVICE COMMISSION, BISMARCK, ND

Mr. CLARK. Thank you, Mr. Chairman, and Ranking Member

Upton and members of the subcommittee. I appreciate the opportunity to testify today. I am Tony Clark, commissioner with the

North Dakota Public Service Commission and a member of the National Association of Regulatory Utility Commissioners and chairman of its Telecommunications Committee. We commend you for

holding this hearing on protecting consumers, and it is a goal that

is shared by both the States and Congress.

Under current law, State commissions handle thousands of consumer complaints every year and generally provide individual relief

to each complaint, often resolving complaints in a matter of weeks

or even days through informal processes. In addition, we are able

to address new and novel concerns as they arise.

We are concerned because the wireless industry in particular has

lobbied to create a technology-specific preemption standard for

their telecommunications service. As a response to concerns that

we have raised with regard to this approach, industry representatives have said that they still support State attorneys general having authority to enforce general laws of applicability over the industry. We respectfully argue that this sounds a whole lot more impressive than it actually is; and in fact, 41 State attorneys general

as well as NGA agree with us, signing a letter to Congress last

year urging a defeat of the kind of preemption that we are discussing.

The point is that while fraud enforcement actions have their

place in jurisprudence, it is a pitifully poor way to police a market

like telecommunications. Take, for example, the issue of bill slamming and cramming. Now, it is clearly a wrong practice, and laws

prohibiting it on the State level are clearly telecom specific. And

yet Federal legislation that would only permit State laws of general

applicability in the wireless arena would wipe these laws from the

books of 50 States as they pertain to the wireless providers. Is this

really good public policy? Do we want to have to bring a full fraud

case for every wireless bill dispute that arises, while handling

wireline landline complaints through an administrative process? It

makes no sense and illustrates the problem with broad Federal

preemption based on a specific technology.

In addition, we believe that a law change at this juncture would

add significant legal confusion over a Federal act that is only now

beginning to see some legal stability after years of litigation.

In November 2004, NARUC convened a Task Force to examine

our own role and our view of the telecommunications marketplace

and federalism. The outcome of that and other NARUC efforts we

believe sets NARUC on a very pragmatic, moderate path in dealing

with the wireless jurisdictional relationship; and while we do not

16

believe that limiting States to laws of general applicability is a feasible path forward, neither do we argue for a return to rallying

around old jurisdictional flags and crying States rights. Instead, we

believe we offer a constructive way of viewing the Federal-State

wireless relationship. In the end, we came to two important conclusions.

First of all, with the pace of innovation, all Government policies

must strive to be as technologically neutral as possible. And the

second conclusion was the development of our functional federalism

concept, which is the idea that if Congress is going to write portions of the Telecom Act, it doesn’t have to be bound by traditional

distinctions of interstate versus intrastate or try to figure out ways

to isolate the intrastate component of each service. Instead, a Federal framework should look to the core competencies of each level

of government and decide what it wants to regulate and then just

decide who does what best. Now, some have argued for the FCC

to set national standards for consumer protection. NARUC is very

willing to explore Federal standards for consumer protection, and

we believe that it may be one way to address carrier concerns over

potentially conflicting State regulations. However, we also wish to

be clear that Federal standards must be accompanied by a State

enforcement mechanism. Experience has taught us that relying

solely on the Federal Government for enforcement of a mass market like this would be folly. Take for example, the Do Not Call list

experience. While both States and the Federal Government have

enacted these laws, in practice, enforcement has fallen overwhelmingly to the States, in fact, almost exclusively.

Finally, we believe that States must retain the ability to enact

new consumer protections to then address potential abuses. To

limit the ability of States to address emerging concerns will in effect handcuff cops on the beat protecting consumers.

The bottom line is that State regulators are seeking a middle

ground that relies on each level of government doing what it does

best: the Federal Government setting standards that apply to all

and the States enforcing those rules and tailoring them to emerging specific issues. It is a partnership, not preemption. If the industry finds State rules burdensome and contradictory, we believe appropriate remedies should rest with the FCC conducting individual

case-by-case reviews of the disputed rules.

Finally, Mr. Chairman, I would note that NARUC has committed

itself to ongoing dialog with the industry and other policy makers

to ensure that the benefits of wireless innovation are preserved

while ensuring that consumers are served in the best possible way.

Again, I thank you for the opportunity to testify. I look forward

to any questions you may have.

[The prepared statement of Mr. Clark follows:]

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Mr. MARKEY. Thank you, Mr. Clark, very much. Our next witness is Mr. Steven Zipperstein. He is the vice president and general counsel of Verizon Wireless. Welcome, sir.

STATEMENT OF STEVEN E. ZIPPERSTEIN, GENERAL COUNSEL,

VERIZON WIRELESS, WASHINGTON, DC

Mr. ZIPPERSTEIN. Good morning, Mr. Chairman. Thank you very

much, and happy birthday. Mr. Chairman, Ranking Member

Upton, and other members of the subcommittee, it is a pleasure

and a privilege to be here with you today to talk about the issues

that have been raised in the opening statements and other issues

that I am sure will come up in the hearing, and I will do my best

to answer all of your questions as forthrightly and as candidly as

I possibly can.

A number of the members have referred to the recent developments particularly yesterday and this morning in the press regarding the upcoming spectrum auction, and I thought I would begin

by offering a few comments from the perspective of Verizon Wireless on these developments.

First, so far all we have, I think it is important to emphasize is

a proposal. Mr. Chairman, you refer to the fact that the chairman

of the FCC is poised to take action but that no final action has occurred; and I just want to make the point that we have a proposal.

We haven’t even seen the language yet. It hasn’t been released

publicly. All we can do is speculate at this point about what the

specifics are, and of course, the process at the FCC will continue

over the next few weeks as people discuss the proposal with the

FCC that will lead eventually to final rules.

I think it is also important to note that based on what we have

seen emerge in the press last night and this morning, it appears

that the proposal may be somewhat narrower in scope than originally appeared to be the case yesterday morning. For example, it

now appears based on what we are reading and hearing that the

proposal affects about one-third of the spectrum to be auctioned,

about 22 MHz or so out of the 60 MHz to be auctioned, and it appears that the so-called open access component that would apply to

that one-third or so of the spectrum appears to be focused on a couple of issues. The first issue involves what some of the members

have referred to here this morning as device portability, namely allowing consumers to bring devices of their choosing onto a carrier’s

network, and second, it appears that there may be some focus on

enabling so-called WiFi access, and I wanted to talk about both of

those two for a moment if I may.

With regard to device portability, the first thing I wanted to

mention, Mr. Chairman, is Verizon Wireless has over 60 million

customers. Every day we receive thousands of phone calls into our

centers from those customers who have questions about various

items. We receive e-mails at our headquarters, we receive letters

from customers with complaints, with suggestions, with ideas. We

have, quite frankly Mr. Chairman, not heard from our customers

very much about a desire to bring other devices onto our network

or a desire to enable WiFi. We just have not been hearing that

from our customers. We understand it is a concern. I don’t want

to in any way downplay the concern, I just wanted to report to the

29

subcommittee that it is not something that we are seeing a lot of

from our customers. It is also important to remember that the FCC

initially, under Chairman Hundt, and then continuing through the

present, set the wireless industry in this country on the path to developing dual technologies that would compete against each other,

CDMA technology which my company uses, which Sprint uses,

which Alltel uses is one path. The other path is the GSM technology which T-Mobile uses and AT&T uses. And those two technologies are not easily compatible with each other in a device

sense. What we have been hearing from customers of ours, for example, is that when they go to Europe or to countries that have

GSM, they would like a device that works over in Europe, and if

I could just show the committee, we do have a BlackBerry that we

began selling recently, the 8830, which works in Europe on the

GSM mode and works here in this country on our network on the

CDMA mode.

So as the market informs us of their desire for those sorts of devices, of course, we’ve responded to the market as have other carriers.

I would also then, turning to WiFi, mention that the market is

responding there as well. T-Mobile as recently as last week announced a phone that will work on their network as well as WiFi.

We are also looking at such a device, but I would caution that

there are a lot of very, very important technical issues here. Our

engineers tell me that, for example, a device working on WiFi has

to search, it has to use power to get on the WiFi network, and battery life could be a real issue, and consumers could see some degradation in battery performance. And as a result, I would just echo

what Chairman Dingell said and what the FTC, Federal Trade

Commission, staff said recently. It is important before we plunge

headlong into this that we do take a very, very careful look to

make sure that we don’t inadvertently do things that can be counterproductive for consumers.

I think it is also worth mentioning that the market has been able

to respond to conditions such as new innovations in the iPhone in

a way that has been very, very favorable to consumers. The example I would use, Mr. Chairman, is the RAZR. Cingular introduced

the RAZR phone, which was the hot device at the time, November

1, 2004. It was exclusive to Cingular, GSM only, and it was $500.

But ultimately the market demanded a RAZR that could work on

CDMA networks, too. They are now ubiquitously available as cheap

as $49.99. Some carriers even give them away for free. We didn’t

need Government to tell us to do that, we didn’t need open access

to tell us to do that, the market took care of it as other members

have indicated.

Finally, Mr. Chairman, I had mentioned that there was an auction last year of 4G spectrum, the so-called AWS auction. We didn’t

hear calls at that time for open access in that auction. It was an

extremely successful auction. $14.5 billion came into the Treasury,

new entrants, cable company joint venture bought spectrum, and I

am sure that if there is a business plan for open access as the

ranking member said, a new entrant or an entrepreneur would certainly embrace such a plan. Thank you, Mr. Chairman.

[The prepared statement of Mr. Zipperstein follows:]

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Mr. MARKEY. The gentleman’s time has expired. Now, we recognize Professor Timothy Wu. Professor Wu is a professor of law at

Columbia University Law School, and he served as a clerk for Justice Breyer on the United States Supreme Court. We welcome you,

Professor Wu. Whenever you are comfortable, please begin.

STATEMENT OF TIMOTHY WU, PROFESSOR OF LAW, COLUMBIA LAW SCHOOL, COLUMBIA UNIVERSITY, NEW YORK, NY

Mr. WU. Thank you, Mr. Chairman, Ranking Member Upton. I

am here today as a person who is an academic. I am not paid by

any member of this industry. I am not in this industry, and I

present my views simply as someone who has studied this industry

in great depth and has come to the conclusion that there are reasons to be concerned about the direction this industry is headed

and reasons to think that policy changes might be very important

to continue the strength of America in technological leadership.

The United States, if we look comparatively at the rest of the

world, leads the world in a lot of high-tech areas. We are the entrepreneurs, the innovators; this is our comparative advantage. Yet,

it is often felt by American people, consumers, by people in the industry, by the world at large that one area that America really is

not the technological leader is in the wireless space. We lead in the

Internet applications, we lead in consumer electronics, we lead in

computers and computer software, and I suggest the only different

variable between these different industries is policy, that we have

allowed, and although there have been a lot of positive developments in wireless, we have allowed one way or another for there

to be a spectrum-based oligopoly in wireless that is controlling innovation, and it is controlling the development of devices and new

devices in the wireless sector. And I suggest to you that that is the

state of affairs that is not going to change overnight but that which

this Government, this Congress, and the FCC has a duty to set us

back to a direction towards an open market, toward a leave-in market, towards the kind of competitive innovative market that we

have seen in computers, we have seen in consumer electronics, we

have seen in the Internet that has made this one of the richest

countries on Earth that we are lacking in the wireless sector.

Now, what I want to do and spend my time on today is trying

to explain and make clear the difference between two what I think

are very different issues. The wireless Carterfone issues which I

have seen as the primary focus of our discussion here and the, I

think, very different issues of what should be done with the spectrum that is coming available with the termination of broadcast

television UHF, the 700 MHz auction. I want to make clear what

the difference is between these two things because I think they are

getting a little bit confused, and we have different policy options

here that will deliver different results, and we need to understand

what is going on between them.

So let me explain first of all what exactly wireless Carterfone

means and why it is important not just in the 700 MHz context but

important period for setting this country on the right path to becoming a world leader, the world leader, in wireless innovation.

Right now today, as some of the members have already noted, we

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vices. Over 90 percent of retail is controlled by the four carriers.

You can’t go to any old store and buy a cell phone. Most of it goes

through the bottleneck of the carriers and devices the carriers

think are the right phones for Americans. This is a very unusual

situation, and moreover, when you buy these phones, there are two

things that tend to happen. First of all, they tend to be locked to

the particular network you buy them from, one way or another;

and second of all, it can be very difficult and very complicated to

bring your phone with you when you leave one service and move

to another service. I mean, these phones are property. They are

supposed to belong to Americans. You pay for them. You pay for

them in higher monthly charges. I mean, this idea that you get

these free, subsidized telephones, don’t be fooled. You pay $50 up

front, but the money is collected on a buy now, pay later basis. This

money is paid by American consumers. These telephones are their

property, yet they are not allowed to do with these telephones what

they want. Imagine a situation where you bought a television set,

you had cable service. You decide, I am done with cable, I am moving to satellite. The next thing you know, your television stopped

working. That would be completely unacceptable. When people buy

a television, they think, this is my television, I own it. If I want

to move to broadcast, fine. If I want to move to cable, fine, satellite,

fine. This is my property, I can do with it what I want. Telephones

are nothing like that. They are locked to carriers, they are disabled

from switching, and it is a situation which is unacceptable and will

become increasingly unacceptable when we see companies like

Apple trying to enter this market but being forced to be hamstrung

and disable their devices from the full kind of compatibility that

they should have.

And so the point of wireless Carterfone is addressing these

issues, and the most important rule in addressing these issues is

rules against locking and rules against blocking. Device portability

must be allowed, and these phone companies should not be allowed

to block applications that people want to use.

Now, I am running out of time. I want to say why these are different than 700 MHz.

Mr. MARKEY. I apologize to you, but you are over right now; but

I think you are going to get plenty of questions, and I think the

discussion might begin with our next witness.

[The prepared statement of Mr. Wu follows:]

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Mr. MARKEY. The next witness is Mr. Phil Verveer, who has been

a frequent visitor to this committee over the years. He is a partner

at the law firm of Willkie Farr & Gallagher and is chair of its telecommunications practice. He was also the lead attorney for the Department of Justice in the lawsuit to break up the old AT&T. The

way things are going, we may need his talents again. We welcome

you, Mr. Verveer. Whenever you are comfortable, please begin.

STATEMENT OF PHILIP L. VERVEER, PARTNER, WILLKIE FARR

& GALLAGHER, WASHINGTON, DC

Mr. VERVEER. Thank you very much, Mr. Chairman. I appreciate

the opportunity to testify before the subcommittee today. I think

the proper question to be asked in terms of any of the issues that

you are addressing is not whether or not we can do better. Of

course we can do better, we always can do better. The real question

is one of ways and means. What are the best ways and means to

move forward?

Mr. MARKEY. That is a phrase we actually don’t use in this committee. If you could find another way of describing.

Mr. VERVEER. So let me describe in terms of the best methods

then in terms of moving forward. The received wisdom which is

embodied in the Communications Act is that we should rely upon

competition wherever we can, and the mobile wireless industry is

indisputably workably competitive. You can see that in terms of the

four national carriers and the regional carriers that are available.

You can see it in terms of the statistics that have been mentioned

by many members of the subcommittee this morning. That is both

the reflection of and a consequence of section 332 of the Communications Act again as mentioned by many members of the subcommittee this morning.

Now, I suppose to paraphrase Senator Bentsen, I know

Carterfone, I have made extensive use of Carterfone as an antitrust prosecutor and as an FCC official in the 1970s, and this is

not Carterfone. Carterfone is not a precedent for Government intervention into product and service design in today’s mobile wireless

industry, and I will try to explain a couple of reasons why I believe

that to be true. But first I think it may be worthwhile to briefly

describe why it is that product and service design is something that

both Congress and the FCC have normally sought to avoid, three

pretty obvious reasons.

One, the Government has as much knowledge about issues of

product and service design as industry does, and there is an inevitability both for Government and industry when we are talking

about product and service design. The decisions have to be made

in the face of uncertainty. In general, we are much better off if we

let those decisions be made by the people in industry who have

risen to the top of their respective companies.

Two, the Government requirements with respect to product and

service design tend to inhibit product evolution and the ability to

respond to new opportunities and changing demand as they arise.

And three, Government due process requirements inevitably slow

the entire process. The Part 68 terminal equipment connection arrangements that have been cited today and cited in the context of

the Carterfone debate took as I well remember almost 10 years to

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perfect from the time of the Carterfone decision, and that example,

I think, is an instructive example.

Now, why is it that Carterfone isn’t really an appropriate precedent with respect to today’s wireless industry? First, the old Bell

system as you mentioned, Mr. Chairman, was a thoroughgoing monopoly. It was vertically integrated, it occupied about 85 percent of

the telecommunications industry broadly defined. As it happens

today, the four national wireless carriers occupy about 85 percent

of their industry. The difference between one having an 85 percent

market share and four having an 85 percent market share is a very

large difference; and with deference to Professor Wu, whose work

I admire greatly, I think the term oligopoly really may be a misnomer with respect to the wireless industry today, again, an industry with four national carriers and many regional carriers.

The second reason is arcane but is one I know the subcommittee

is well familiar with and that is incentive structures arising from

regulation today are entirely different from the ones that apply to

the 1968 Bell system. Rate of return produced perverse incentives

with respect to the activities of the old Bell system. The ability to

discriminate, or in fact, the incentive to discriminate, even if it

meant diminished use of the network, was something that was a

function of that kind of regulation. Today’s wireless companies are

not subject to rate of return regulations. They are not subject to

that set of incentives.

This entire dispute at a kind of abstract level is reminiscent of

a lot of the disputes of the past. It can be characterized I think as

one between static efficiency on the one hand and dynamic efficiency on the other. The difference between trying to achieve a

lower point on a static cost curve versus the creation of new and

lower cost curves. The Bell system was broken up in part, I am

convinced, when it was and the way it was because of the work of

this subcommittee. And some of the deregulatory activities in

which I was involved, including the deregulation of terminal equipment and the determination there should be more than one cell

phone company, were both commonly a judgment that dynamic efficiency and competition was the better way to go, and I believe it

still is.

Thank you, Mr. Chairman.

[The prepared statement of Mr. Verveer follows:]

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Mr. MARKEY. Thank you, Mr. Verveer. Our next witness is Mr.

Jason Devitt. He is the founder and CEO of Skydeck and the

founder and former CEO of Vindigo. Both Skydeck and Vindigo develop software applications for use on mobile devices. Welcome, Mr.

Devitt.

STATEMENT OF JASON DEVITT, CO-FOUNDER AND FORMER

CEO, VINDIGO, CO-FOUNDER AND CEO, SKYDECK, MEMBER,

WIRELESS FOUNDERS COALITION FOR INNOVATION

Mr. DEVITT. Thank you and happy birthday, Mr. Markey, ranking member Mr. Upton, and members of the subcommittee. Thank

you for the opportunity to come and testify before you today.

I am a small business owner. I don’t like regulators, no offense.

I am here today because I don’t have a choice with respect to wireless.

Mr. MARKEY. Yes, you wouldn’t exist without us.

Mr. VERVEER. Precisely. That is precisely the point. In the context of wireless spectrum, I do not have a choice. We do not have

a choice between no regulations and regulations. We have a choice

between badly written regulations and regulations that work; but

I put on a suit today for the first time in 18 months and flew here

from Silicon Valley to tell you that we have a regulatory system

that doesn’t work, and the only way that you are going to be able

to fix it is to implement some form of open access.

Thomas Carter was not a judge who broke apart a monopoly by

fiat. Thomas Carter was an entrepreneur who wanted to bring an

interesting product to market and was furious, mad as hell, to discover that he required permission to innovate. I am an entrepreneur, and I am mad as hell that I require permission to innovate in the wireless market. I don’t have to go to the great companies that build our public highways and ask them for their views

on what kind of cars that I can put on those roads. I don’t have

to ask ConEd for permission when I want to put a refrigerator on

the electricity network. I don’t have to ask Verizon, thanks be to

Thomas Carter, for permission to attach a computer to their network or to launch a Web site. But for some reason I have never

been able to understand, I have to ask permission of Verizon wireless to attach a computer or the computers that they now call

phones to their wireless network, and I have to ask their permission to run applications and services on those phones. Worse, I

have to ask the permission of my competitors, because they are

competing with me to provide services to consumers.

There are three ways that you can fix this problem. The first is

you can go on selling spectrum indefinitely, but unfortunately, it is

a scarce national resource, and we are going to run out of it. I

would be happy to purchase spectrum and launch a national network and so would my 14 colleagues in Wireless Founders Coalition for Innovation who wrote to the FCC on this issue a couple of

weeks ago. But you don’t have enough spectrum to sell us, and you

aren’t going to allow us to do that for the same reason that you

are not going to allow us to dig up the roads and streets of America

to lay 15 sets of cables to everybody’s homes no matter what the

consumer benefits might be.

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So the second solution that you could take is regulation, and that

means some form of open access, and by open access, it essentially

is what Mr. Pickering said it is, the opportunity to attach any device to the network. It’s the opportunity to run any service on the

network, provided of course that no harm is caused to the network

and that it is for a lawful purpose. And that is the solution that

I recommend.

And the only other solution is competition, pure action of market

forces. And I have to tell you, however, that despite the fact that

as the CTIA and the FCC keep telling us, wireless sector is the

most competitive telecommunications sector in this country, and

that is unquestionably true, nevertheless, there are hundreds of interesting applications and services that are not getting in front of

consumers because of the current structure of the market; and that

is a problem that we can only address through regulation. And in

my written testimony, I set out extensive examples of the services

and applications that are not possible. They fall into four broad categories. First of all, there are applications and services that require

the permission of all of the carriers in order for me to launch them.

I gave the example of, say, an xPhone. Imagine a phone that

worked across every network in the United States so that no matter where you were in the U.S. you could get coverage because the

phone would automatically activate on whatever network offered

the strongest signal. Now, it is actually technically easy to build

such a phone, and Mr. Zipperstein just showed you one because

Verizon is already selling it. But they have crippled that phone so

that it won’t work on any GSM networks in the United States.

They sell it only to their customers who want to be able to use it

in GSM networks abroad. And frankly, I don’t blame him because

even if he tried to do that, he would probably fall afoul of antitrust

provisions if he tried to negotiate relationship with all of the U.S.

networks in order to sell such a device, but I could sell such a device, and any consumer in the country—and remember 27 percent

of consumers change carriers solely in order to get better coverage—27 percent of consumers would surely be interested in buying a device that worked across any network, and I could intermediate a relationship with all of the networks in order to ensure

that they had a single billing relationship. That is a straightforward thing to do.

The second category—and remember, that is just one category of

devices—the second category of applications and services are those

that compete with the carriers’ own initiatives, and there are hundreds of examples of those. I will give you a trivial one. Ringtones.

Why are your kids’ ringtones so expensive? It is not because there

aren’t people who don’t want to sell them to you for less money,

it is because the people who want to sell them to you for less

money are not allowed to get onto the carriers’ handsets because

the carriers are supporting the price of those services.

Here is the third example. Legal risk. If I want to launch a service that has any legal risk associated with it whatsoever, it is highly unlikely to happen because the carriers have thrown out the

baby with the common carrier bathwater. By no longer being regulated under the terms of title II, they no longer have any immunity

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for any of the services that they carry over networks, so they will

take a very conservative approach.

I have plenty more to say, but I am sure I will have further opportunities to speak.

[The prepared statement of Mr. Devitt follows:]

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Mr. MARKEY. Thank you, Mr. Devitt, very much. Mr. Ed Evans.

He is the chief executive officer of Stelera Wireless, a start-up wireless broadband company. He is also here representing the Board of

Directors of the CTIA. Welcome, sir. Whenever you are ready,

please begin.

STATEMENT OF EDWARD EVANS, CHIEF EXECUTIVE OFFICER,

STELERA WIRELESS, OKLAHOMA CITY, OK

Mr. EVANS. Thank you, Mr. Chairman, Ranking Member Upton,

distinguished members of the House subcommittee. Thank you for

inviting me to discuss wireless innovation and consumer protection

today. My name is Ed Evans, and I am the founder and CEO of

Stelera Wireless.

The emergence of Stelera Wireless provides fresh evidence that

the current light-touch regulatory environment is the best means

of fostering innovation and competition in the wireless industry.

The choices made possible by this innovation and competition protect consumers far more effectively than any regulations could. I

am here today to urge you to do two things, to avoid calls to impose

particular business models on the wireless industry as well as to

extend the well-established benefits of the national wireless framework to encompass all the terms and conditions of wireless service

and not just rates and entry.

Let me address both of these issues, but first, since you may not

be familiar with Stelera Wireless, allow me to provide you with a

little background. Stelera is a start-up company. We were formed

in 2006 to participate in the FCC’s AWS auction. That auction concluded last September with winning bidders paying almost $14 billion for the rights to the AWS spectrum. We were a successful bidder. The towns in our 42 markets range in size from just a few

hundred, places like Umatilla, OR, to almost 200,000 people in

Lubbock, TX. Three-fourths of the towns in our footprint have a

population of less than 10,000 people. In some of those towns,

Stelera will be the first company to provide any type of broadband

service. Our plan is to provide competitively priced broadband wireless services both on a month-to-month basis and under longer

term contracts. We will be using third generation wireless technology with transmission speeds of up to 6 megabits per second.

While we plan to provide a voice over IP solutions competitive offering in late 2008, we will allow the consumer to choose another

voice over IP provider if they so choose. We will not restrict customers from accessing any Web site or running any applications,

although we will monitor total usage and reserve the right to

charge a premium or take action against abusive subscribers. This

is critical in a wireless network, since one subscriber abusing the

network can adversely affect many other subscribers on the same

network.

Stelera’s experience in deploying a new broadband service gives

us a valuable perspective on how the Government can best promote

wireless innovation.

Our conclusion is simple and straightforward. Congress and the

FCC should continue to rely on market forces instead of prescriptive regulation to determine how new wireless services are deployed. The ability to invest with confidence allows us to give conVerDate 11-SEP-98 13:37 Sep 09, 2008 Jkt 000000 PO 00000 Frm 00087 Fmt 6633 Sfmt 6633 Q:\DOCS\110-61 SCOM1 PsN: SCOM1
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sumers a wider choice of wireless services and providers. This competition and choice protects consumers far better than prescriptive

regulations that are subject to interpretation, misrepresentation,

and manipulation. Whether you call it Carterfone or open access,

command and control regulatory mandates will harm rather than

promote the interest of consumers. The decision to allow market

forces to drive wireless innovation has its roots in this committee’s

determination, enacted by Congress in 1993, to establish a national

deregulatory framework for wireless services. This market-proven

approach abandoned the notion that wireless providers must be

regulated as if they were monopoly utilities, a wise policy choice

that has only been confirmed with the passage of time.

Wireless consumers today have a choice among numerous national, regional, and local carriers offering a broad range of rates

and plans to suit every need and every budget. Free from State

rate and entry regulation, wireless providers can structure their

products and plans without regard to State boundaries. The result

has been aggressive competition for price, features, and customer

service. Notwithstanding the obvious benefits of Congress’s 1993

decision, national treatment does not extend to all terms and conditions of wireless offerings. Seeking to exploit this gap, some States

have proposed wireless-specific rules and regulations that could put

at risk the national framework that has fostered a vibrant, competitive wireless marketplace. Given that today’s wireless industry

affords consumers the ultimate consumer protection of competition

and choice, there is simply no need for a new layer of rules, especially not mandates that vary from State to State. Congress should

act now to ensure that the benefits of the uniform deregulatory

wireless framework originated by this committee 14 years ago are

not compromised by aggressive and unneeded State regulation.

While the FCC has already declared wireless broadband services to

be interstate information services, clarity on this point will establish a common framework for all wireless services and help avoid

disputes going forward.

Thank you again for inviting me today.

[The prepared statement of Mr. Evans follows:]

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Mr. MARKEY. The gentleman’s time has expired. And now to our

final witness, Mr. Chris Murray. Mr. Murray is the senior counsel

at the Consumers Union, and he testifies today on behalf of Consumers Union, the Consumer Federation of America, and Free

Press, thank you, Mr. Murray.

STATEMENT OF CHRIS MURRAY, SENIOR COUNSEL,

CONSUMERS UNION

Mr. MURRAY. Happy birthday, Mr. Chairman. Good morning

Ranking Member Upton, Vice Chairman Doyle, and other esteemed

members of the committee. I do appreciate the opportunity to testify again for you today.

I am here because I am concerned that the wireless industry is

gouging consumers with hefty early termination fees and impeding

innovation by stopping applications and devices from reaching consumers. I would like to associate my remarks with the panelists

that share these concerns, and I really want to underscore some

things that are going on in this marketplace. First of all, let us remind ourselves briefly of what this market really looks like. We do

have two dominant providers that have more than half the market

for wireless services, and those two providers are also the dominant

landline phone providers in their service territory. They are going

to have more than 90 percent of the customers in their service territories. They are also the broadband providers in that area. They

have the leading brand recognition in the service territories, and

there is nobody else in their territory that can offer that bundle.

So while this is a more competitive market than say landline,

which is virtually a monopoly, and broadband, where we have got

two choices, it still doesn’t preclude tight oligopoly behavior from

occurring in this marketplace, and Economics 101 tells us a little

bit about what can happen in those situations.

First let me talk briefly about early termination fees. These are ubiquitous, with carriers charging $175, $200, as much as $240 if

a customer wants to leave before their often 2-year contract is up.

While Verizon has adopted a prorating policy, which I think is a

good step, the other carriers have not even taken this minimal proconsumer step. ETFs are a pocketbook issue, but they also affect

the preemption discussion that we have taking place, and the reason for that is because if you have got any kind of a suit against

the wireless carriers, whether it is because their maps weren’t accurate, whether it was because they didn’t disclose fully the terms

of service, the damages in every instance are going to involve the

early termination fee. So if we preempt those early termination

fees, it is not—from having some sort of State purview, we are not

just talking about just the early termination fee. We are talking

about stopping policing of a lot of anti-consumer behavior.

Some examples of problematic ETFs is if let us say I locked into

the family share plan where I can add an additional member of my

family for $10. If I have got a family of five with five lines, if I

want to leave, it is going to cost me nearly $1,000 in some instances. Would we expect competition to work very well in that

market? I don’t think we should. The carriers are also extending

early termination fees for any change in service plan, whether it

benefits the carrier or not. In other words, if I increase my bucket

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of minutes, they are actually going to lock me into another 2-year

contract. That is astounding to me. The justifications that we hear

for early termination fees first of all is subsidy, subsidy, subsidy.

I think the release of the iPhone shows this to be transparently

false. Consumers are not getting one dime of subsidy for that device, yet they still get locked into a 2-year contract with a $175 termination fee.

Having lost that fig leaf of subsidies, I then hear them talking

about other costs associated such as the cost of maintaining a network and the cost of acquiring consumers. Well, welcome to capitalism. These are the same costs borne by every other company in

America, yet somehow they manage to recover them from the rate

base. The other reason I am skeptical this is just purely about consumer welfare is because I see applications that they are stopping

from reaching consumers. BlackBerry created a mapping program

that they wanted to give people for free. AT&T turned around and

said no because we have got a program that we want to charge

them $10 for. I see the BlackBerry 8800 that Mr. Zipperstein

noted. That is a phone that does both CDMA and GSM; but if I

take that to Europe, it is not going to work. If I take that to another GSM carrier, it is not going to work. The manufacturer designed this phone with a chip set that works on all these different

networks. They have actually taken affirmative steps to disable

those electronics. This is outrageous to me. I am paying $600 for

a phone, and they have gone out of their way to make it not work

because they want to reach into my pocket again to charge me for

an expensive international plan.

Why is it that we see better choices in Europe and in Asia for

consumers? I submit that it is precisely because they have not allowed manufacturers to lock down these devices.

I have three challenges for the industry today. Number 1, stop

charging consumers undue early termination fees. I can get out of

a lease for an apartment or a home with one month’s rent, yet I

get about the cost of a half-a-year’s service to end my wireless contract. Number 2, stop crippling these mobile phones. If I spend

$600, it is reasonable to expect that that device works exactly as

it should. And third, stop preventing new applications from reaching consumers.

I will end there since my time is up. I appreciate the time today.

[The prepared statement of Mr. Murray follows:]

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Mr. MARKEY. The gentleman’s time has expired, and all time for

opening statements from the witnesses has expired, and we will

now turn to questions from the subcommittee members, and the

Chair will recognize himself. Mr. Wu, you spend $500 for an iPhone, but the problem with the

iPhone is that the iPhone with AT&T is kind of a Hotel California

service. You can check out any time you like but you can never

leave. You are stuck with your iPhone forever, and you can’t take

it anywhere. And that it seems to me is the heart of this problem,

and you pointed to the fact when people buy a television set for

$500, if they want to switch from service to service, they can do so.

It is their television set. Can you just take that point and elaborate

on it a little bit more so the members can understand how tied

these consumers are? Even if they are not complaining, sometimes

they don’t understand that there are other options. People were

very happy with their black rotary dial phone. I am sure there

weren’t a lot of people calling in because they just thought that

they were stuck with it for the rest of their lives. Once they had

other options, they went to them en masse.

Mr. WU. I think that is exactly right, Mr. Chairman. It is just

unusual. This industry, there is something strange about this industry in the sense that even the basic rules of personal property

of Americans owning what they buy seem to be suspended in this

industry. That is why I don’t know if it is iPhone or iPhoney. As

you said, televisions, Americans spend a lot of money on televisions

and don’t expect when they switch services the television stops

working. If you spend a lot of money on a toaster or refrigerator

and suddenly you decide you want to switch to ConEd or Potomac

Power or something, it would be outrageous if suddenly your refrigerator stopped working or died or wasn’t allowed to work on more

than one network. You have cars that could only drive on some

roads. It would be very unusual. There is something strange about

this industry.

Now, this is a Government-created industry in a lot of ways. It

is reliant on public spectrum, and it was born of public spectrum,

and I think that is one of the major reasons why we have such a

strange state of affairs where personal property is not transferable

or usable with more than one service provider.

Mr. MARKEY. All right. Let me turn to Mr. Devitt. Let us go to

this question of innovation. Let us turn to this area, where the

United States should be No. 1 looking over their shoulders at Nos.

2 and 3 in the world in this area, these wireless applications. Talk

to us about what you think could happen if entrepreneurs knew

that they could get their services carried and that consumers could

have access to them.

Mr. DEVITT. The challenge we face in answering that question is

what former Secretary of Defense Rumsfeld described as unknown

unknowns. We don’t know what we don’t know about the applications that might be unleashed if entrepreneurs had the freedom to

innovate. We could only argue by analogy, and I would say imagine

what it would have been like in 1995 if Jeff Bezos had to persuade

a mid-level manager at Sprint that he could do a better job of selling books online than Barnes & Noble could. Or what it would

have been like if the founder of eBay had to persuade Verizon that

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selling stamps and coins and dolls online could actually make both

of them a lot of money. Or what it would have been like if the

founders of Google in 1999 had to persuade the telcos that it was

time to launch yet another search engine. This is the daily reality

of life for those of us who are trying to innovate in the wireless

space, and it is created by this inability to innovate without asking

permission.

With regard to the device market, if I wanted to bring an interesting device to the U.S. market or even bring a Japanese device

to the U.S. market, theoretically, I could build a GSM handset and

sell it directly to consumers, but the reality is that because AT&T

and T-Mobile, the GSM providers who do allow consumers to put

foreign devices on their network, claim that this is simply a policy

that they could change at any time, no device manufacturer is

going to take the risk of coming out with a device that actually

challenges their business model because AT&T Mobile could simply

block that device overnight. So that is why we don’t see innovative

ideas. That is why you don’t see a flurry of entrepreneurs coming

to you saying we can’t get on the market, because a Thomas Carter

is very rare. A Thomas Carter has to be a person who is smart

enough to come up with a really compelling idea and dumb enough

to try and execute it in this market given the power of the carriers

and then crazy enough to try and sue somebody over it. And those

people don’t come up very often because we have got plenty of

smart people in the Valley, but most of the ones who are dumb

enough to try and do something in the wireless market get blocked

in the VC stage because the VCs are smart enough not to invest

in them; and so far we haven’t seen anybody else come through

who is crazy enough to sue.

Mr. MARKEY. Well, at least we have somebody crazy enough to

testify before our committee, and we thank you for doing that.

Mr. DEVITT. Thank you.

Mr. MARKEY. And through us, I think you are talking to the Federal Communications Commission as they are deliberating, because

ultimately it was the Federal Communications Commission, not

Mr. Carter, and that takes courage itself in an atmosphere that is

created where competition and the potential of new devices are

then recognized as a valuable goal for public policymakers. Thank

you for being here, Mr. Devitt.

Let me turn now and recognize the ranking member, Mr. Upton.

Mr. UPTON. Thank you, Mr. Chairman. And for those in the audience, we have a series of votes on the House floor. I do have a couple questions before I need to skip over and vote. Mr. Verveer, it

is my understanding that nearly a million of these iPhones have

been sold already literally in the first 2 weeks of their offering, and

it is my understanding that nearly 400,000 of those million or so

actually switched carriers from one of the competition to what is

available now to get the new exciting—did you wait in line to get

that phone, by the way? Your iPhone, did you wait in line? I was

in Chicago when they came out, and the line was blocks long to get

in.

Mr. MARKEY. Actually, Mrs. Capps asked what is the point of

having this hearing today, and it is actually just to hint to my wife

as to what I do want for my birthday.

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Mr. UPTON. So it is not really yours? That iPhone is not really

yours yet, is that what you are saying?

Mr. MARKEY. It is a hint.

Mr. UPTON. All right. Well, anyway, that many folks are actually

switching. Doesn’t this mean that in fact other carriers who lost

their market share, aren’t they going to come back with some competition that is going to bring people there?

Mr. VERVEER. I think that is exactly right. That is exactly what

we would anticipate, that the normal thrust and parry that one

sees in and among competitive firms is going to continue to produce

the kinds of things that consumers want, and the iPhone obviously

has attracted an enormous amount of attention and consumer interest and as you suggest has caused some people to change from

their prior carriers to AT&T. No doubt those carriers and the others in the business are going to be very anxious to come forward

with innovative products of their own that people are going to

want. And that process is one that has brought us to what I think

is a very good set of circumstances today, and it is one I think we

should continue to rely on.

Mr. UPTON. And Mr. Zipperstein, I know that you can’t comment

on proprietary information, but wouldn’t you agree? I mean, you

have got to have something that is coming soon, right?

Mr. ZIPPERSTEIN. Absolutely. And I again raise the example of

the Motorola RAZR. After the RAZR came out——

Mr. UPTON. I waited until they were $49.95. I couldn’t believe it.

I said, son, we are going there.

Mr. ZIPPERSTEIN. Other manufacturers, LG, Samsung, Nokia, put

their designers to work to build a better RAZR; and they all came

out with competing products before long that operated on different

networks, CDMA, GSM. The market really addressed that problem

in a very, very quick and efficient way.

Mr. UPTON. I am running out of time because I am watching the

clock here on the little TV screen. The comment has been made

about different networks and being able to have devices that work

on all of them. How much would that add to the cost to the consumer? I was in Europe not too long ago, and I made sure that in

fact my BlackBerry did work in Europe; but I know that my previous one did not work there. In other words, there was an added

cost. What would the added cost be to some of these devices if they

had to work on every network that is out there for the consumer?

Mr. ZIPPERSTEIN. You would definitely see higher priced devices.

You would see as I mentioned with respect to WiFi devices that

may see degraded battery life. You would also see the FCC being

concerned about whether devices would be GPS compliant, whether

they could work to receive E911 Phase II connectivity at the

PSAPs, whether they would meet the FCC’s hearing aid compatibility requirements, whether they would meet the FCC’s RF, radio

frequency, emissions requirements also.

Mr. UPTON. Thank you.

Mr. MARKEY. The gentleman’s time has expired. Again, as the

gentleman just noted, there are four roll calls on the House floor.

It should take about a half-an-hour. There is intense interest in

this subject material, so I think you are going to have a lot of memVerDate 11-SEP-98 13:37 Sep 09, 2008 Jkt 000000 PO 00000 Frm 00106 Fmt 6633 Sfmt 6633 Q:\DOCS\110-61 SCOM1 PsN: SCOM1
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bers coming back to ask you questions. At this point the subcommittee stands in recess.

[Recess]

Mrs. CAPPS [presiding]. All right. You can tell I am doing this in

part because I am sitting way down at the bottom end. By getting

here, running over very fast after the last vote, I will be able to

ask my questions first and move onto something else I need to do

now, and I have already cleared with my colleague from Texas. He

knows what I am doing, and it is OK with him. He has got seniority over me on this committee.

But I have found this to be such an informative hearing and am

thanking my chairman for gathering us all together.

I am going to start with Mr. Verveer with a question for you. I

want to ask a lot of questions. I have 8 minutes or now less than

that, but I want to cover as much territory as I can. Your testimony today argues that the wireless market is very competitive in

imposing open-access requirements, and you consider it to be similar to the Carterfone decision, that a decision imposing open-access

requirements would be a mistake if we did something similar to

the Carterfone. Would you briefly describe what parallels and differences you see, Mr. Verveer, you were there then, between today’s wireless market and the telephone market of 1968?

Mr. VERVEER. Yes, I would be pleased to do that. In 1968, the

telephone industry was dominated by a single company that was

a thoroughgoing monopoly. The old Bell system was integrated between and among local telephone service, long distance service, and

telecommunications equipment manufacturers. It was also regulated in a particular way involving rate of return regulation which

it turns out creates a well-known set of incentives that involve

again as it turns out—it provides them with rational incentives to

discriminate even if the discrimination involves less use of the network over which they preside. In other words, they had rational

economic reasons to refuse the deal.

Mrs. CAPPS. Could you get to the contrast really quickly because

I want to move to some other issues, too.

Mr. VERVEER. That is obviously very different from the world

today of wireless.

Mrs. CAPPS. Right.

Mr. VERVEER. There are numerous wireless carriers, and they

are not subject to rate of return regulation.

Mrs. CAPPS. So you think there is no monopoly today. And Professor Wu, I think you might have a little different opinion. I want

you to——

Mr. WU. I think that things don’t really change that much in

telecommunications markets. They have a well-known tendency to

go towards monopoly, and that is exactly what we have seen over

the last 10 years. This is a new market, and we started with a lot

of companies. We are down to four, two dominant, and it is not surprising. It is economics.

Mrs. CAPPS. Right.

Mr. WU. It is more efficient to have a single company.

Mrs. CAPPS. So even though we are not there yet, you envision

us getting more toward a monopoly?

Mr. WU. Well, that is the direction we are going.

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Mrs. CAPPS. A little bit different tack on that, Mr. Zipperstein.

As you know, Vodafone, the world’s largest wireless phone company, owns almost half of Verizon Wireless. And in Europe, where

Vodafone is particularly strong, many phones have functionality

that has come to the United States very slowly, like Bluetooth capability and call timers. Vodafone in Britain and Verizon Wireless

in the U.S. offer many of the same models of handsets. Do you

think Verizon Wireless offers fewer features on any of these

handsets than Vodafone does?

Mr. ZIPPERSTEIN. No.

Mrs. CAPPS. They don’t?

Mr. ZIPPERSTEIN. We offer different features than Vodafone does

in Europe.

Mrs. CAPPS. Would you say that it is identical, the service here,

than Europe?

Mr. ZIPPERSTEIN. No, it is not identical. The features are different, the networks operate differently there. The service providers there offer a different range of options to customers, some of

which we have here and some of which we don’t. Some of the offerings that we have here are not as available in Europe.

Mrs. CAPPS. So there are differences, and we have heard other

people make the statement that it is a little difficult to go—so

many people travel so frequently, and it is still somewhat of a

hang-up. What do you think is making the difference?

Mr. ZIPPERSTEIN. Well, certainly the BlackBerry device I showed

earlier is a device that we deploy to respond to demand from our

customers to be able to use a BlackBerry if they go to London or

Paris on vacation. Also we offer two regular cell phones that work

here and in Europe as well.

Mrs. CAPPS. OK. Thank you. Well, are there particular features

that we don’t have here that they do have in Europe?

Mr. ZIPPERSTEIN. I am not fully familiar with all of the offerings

that the European carriers have.

Mrs. CAPPS. Maybe you would get back to me in writing with

some of those things because I want to now ask Mr. Devitt, and

then if there is time, Mr. Wu, I will get back to you to comment

on the effect of open access on innovation and maybe even finish

up this one description about Vodafone.

Mr. DEVITT. Thanks for the question. Let me put it this way.

There are I think 30 devices that I can purchase today to use on

Verizon Wireless’s network. There are approximately 800 devices

that I can purchase to use on Vodafone’s network. I would call that

a significant difference in terms of consumer choice.

Mrs. CAPPS. And you want to repeat what you think are the barriers here?

Mr. DEVITT. The barrier is that if I want to produce a GSM device that will work on Vodafone’s network, I don’t have to ask

Vodafone’s permission. If I want to produce a CDMA device that

works on Verizon’s network, I have to ask Verizon’s permission.

That is the only difference.

Mrs. CAPPS. I guess I am also concerned because you made your

opening statement about that you don’t like regulations, and I

know Mr. Stupak when he comes with his very rural district in

Michigan and parts of my district are very rural, too, and I am alVerDate 11-SEP-98 13:37 Sep 09, 2008 Jkt 000000 PO 00000 Frm 00108 Fmt 6633 Sfmt 6633 Q:\DOCS\110-61 SCOM1 PsN: SCOM1
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ways concerned about the private sector’s willingness to get into

places that aren’t so lucrative for it. What do you propose in that

area?

Mr. DEVITT. The solution there—well, there is actually a number

of things that you could do under those circumstances because I

could envisage producing devices that were solely designed to increase network coverage in rural areas.

Mrs. CAPPS. What would the incentive be?

Mr. DEVITT. My incentive would be that I would be selling those

devices to your constituents.

Mrs. CAPPS. But not as many as you would in some other glamorous areas.

Mr. DEVITT. Certainly not. That is why I personally wouldn’t

choose to go into business in the rural markets, but I know that

there are plenty of other entrepreneurs who would.

Mrs. CAPPS. How about Mr. Wu? You want to finish that off?

Mr. WU. I am sorry, which topic exactly?

Mrs. CAPPS. The way that we could open up access on innovation.

Mr. WU. Right. Well, I think it is, to get back to that rural issue

you were just talking about, I think that is why the subcommittee

and Congress and the FCC have to think carefully about the 700

MHz auctions as a solution to a different set of problems. I mean,

we have a series of problems that have to do with device interoperability and that we have been talking mostly about. But I think we

can’t solve these problems. You are concerned about rural

broadband, rural access solely with device operability rules. They

are just different problems. The solution to that lies in the 700

MHz option, and I think we have to understand that that is a different tool for solving that problem.

Mrs. CAPPS. Is that a way to solve that problem?

Mr. WU. I think that is the best way to solve that problem. There

is spectrum coming available in an auction that can be used to

solve the rural broadband, the rural access problem. Right now we

are not necessarily headed in that direction, and I think it is very

important that we make sure that this historic opportunity to have

the last options be used to solve the most serious problem, which

is rural coverage.

Mrs. CAPPS. And if my colleague——

Mr. WU. I think it is important to talk about Carterfone and all

these issues, but understand that this conversation is not going to

solve those coverage issues at all. That is a completely different

conversation.

Mrs. CAPPS. And some interoperability national security issues

could also need that kind of direct involvement from the Federal

Government, you would think?

Mr. WU. Right. I mean, we are talking about two issues in this

hearing. One is the issue of device interoperability and freedom to

innovate. These are Mr. Devitt’s positions, and they are all very

important. The other issue is we shouldn’t think that those rules

will solve the problem of rural broadband, public safety. Those are

the 700 MHz options, and those have to be done correctly or we are

going to miss this historical opportunity to really change these

things. I mean, I like Carterfone, but don’t be fooled to think that

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Carterfone solves any of these rural issues or any of these public

safety issues.

Mrs. CAPPS. Thank you. This is my first time here. I certainly

don’t want to run over time and make the chairman unhappy. In

lieu of the next person, Mr. Shimkus, your turn now for 5 minutes.

Mr. SHIMKUS. Yes, ma’am. I think I have 8 minutes because——

Mrs. CAPPS. Eight minutes.

Mr. SHIMKUS. No, that’s all right. I would invite you to southern

Illinois. It is very glamorous, Lois, in southern Illinois, maybe not

very populated, but it is very glamorous.

Mrs. CAPPS. I hear you.

Mr. SHIMKUS. And I wish Chairman Markey was here because I

know Rush Limbaugh gave away 10 iPhones, and I thought maybe

you got that as a loyal listener to Rush Limbaugh. I guess he is

not commenting.

A couple things. The good thing about to listen to your testimony

is that you are all very smart, you are involved in looking at the

industry and consumer protections, is that you hear things that it

makes you want to ask a few questions. I know a colleague of mine,

this is Mr. Murray, who is trying to get out of a 12-year lease on

an apartment, or Mr. Devitt may have mentioned it. Guess what.

He is not going to get out base paying 1 month’s rent. I have an

issue with people who don’t read contracts, understand contractual

obligations. And for us just to say, well, let us just have no contractual obligations, let us don’t have people read and understand the

responsibilities. I bought three phones for my kids, didn’t buy the

service contract. My choice. My son dropped it in water, zapped one

of them. Guess who was responsible? Me. What did I do? Well, I

called the provider, and they helped me find a used, turned-in

phone, so I got the cheapest one I could, and I went on with my

contractual obligations because there is always an issue of raising

the capital, assumption of risk and trying to get a return on that

investment. And when we micromanage, when we regulate, we discourage capital flow.

And when we talk about the rural debate, the rural debate is we

want service. We don’t have service in all parts of my district, and

who is going to provide the service? It is going to be guys like Mr.

Evans who are going to be new entrants into this market, who are

going to say there is a market out there that I can invest capital,

I can assume risk, and I am going to get a return. One of the questions will be if we move to a net neutrality debate in the new MHz,

will that incentivize competitors to bid or will that discourage? And

I want to ask Mr. Evans and Mr. Zipperstein real quick on that

question.

Mr. EVANS. Well, from my perspective, it is going to discourage

my participation in it because I am effectively buying a piece of

spectrum now that is more encumbered than any other spectrum

that I own. Therefore, that spectrum should be sold to me at a discount. Where I envision this going in the long term frankly is if we

put that type of regulation in place today, we will lose a lot of

money in the Treasury. Sell that spectrum at a discount and once

those individuals who have never run wireless networks before go

out and understand that you can’t just attach anything to a wireless network and make it work, they are going to come back up

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here wanting those encumbers released. So then you are going to

have to take those laws down, and you are going to have lost the

money that you would have raised by having a fair and open market competition. People believe that they can go and make an open

access model work. I think they have every right to go out and bid

in the 700 MHz auction like any other auction and go make it

work.

Mr. SHIMKUS. And there are people in the tech community that

have multi-billion dollars of capital to be able to bid on these

things. I know one in particular. So they should be able. If they

want to provide all of this great service, if they want to have net

neutrality over the airwaves, let them come through the market.

Mr. Zipperstein, you want to answer that question?

Mr. ZIPPERSTEIN. Yes, sir. I would agree with everything that

Mr. Evans said, and I would simply add as I mentioned earlier that

Mr. Evans had a business plan that he put together. He participated in open, fair, transparent auction for a 4G spectrum last

year, the AWS auction. There were no encumbrances such as those

that are being suggested should be applied to the next 4G auction,

the 700 MHz auction; and yet, here we have an example, Mr.

Evans, of a businessman who felt that there was a reasonable case

to be made for investing capital and for building out a network to

serve his rural customers.

Mr. SHIMKUS. Thanks. So many questions, so little time. I am

glad to see my friend Anna Eshoo is here; and we penned a letter

on this ITC ruling, and obviously our concern is first-line responders and stuff. Maybe I will go back to Mr. Zipperstein first. If the

President does not disapprove the ITC’s decision, what will be the

impact on the wireless industry’s ability to deliver cutting-edge

products to enhance public safety and enable the United States to

achieve its goal of ubiquitous, affordable broadband deployment by

the end of 2007? Kind of the same type of question, but it really

addresses the ITC also.

Mr. ZIPPERSTEIN. Congressman, the impact will be devastating.

Essentially, as you know, this is a patent dispute between

QUALCOMM and Broadcom. QUALCOMM was found to have infringed a single Broadcom patent that Broadcom bought secondhand. They didn’t invest in or didn’t invent this particular technology. Broadcom is enforcing its patent that it bought second-hand

against QUALCOMM. It is really up to QUALCOMM to resolve

this issue. But the impact as you mentioned, Congressman, on public safety, on innovation in the wireless sector, would be devastating; and I think that every single person appearing on this panel

and every Member of Congress should be very concerned about

that.

Mr. SHIMKUS. And I think some of us are, and I appreciate those

comments. Mr. Evans, and if we have time, Mr. Clark, we may

want you to respond, because we are referring to NARUC. They opposed the 1993 preemption of States on matters related to entry

and rates, yet between 1993 and 2005 the number of subscribers

grew. This is the argument. You all are saying that this is a highly

competitive market. This is probably the most competitive market

in our country, and it is the most diverse, energetic and exciting.

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cause we do not try to regulate. In fact, it moves quicker, and we

can actually regulate. And these are the stats. The numbers of subscribers grew nearly 13-fold to 207.9 million. The average local

monthly bill dropped nearly 20 percent to $49.98. Minutes of use

per subscriber jumped more than five-fold to 740 per month, and

the cost per minute dropped more than six-fold to 7 cents from 44

cents. That is a success story. And in 2005, there were only 25 FCC

complaints per million wireless subscribers. Is there any reason to

think that NARUC would not be similarly wrong in opposing a national framework for wireless terms and conditions? Go ahead, Mr.

Evans.

Mr. EVANS. Well, I am certainly in favor of that. My concern as

an entrepreneur that is going out to start a business in call it

seven or eight different States around the country is that we are

going to be somewhat resource limited, and we have to try to comply with several different sets of State regulations in order to get

up and running. It is going to severely delay our ability to get out

into a competitive marketplace and to bring a product out that is

severely underserved today. So we certainly support the idea of a

national framework extending beyond rates and entry today and

encompassing all elements of wireless as we see fit. We think that

makes the most sense. This is a national product that is out there.

It is not a regional product, it is not a local product, it is national;

and therefore, it should be regulated from that perspective nationally.

Mr. SHIMKUS. Thank you, Mr. Chairman. I know my time is

short, but because I referred to NARUC, if Mr. Clark could respond

to that question? It is your call, Mr. Chairman.

Mr. MARKEY. No, that is fine. A brief answer, Mr. Clark.

Mr. CLARK. Certainly, Mr. Chairman and Congressman. I am not

aware of NARUC’s position in 1993.

Mr. SHIMKUS. Well, check it out. That is the point.

Mr. CLARK. Clearly the market has had beneficial impacts for

consumers, and frankly, no one is a bigger supporter of the market

than myself. But there are certain issues that come up, even in the

fully functioning market, things like slamming, cramming, specific

issues like this that still need somewhere in Government for individuals to turn to. We are arguing that even if you have Federal

standards, it is inappropriate to force consumers across America to

call Washington, DC, to enforce those standards, that you need

some point of local contact. We suggest that PUCs and attorneys

general are the ones who can most effectively enforce those rules.

Mr. SHIMKUS. Thank you, Mr. Chairman. I appreciate it.

Mr. MARKEY. The gentleman’s time has expired. The Chair recognizes the gentleman from Pennsylvania, Mr. Doyle.

Mr. DOYLE. Thank you, Mr. Chairman. Mr. Zipperstein, just

briefly, I am curious. Press reports say that Verizon had first dibs

on Apple’s iPhone, but your company turned them down. I am just

curious, was it because they wanted features on the phone that you

weren’t comfortable with, or I am just curious why you turned

down the chance to be the provider for the Apple iPhone.

Mr. ZIPPERSTEIN. I have to be careful about disclosing confidential discussions, but I think it is fair to say that we didn’t view it

as the right opportunity for us at that time.

107

Mr. DOYLE. Fair enough. I thought it was maybe because you

couldn’t get the Verizon logo on the phone.

Mr. ZIPPERSTEIN. Probably. I should say that despite the hype

about the iPhone in the media over the last couple of weeks and

the press attention, the product has only been out in the market

for 10 days or so; and I think it is fair to say the jury is probably

still out. We will just have to wait and see how the market reacts,

just like we did with the RAZR.

Mr. DOYLE. Fair enough. Professor Wu, Google told the FCC that

incumbents have big advantages going into the DTV auction. Could

you explain the wholesaling that they and Frontline sought, and

how that might benefit consumers?

Mr. WU. Sure, I would be pleased to. In the 700 MHz, one of the

big proposals that is out there is the wholesaling proposal; and the

idea is to create a creature, to create an entity whose interest is

giving the most amount of bandwidth to Americans as possible and

a corporate entity whose only mission in life is not retail but simply making available bandwidth and selling it to as many people

who want it as possible. That is why people often discuss the

wholesale model as one of the best solutions of the problem of coverage in this country in the sense that when you have a wholesale

model, you have an entity which does not retail but relies on everyone else, anyone who wants to retail or try to sell to Americans

bandwidth that opportunity. And so you create a creature that by

its nature wants to do nothing but put wireless bandwidth out

there for Americans to use. And so I think that is why it is important to seize this opportunity and adopt a different model for 700

MHz than we have adopted for the rest of the spectrum and see

what the results may be.

Mr. DOYLE. Mr. Devitt, how do you feel about that?

Mr. DEVITT. Well, there are at least two separate issues here,

and one is how do we create more competition in broadband wireless and broadband services for consumers? And the only way to do

that it would appear is to mandate that there be new entrants into

the market. One way to ensure that is to create a wholesale market

in the 700 MHz auction. I think that is an exciting opportunity. I

don’t have a view one way or the other on the merits of the specific

Frontline proposal or the specific Google proposal, but as I said at

the outset of my comments, what frustrates me is this idea that I

require permission to innovate and for someone else who wants to

bring you services to market and wants to provide services say to

rural America. The fact that they are in the death grip of a number

of incumbent providers makes it very difficult for them to do so,

and a wholesale submodel would be one that would solve that.

The issue that I am more focused on because I am a developer

of content and applications and services for the end consumer is

again the death grip that the carriers have on the device market,

and on the applications and services that I can deliver to consumers through those devices. And what I recommend the solution to

that is is some implementation of Carterfone which I do not see

laying more regulation upon the industry. I see that as deregulating it.

Mr. DOYLE. Right.

108

Mr. DEVITT. I think creating open access, creating more choices

for consumers, creating more opportunities for innovators is a reversal of regulations, a rollback of control, and that is why I am

passionate about that issue. As a consumer, I support calls for additional services in the 700 MHz.

Mr. DOYLE. Well, what about that, Mr. Zipperstein? Let’s talk

about the Motorola RAZR. I mean, that is a very popular phone,

and Verizon sells one, and Cricket also sells one, and Alltel sells

one. Now, your phone, the Verizon model, you can’t download MP3

files which are the most popular—I think Windows Media is yours

and then you also have an online music store that sells songs in

the Windows Media format. Why would you disable a popular feature that would allow people to play MP3s from your phone?

Mr. ZIPPERSTEIN. When we entered the music business January

2006, Congressman, we made the determination at the time that

we would use a model that in some respects was similar to the

iTunes model that Apple used and in some respects similar to some

of the other models out there. So we needed to acquire from the

music publishers, from the recording industry, the right to legally

sell their music over the air or through a Web site. We needed to

be very, very cautious and careful to protect the digital rights associated with the music that we sell. Our music business has been

very, very successful. I believe that the Verizon wireless music Web

site, based upon recent information I heard, is just No. 2 to Apple’s

iTunes.

Mr. DOYLE. Well, what about the MP3s that a consumer already

owns and gets off their CD? I mean, why wouldn’t you allow them

to have both? Why does it have to be either or?

Mr. ZIPPERSTEIN. Actually, with our music product it is possible

for a consumer to acquire music to their phone in two ways. First,

they can download it over the air, or they can move music that is

in their personal collection. For example, if they take a CD and

burn the CD music or upload the CD music, transfer it from their

CD that they buy in the store to the computer, they can side load

that music onto their phone.

Mr. DOYLE. But Mac users can’t, just PC users?

Mr. ZIPPERSTEIN. Any computer user, Mac or PC, is able to

take—if they go to the record store, buy a CD then upload that

music to their computer, they can transfer it to their phone.

Mr. DOYLE. I am sorry, Mr. Chairman. Thanks.

Mr. MARKEY. The gentleman’s time has expired. The Chair recognizes the gentleman from Mississippi, Mr. Pickering.

Mr. PICKERING. Mr. Chairman, thank you again. What I would

like to do is ask questions that will put things in the context of the

decision before the FCC today, because I think it addresses all the

issues that we have discussed, and that is the decisions on 700 that

the FCC is about to do.

But I would also like to put their decisions in context as we talk

about whether we have adequately competitive markets, and I

think as you look at a monopoly, what we had before 1996, and we

have seen a growing competition on the wireline side, voice, video,

data. Then you look at wireless, and it is more robust competition.

So as you move along the competitive spectrum, you would have

wireline, wireless, and then you have the Internet model; and if we

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had the two ends of the spectrum, Internet being the most open,

most competitive, most innovative, the question we have before us

on the 700, can you take a portion, just a portion, you don’t have

to do anything to regulate Mr. Evans or Mr. Zipperstein or any of

the incumbents, create an open space to see if you can create the

fully competitive, fully vibrant, innovative space within wireless by

having interoperability of devices and a wholesale market. Now, we

are not talking about regulating content or net neutrality. Net neutrality is a different debate. Now, sometimes people will bring in

net neutrality to try to taint what we are talking about in this

case, and we want to keep that separate. It is wholesale and it is

device portability is what we are talking about. And in that context, can a portion of the spectrum leaven the entire wireless sector

so that it is more competitive on price, on service, and on devices?

And so my question, Mr. Zipperstein, you do not have to do

Carterfone and 700, you don’t have to bid on that spectrum if it is

conditioned in that way, you do not have to change your business

model, neither does Mr. Evans. But if there are those who want to

invest in a new business model that will create a more dynamic,

vibrant, healthy, competitive wireless sector, what is wrong with

that?

Mr. ZIPPERSTEIN. There is nothing wrong with someone voluntarily participating in an open and fair, transparent auction, and

if they decide that the business model that they want to use is

along the lines that you have discussed, Congressman, they are

free to do that. I think that was the point that the ranking member

made, and we agree with that analysis. But we don’t think that a

business model should be hardwired into the auction by regulatory

fiat in advance. I would also mention that there are a number of

concerns in the real world that can result from a mandate in this

area. We could have, for example, devices that come onto the network that are not GPS enabled. Therefore we would have problems

ensuring the adequacy of the E911 Phase II system. That is extremely important to the country, extremely important to public

safety. So I think that we need to just tread very, very carefully;

but if somebody can figure it out and make it work as a business

model, then by all means they ought to have the right to bid, and

if they win, they ought to have the right to try out that business

model.

Mr. PICKERING. Now, Mr. Evans, you would probably bid for the

CMA and the 700, is that correct?

Mr. EVANS. I purchase mostly CMA, so a couple of EAs as well.

Mr. PICKERING. EAs? Now, none of the proposals on Carterfone

or openness relate to EA or CMA under the current proposals. Are

you concerned that if you do require openness in the upper bands

that it will intensify the competition in the lower bands and the

lower markets and drive your price of the auction up?

Mr. EVANS. Well, I think that is certainly one factor, but I think

a bigger factor is the fact that I believe you would actually shut

down capital investment into rural markets by doing that. If venture capitalists or anybody who is putting their own capital into a

project suddenly realizes that there is a band of spectrum that a

group received for free and they are going to go out and do something with it——

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Mr. PICKERING. Nobody is talking about doing anything for free.

Mr. EVANS. OK.

Mr. PICKERING. There would be reserve prices, and you would

have full-market value at any auction.

Mr. EVANS. I understand. Then I will have acquired spectrum

based on a certain set of rules, and now under a different set of

rules there is a new piece of spectrum that is out there whereby

we don’t know what they are going to do with it. We don’t know

what they are going to deploy. We don’t know what type of technology, but we know that it is open. Therefore you substantially

lower the barrier to entry for any competitor to come in, literally

anybody in the world who wanted to walk in and try to turn on

a wireless network——

Mr. PICKERING. I think you have captured the issue. Do you want

more competition or less competition?

Mr. EVANS. The issue is the following. I think you do want more

competition, but the issue is there isn’t a wireless network out

there, there is not a wireless technology out there today that will

accomplish that. So you are going to give up a scarce resource or

sell a scarce resource out there today that you are not going to be

able to recoup the value on at a later date; and you are going to

inhibit other people from deploying proven technologies in that

same scenario.

Mr. PICKERING. Mr. Evans, it is just a wholesale network. I think

the technology is clearly available to do wholesale. You are just

talking about taking somebody who will build a network and sell

at a wholesale rate, which is a very healthy component with any

fully functioning economic market. We are not talking about content, and device portability is technically feasible. So this is not

rocket science. This is wholesale and device portability. What is

wrong with that?

Mr. EVANS. I would simply ask how many wholesale models in

the U.S. wireless industry, which has been open, and you have

been able to become a wholesaler in the wireless industry for 20

years. How many of those models have been successful?

Mr. PICKERING. Well, the question would be do you have a national network and opportunity in this spectrum to do so? Mr.

Chairman, I yield back.

Mr. MARKEY. The gentleman’s time has expired. The Chair recognizes the gentleman from Texas, Mr. Gonzalez.

Mr. GONZALEZ. Thank you very much, Mr. Chairman. Happy

birthday. I guess I am just going to build on somewhat, go in a different direction than my colleague, Mr. Pickering, but I will remind

individuals that he prefaced his statements in his opening statement as to what open access really does mean and what others

may feel that it means and whether this is an issue of net neutrality coming into the wireless, into the airwaves. Of course it is. We

may call it open access, but I think let us just be frank in our discussion. We can continue this debate. Unfortunately, I never have

liked the term ‘‘net neutrality’’ because I don’t think it is accurate,

and I don’t like open access because I don’t think it is descriptive,

either. However, I think the professor understands that if you define the debate at the beginning, you win the debate. We may already be there, I don’t think so.

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But let us just start off with open access. In building on what

Chip was talking about, it is just going to be a sliver. We are going

to have a pilot project or something. If this is such a wonderful

model to follow, why a sliver? Why not just have open access conditions supplied to the entire spectrum? And I will ask Professor Wu.

Would you be in favor to apply the open access model to the entire

auction?

Mr. WU. To the entire auction or the entire——

Mr. GONZALEZ. Everything that is going to be out there in 700.

Everything. I mean, why are we only going to——

Mr. WU. I will just say I would be in favor of that. I think it

is——

Mr. GONZALEZ. OK. I just want to know if you guys really believe

in this, then you would say why are we going to experiment? Why

are we going to have just a small portion of what is out there available? This is it. This is the answer. And Mr. Devitt, would you

agree with the professor to extend that to what we are going to be

auctioning at that MHz?

Mr. DEVITT. Oh, let me be clear. I would go back and apply it

retrospectively to all of the spectrum in the country.

Mr. GONZALEZ. OK. And that is what I thought. Let me go on

because I am going to follow up, Professor, specifically with you.

You seem, and others, to totally dismiss the investment that it

takes in the way of buildout, and you are assuming for whatever

reason that under this new model we will still have individuals and

entities making that kind of an investment without any restrictions

and such. And to me this is just a business model. There is always

exclusivity agreements and such. Each and every one of you in

your business dealings have entered those type of contracts. Now,

if we take the iPhone for instance, there was an interview, and this

is what Steve Jobs said. Is the iPhone a wireless iPod or is it a

phone that has an iPod in it? And this is what he said. It is three

things. It is the best iPod we have ever made, if it was a cell phone

alone, it is an incredible cell phone, but what it is is the Internet

in your pocket. And so Mr. Zipperstein, this is not the RAZR. This

is the Internet, and this is what we have been discussing from day

one in this committee.

Mr. ZIPPERSTEIN. Right.

Mr. GONZALEZ. And this is what he said. Why AT&T? Why? He

said, well, he believed that they have spent a fortune to build these

3G networks, so they have a lot of bandwidth. Phones are not capable of taking advantage of it because their Internet experience is

so poor. They have lousy browsers, and then he went on to say we

are going to take advantage of some of the investments they have

made in their bandwidth in an entirely new way. So it did spur

this innovation in what I think will be the future because of the

carriers’ and the networks’ previous investment in building out the

system that accommodates the device. So we have the carriers, we

have the device manufacturers, and we have the content

aggregators. No one does anything for free, and Mr. Murray, you

said Google was doing something for free. No one does anything for

free. There has to be a return. And I forget exactly what you were

alluding to.

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Mr. MURRAY. That was actually the BlackBerry. They wanted to

offer a free mapping feature to their customers, and absolutely,

people were purchasing their phones, but they felt that that

was——

Mr. GONZALEZ. And I am sure it was just out of the goodness of

their heart. There wasn’t any business connection, and I am sure

there was no other motive. But what I am getting at, let us just

say you get your way and we have this auction. You anticipate that

we are going to have a new entrant, and I think, Professor, you

may be the person to tell us who that new entrant may be because

there are stories out there already as to who probably has the capital and the assets to make that investment. So I would like for you

to answer, who do you anticipate this new entrant would be, who

would build out the network because they probably would have to

go to the third party to have it built out, right?

Mr. WU. Well, I will answer that.

Mr. GONZALEZ. What would be the return for that person that is

buying that spectrum? How would they make their money? How

would they pay the third party for the buildout?

Mr. WU. Wholesale markets are common in many different markets. Mr. Pickering has last mentioned energy markets. There are

parties with billions and billions of dollars who are interested in investing, and we have seen them, whether they are associated with

Frontline or other parties, interested in entering this market on a

different model. I think there is no question that if this auction

comes and as you suggested, if you take this amount of spectrum

and you make it a wholesale structurally separated model, there

are people who are interested in investing billions, investing in

buildouts on a model where your return of investment comes from

selling bandwidth to anyone who is interested.

Let me give you an example of a company that lives on a full

wholesale model. Ford Motors. Ford Motors does no retail. Ford

Motors is only a supplier of cars, and they have their retailing

given to everybody else. If Ford Motors can make money on a

wholesale model, then surely someone in the Internet and wireless

broadband model can make money on a wholesale model. There is

no question this is an established model. It is part of a——

Mr. GONZALEZ. Do you believe that the new entrants aren’t some

of the current players out there, not under the carrier or network

category, but definitely as content? I mean, that is where this is

all going, isn’t it? I mean, Google is not in this business to simply

provide free services. It is to compile a consumer profile, to build

an advertising hierarchy. We know what is going on out there. I

am concerned about who is going to assume the responsibility of

making the capital investment to make sure that we continue to

build out broadband capability so that all your devices, and that includes Mr. Devitt, and I know that you eventually sold to—I think

Zingy now has it. I mean, their advertising package starts at

$25,000. So who takes the place of AT&T and Verizon and others?

That is my question.

Mr. WU. I think it is a great question. I agree with you 100 percent that no one does anything for free, but as I have said, if Ford

Motors can make money and General Motors can make money on

wholesale models, new entrants have every——

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Mr. GONZALEZ. Mr. Wu, I would not use our domestic automakers at this point in time as a model.

Mr. WU. Let us talk about the domestic automakers early in the

20th century which is where they would be. The companies that

come into this market will have more incentives to build than our

friends at Verizon or AT&T. AT&T and Verizon already have networks. Their interest in getting more spectrum is in protecting

their market share, not in building new networks. They already

have spectrum. If you already have spectrum, you have less reason

to want to build. If you don’t have spectrum, then you are waiting

to try and create a new wholesale model. Those are the parties who

are going to invest in building the world’s best wireless network,

and that is what America should have.

Mr. GONZALEZ. Thank you. My time is up.

Mr. MARKEY. The gentleman’s time has expired. The Chair recognizes the gentlelady from California, Ms. Eshoo.

Ms. ESHOO. Thank you, Mr. Chairman, for having another really

important and substantive hearing in your series that you began

in the beginning of the year. I apologize for not being here for a

good deal of it. I have duties at the House Intelligence Committee

as well, so I am trying to keep you safe, and now let us see if we

can be competitive, how is that?

This is a very interesting discussion. I think all too often the

work that is put into the memorandums that the committee staff

does kind of goes unnoticed, but I would like to make note of what

is on page 2, and that is essentially that the top four national carriers represent 85 percent of the market for wireless. So this is

about protecting in my view the most sought-after real estate there

is. It is really beachfront property, and we don’t want anybody else

coming to the beach. They have spectrum that they are not even

using. So that is what this discussion is about, how we enlarge

this, how we allow for real competition. I have learned around here

in Congress that everybody is for competition until it comes to

them, and then they don’t want somebody else really competing

with them. I guess that is just part of the way we operate, and I

understand that, but it is an observation. But no one should think

that we don’t respect people making investment, capital investment. We want more capital investment. So those that have made

capital investment want to keep others out, from making their own

capital investment? Look, this is the way the consumer wins in our

country, so I appreciate what has been said, but to my wonderful

colleague from Texas, there is more to it than that. You have to

fill out the story. You have to fill out the story and say, hey, are

we going to go for 95 percent and not let anybody else in? So, to

Mr. Devitt, thank you for traveling to Washington and being with

us. I admire what you have done, and you are just one city out of

my Congressional District; but for today, well, I am going to adopt

you. How is that? You can be part of the 14th district. You certainly are part of the innovation that is going on in our country.

Let me just ask a couple of quick questions.

First, obviously, the rollout of Apple’s iPhone has caused a great

deal of excitement in the country, as well it should. And I thought

your answer about why you are not a partner in it was curious. It

kind of reminds me of when you hear great actors being interVerDate 11-SEP-98 13:37 Sep 09, 2008 Jkt 000000 PO 00000 Frm 00119 Fmt 6633 Sfmt 6633 Q:\DOCS\110-61 SCOM1 PsN: SCOM1
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viewed and they say, well, what role did you turn down, and they

name it, and they regret it. But I appreciate the way you described

it.

At any rate, it has generated a great deal of excitement, among

the public and in the media, and it obviously demonstrates a great

deal about innovation and also the appetite that customers have for

new and exciting technologies. Another exciting product of Apple’s

is AirPort. It is a wireless base station as you all know that connects to any broadband network. Can any of you, maybe Mr. Murray, Professor Wu—I understand you spent some time at Stanford.

I like that. Don’t you wish the weather were like that here? And

Mr. Devitt, why is it OK for consumers to use new technologies like

AirPort that can be used on any network but the iPhone and the

partnership with AT&T doesn’t allow that?

Mr. WU. I will start, speaking from Stanford. Not exactly. There

is something strange about——

Ms. ESHOO. I will bet you miss it, don’t you?

Mr. WU. Yes, I do.

Ms. ESHOO. I am putting words in your mouth.

Mr. WU. There is something weird about this market, and I just

come back to that. It is a strange market. We keep talking about

the markets working, but it is an unusual market. It is not like

consumer electronics, it is not like computer software, it is not like

the Internet. AirPort is something—people buy computers, people

hook it up to any Internet connection. They buy devices. The one

big exception to America’s way in technology policy is its mobile

networks. They are strange, and the reason is I think historical.

This is the last vestiges of the old AT&T monopoly, and it is that

business model, the model that failed us, that still dominates wireless; and it is not the Internet business model which has been the

driver of this Nation’s economy.

Mr. DEVITT. And I would add to that that I don’t think it is any

surprise that it has taken 26 years for Apple to decide to produce

a phone. I mean, in that previous 26 years they came up with a

whole host of extraordinary computing devices, all of which they

were able to attach to Verizon’s DSL network or its AT&T network

or its Comcast or its Time Warner without asking permission of

those companies; and for some strange reason, Mr. Gonzalez, those

companies in turn were prepared to go on making a significant capital investment in delivering the bandwidth necessary for those

computers to work, despite the fact that they weren’t allowed to

switch them off remotely.

So it is as Professor Wu says, the iPhone is an extraordinary

technical achievement, but it is a miracle that it is even possible

under the current market condition; and we should have seen

many, many more devices come to market in the years gone by.

Ms. ESHOO. Thank you very much to all of you, and Mr. Chairman, happy birthday.

Mr. MARKEY. Thank you.

Ms. ESHOO. Thank God you were born.

Mr. MARKEY. Oh, boy. You are in a minority there, but thank

you. I appreciate it.

Ms. ESHOO. Well, it is what I think. It is my time. Thank you.

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Mr. MARKEY. I thank the gentlelady. The Chair recognizes the

gentleman from New Jersey, Mr. Ferguson. Oh, by unanimous consent, we will move to the gentlelady who is not on the subcommittee and recognize her before the remaining subcommittee members.

The gentlelady Mrs. Blackburn is recognized.

Mrs. BLACKBURN. Thank you, Mr. Chairman, and I will wish you

happy birthday also. And I think that as we have very robust debates that we are all glad that you were born. We all have a position that we fill here for our constituents, and I want to say thank

you to our panelists for taking the time to come here and participate in the debate today. We do appreciate your time and your interest in this.

You have reset the clock on me, but that is OK. There are three

things that I want to get to in my questions, and hopefully I will

be able to yield back time so that you all can get on with your time.

I want to talk about deficit reduction, public safety, and innovation.

And we have to realize that we are here because of the Deficit Reduction Act and the set-aside for the auction of that spectrum. And

I think sometimes as we debate, some of the devices that would be

at the end use we forget about that. And I do think that that is

an important component of this discussion that we are having, and

I appreciated that Mr. Pickering focused on bringing us back to

that discussion.

Mr. Wu, I would love to spend some time talking with you on

your spectrum-based oligopoly as you stated it, but I am not going

to do that. I am going to submit those questions. I think our debate

on that would be rather robust. I think that what you would like

to do is you don’t like the oligopoly that you see out there but you

are saying give me a shot at structuring one for my friends. And

so I do think that we could have a rather robust debate on that.

Mr. Verveer, I think that I would like to start on questioning

with you if I may, please. We have heard all the sides on open access and on the neutral and net neutral auction arguments, and

they suggest sometimes that the only way to go about spurring innovation is to have open access rules, to have the neutrality rules,

because if we don’t do that, then we are going to have a beleaguered, stagnant, anti-competitive industry. And looking at the

panel and listening, reading your testimonies and listening to me,

I think you may come at this with the most personal historical participation in the development of the industry. And I say that in deference to you from what you have submitted to us as we look at

the industry having grown. And of course, I come at this also as

a parent of a son that majored in MIS and technology-related items

in college and the amount that I learned as he went through

school. So I want to hear from you. Do you share some of these sentiments about being beleaguered and stagnant and anti-competitive, or do you believe that consumers have access to advanced

technologies at increasingly lower prices? Just your perspective on

that, and then if you would come back and just address how you

think open access rules would either drive or depress innovation in

the wireless marketplace.

Mr. VERVEER. I believe that this market is probably as progressive as we could possibly hope. We could always do better, there

is no doubt about that. But it is a wonderfully progressive market.

116

In fact, I believe Professor Wu in the working paper that started

off the Carterfone debate describes the industry as a modern wonder, and I think that is a correct assessment.

The question about whether or not we can do better by introducing open access or other kinds of arrangements is one that at least

I am personally skeptical about. I think that if for some reason we

believe we don’t have enough competition and we don’t want the

major players in the next auction, the straightforward thing to do

is to say you can’t participate in the next auction, just as we have

in the past with spectrum caps. I don’t think that is necessary, but

if we believe that that was the case, that is probably the right way

to do it. If we move to a so-called wholesale model, we have accomplished a variety of things. There is clearly no free lunch here, so

the first thing that is going to happen as Mr. Evans said is the

spectrum will be auctioned at a lower price because it is encumbered.

The second thing that is going to happen is that it will turn out

it is not quite as simple in terms of saying simply open access and

have it magically happen as we were told. It is going to turn out

that there are going to be decisions about what kind of air interface. I think it also will turn out there is nothing magical about

this in terms of rural coverage. Somebody is going to have to pay

a lot of money to put a radio signal over rural areas, and there is

nothing inherent about a wholesale model that would cause that to

happen. There are an awful lot of things that one might wish were

different or better, but in general, I think that our commitment

over the last several decades to competition has been the right one.

It has been the successful one.

Mrs. BLACKBURN. So then stability and predictability are two

things, one you have mentioned and one you have alluded to. You

see the value of that in the marketplace for spurring the innovation?

Mr. VERVEER. Well, these things are clearly very important in

terms of securing investment capital.

Mrs. BLACKBURN. OK. Mr. Chairman also I have got two articles

from the Wall Street Journal today, one a commentary and the

other, I guess it is Review and Outlook. I would like to submit

those for the record as we move forward in our discussion. They are

from today’s Wall Street Journal, if I may.

Mr. MARKEY. Without objection.

Mrs. BLACKBURN. Thank you.

Mr. MARKEY. And I will also, if I may, without objection, the letter on behalf of Mr. Pickering from Cellular South Company regarding the inability of small or mid-size wireless carriers to get

access to the iPhone will be inserted at the same time.

The gentlelady is recognized.

Mrs. BLACKBURN. Thank you, Mr. Chairman. Mr. Evans, you

mentioned a couple of times services that you were wanting to roll

out. Can you describe some of the services that you are rolling out

or planning to roll out?

Mr. EVANS. Certainly. First and foremost, it is broadband Internet access, just the ability for these people to access the Internet.

It is something better than 250 kilobits per second. On top of that,

it is our plan in 2008 to begin introducing a voice over IP solution

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to go in and have a competitive environment for the telephone market out in these areas as well. There is typically a local ILEC or

one of the larger RBOCs that are out there operating in these

areas, and we believe we can be very competitive against those individuals as well. Moving on from there, there is also we believe

a market for a regional portal, if you will, where you can access information on the Internet about your local community that is out

there and therefore evolve into an advertising model where we can

sell local advertising, if you will, in the rural markets and provide

that across our network. So we see it as a three-pronged approach

to go out there, the broadband Internet access is first and foremost

by far but then adding on various applications and services to sell

to these individuals that don’t have access to that today.

Mrs. BLACKBURN. Well, and we hear from so many of those

ILECs and our rural communities about the broadband access and

the effect that it has not only on the quality of life and on public

safety, but also on economic development.

Mr. Chairman, I will yield back the balance of my time. Thank

you for the courtesy.

Mr. MARKEY. The gentlelady’s time has expired. The Chair recognizes the gentleman from New Jersey, Mr. Ferguson.

Mr. FERGUSON. Thank you, Mr. Chairman. I apologize, too. I

wasn’t at this entire hearing but certainly have a great deal of interest in the topics that have been discussed. I want to thank all

of you for being here and for offering your various perspectives on

some of the important issues that we are dealing with. Obviously,

being from New Jersey, we are not only packed with people who

benefit from these technologies but we are also home to some of the

leaders in innovation who helped to create these products and

these technologies, and we are very proud of that.

I want to begin with Mr. Zipperstein if I might. I certainly want

to thank you for being here today. I know you have been fielding

all sorts of different questions on different topics, and we appreciate both the work that Verizon Wireless does—we are very proud

to be your home in New Jersey—but for being a leader in developing so many new technologies and services for people that really

are enhancing and improving the quality of people’s lives. I want

to talk a little bit about some of the preemption issues that have

been very important. We have a state-to-state sort of patchwork

issue that we deal with in some ways, not necessarily on rates but

in other ways for wireless carriers. What would be the net effect

on the consumer if wireless carriers were actually subject to 51 different sets of rules on how you write subscriber contracts and formatting of bills and whatnot? Ultimately, how does that affect a

customer like me?

Mr. ZIPPERSTEIN. I think the effect would be very detrimental,

Congressman. A customer like you based in New Jersey also using

your cell phone in Washington and other parts in between, perhaps

New York, perhaps Delaware, Pennsylvania, and elsewhere in the

country, you might find yourself subjected to different kinds of

service mandated by different States, depending upon where you

are. If you have a bill coming to your place of work, even though

you live in New Jersey, the billing format may be mandated to be

a different way in the place where you work than the place where

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you live. In some States, regulators have, for whatever reason, decided that it would be appropriate to target wireless for very, very

intrusive micromanagerial sorts of monopoly, utility-style regulation, even though it seems very clear, and particularly from the

comments that pretty much all the members have made in this

hearing today, that the wireless industry is a nationwide inherently interstate industry, to use the chairman’s term, and therefore, this sort of individual state-by-state patchwork could harm

consumers, could create confusion, could lead to higher costs as we

would have to spend more money to achieve compliance with multiple conflicting, inconsistent regulations. That is why we favor a

more appropriate approach which would have a Federal set of

rules.

Mr. FERGUSON. This national framework that has been talked

about, we have heard about the need, I certainly have heard about

and I know many of us have heard about this need, for this national framework for wireless service. How does a national framework for wireless service make our constituents better off than they

are today given the current set of standards?

Mr. ZIPPERSTEIN. We think it achieves first of all consistency

across the country so that consumers, whether they are in New

Jersey or California, Massachusetts, would have the same expectations as to the nature of the service that they are receiving from

their wireless carrier. It would also enhance the ability of carriers

to efficiently and cost-effectively serve their customers on a nationwide basis.

Mr. FERGUSON. Mr. Clark, thank you for being here today. I appreciate your traveling here from North Dakota.

Mr. CLARK. That is correct.

Mr. FERGUSON. Wireless consumers are mobile. They take their

phones everywhere. They pretty much work everywhere. They travel between States. Shouldn’t consumers have some consistent set of

guidelines and expectations regarding what kind of consumer protections they can count on? Wouldn’t this be easier to deliver and

to be more uniform if this were sort of delivered from the Federal

level? I realize I am asking a State regulator. But just maybe you

could give me your sort of honest assessment of that.

Mr. CLARK. Congressman, NARUC is certainly not opposed at all

to some sort of Federal framework for a consistent approach to how

wireless issues are, the standards that the industry has to deal

with. The concern that we have is that the actual proposal forwarded by the wireless industry goes far beyond that. They try to

attempt to federalize both the standards and the enforcement, and

that is the concern that we have because we don’t think it is a viable option to tell folks in New Jersey or North Dakota when they

have something crammed on their wireless bill, a service they

didn’t order, to tell them to call Washington, DC, because experience is the FCC just doesn’t have the resources to handle that. We

believe that you have to have a local point of contact for enforcement.

Mr. FERGUSON. I realize my time is up. Could I have an additional 1 minute?

Mr. MARKEY. Without objection.

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Mr. FERGUSON. Thank you. We have 33 attorneys general, including the attorneys general in my State and your State, who

have entered into these agreements with national carriers to help

address some of these challenges. Is that not a good way to go? Is

that not helpful in this process?

Mr. CLARK. Congressman, I would just respectfully submit that

41 attorneys general last year signed a letter urging that the particular type of preemption of the wireless industry afforded was not

appropriate for this particular marketplace.

Mr. FERGUSON. I would be interested in Mr. Zipperstein. We

have 15 seconds. Can you just briefly give me your thoughts on

that?

Mr. ZIPPERSTEIN. We advocate a single set of rules to be established at the Federal level, but we also are not talking about preempting State enforcement of their consumer protection rules.

There are consumer protection laws that apply to all competitive

industries across the board.

Mr. FERGUSON. Thank you, Mr. Chairman. I appreciate the indulgence.

Mr. MARKEY. The gentleman’s time has expired. The Chair recognizes the gentleman from Michigan, Mr. Dingell.

Mr. DINGELL. Mr. Chairman, I thank you.

A question to Mr. Zipperstein. Mr. Zipperstein, I am lucky

enough to have an Apple iPhone. Now if it is possible I am not

happy with the AT&T service and I want to change carriers, assuming for the moment that the iPhone is a dual band, is there

any reason why I shouldn’t be able to take my phone with me to

another carrier?

Mr. ZIPPERSTEIN. The only reason at this point is the exclusive

contract that AT&T has with Apple.

Mr. DINGELL. That is the only reason?

Mr. ZIPPERSTEIN. That I am aware of, yes, Mr. Chairman.

Mr. DINGELL. There is no technical reason?

Mr. ZIPPERSTEIN. Well, I think you said assuming that it is a

dual band GSM and CDMA, so our network is a CDMA network.

If the phone is technically capable of working on a CDMA network

and it meets the performance standards of the network, if it meets

the requirements of the FCC and other respects, then there would

not be a technical reason why it could not work.

Mr. DINGELL. So the FCC through their rulemaking and the chip

makers through their magic are able to address all the questions

that might exist here, is that right?

Mr. ZIPPERSTEIN. Yes, Mr. Chairman.

Mr. DINGELL. Thank you. Now, this is for my old friend, Mr.

Verveer, and welcome to the committee. I have heard your argument that the wireless network of today is very different from the

AT&T telephone network of 1968, and I agree with you. In fact,

you and I are probably the only ones around who would remember

that. But today, four wireless carriers cover 90 percent of the market, and it is pretty hard for me to ignore the reports and the testimony of Mr. Devitt that people who make wireless devices and software are not able to get new services to consumers as quickly as

they would like at all. Quite frankly, this brings back my memories

of Carter and Carterfone. Now, is there a reason why wireless carVerDate 11-SEP-98 13:37 Sep 09, 2008 Jkt 000000 PO 00000 Frm 00125 Fmt 6633 Sfmt 6633 Q:\DOCS\110-61 SCOM1 PsN: SCOM1
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riers should be constricted in determining what devices consumers

can use on the network and what applications they can use on

their phones; and in like fashion, is there any reason why, if the

original grant of the spectrum and the technical questions can be

addressed, that the consumers ought not have the ability to determine what devices they are going to use on the network?

Mr. VERVEER. Mr. Chairman, assuming that the technical issues

can be overcome, and some of them have to do with intricacies involving shared networks, that is the airwaves are shared between

all the consumers that use them, things of that nature, but assuming they can be overcome, there is no particular reason why one

shouldn’t, if this seems to be the preferred course, introduce obligations for the use of any device one wants, any application one

wants. The question that I have about this is whether or not we

are better off relying on the competitive process to try to produce

what consumers want. The carriers it seems——

Mr. DINGELL. Well, let us address the competitive process. The

purpose here is to provide service to the consumers. The purpose

here is to provide the maximum choice to the consumers. The purpose here is to provide competition so that the consumers are best

served. The purpose here is to see to it that this provides the greatest choice and the greatest availability of service of all kinds to the

consumer. Once we agree on all of those points, why is it that we

should not leave this particular choice to the consumer, and why

is it that the consumer’s right to choose should be constrained?

Mr. VERVEER. I think, Mr. Chairman, there are two things that

enter into this that are important at least to consider carefully.

One is whether or not the existing carriers have any set of incentives not to try to provide what people want. If one assumes as I

do that in order to maintain their businesses, they are very anxious

to serve consumers, to provide what they want, we can I think rely

on their wholesome incentives. The second aspect of this, however,

is this. If we change these particular requirements, these particular

rules, there will be consequences. I suspect the consequences will

be that there will be changes in at least a couple of obvious dimensions. One, the pricing for transmission will change, the various approaches to pricing will——

Mr. DINGELL. Let me interrupt you, old friend. First of all, the

Carterfone decision said that they could attach a device to the wire

network if it did not cause problems. In the drafting of the original

license or grant of the spectrum that can be in large part addressed. The balance of the problems can be in large part addressed by the software makers and the people who make the network. Now, why then is there a problem with this that ought not

be decided in favor of the consumer as opposed to being decided in

favor of somebody else?

Mr. VERVEER. See, I think the question on some level is are we

sure, are we confident, that this——

Mr. DINGELL. Here is the deal. First, you insist that the grant

of the spectrum address that question in that fashion. That gets rid

of a lot of the problems, does it not?

Mr. VERVEER. Well——

Mr. DINGELL. Yes or no. It gets rid of a lot of problems or doesn’t

it?

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Mr. VERVEER. I think——

Mr. DINGELL. And then the software maker comes along and the

hardware maker comes along, the software and the chip address

the balance of the question. And if it can’t be addressed, then don’t

let them do it; but if it can be addressed, why should we deny

them? Now obviously, the network owner, the licensee, is going to

say, oh, this is scandalous that we should be doing this for the consumer. But as a consumer, and I think you and I share that concern, we think that maybe the consumer ought to be looked after

and that the network owner and licensee is going to do just fine

because he is going to charge whatever it costs to provide the service or he isn’t going to be in business.

Mr. VERVEER. Mr. Chairman, you are absolutely right. The network operator will adjust to whatever the rules are, but there are

at least a couple of things to think about. One is whether or not

the preference of the majority of consumers may continue to reside

in this subsidized handset model. The reason it arose I presume is

because the carriers thought that this would get more people on

the network. The second is the pricing rubrics. The way that we

presently price wireless service will surely change if any application is available at the behest——

Mr. DINGELL. That is of course true, and they are going to price

it at the level which enables them to continue in business and continue making money. But we have already addressed the problem.

Technically, they can address it, and quite honestly, there is no

reason to say, all right, we are just going to blank it and say you

can’t do it. In the Carterfone case, what they do is they see to it

that the telephone fits on the system. I apologize. I know I am over

my time, Mr. Chairman. When I look at the bottom of my telephone, it says this is by rule and regulation of the FCC determined

to be suitable for the use on the particular network. Now, is there

any reason why we wouldn’t have the same thing with regard to

the wireless phone? I see none, do you?

Mr. VERVEER. You clearly can. I think there is no doubt about

that. I think the question that is uncertain, and I really don’t believe that there is any way for us to know the answer.

Mr. DINGELL. The answer is that you set it up beforehand. The

grant of the license permits them to function on the basis of having

all this be compatible. The software, the hardware makers, they do

what they have got to do, and all of a sudden you have solved the

problem, and there is no reason to have a ban on this kind of arrangement. There is no reason why we ought not look after the

consumer who is the guy for whom we are setting this damned

thing up in the first place and who is going to be paying the cost.

Mr. VERVEER. I agree that I don’t know, at least I am not aware

of any technical inhibitions.

Mr. DINGELL. All right.

Mr. VERVEER. The thing that is uncertain——

Mr. DINGELL. Well, I am 3 minutes and 46 seconds past my time.

It is good to see you again. It is good to see you, Mr. Chairman.

Mr. MARKEY. The gentleman’s time has expired. The Chair recognizes the gentleman from Michigan, Mr. Stupak.

Mr. STUPAK. Thank you, Mr. Chairman. Mr. Clark, if I may, a

couple questions for you. It was reported earlier this year that the

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FCC was finally attempting to clear the backlog of thousands of Do

Not Call registry complaints from its backlog. There are tens of

thousands of them. I asked Chairman Martin about this when he

appeared before our committee in March, our oversight hearing. He

confirmed that these complaints were from as far back as 4 years

ago. He confirmed that the FCC was sending letters to many consumers asking for more information because the FCC was unable

to process the complaint and then was closing out those complaints.

Can you please contrast this experience with how the States dealt

with the Do Not Call registry complaints?

Mr. CLARK. Congressman, I think it is a constructive example

why we say there has to be a local point of contact, and it has to

go beyond just laws of general applicability. There were those who

were trying to strike down State Do Not Call lists in favor of the

completely Federalized system. The experience was is that the only

place consumers got individual relief was at States. I will give an

example from my own State, sparsely populated, 640,000 people. In

the first few years of the operation of North Dakota’s Do Not Call

list, there were more individual enforcement actions brought just

in North Dakota than in the entire Federal Government. It is compared to millions of complaints that were received at the FCC. And

I don’t think it is because folks at the FCC don’t care or they are

bad people, it is just that when you are looking at a mass market

of 300 million people, you can’t vest all the authority with one Federal Government agency and expect that individual complaints can

be heard.

Mr. STUPAK. So even if you increased the resources at the FCC,

do you think they would be able to handle this on a nationwide average of complaints?

Mr. CLARK. Congressman, I don’t think there is enough office

space in Washington, DC, to create a Federal bureaucracy that

would be able to handle the hundreds of thousands of individual

consumer complaints that State commissions and attorneys general

across the country handle.

Mr. STUPAK. Let me ask this. I realize the State consumer protection statutes help out consumers. We have used them in Michigan for price gouging on gas prices, things like that, and I know

you are not an attorney general, but I assume you work with the

AG’s office in your capacity. So how would relying on the statutes

of general applicability by the AGs provide consumers with a timely resolution of complaints compared with State Commissions that

investigate and resolve individual complaints?

Mr. CLARK. Congressman, the concern that NARUC has about

laws of general applicability is that there are specific, very telecomspecific concerns that States address, things like bill cramming,

just a myriad of other types of issues that are interconnection disputes, eligible telecommunications carrier processing, those types of

matters. And to simply say that the only relief that States have is

to bring fraud investigation enforcement type actions we don’t believe is reasonable. And the attorneys general agree with us. Fraud

is very specifically defined. You have to prove intent, you have to

prove all sorts of things, and you are not going to bring a full fraud

complaint simply to address someone who had a bunch of ringtones

put on their wireless bill but didn’t ask for them.

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Mr. STUPAK. Thanks. Mr. Evans, if I may, a couple of questions.

In my opening statement, I raised concerns about the Joint Board’s

proposal for an interim cap on the USF support. My fear as I said

was the so-called temporary caps usually become a permanent fix

at the FCC, and I also believe it would also become a long-term

freeze on deployment of rural wireless in many parts of the country

that still need service. Agree? Disagree?

Mr. EVANS. Yes, I completely agree with you, Congressman. I

think you are stifling the very thing the fund was created to do and

that is expand coverage out into rural America today. Instead of

continuing to feed a technology that is shrinking and going away

in the ILEC business, we are instead stifling what is coming to replace that in a much more economical way and clearly in a way

that consumers prefer, that is in the wireless world. So I strongly

disagree with those actions and believe that should be left alone

and continue to prosper the way it has.

Mr. STUPAK. Let me ask this. Wireless carriers have been telling

me they are having trouble securing roaming agreements with

large carriers, and it has a huge impact on the data that is received or the voice service, especially when they travel in different

parts of the country. What can be done or what do you think

should be done to provide whatever incentives or whatever you

want to call it for large carriers to negotiate and in good faith protect the availability of these services in rural areas?

Mr. EVANS. I am not familiar with the carriers that have been

having a lot of those issues, frankly. I mean, I can only speak to

my own experience which has been negotiating two of the top four

who share the same type of technology that we are using. We are

obviously in very rural areas. We are deploying a third-generation

network, and candidly, they have been very open to discussing

those with us, and we are having ongoing negotiations. So I have

not encountered what the other carriers have. I think it is a function of the fact that I am deploying a network in some cases that

is two generations ahead of the bigger carriers. So their data services and everything are going to work perfectly on our network,

and some of the smaller, rural carriers have not upgraded technology; and therefore, the larger carriers have been hesitant to negotiate agreements, knowing that their customers are not going to

have the same experience when they go down there. So I don’t

know that I am qualified to really answer your question.

Mr. STUPAK. Thanks. Thanks, Mr. Chairman.

Mr. MARKEY. The gentleman’s time has expired. The Chair recognizes the gentleman from California, Mr. Radanovich.

Mr. RADANOVICH. Thanks, Mr. Chairman. I have two questions

and appreciate the patience of the panel. I am sorry I was not here

to be able to hear all of the testimony, and some of these issues

may have been covered, but I would like to ask two more questions

of Mr. Evans and then one question for the entire panel.

Knowing that you have a relatively small company, Mr. Evans,

would you be more or less willing to operate in a State that has

its own disparate set of rules?

Mr. EVANS. When we went into the AWS auction last year we

specifically avoided certain States that had onerous regulations

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trum in those markets. That was a conscious decision on our part

at that point in time, so my answer is yes, we certainly did review

that and in States where we felt like it was going to be onerous,

from my previous cellular experience—I built cellular networks for

20 years yes, I intentionally avoided certain States because of the

regulatory environment.

Mr. RADANOVICH. Then also for you, Mr. Evans, but then I want

to open up the same question to the rest of the panel. If there was

an effort federally to make things more uniform on the issue of consumer protection is always there and then an issue with the States,

how would you react or respond to a consumer protection regime

where the standards were set at say the Federal level but that the

States were empowered to enforce those standards? Is that something that you—but I would like to hear from the rest of the panel

as well.

Mr. EVANS. Yes, from my perspective I think that is perfectly acceptable. I think the concern is a different playing field everywhere

you go. I candidly support States being able to enforce those regulations. I think that makes a lot of sense. What I don’t want to get

involved in is States setting arbitrary and sometimes unnecessary

additional challenges for us over and above what is at the Federal

level. So insofar as there was State enforcement of a Federal regulatory environment, no, I would have no issue with that.

Mr. RADANOVICH. And even if that consumer protection regime

included privacy protection, do you think that something like that

could be crafted that would be suitable and acceptable at the State

level as well?

Mr. EVANS. With the limited innovation, yes.

Mr. RADANOVICH. Even including——

Mr. EVANS. Knowing what I know here, yes, sir, I do believe

that.

Mr. RADANOVICH. Does the rest of the panel feel the same way?

Mr. CLARK. Congressman, I believe that that is actually pretty

close to what NARUC’s position is, which is we think a Federal

framework may be acceptable as long as there is State enforcement. One caveat that I would put to that is we do believe there

should be some mechanism for some State flexibility to address an

emerging issue that we can’t even contemplate right now because

States do tend to be the ones who are able to address those questions more quickly and not have to run immediately to the Federal

Government. But I think that that can all be worked out. You can

create some sort of mechanism where hopefully you wouldn’t have

50 different outcomes.

Mr. ZIPPERSTEIN. I think that the regulatory community at the

State level and the industry actually have been moving closer together, and I am very pleased to hear some of the comments that

I have heard today as well as from the members. I think everyone

has the sense here, the strong sense, Congressman, there is really

a consensus in the room, that as an interstate business, wireless

shouldn’t be regulated on a state-by-state basis. It just doesn’t

make sense. It is not good for consumers, it is not good for innovation, it is not cost effective, it will drive prices up. So our view as

an industry has been that there ought to be one set of rules at the

Federal level. We already have 34 States and three carriers who

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have agreed upon a set of rules that the attorneys general of those

States negotiated with the carriers. We could expand that to the

other one-third of the country, and then those rules can be complied with. And the attorneys general, if they believe that a consumer protection law that applies to other competitive businesses

has been violated, they are still free to enforce that; and of course

I would agree that the State public utility commissions can continue to be a clearinghouse for collecting customer complaints and

asking carriers to address those. What we don’t want, though, is

for the individual States through their public utility commissions

to set different rules, because that is really going to set us backward, not move us forward.

Mr. RADANOVICH. Very good. Thank you. I am seeing heads from

the rest of the panel, so I am assuming you are in concurrence.

Mr. MURRAY. If I might just add, what I didn’t hear in the answer Mr. Evans gave was he didn’t want to go into States where

there were different standards necessarily. It sounded like he

would go into some States where there were different standards. It

was onerous standards that concerned him, and that is a little bit

what concerns me about Federal standards. We are not averse to

Federal standards, but if the goal in setting Federal standards is

to lower the standards that consumers have, then yes, we are concerned. So it is a question of what is the Federal standard going

to be.

Mr. RADANOVICH. All right. I thank the panel. Thank you, Mr.

Chairman.

Mr. MARKEY. The gentleman’s time has expired, and the time for

this hearing has expired as well. Thank you so much. This was an

excellent panel. I think all the members were impressed. You had

nearly every member of the subcommittee come to hear you in the

course of the day. And I think it is important for us at this point

to actually note that it is a historic point. Back in 1993 this subcommittee moved over 200 MHz of spectrum because the subcommittee was in fact unhappy with the fact that there were two

incumbent cell phone companies. They were each analog, and they

were each charging 50 cents a minute. We didn’t do anything except kind of work with the FCC to create a third, a fourth, a fifth,

and sixth license but not allow the first two to bid in any of those

markets where they already were. And all of the three or four new

companies each went digital, and pretty soon it was down to 10

cents a minute; and unbelievably, the first two companies within

a very brief period of time each went digital, and each were charging 10 cents a minute. And that was a way in which we were able

to change the marketplace and make it possible for people like Mr.

Evans and others to exist. And so we kind of reached this point

now where we are at the end of the spectrum trail. We have this

700 MHz that we want to deal with now, this frequency, the 700

frequency, and we want a good result as well. And obviously, the

goal of this subcommittee has always been that innovation, competition, consumer choice is the goal. And for my purpose, I think

that having wholesale service with Carterfone-like principles attached to it for at least some part of this spectrum will play a big

role in driving the already existing incumbent marketplace that

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bents in 1993 what they had to do, we just created a marketplace

over here that they had to respond to. And that is pretty much

what we are talking about here as well. We won’t tell any of the

incumbents what they have to do, but watch out what happens

over here when there is a new part of the spectrum that has

Carterfone-like principles, it has wholesale, and see what the rest

of the marketplace does to respond to it. And I think that is the

way that we should view this, not dictating to incumbents but creating a marketplace that kind of moves or creates an environment

where new technologies, innovation, services can be created and

then watch the market work once again.

We can’t thank you enough for your great testimony. This hearing is adjourned.

[Whereupon, at 1:50 p.m., the subcommittee was adjourned.]

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QUESTION FOR PROFESSOR WU FROM MR. UPTON:

Professor Wu, the iPhone is already being credited for

opening up wireless networks. Since this is happening

through free market forces, why would we want the FCC

micromanaging this process at this stage? Haven’t we

learned from recent history that forcing carriers to open up

their networks doesn’t work well?

Thank you very much for the question. I am, as you are, optimistic that, over time, the iPhone and other electronics companies will

serve as one of the forces that opens up the wireless market to

greater competition and innovation. But I am not confident that

they are enough on their own; I believe that some level of Government oversight remains necessary.

Telecommunications markets have a historic tendency toward

monopoly and the use of that monopoly. That said, I do believe that

the market can disrupt the use of market power, and open innovation in wireless markets. But I don’t think markets are perfect.

That is why I believe that the right level of Government involvement—even in an oversight—is essential.

An analogy may help explain my answer. Just as Congress plays

an important role watching for abuses of executive power, so I believe Congress and the FCC can play an important role checking

and watching for the potential abuses of some of the most powerful

private companies in the United States. That is the role I believe

that your committee is playing, and I appreciate its role in that regard.

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