THE COMMUNICATIONS 

OPPORTUNITY, PROMOTION, AND 

ENHANCEMENT ACT OF 2006 

HEARING 

BEFORE THE 

SUBCOMMITTEE ON TELECOMMUNICATIONS 

AND THE INTERNET 

OF THE 

COMMITTEE ON ENERGY AND 

COMMERCE 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED NINTH CONGRESS 

SECOND SESSION 

MARCH 30, 2006 

Serial No. 109-83 

Printed for the use of the Committee on Energy and Commerce 

Available via the World Wide Web: http://www.access.gpo.gov/congress/house 

U.S. GOVERNMENT PRINTING OFFICE 

WASHINGTON : 2006 

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28-317PDF 
COMMITTEE ON ENERGY AND COMMERCE 

JOE BARTON, Texas, Chairman 

RALPH M. HALL, Texas 

MICHAEL BILIRAKIS, Florida 

 Vice Chairman 

FRED UPTON, Michigan 

CLIFF STEARNS, Florida 

PAUL E. GILLMOR, Ohio 

NATHAN DEAL, Georgia 

ED WHITFIELD, Kentucky 

CHARLIE NORWOOD, Georgia 

BARBARA CUBIN, Wyoming 

JOHN SHIMKUS, Illinois 

HEATHER WILSON, New Mexico 

JOHN B. SHADEGG, Arizona 

CHARLES W. “CHIP” PICKERING, Mississippi 

 Vice Chairman

VITO FOSSELLA, New York 

ROY BLUNT, Missouri

STEVE BUYER, Indiana 

GEORGE RADANOVICH, California 

CHARLES F. BASS, New Hampshire 

JOSEPH R. PITTS, Pennsylvania 

MARY BONO, California 

GREG WALDEN, Oregon 

LEE TERRY, Nebraska 

MIKE FERGUSON, New Jersey 

MIKE ROGERS, Michigan 

C.L. “BUTCH” OTTER, Idaho 

SUE MYRICK, North Carolina 

JOHN SULLIVAN, Oklahoma 

TIM MURPHY, Pennsylvania 

MICHAEL C. BURGESS, Texas 

MARSHA BLACKBURN, Tennessee 

JOHN D. DINGELL, Michigan 

 Ranking Member 

HENRY A. WAXMAN, California 

EDWARD J. MARKEY, Massachusetts 

RICK BOUCHER, Virginia 

EDOLPHUS TOWNS, New York 

FRANK PALLONE, JR., New Jersey 

SHERROD BROWN, Ohio 

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 

TED STRICKLAND, Ohio 

DIANA DEGETTE, Colorado 

LOIS CAPPS, California 

MIKE DOYLE, Pennsylvania 

TOM ALLEN, Maine 

JIM DAVIS, Florida 

JAN SCHAKOWSKY, Illinois 

HILDA L. SOLIS, California 

CHARLES A. GONZALEZ, Texas 

JAY INSLEE, Washington 

TAMMY BALDWIN, Wisconsin 

MIKE ROSS, Arkansas 

BUD ALBRIGHT, Staff Director 

DAVID CAVICKE, General Counsel

REID P. F. STUNTZ, Minority Staff Director and Chief Counsel

SUBCOMMITTEE ON TELECOMMUNICATIONS AND THE INTERNET 

FRED UPTON, Michigan, Chairman 

MICHAEL BILIRAKIS, Florida 

CLIFF STEARNS, Florida 

PAUL E. GILLMOR, Ohio 

ED WHITFIELD, Kentucky 

BARBARA CUBIN, Wyoming 

JOHN SHIMKUS, Illinois 

HEATHER WILSON, New Mexico 

CHARLES W. “CHIP” PICKERING, Mississippi 

VITO FOSSELLA, New York 

GEORGE RADANOVICH, California 

CHARLES F. BASS, New Hampshire 

GREG WALDEN, Oregon 

LEE TERRY, Nebraska 

MIKE FERGUSON, New Jersey 

JOHN SULLIVAN, Oklahoma 

MARSHA BLACKBURN, Tennessee 

JOE BARTON, Texas 

 (EX OFFICIO)

EDWARD J. MARKEY, Massachusetts 

 Ranking Member 

ELIOT L. ENGEL, New York 

ALBERT R. WYNN, Maryland 

MIKE DOYLE, Pennsylvania 

CHARLES A. GONZALEZ, Texas 

JAY INSLEE, Washington 

RICK BOUCHER, Virginia 

EDOLPHUS TOWNS, New York 

FRANK PALLONE, JR., New Jersey 

SHERROD BROWN, Ohio 

BART GORDON, Tennessee 

BOBBY L. RUSH, Illinois 

ANNA G. ESHOO, California 

BART STUPAK, Michigan 

JOHN D. DINGELL, Michigan 

 (EX OFFICIO)

(II)
CONTENTS 

Page 

Testimony of: 

Fellman, Hon. Kennety, Esq., Mayor, Arvada Colorado, on behalf of The National 

Association of Telecommunications Officers and Advisors, The National 

Association of Counties, The National League of Cities, and The United States 

Conference of Mayors ................................................................................................... 59 

McCormick, Walter, President and Chief Executive Officer, United States Telecom 

Association .................................................................................................................... 71 

McSlarrow, Kyle, President and Chief Executive Officer, National Cable & 

Telecommunications Association ................................................................................. 76 

Regan, Timothy, Senior Vice President, Global Government Affairs, Corning 

Incorporated ................................................................................................................... 86 

Misener, Paul, Vice President for Global Public Policy, Amazon.com ............................ 96 

Keefe, David J., Chief Executive Officer, Atlantic Broadband, on behalf of The 

American Cable Association ......................................................................................... 104 

Fritz, Jerry, Senior Vice President for Legal and Strategic Affairs and General 

Counsel, Allbritton Communications Company, on behalf of The National 

Association of Broadcasters .......................................................................................... 108 

Citron, Jeffery, Chairman and Chief Strategist, Vonage ................................................... 194 

Rodriguez-Lopez, Lillian, President, Hispanic Federation ............................................... 257 

Johnson, Julia, Chairman, Video Access Alliance ............................................................ 260 

Riddle, Anthony Thomas, Executive Director, Alliance for Community Media .............. 265 

Kenney, Jeannine, Senior Policy Analyst, Consumers Union ........................................... 282 

May, Randolph J., Senior Fellow and Director, Communications Policy Studies, The 

Progress & Freedom Foundation .................................................................................. 293 

Makawa, James, Co-Founder and Chief Executive Officer, The Africa Channel ............ 305 

Additional material submitted for the record: 

Freudentah, Bob, President, American Public Works Association, prepared statement 

of..................................................................................................................................... 320 

McCormick, Walter, President and Chief Executive Officer, United States Telecom 

Association, response for the record.............................................................................. 323 

Misener, Paul, Vice President for Global Public Policy, Amazon.com, response for the 

record.............................................................................................................................. 325 

(III) 

(1) 

THE COMMUNICATIONS 

OPPORTUNITY, PROMOTION, AND 

ENHANCEMENT ACT OF 2006 

THURSDAY, MARCH 30, 2006 

HOUSE OF REPRESENTATIVES, 

COMMITTEE ON ENERGY AND COMMERCE, 

SUBCOMMITTEE ON TELECOMMUNICATIONS AND THE INTERNET, 

Washington, DC. 

The subcommittee met, pursuant to notice, at 10:08 a.m., in Room 

2123 of the Rayburn House Office Building, Hon. Fred Upton 

(Chairman) presiding. 

 Members present: Representatives Bilirakis, Stearns, Gillmor, 

Whitfield, Cubin, Shimkus, Pickering, Radanovich, Bass, Walden, Terry, 

Ferguson, Blackburn, Barton (ex officio), Markey, Engel, Wynn, Doyle, 

Gonzalez, Inslee, Boucher, Pallone, Gordon, Rush, Stupak, Dingell (ex 

officio), Solis and Buyer. 

 Staff present: Howard Waltzman, Chief Counsel for 

Telecommunications and the Internet; Kelly Cole, Counsel; Billy 

Harvard, Legislative Clerk; Anh Nguyen, Legislative Clerk; Jaylyn 

Jensen, Senior Legislative Analyst; Neil Fried, Counsel; Will Nordwind, 

Policy Coordinator; Peter Filon, Minority Counsel; Johanna Shelton, 

Minority Counsel; David Vogel, Minority Research Assistant; and Chris 

Treanor, Minority Staff Assistant. 

MR. UPTON. Thank you, Mr. Vice Chairman. Good morning. 

Today’s hearing is on the Communications Opportunity, Promotion, and 

Enhancement Act--bipartisan legislation introduced by Chairman Barton, 

Mr. Rush, Mr. Pickering, and myself. I want to thank those Members in 

particular for their tremendous bipartisan cooperation, input and work. 

 The whole effort with this legislation is about removing the 

governmental roadblocks which are getting between consumers’ wallets 

and the increased competition, lower prices, greater choice, and better 

service quality in the video marketplace which they desperately deserve. 

In the 21st century, with cable and two competing national satellite TV 

providers, which have about a quarter of the MVPD marketplace, 

technology has put the days of one-video-provider-per-town behind us; 

and with phone companies poised to offer yet another competitive video 

choice to consumers, we can truly kick competition into high gear. 
2

Yet with approximately 33,000 local franchise authorities 

nationwide, the current locality-by-locality-by-locality franchise 

negotiation process is standing in the way of progress. So, it is time to 

bring that process into the 21st century--to catch up with the changes in 

technology and the marketplace--so that the consumer can reap the 

benefits as soon as possible. 

This bipartisan legislation marries up three mutually important 

principles. 

 First, it establishes a national franchise option to streamline entry 

into the marketplace and speed-up delivery of more competitive video 

choices for consumers. 

Second, the bill not only preserves the option for cable operators and 

localities to strike their own local franchise deals in lieu of a national 

franchise, but also preserves--in the national franchise--critically 

important elements of the legacy local franchise framework, namely: 

number one, local control over rights-of-way; two, a franchise of up to 

five percent of gross revenues; three, required carriage of public, 

educational, and governmental programming, PEG; and four, an 

additional one percent of gross revenues on top of the five percent 

franchise fee for PEG and institutional network support. 

Third, the bill seeks to create a level regulatory playing field for all 

wireline video providers, given the competitive nature of the marketplace 

so that the consumers--and not the government--will choose the winners 

and losers in the marketplace. 

 Moreover, I want to highlight another important element of the bill 

which I believe will also be of great value to local governments. Title IV 

of the bill prohibits States from preventing local governments from 

providing telecommunications information or cable services. In my 

view, if a local government wants to provide, or facilitate the provision 

of, its own services for the benefit of its citizens, then our national 

communications policy should be able to permit that. 

 In closing, I want to also mention all of the work that Mr. Dingell 

and Mr. Markey invested with us in this issue. It is my hope that we can 

build on the bipartisanship of the legislation before us today. I look 

forward to working with them, Members who have also spent a lot of 

time on the issue like Mrs. Blackburn, Mr. Wynn, Mr. Buyer, and all 

members of this subcommittee and committee in the days to come. It is 

our attention to markup this legislation in subcommittee next week, and 

move towards full committee markup shortly after the Easter District 

Work Period ends. 

Again, I want to commend Chairman Barton, Mr. Rush, Mr. 

Pickering, and their staff, all staffs for getting us here today. I look 

forward to the testimony of today’s witnesses and I yield to the Ranking 
3

Member of the subcommittee, the gentleman from Massachusetts, my 

friend, Mr. Markey. 

 [The prepared statement of Hon. Fred Upton follows:] 

PREPARED STATEMENT OF THE HON. FRED UPTON, CHAIRMAN, SUBCOMMITTEE ON 

TELECOMMUNICATIONS AND THE INTERNET

Good morning. Today’s hearing is on the Communications Opportunity, Promotion, 

and Efficiency Act -- bipartisan legislation introduced by Chairman Barton, Mr. Rush, 

Mr. Pickering and myself. I want to thank those Members for their tremendous, 

bipartisan cooperation, input, and work. 

This whole effort is about removing the governmental roadblocks which are getting 

between consumers’ wallets and the increased competition, lower prices, greater choice, 

and better service quality in the video marketplace which they desperately deserve. 

In the 21st century, with cable and two competing, national satellite television 

providers, which have about a quarter of the MVPD marketplace, technology has put the 

days of one-video-provider-per-town behind us; and with phone companies poised to 

offer yet another competitive video choice to consumers, we can really kick competition 

into high gear. 

Yet with approximately 33,000 local franchise authorities nationwide, the current 

locality-by-locality-by-locality franchise negotiation process is standing in the way of 

progress. So, it’s time to bring that process into the 21st century -- to catch-up with the 

changes in technology and the marketplace -- so that the consumer can reap the benefits 

as soon as possible. 

This bipartisan legislation marries-up three mutually important principles: 

 First, it establishes a national franchise option to streamline entry into the 

marketplace and speed-up delivery of more competitive video choices for consumers; 

 Second, the bill not only preserves the option for cable operators and localities to 

strike their own local franchise deals in lieu of a national franchise, but also preserves -- 

in the national franchise -- critically important elements of the legacy local franchise 

framework, namely: (1) local control over rights-of-way; (2) a franchise fee of up to 5% 

of gross revenues; (3) required carriage of public, educational, and governmental (PEG) 

programming; and (4) an additional 1% of gross revenues – on top of the 5% franchise 

fee -- for PEG and institutional network support. 

 Third, the bill seeks to create a level regulatory playing field for all wireline video 

providers, given the competitive nature of the marketplace, so that consumers – and not 

the government – will choose the winners and losers in the marketplace. 

 Moreover, I want to highlight another important element of the bill, which I believe 

will also be of great value to local governments. Title IV of the bill prohibits states from 

preventing local governments from providing telecommunications, information, or cable 

services. In my view, if a local government wants to provide, or facilitate the provision 

of, its own services for the benefit of its citizens, then our national communications 

policy should be to permit that. 

 In closing, I do want to mention all of the work that Mr. Dingell and Mr. Markey 

have invested, with us, in this issue. It is my hope that we can build on the bipartisanship 

of the legislation before us today, and I look forward to working with them, Members 

who have spent a lot of time on this issue like Ms. Blackburn, Mr. Wynn, and Mr. Buyer 

-- and all Members of this Subcommittee and Committee -- in the days to come. It is my 

intention to mark-up this legislation in Subcommittee next week, and move toward full 

Committee mark-up after the Easter District Work Period. 
4

 Again, I want to thank Chairman Barton, Mr. Rush, and Mr. Pickering – and their 

staffs – for getting us here today, and I look forward to the testimony of today’s 

witnesses. 

 MR. MARKEY. Thank you, Mr. Chairman, my friend, as well. We 

are calling this hearing on this very important legislation which addresses 

various subjects, and although there are a multitude of issues in this bill 

including several provisions I wholeheartedly support, such as the ability 

of municipalities to provide community broadband services, I will focus 

my remarks this morning on just two items. 

 First, network neutrality. In my view, rules ensuring network 

neutrality are indispensable. I understand that there are those who argue 

that we should rely on mere network neutrality principles or an 

imprecisely worded FCC policy statement rather then legally enforceable 

rules. Others will advise us to take a wait-and-see approach. Yet we 

know from public statements from several industry executives that the 

owners of the broadband wires into our homes would like to start 

charging fees to Internet content providers. In other words, they want to 

artificially constrain the supply of Internet-based content and services to 

high bandwidth consumers. This represents nothing more than the 

imposition of a broadband bottleneck tax on electronic commerce. Such 

a bottleneck tax for accessing consumers will undoubtedly have a 

chilling effect on investments and innovation. 

 There are some out there who will inevitably ask the question, but 

why shouldn’t Google pay? Google certainly has a very large market 

gap and presumably could afford to pay, but that is precisely the wrong 

question to ask. The question to ask is whether Larry Page and Sergey 

Brin could have afforded to pay around 1998, whether Yahoo Chief Jerry 

Yang could have afforded to pay a broadband behemoth around 1995, 

whether Mark Andresen, the founder of Netscape, could have afforded to 

pay anyone anything around 1994. If there is an entrepreneur in some 

proverbial garage somewhere today whose idea is new, whose product is 

still in beta, their dreams are just as real and valid as Sergey’s and 

Larry’s and Jerry’s and Mark’s were an Internet generation ago. We 

should be doing everything we can in public policy to ensure that this 

successful Internet model continues to drive innovation, economic 

growth, and job creation. 

 Instead, the proposed bill before us effectively condones online 

discrimination and then ties the hands of the agency from promulgating 

any guidelines to address it. The Barton bill actually says to the FCC 

that it can never adopt rules to protect the Internet experience for the 

millions of entrepreneurs and consumers who rely upon it. Think about 

that. If there is a problem, even if it widespread or affects a whole class 

of users or a whole class of violators, if consumers are being aggrieved 
5

on a daily basis or even if industry itself feels that certain rules are useful 

or necessary, the Barton bill prohibits any rulemaking authority for the 

FCC on network neutrality whatsoever. Rather, it prefers a case-by-case 

investigation and adjudication of violations. Does anyone here 

remember how long it takes the FCC to deal with individual complaints? 

It often takes years. And this bill is supposed to prepare us for the 21st 

century broadband future. This is efficient government? I don’t think 

so. No, that is neither futuristic nor efficient. That is chaos. In short, the 

bill imperils the future of electronic commerce and innovation to the 

www, the worldwide whims of broadband barons and ties the hands of 

the agency in a way that will legally prevent it from saving something 

very special. 

 And second, service area parity. I want to briefly address the 

proposed bill’s lack of a cable service area requirement. By failing to 

include a build-out provision to ensure service area parity between a Bell 

company entering a franchise area and the incumbent cable operator, the 

bill allows a national franchisee to use public rights-of-way in a 

community but serve only select neighborhoods within that community. 

One does not need a business degree to have a hunch that they will focus 

deployment on the 30 percent of the town that has 70 percent of the 

revenue potential. The bill, however, compounds the consumer risk 

when the omission of a service area requirement is considered in the 

context of an incumbent cable operator qualifying for a national 

franchise. Under the proposal, an incumbent cable operator may 

similarly seek a national franchise after the phone company arrives in a 

franchise area even if the phone company is serving just one household 

in the franchise area. The lack of a service area requirement at the 

national level then means that the incumbent cable operator no longer 

has to serve the entire franchise area either. 

 This means that the incumbent cable operator will now be free to 

skimp on service upgrades or withdraw service from any part of their 

historic service area. The incumbent cable operator may also 

immediately raise rates in areas of the community the phone company is 

not serving in order to cross-subsidize its offering in the part of town the 

phone company has chosen to serve. In other words, although the 

proponents of the bill will trumpet the notion that consumers will receive 

lower prices, the reality for many consumers is that the bill will 

unwittingly result in the opposite: higher prices, shoddier practices, lack 

of technology upgrades, or outright withdrawal of service. This 

represents a truly historic abandonment of decades of policy and progress 

to get technology and competition out to all Americans regardless of 

where they live. It is clearly a grave consumer protection flaw in the bill 

that needs to be addressed. I thank you, Mr. Chairman, for your 
6

indulgence in giving me a little extra time in my opening statement in 

this historic hearing. 

 MR. UPTON. I am taking it from your minutes of questions. No, I 

am not. I would like to make a unanimous consent request that both Ms. 

Solis and Mr. Buyer who are not members of the subcommittee but able 

to sit in and participate, and without objection so ordered. I yield at this 

point for an opening statement to the gentleman from Florida, Mr. 

Bilirakis. 

 MR. BILIRAKIS. Thank you, Mr. Chairman. Mr. Chairman, I think 

that everyone agrees certainly that technology has a dramatic impact on 

our daily lives. Today there is ever growing competition in a wide 

variety of areas. Cell phones, for example, continue to get smaller and 

smaller with expanding capabilities. I am amazed that it is possible to 

watch television on a cell phone. Individuals can find any number of 

service plans that suit their communications needs at competitive rates. 

It is only natural that consumers want to see greater and greater choice 

when it comes to the services and products that are available in their 

homes. 

 The legislation we are examining today is intended to spur 

competition in the video market. While I do believe it is important to 

expand consumer choice and options, I am concerned that we take into 

account the critical role that local governments play in the video market. 

Although I do not believe that local governments and local franchising 

authorities should act as a barrier to greater competition, they do have a 

responsibility to protect and maintain local infrastructure and safeguard 

consumers. So I believe it is important that they continue to have the 

ability to act in the public interest, and in that regard I am anxious to hear 

from our wide array, and they are a wide array, of witnesses today to get 

their perspectives on this legislative proposal. Mr. Chairman, thank you. 

This is a very complicated bill. I know as a result of hearings like this 

we are going to learn much more about it. Thank you, sir. 

 [The prepared statement of Hon. Michael Bilirakis follows:] 

PREPARED STATEMENT OF THE HON. MICHAEL BILIRAKIS, A REPRESENTATIVE IN CONGRESS 

FROM THE STATE OF FLORIDA

Thank you, Mr. Chairman. 

I think everyone agrees that technology has a dramatic impact on our daily lives. 

Today, there is ever growing competition in a wide variety of areas. Cell phones, for 

example, continue to get smaller and smaller with expanding capabilities. I am amazed 

that it is now possible to watch television on a cell phone. Individuals can find any 

number of service plans that suit their communications needs at competitive rates. It is 

only natural that consumers want to see greater and greater choice when it comes to the 

services and products that are available in their homes. 

The legislation we are examining today is intended to spur competition in the video 

market. While I do believe it is important to expand consumer choice and options, I am 
7

concerned that we take into the account the critical role that local governments play in the 

video market. Although I do not believe that local governments and local franchising 

authorities should act as a barrier to greater competition, they have a responsibility to 

protect and maintain local infrastructure and safeguard consumers. I believe it is 

important that they continue to have the ability to act in the public interest. In that 

regard, I am anxious to hear from our wide array of witnesses today to get their 

perspectives on this legislative proposal. 

Thank you, Mr. Chairman. I look forward to working with you and my colleagues 

on this important issue as we move forward. 

 MR. UPTON. I recognize Mr. Dingell for an opening statement. 

 MR. DINGELL. Mr. Chairman, I thank you for your courtesy and I 

thank you for having this hearing. The title of this hearing might be a 

funny thing happened on the way to the forum. We are well on the road 

to achieving a bill which could have had broad bipartisan support, could 

have addressed in a real way the concerns of the American people, could 

have allowed the Bells to enter into a national franchise and to have 

achieved it in a way which would not only have been fair to American 

consumers, but which could have been broadly accepted throughout the 

industry and which would have had support of Members on both sides. 

It was interesting to note how close we were when all of a sudden the 

wheels came off and all of the lashings wrapped around the axle and 

everything stopped. 

 This is an important bill for American consumers and for our 

economy. I want to make it clear that I had and hope to again be a 

supporter of a national video franchise. I would note that I have been a 

long-term friend of the Bell companies but I do not support the 

legislation being discussed today because it is unfair, unwise, and bad 

public policy. As drafted, the proposed legislation would allow the 

creation of the broadband equivalent of gated communities in our towns, 

our cities, our countryside as well as on the Internet. Public rights-ofway would be hijacked for the profits of large private companies which 

are under this draft freed of the important obligations to serve the public. 

I support fair competition, but this bill does not create fair competition. 

We should not write legislation at the expense of leaving some of our 

communities or some of our citizens behind and we should not write 

legislation at the expense of a free and innovative Internet. Of course, 

some areas of our country would likely see faster competition and lower 

cable rates as a result of national franchising--some. But according to 

this draft, these benefits will not extend to everyone or everywhere. 

Significant areas of our country will be left behind and not all families in 

the family community will share in the competitive showdown. So the 

less desirable or more remote parts of a town or the less affluent parts of 

that town may see the cable rates increase or watch as providers upgrade 

service to other parts of the town and pass them by. With many 
8

consumers put at risk by paying higher cable bills or even losing cable 

service, this bill violates the fundamental legislative principle of first do 

no harm. So there are tough questions that we have to ask about this 

legislation, and we will ask them. 

 First, why are there no real protections to ensure that communities 

and neighborhoods will not be left behind as new telecommunications 

infrastructure is deployed? When it comes to using public rights-of-way 

to offer cable service, the current framework has worked in allowing a 

build-out over a reasonable period of time at the local level. Why should 

we abandon the system of universal service that has served this nation so 

well in terms of a profit-making opportunity for companies of great 

affluence at the expense of people of limited means? 

 Second, when cable operators who become national franchisees are 

released from obligations to serve or upgrade certain parts of town, how 

will those residents be affected? I think everyone knows the answer to 

that. Does this create a legal entitlement to differing services and 

differing levels of service depending on the demographics of a 

neighborhood? It certainly looks that way. 

 Third, will the unfortunate result of this bill be years of litigation? 

The national franchise requirements contain many ambiguities. For 

example, are new methods of video delivery covered or should the 1984 

constructs be updated to provide technology-neutral approach to cable 

service? Those cities continue to receive fees associated with video 

services when these services are integrated with other capabilities. Will 

some of the people who will be beneficiaries of this legislation be able to 

claim that they are not cable providers and thus escape major parts of 

their responsibilities? That is a question that we intend to inquire into 

with more than a little care. 

 Fourth, the proposed legislation contains some curious language 

regarding the issue of network neutrality. What would be the effect of 

allowing essentially private taxation of the Internet? Would the digital 

economy continue to thrive? Would consumer expectations be met? 

Would treatment be fair to all or would people be enriched in improbable 

and improper ways? 

 In some ways, this bill clearly benefited from the lengthy bipartisan 

discussions held over the course of last year and I want to commend my 

colleagues who have participated in those. In general, the bill generally 

reflects the value to our citizens of franchise fees and the continuation of 

support of diverse public educational and governmental programming. It 

recognizes at least in concept that local governments play a constructive 

role in the oversight of the communications infrastructure and the 

protection of consumers. It also recognizes that they are going to 

provide the rights-of-way and things which are so important to having 
9

this kind of thing move forward. But it leaves other areas of local 

responsibilities, rights, and privileges as well as duties of the licensees or 

franchisees very much unclear. Also troubling, the legislation preempts 

state and local consumer protection laws and it assures no strong or 

enforceable federal protections. We are stripping citizens of something 

that they and their governments have been able to do for them over the 

years. 

 This committee has deregulated cable service before. Not all of us 

will remember it. But we have only then later had to step in to address 

shoddy treatment and poor treatment of consumers. 

 Mr. Chairman, I thank you for holding this hearing. The draft raises 

many questions which must be answered carefully. I am not sure that the 

process is going to achieve that purpose but we are going to try and see 

that it does. It is one thing to promise a new day of competition. It is 

quite another to deliver, especially since the legislation and the vehicle 

has the number of visible and obvious errors that we see before us. We 

do not want to leave millions of Americans vulnerable, having to cope 

with no new services with higher cable rates, with fewer competitive 

choices on the Internet, and a situation which clearly favors certain 

providers and clearly favors certain categories of Americans over others. 

Thank you, Mr. Chairman. 

 MR. UPTON. Thank you. I recognize for an opening statement the 

Chairman of the full committee, the gentleman from Texas, Mr. Barton. 

 CHAIRMAN BARTON. Thank you, Mr. Chairman, for holding this 

important legislative hearing. Today is the culmination of over a year 

and a half of discussions by Members on both sides of the aisle of this 

subcommittee and full committee, and if you really look at it, it is half a 

decade of discussions by the stakeholders about the need for a new 

telecommunications act. Previous attempts at increasing innovation, 

choice, and lower prices for consumers have focused on promoting 

competition within individual sectors of the communications industry. 

Time has shown, however, that the best way to promote competition and 

innovation is to encourage the deployment of advanced facilities-based 

networks and competition across sectors. The right approach will 

invigorate the technical sector and produce jobs, growth, and opportunity 

for all of America. American consumers will get an array of services and 

choices that were unimagined just a few years ago. 

This is the approach the committee print before us seeks to take with 

respect to increased cable competition and the deployment of advanced 

broadband networks. Cable service is interstate in nature, as the 

Supreme Court has long recognized. Most video programming carried 

on cable systems is produced by national networks and distributed across 

State lines to a national audience. Cable systems are also carrying 
10

increasing amounts of Internet-based video, voice and data services that 

cross State, as well as national, borders. 

 Today there are thousands of local franchising authorities, and each 

imposes disparate restrictions on the provision of cable services in its 

particular franchising area. The requirement to negotiate such local 

franchises and the patchwork of obligations local franchising authorities 

impose, are hindering the deployment of advanced broadband networks 

that will bring increasingly innovative and competitive services to 

consumers. The United States is not even among the top ten nations in 

terms of broadband deployment right now. 

The committee print seeks to address this concern and strike the right 

balance between national standards and local oversight. Thus, the 

committee print before us first of all preserves municipalities’ existing 

authority to collect a franchise fee of up to five percent of gross revenues 

from cable service. Second, it also preserves the municipalities’ control 

over their local right-of-way. Third, it continues to require carriage of 

public, educational, and governmental channels, otherwise known as 

PEG channels, and allows municipalities to increase the number of PEG 

channels over time. It also preserves the institution networks used for 

governmental and other public safety purposes. It also allows 

municipalities to collect an additional one percent of gross revenues to 

support PEG channels and institutional networks. It also allows 

municipalities, if they wish, to continue to negotiate a local franchise 

agreement. It requires the FCC, the Federal Communications 

Commission, to establish national consumer protection and customer 

service standards that the municipalities may then enforce. 

 At the same time, the committee print offers an alternative, 

streamlined national franchise process. This will help expedite 

competitive cable entry, thereby promoting the deployment of advanced 

broadband networks that can offer new and exciting broadband video, 

voice and data services. 

We have had multilateral discussions for a number of months with 

several members on the Minority side of the aisle. Those discussions did 

not bear the total fruit that I thought they would. Having said that, we 

have entered into discussions with Congressman Rush and he has signed 

on as an original sponsor of the committee print. We are very, very 

pleased to have Congressman Rush’s support of the committee print 

before us. I also want to thank Congressman Pickering and 

Congressman Upton for their strong work. I would like to thank Mr. 

Dingell and Mr. Markey for their work as well, although they have not 

signed on to the committee print before us. 

 I hope that other members from both sides of the aisle would take a 

serious look at the legislative draft before us today and join us in 
11

supporting the draft next week when we mark it up in the subcommittee. 

I look forward to today’s testimony and to next week’s subcommittee 

markup, and to marking it up in full committee within the next four or 

five weeks. With that, Mr. Chairman, I yield back. 

 [The prepared statement of Hon. Joe Barton follows:] 

PREPARED STATEMENT OF THE HON. JOE BARTON, CHAIRMAN, COMMITTEE ON ENERGY 

AND COMMERCE

Mr. Chairman, thank you for holding this hearing. We stand on the threshold of a 

new age in communications. The 1996 Telecommunications Act served an important 

purpose, but technology and the markets have moved on. 

Previous attempts at increasing innovation, choice, and lower prices for consumers 

have focused on promoting competition within individual sectors of the communications 

industry. Time has shown, however, that the best way to promote competition and 

innovation is to encourage the deployment of advanced, facilities-based networks and 

competition ACROSS sectors. The right approach will invigorate the tech sector and 

produce jobs, growth and opportunity for its workers. American consumers will get an 

array of services and choices that were unimagined just a few years ago. 

This is the approach the committee print seeks to take with respect to increased 

cable competition and the deployment of advanced broadband networks. Cable service is 

interstate in nature, as the Supreme Court has long recognized. Most video programming 

carried on cable systems is produced by national networks and distributed across state 

lines to a national audience. Cable systems are also carrying increasing amounts of 

Internet-based video, voice, and data services that cross state, as well as national, borders. 

Today, there are thousands of local franchising authorities, and each may impose 

disparate restrictions on the provision of cable service in its local franchising area. The 

requirement to negotiate such local franchises, and the patchwork of obligations local 

franchising authorities impose, are hindering the deployment of advanced broadband 

networks that will bring increasingly innovative and competitive services to consumers. 

The committee print seeks to address this concern and strike the right balance 

between national standards and local oversight. Thus, the committee print: 

• Preserves municipalities’ existing authority to collect a franchise fee of up to 5 

percent of gross revenues from cable service. 

• Preserves their control over local rights-of-way. 

• Continues to require carriage of public, educational, and governmental 

channels, referred to as PEG channels, and allows municipalities to increase the 

number of PEG channels over time. 

• Preserves institutional networks used for governmental and other public safety 

purposes. 

• Allows municipalities to collect an additional one percent of gross revenues to 

support PEG channels and institutional networks. 

• Allows municipalities to continue to negotiate local franchise agreements. 

• Requires the Federal Communications Commission to establish national 

consumer protection and customer service standards that the municipalities may 

enforce. 

At the same time, the committee print offers an alternative, streamlined national 

franchise process. This will help expedite competitive cable entry, thereby promoting the 

deployment of advanced broadband networks that can offer new and exiting broadband 

video, voice, and data services. 
12

I thank Congressman Rush, the Chairman, and Mr. Pickering for sponsoring this 

bipartisan legislation with me. I hope that other Members from both sides of the aisle 

will join us in supporting the bill. I look forward to today’s testimony and to an 

expedited Subcommittee markup of the legislation. I yield back. 

 MR. UPTON. Thank you. Mr. Engel? 

 MR. ENGEL. Thank you, Mr. Chairman. I am going to condense my 

remarks, and I thank my colleagues for letting me jump over them. I 

have to co-chair a hearing in about three minutes and I will return to the 

hearing. I want to thank you, and I realize that not all of the committee’s 

leaders were able to come to a compromise, but I believe that this bill 

before us reflects an enormous step forward from the previous bill called 

BITS II. My primary concern, like everyone else, is to do what is best 

for the people of my district and State, and for half the population of my 

district, there is no viable competition in video services because of tall 

buildings, so I am forced to seek ways to bring competition to the video 

service industry. I believe that this legislation provides a road map by 

which all the traditional telephone companies and the incumbent cable 

service providers can move forward into a new era of competition. As 

Members of Congress, we obviously have to strike the balance that will 

promote competition without unduly benefiting one of those competitors, 

so I am pleased that there is language in this bill that provides for fair 

treatment of all communities and neighbors without regard to income 

level. I have pockets of vast poverty and enormous wealth and all of 

these people should be able to avail themselves of these new services. I 

understand the language regarding enforcement of so-called redlining is 

still under development so I look forward to developing strong, clear 

standards for enforcement. 

 I am also very pleased about the inclusion of 911 services for VOIP 

providers. I believe that it would be unconscionable for this Congress to 

adjourn without making this simple but vital change to our laws. It is a 

no-brainer that when someone is in medical distress or the house is on 

fire or someone has broken in, that the person calls 911. Such a call 

should go seamlessly. That having been said, we must also require our 

PSAPs to upgrade their equipment to handle these new technologies. 

New York remains the poster child of what not to do when it comes to 

cell phone 911 systems. Millions of dollars were collected in cell phone 

taxes and little actually spent on PSAP upgrades. The same thing cannot 

be allowed to happen again with VOIP. 

 I have one concern which I hope we will be able to work out as this 

bill moves forward. I understand that the bill does not impose on VOIP 

providers the same standards for disability access as other voice 

providers. As a longtime champion of disabled and equal regulatory 
13

treatment, I want to work with the Chairman at finding a way of making 

this happen. 

 And finally, let me say that there are net neutrality provisions in this 

bill that many people have told me they are very upset about. I am 

hearing very different opinions about what this language means and how 

it will impact the future of the nation’s telecommunications industry. I 

want to urge all parties to start working together to find common ground. 

I am open to listening to each and every argument but there are such vast 

differences in interpretation, I am just not sure what to think. So I thank 

the Chairman and my colleagues, and I yield back. 

 [The prepared statement of Hon. Eliot Engel follows:] 

PREPARED STATEMENT OF THE HON. ELIOT ENGEL, A REPRESENTATIVE IN CONGRESS FROM 

THE STATE OF NEW YORK

Mr. Chairman: 

I want to thank you, Mr. Barton, Mr. Dingell, Mr. Markey and your staff members 

for their hard work over the past many months. 

Though not all of the Committee’s leaders were able to come to a compromise, I 

believe the bill before us reflects an enormous step forward from the previous bill, called 

BITS II. 

My primary concern is -- like everyone else here -- my primary concern is to do 

what is best for the people of my district and state. For half the population of my district 

there is no viable competition in video services. The fact that satellite is really not viable 

in the Bronx is matter of physics – it is not cable’s fault nor satellite’s. Neither they nor 

this Congress can alter the laws of physics – though I believe some members of Congress 

have tried on a number of occasions. 

So I am forced to seek ways to bring competition to the video services industry. My 

constituents want this and they want it yesterday. 

I believe that this legislation provides a road map by which all the traditional 

telephone companies and the incumbent cable service providers can move forward into a 

new era of competition. 

As members of Congress we must strive to strike the balance that will promote 

competition without unduly benefiting one of those competitors. 

I am pleased that there is language in this bill that provides for fair treatment of all 

communities and neighborhoods without regard to income level. I have pockets of vast 

poverty and enormous wealth. All of these people should be able to avail themselves of 

these new services. 

I understand the language regarding enforcement of the so-called “red-lining” is still 

under development. I look forward to working with the Chairmen and ranking members 

and my good friend Bobby Rush in developing strong, clear standards for enforcement. 

I am also very pleased about the inclusion of 911 services for VOIP providers. I 

believe that it would be unconscionable for this Congress to adjourn without making this 

simple, but vital, change to our laws. It is a no brainer that when someone is in medical 

distress, or their house is on fire, or someone has broken in that the person calls 911. 

Such a call should go seamlessly. 

That having been said, we must also require our PSAPs to upgrade their equipment 

to handle these new technologies. New York remains the poster child of what not to do

when it comes to cell phone 911 systems. Millions of dollars were collected in cell 
14

phone taxes and little actually spent on PSAP upgrades. The same thing cannot be 

allowed to happen again with VOIP. 

I have one concern which I hope that we will be able to work out as this bill moves 

forward. I understand that the bill does not impose on VOIP providers the same 

standards for disability access as other voice providers. As a long time champion of the 

disabled and equal regulatory treatment, I want to work with the Chairman on finding a 

way of making this happen. 

There are net neutrality provisions in this bill that people are very upset with. I am 

hearing very different opinions about what this language means and how it will impact 

the future of the nation’s telecommunications industry. I urge all parties to start working 

together to find common ground. I am open to listening to each and every argument, but 

there are such vast differences in interpretation, I am just not sure what to think. 

I thank the chairman and yield back. 

 MR. UPTON. Yes, I would at this point ask unanimous consent that 

all members of the subcommittee be able to insert their opening 

statements as part of the record. 

 MR. ENGEL. Thank you, Mr. Chairman. I have Mr. Green’s 

statement and I thank you for doing that. 

 MR. UPTON. Without objection, and also remind my colleagues that 

if they do not all read their statement, they will get an extra three minutes 

on the first round of questions, and at this point I would yield to Mr. 

Gillmor for an opening statement. 

 MR. GILLMOR. Thank you, Mr. Chairman, and I want to commend 

you and your staff for all of the time and the effort that you have put in to 

formulating this legislation. The latest committee print is aimed at 

furthering deregulating an industry that has the potential to revolutionize 

the way in which we do business, communicate with family and friends, 

and conduct everyday tasks. There are very few opportunities that exist 

like the one before the committee today, and I think we have to capitalize 

on that opportunity to avoid stunting the growth of this dynamic sector of 

our economy. 

 More than a decade ago, Congress deregulated the wireless industry 

and that venture has led to one of the most competitive and consumerfriendly marketplaces in the tech sector and I think that the committee 

print has the potential for laying a similar path for increased competition 

in video services. Streamlining the franchising process will ultimately 

result in lower consumer prices and greater access to advanced 

telecommunications services including in districts like mine. However, 

despite its good intentions, there will still be areas of the country where 

these services will not be immediately within reach for one reason or 

another. I think that title IV of the proposed bill strikes the appropriate 

balance by allowing public entities to enter into this dynamic market on a 

competitively neutral basis and I believe that the bill makes a concerted 

effort to ensure the localities maintain their ability to be effective 

stewards of the public domain. I want to point out one example which 
15

came to my attention recently of the advantages of competition, and that 

was in France where I understand that since they have opened their 

markets to competition, it is possible now to get broadband Internet 

service, video, and telephone all from one provider for less than $40 a 

month, which is a far cry from anything that we see in this country. 

 This bill presents us with a unique opportunity to effectively increase 

marketplace competition and consumer choice while at the same time 

decreasing bureaucratic red tape and the amount that consumers pay for 

their services each month, and I yield back. 

 [The prepared statement of Hon. Paul E. Gillmor follows:] 

PREPARED STATEMENT OF THE HON. PAUL GILLMOR, A REPRESENTATIVE IN CONGRESS 

FROM THE STATE OF OHIO

Before I begin, I would like to thank you for holding this very important hearing and 

commend you and your staff for all of the time and effort put into formulating this 

legislation. 

Mr. Chairman, after many months of debate and negotiation, I am pleased to be here 

today to listen to the panelists and discuss the latest committee print aimed at further 

deregulating an industry that has the potential to revolutionize the way in which we do 

business, communicate with family and friends, and attend to everyday mundane tasks. 

Very few opportunities exist like that which currently lies before this committee, and we 

must capitalize on this opportunity in order to avoid stunting the growth of this dynamic 

sector of our economy. 

More than a decade ago, Congress took the leap of faith and deregulated the wireless 

industry—that venture has led to one of the most competitive and consumer-friendly 

marketplaces in the tech sector. After reviewing the committee print, it is my belief that 

this legislation will lay a similar path for increased competition in video services. 

Streamlining the franchising process will ultimately result in lower consumer prices 

and greater access to advanced telecommunications services. In a rural district such as 

mine, I am excited of the possibilities that this legislation could yield, such as increased 

access of advanced broadband services for rural, agricultural communities, more and 

better programming options at consumers’ fingertips, and increased safety of VOIP 

telephony services through the continued integration of E911. However, despite the well 

intentions of this legislation, there will still be areas of the country where these services 

will not immediately reach for one reason or another. Therefore, I believe that Title IV of 

the proposed bill strikes the appropriate balance by allowing public entities to enter into 

this dynamic market on a competitively neutral basis with commercial providers. 

Finally, much has been said and will continue to be said about local control. As a 

former Ohio state senator, I believe that this bill makes a concerted effort to ensure that 

localities maintain their ability to be effective stewards of the public domain. Retaining 

the remittance of franchise fees, PEG channels, rights-of-way management, PEG support 

funding, and the ability to access fees for to rights-of-way management are just several 

examples of the extent that the Committee has gone to in order to ensure the preservation 

of local authority. 

Mr. Chairman, I would like to conclude my statement by saying that Chairman 

Barton’s bill, the Communications Opportunity, Promotion, and Enhancement Act, 

presents us with a unique opportunity to effectively increase marketplace competition and 

consumer choice, while at the same time decreasing bureaucratic red-tape and the amount 

that consumers pay for their service each month. 
16

I look forward to the testimony from all of today’s panelists and to the opportunity 

to ask several of them questions of my own as well as engage my colleagues in what is 

likely to be a lively debate. Again, thank you Mr. Chairman for holding this important 

hearing. 

 MR. UPTON. I recognize Mr. Boucher for an opening statement. 

 MR. BOUCHER. Thank you very much, Mr. Chairman. The bill that 

is before us today is a mere shadow of its former self. I regret that it has 

abandoned the valuable approach of earlier drafts which defined the 

permissible boundaries of the regulation of Internet applications and 

made certain that there would be a light regulatory touch. That measure 

which Mr. Stearns and I had advanced was not controversial. It achieved 

the necessary purpose. It is not to be in the thin measure that is now 

before us. 

 I support a one-stop Federal video franchise opportunity. I think it is 

essential in order to provide additional competition for cable television 

and satellite television consumers. The bill, in my view, appropriately 

addresses this need, and it also creates a greater legal certainty for 

municipalities that are seeking to offer commercial telecommunications 

service and I support those provisions. 

 The major shortcoming in the measure is the green light that it gives 

to a practice which I fear will undermine the openness and the 

accessibility of the Internet, qualities that have made the Internet a major 

driving force in the nation’s economy. Some last-mile broadband 

providers have announced an intention to create a fast lane into the home 

for content providers who will pay them for fast-lane access and a slow 

lane for everyone else. In addition to limiting customer choice, I am 

deeply concerned that this two-lane plan will have a dramatic adverse 

effect on innovation. The startup struggling in a garage somewhere 

today will not be able to afford to pay the fees to get into the fast lane 

over the last mile and will be relegated to the slow lane. It is not going to 

be able to compete with the established Internet-based companies. The 

risk that permitting this dramatic change to the architecture of the 

Internet will dampen innovation is real. I think it is a risk that simply is 

not worth taking, and we don’t have the luxury of simply sitting back and 

seeing how things work out. 

 Experience teaches us that when companies begin deriving revenues 

from a business model, it is exceedingly difficult to outlaw that model, 

and this is not something we are going to be able to take back. If we do 

nothing today and five years from now innovation has suffered and lastmile providers are deriving revenues from this new business plan of a 

two-lane Internet, a fast lane and a slow lane, it is going to be too late to 

make repairs, and so as a part of this bill, we need a genuine network 

neutrality provision, a provision that says that if a fast lane is necessary 
17

perhaps for video or for gaming, then all applications of a similar kind, 

no matter who provides those applications, applications from any content 

provider of that kind should be entitled to fast-lane access without having 

to pay a charge. 

 Mr. Chairman, I look forward to the debate on this needed provision 

and I very much look forward to today’s witnesses. Thank you. 

 MR. UPTON. Thank you. Mr. Shimkus? 

 MR. SHIMKUS. Thank you, Mr. Chairman. I am going to be real 

short. One is, I am going to use every public opportunity to remind 

people so they can talk to their parents and grandparents there are 46 

days left for Medicare D signup so all you out there, all you smart people 

that can use the Internet, go to your grandmas and grandpas and your 

moms and dads, and if they are not signed up, get them engaged. 

 Second thing, the draft is good. I really can give the rest of my 

opening statement based upon what Eliot Engel said. The VOIP, the 

access to database, is a great part of the bill, and I appreciate that effort. 

I, as Members do, am struggling with this whole debate on net neutrality. 

Is the bill too hot, is the bill too cold? Can’t we find something that is 

just right, and hopefully in this process we can do that. I yield back. 

 MR. UPTON. Mr. Stupak. 

 MR. STUPAK. Mr. Chairman, I will waive and save my three minutes 

for later. Thank you. 

 MR. UPTON. Mr. Pallone. 

 MR. PALLONE. Thank you, Mr. Chairman. I want to thank all of our 

witnesses for coming here today to discuss critical telecommunications 

issues and particularly mention the presence of Jeffrey Citron from 

Vonage, who both lives and has his headquarters in my home county of 

Monmouth, New Jersey. 

 I have long been a proponent of ensuring consumer choice and 

greater competition and I hope that this hearing will help us craft 

legislation that strikes a good balance between the two. It is long past 

time for us to update the Telecom Reform Act passed in 1996, and if 

done properly, our efforts could reduce rates for video content 

consumers. While the proposed legislation provides a good vehicle, 

there still remain many questions on how best to provide consumers 

competition in the video marketplace and I am interested in hearing the 

panel’s views on how to ensure aggressive deployment measures in lowincome and rural areas. 

 There are also many questions about how and to what extent the 

Internet should be regulated. I look forward to hearing how the 

witnesses feel about the net neutrality language included in the current 

legislation. I would also like to hear what we can do to ensure there is no 
18

blocking, slowing down, or impeding of Internet traffic by content 

providers. 

 Telecommunications reform also brings up the issue of E-911. It is 

safe to say that all customers deserve access to life-saving E-911 

networks and that is why guardians of the E-911 network or facilities 

should do all that they can to ensure that new services like voice over IP, 

have all the tools they need to provide consumers with enhanced 

emergency protections. I look forward to hearing why there are parts of 

the country taking longer to roll out access to E-911 service by voice 

over IP providers. Is this caused by technological hurdles or manmade 

obstacles? 

 Crafting appropriate legislation is a delicate process. We must 

balance the interests of local and State governments with the needs of 

business and fair competition and obviously achieving that goal is easier 

said than done. However, the one thing that we need to keep in mind is 

how Congress can best help all of these content providers and continue to 

expand services for the American consumer at a competitive price. 

Again, I thank all of you for coming in to talk about these issues with us. 

Obviously it is crucial. Thank you, Mr. Chairman. 

 MR. UPTON. Mr. Bass. 

 MR. BASS. Thank you very much, Mr. Chairman, and I want to 

thank you for holding this hearing. I think it is going to be informative 

and helpful. It is another step in what has been a long and I think fruitful 

debate, and I have been trying to think of a way to discuss this thin 

measure before us. I don’t think there is anything wrong with thin 

measures. They are just as good as fat measures, in my opinion, and I 

have really had a mission throughout this debate that as we approach 

telecommunications, we want to create a system that encourages 

competition, lower prices, and better service. Tat more access to services 

in communities will lead to more innovative services and better services, 

which will lead to better competition, lower prices, and more attention to 

customers. 

 It always surprises me that in my hometown, I pay about $150 a 

month for high-speed Internet access, for television, and for telephone. 

That is more than n probably most of all of developed countries around 

the world, maybe some Third World nations, frankly, and I don’t think 

that is right. I would like to see the efforts of our debate and our 

legislative work create an environment in which a town in my district, 

like Washington, can compete with a city like Washington, or the city of 

Berlin way up in the middle of Coos County, can compete with Berlin, 

Germany. That should be the objective, and I believe the bill does move 

significantly in this direction, firstly by including the municipal 

broadband provisions, which I was pleased to work with my friend from 
19

Virginia on, and I recognize that municipal networks are not always 

going to be the right solution, but it is an option that ought to be 

preserved. I think the national franchise is a good idea but we ought to 

also consider giving the States the ability to have a franchise. We have 

States now that are doing it and doing it successfully, and what is good in 

one part of the country, what may be the priority in New Hampshire or 

Maine or Vermont or Indiana or any other State, Tennessee, might be 

different from what it might be in a more urban State like New Jersey or 

frankly Michigan. So having national franchise with a State option I 

think really addresses many of the issues that will lead to more access for 

people in different parts of the country. 

 The last issue which I would like to see debated is the issue of 

programming. We really need more information about how these 

retransmission contracts are constructed and how the process of bundling 

and tying together programs affects the ability of the distributors, 

especially if they are not big distributors, to provide new services and to 

provide the same breadth of services that may be provided in other areas. 

Again, I remind my friends that the objective here is to make sure that all 

the newest and most interesting products are available everywhere, not 

just in some places, that prices are competitive across the United States 

and that we have good services and we can compete over the Internet, 

understanding that the Internet and telecommunications is the new form 

of transportation, global transportation, and so with that, Mr. Chairman, I 

will submit my written statement for the record and thank you for 

holding this hearing. 

 [The prepared statement of Hon. Charles F. Bass follows:] 

PREPARED STATEMENT OF THE HON. CHARLES F. BASS, A REPRESENTATIVE IN CONGRESS 

FROM THE STATE OF NEW HAMPSHIRE

Before I begin, Mr. Chairman, I hope you know how appreciative I am – and I think 

many of us are – that we are having this additional opportunity to ask questions of these 

witnesses. This committee draft starts from a position of being vastly improved over 

previous versions and I am grateful for all the work put into the changes. 

Mr. Chairman, 

First, I am especially pleased that the section on municipal broadband networks is 

retained, and I appreciate the Committee’s willingness to work with me and 

Congressman Boucher on this throughout the process. Although I recognize that 

municipal networks will not be a good solution for most communities, their options must 

be preserved. 

In case there is any future judicial confusion on this point, we mean to allow cities 

and towns to build, promote, organize, operate, contract for, and in any other manner be 

involved in broadband network development and service provision. I hope that is clear 

enough. 

Next, I am especially pleased that the franchise proposal has been significantly 

improved. Competition between service providers will lead to lower prices, better 

customer service, and more innovative products and content choices. Although legally 
20

exclusive video franchise contracts are a thing of the past and most consumers have 

satellite choices available today, we know that head to head video competition between 

wired providers will be good for America, and I hope especially good for rural places in 

New Hampshire and elsewhere. 

I do, however, think we can leave more of the franchising decisions outside of the 

beltway. I completely agree that 35 thousand communities would be too many to 

negotiate with – even though cable did it – if we are seeking to rapidly bring direct 

competition. 

Over the past year, several states have taken aggressive action to address the lack of 

choices. Perhaps this Committee’s consideration of nationalizing what had been a local 

prerogative has helped spur this activity – and for that Mr. Chairman you should 

applauded. Texas, Virginia, and Indiana have now enacted state-based franchise laws. 

Service providers have as a backstop a one-stop approval process that can be used to 

enter communities in these states. 9 other states have now begun considering similar 

legislation, and a few have operated that way for a longer period of time. 

I think a federal franchise is a fine idea to get us started in the debate and maybe 

even a way to jump start competition, but I think it is worth considering that we provide 

the states further chance to experiment and develop unique franchises for their residents. 

This is something I am exploring and working on for when we begin active debate on this 

bill, and I’d like to ask a few related questions later today on this. 

Finally, I think this debate must include programming issues and consideration of 

the manner in which the current system limits content choices that are available to 

consumers. We did not consider these problems during debate on the satellite 

reauthorization or DTV bills. I think that time has arrived. 

During the satellite reauthorization debate, my highest priority was to ensure that my 

state’s only network affiliate, WMUR in Manchester, could be accessed by residents of 

the entire state. The people in my four northernmost counties certainly consider 

themselves Granite Staters and not Mainers or Vermonters. Arcane and thoroughly 

obsolete DMA rules had prevented that access previously, and this Committee was good 

enough to accommodate our unique situation. 

But the story did not end at the bill’s enactment; a retransmission agreement still had 

to be reached before anyone could gain this new access. People who watch government 

policy making closely sometime compare it to sausage making. If that is true, then 

observing and being part of a retransmission agreement is like the process that begins the 

moment that sausage is consumed by a person. Getting chewed up is only the beginning, 

and frankly the most pleasant part. 

We clearly must protect private property rights and we should not inject ourselves 

needlessly into market-driven negotiations. However, the DMA rules I already 

mentioned, network non-duplication rules, affiliate area exclusivity, program bundling, 

non-network owned affiliate agreement clauses, vertical programming ownership, and a 

host of other market-power creating factors have already conspired to tip the scale of 

market balance in one direction or another. 

Although one might be able to argue that in aggregate the imbalances level out, it 

does nothing to help consumers in one area who have artificial restraints on their choices 

if consumers in another area are poorly served by some other restraint. 

I find it hypocritical on its face that alternate distribution methods, such as direct 

episode-by-episode Internet downloads of the kind that forced the recording industry to 

turn its business model upside-down, can be offered by programmers who at the same 

time rail against changes to a distribution model that forces bundled services cloaked in 

seemingly false concern for localism and the independent broadcasters. 

Members of this Committee time and time again have asked for information about 

programming costs and conditions only to be told that confidentiality clauses prohibit any 
21

disclosure. Yet, all sides come back later to claim that they are being held hostage, 

abused, tortured, and raped and pillaged by the other side. 

I say prove it. Show us. I think it is time we had some disclosure of these terms and 

conditions. Certainly information on any programming tied or leveraged to the use of the 

publicly provided airwaves isn’t too much to ask. 

 MR. UPTON. Mr. Doyle. 

 MR. DOYLE. Good morning, and thank you, Mr. Chairman, for 

scheduling today’s proceedings. Pittsburgh is increasingly becoming a 

center of high-tech businesses and jobs. However, my district also has 

one of the highest concentrations of senior citizens in America, the 

majority of which live on fixed incomes. A vibrant telecommunications 

industry is of vital importance to my district. I look forward to seeing 

consumers have competition for telephone, television, Internet, wireless, 

and more. All Pittsburghers will benefit from increased competition so 

long as they all have access to competition and so long as their only 

options aren’t pricey packages of services that are bundled with a new 

kitchen sink. Franchises with local governments can ensure all that and 

more, but it remains to be seen whether the national franchises in this 

committee print will offer the same level of protection and availability. 

 As I began my service on this subcommittee, we discussed whether 

and how dozens of companies would provide telephone and DSL service. 

Now we are talking about whether and how to facilitate a mere two or 

three choices for television, phone calls, and the Internet. Currently, the 

United States is 16th in the world in the percentage of people with highspeed Internet at home. This is simply not acceptable if we want to be 

able to employ the millions of workers that we have told to get retained 

with technology skills, and it is not acceptable if we want our kids to 

have a future as bright as they deserve it to be. 

 I am sitting here with an open mind. I look forward to hearing from 

each of the witnesses and I hope they address how they think this bill can 

promote competition, lower prices, and improved service for every 

American. Thank you, Mr. Chairman, for holding, this hearing and I 

yield back the balance of my time for questions. 

 MR. UPTON. Thank you, Mr. Doyle. I would just announce to 

Members that we are expecting one vote at 11:00. Mr. Bass, the Vice 

Chair, is going to go and vote early and come back so we can continue 

the queue that we have towards the Members’ opening statements. We 

are going to want to run through this vote so that we can continue and try 

to adjourn before early evening. Mr. Ferguson. 

 MR. FERGUSON. Thank you, Mr. Chairman. Thank you for holding 

this hearing and listening to Members’ views concerning the best way to 

promote more competition in the marketplace and choice for our 

constituents. 
22

 I have been guided by two principles as we have gone through this 

whole process. One, what is the best way to service consumers today in 

terms of competition that will bring prices down. And number two, what 

is the best way to serve consumers in the long term, in terms of how we 

can encourage investment of capital and infrastructure and in new 

technology. It is for those reasons that I support the video choice 

provisions of this bill. 

 When we look at the provisions of this legislation and any potential 

amendments, we have to make sure that the provisions meet the overall 

goals that we are trying to achieve. The goal of this legislation should be 

more consumer video choice, more broadband deployment and not 

unwanted regulation of the Internet. The success of the Internet was 

built on its freedom from regulation and we should make a very strong 

effort to keep it that way. I would also like to commend the authors of 

the bill for making it a priority to ensure that all providers of video 

services are able to compete on a level playing field. Our goal should be 

to treat like services alike and to make sure that one competitor is not 

saddled with and disadvantaged by government regulations while another 

is free from those burdens. This bill I believe moves us in that direction. 

 I am also pleased to see that the VOIP E-911 issue is addressed. In 

the post-Katrina world, the issue of E-911 and redundancy in our 

communications network has become quite literally a matter of national 

security. During Hurricane Katrina, the mayor of New Orleans was able 

to set up a call center using the Vonage service of one of his aides, his 

first outside contact, allowing him to coordinate with President Bush and 

state and local authorities during a time of real emergency. This VOIP 

connection provided the redundancy in the network that served as a 

communications hub for an entire city at a critical time. This is a success 

story that demonstrates what happens when our regulatory regime 

encourages innovation and competition. In such an environment, new 

technologies are created and deployed to the benefit of consumers, often 

with substantial cost savings. Customers need access to life-saving E911 networks regardless of which technology they use. That is why we 

need to ensure that new services like VOIP have all the tools they need to 

provide consumers with the enhanced protections that they deserve. 

 I want to congratulate Chairman Barton, Chairman Upton, Mr. 

Pickering, and Mr. Rush for crafting a bipartisan piece of legislation that 

promotes fair and effective competition for our constituents while 

promoting this committee’s commitment to reducing regulation in the 

marketplace. I look forward to hearing our witnesses today, and I thank 

you, Mr. Chairman. I yield back. 

 MR. UPTON. Mr. Inslee. 
23

 MR. INSLEE. Thank you. It is true that the hottest places in Hell are 

reserved for those who preserve their neutrality but it is also true that the 

warmest seats in Heaven are reserved for those who want to preserve net 

neutrality, and the reason is, is that net neutrality will preserve the utility 

and the tremendous liberty of innovation that have made the Internet 

really the greatest tool for intellectual improvement and dynamic force 

since the invention of the printing press. And I am very concerned that 

the bill as currently drafted will allow an arteriosclerosis to develop in 

this circulatory system. This marvelous tool that has developed that has 

been freely available without the private taxes that Mr. Dingell alluded 

to, and while arteriosclerosis is a disease of the old in humans, it is a 

disease of the young and the Internet. Because when we start to impose 

these private taxes, the ones who get hurt are the young innovators, the 

garage innovators, the small business innovators, those who have not 

achieved the great success of the Googles of the world and it is for those 

young innovators that I think our committee ought to take a look at this 

bill and really make a firm statement to preserve net neutrality just not in 

wishes but in reality. And I am very concerned that the horse will be out 

of the barn if we do not act. Shots across the bow of net neutrality have 

already been fired in the press and we should not be in a position to say 

that we don’t think the levees are going to be topped. They are going to 

be topped here if this committee does not act and so I am hopeful that we 

can work together in a bipartisan way to give strength to a net neutrality 

provision that will protect those innovators all across the world and 

really make the Internet what it deserves to be, which is the most 

utilitarian thing we have ever come up with. Thank you. 

 MR. UPTON. Mr. Stearns. 

 MR. STEARNS. Thank you, Mr. Chairman. Let me commend you 

and the others for your long effort here in negotiation. I think after 

listening to Mr. Dingell, I think perhaps you should realize much like 

other markups around here, we get through the subcommittee markup, 

then we go to full committee and there are some changes done, and then 

it goes to the House and there are more changes, so oftentimes it is better 

to keep plodding forward and realize that the perfect is the enemy of the 

good here because in every instance when you talk about this bill, it 

comes down to perhaps three areas, the concern about build-out 

requirements and obviously there is language in is this bill that talks 

about how you can’t discriminate, and I have the language in front of me. 

The other concern is the uniform rate requirement and, you know, really 

we as Republicans particularly are concerned about putting any 

regulation in there and let the competition decide. And the third area is 

net neutrality that was just recently mentioned. There is language I am 

looking for right in title II talking about enforcement of the FCC’s 
24

broadband policy dealing with net neutrality, so Mr. Upton and Mr. 

Barton have put language in there. So it is just a case of whether you 

think it is strong enough, and I think the best way to handle this is, after 

this hearing, I urge my colleagues to mark the bill up. There won’t be 

complete agreement, but then we will be able to find and put something 

in the sand that says this is what we think is the best possibility, and then 

move from there to the full committee and have another markup where 

we can have amendments and discuss it and work it out. 

 I was involved with the write-up of the 1996 Telecom Act, and back 

then there possibly were about 37 million people that were online shortly 

after the bill was passed. Today we have 220 million Americans that are 

online so it has moved tremendously forward, and I think when you go 

with a bill this complex, it has a huge impact. We can see from the 

audience here, it is standing room only. There are people out in the 

hallway. This has huge financial impacts and I appreciate that any of the 

executives and the lobbyists that are involved here are worried about 

their clients, and I would say to ease their concern, is this process we had 

in the 1996 Telecom Act was the same way and we just moved forward. 

And so I urge my colleagues to hopefully mark this bill up shortly out of 

this subcommittee, Mr. Chairman, and move it to the full committee. 

 An area that I have concern about, even in the Telecom Act, was this 

interconnection. Obviously once these pipes are made open and the 

companies have them, they own them. The question is, should other 

people have the right to offer voice, video, and data applications over 

these and how do you work out that interconnection, and I think current 

law provides for rights and obligations for interconnection, but I am 

pleased that the draft attempts to include those rights going forward for 

VOIP providers given the recent FCC decision sand the ongoing debate 

concerning what constitutes an information service or telecom. I want to 

ensure that all parties have an opportunity to compete, and I want to also-

-my colleague, Mr. Boucher, has pointed out, both he and I have a bill 

that we thought should be part of this markup. So I thank you, Mr. 

Chairman. 

 MR. UPTON. Mr. Rush, co-author of the bill. 

 MR. RUSH. Thank you, Mr. Chairman. Mr. Chairman, I want to 

thank both you and Ranking Member Markey for conducting this very 

important hearing to allow for a full and fair and open discussion 

involving the legislation that I am sponsoring with Chairman Barton, 

yourself and Vice Chairman Pickering. I also would like to thank our 

distinguished panel of witnesses for taking the time out to share with us 

their insights on this legislation. 

 Mr. Chairman, this bill represents a huge step in bringing lower 

prices, more choices, and better services not only to my hard-pressed 
25

constituents, but to the entire nation. Specifically, this bill would provide 

equitable competition among a variety of video service providers. Video 

service providers can compete in price, quality, and quantity, and 

consumers can finally decide which service provider they prefer. 

 In that respect, I want to ensure that my community, the AfricanAmerican community, is better served. As you know, AfricanAmericans watch more television; spend billions of dollars on television 

service, more than any other demographic group or ethnic group in the 

entire nation. Mr. Chairman, their concerns must be addressed. 

Specifically, this bill will create a nationwide approval process for pay 

TV services. By streamlining the system, these companies will be able 

to offer new television services in many areas while protecting local 

interests. Cable providers will be able to participate in the streamlined 

system once they face local competition. This bill would also prohibit 

discrimination on the basis of income and give the FCC the power to 

revoke the provider’s franchise area if there is willful or repeated 

violation of discrimination. This bill will require video service providers 

to provide access to leased channels to qualified minority owners. This 

bill would also require Internet-based telephone services to offer 911 

capabilities while ensuring Internet telephone providers that they have all 

the access to the necessary 911 infrastructure and technology that is 

available. This bill would clarify the FCC authority to prevent Internet 

service providers from blocking or degrading any content or application 

delivered over the public Internet. This bill would also preserve 

municipalities’ rights to collect up to five percent from any pay TV 

provider, would allow cities and towns to develop their own broadband 

networks, which they are struggling and striving and most desirous of. 

 Mr. Chairman, there has been and will continue to be different 

opinions about this bill, and I urge this subcommittee and the full 

committee to move forward expeditiously with the markup, and I will 

also encourage my colleagues to stay focused on the central objective of 

this legislation which is to give those same consumers a more diversified 

voice in video. In 2003, the General Accounting Office found that cities 

with more than one cable provider enjoyed 15 percent lower rates than in 

cities with a single provider. 

 This legislation represents a huge step in helping our American 

consumer. It creates a fair and equitable marketplace that should allow 

competing companies to thrive and invest, and hopefully provide more 

jobs in the service areas and also across the nation. Mr. Chairman, thank 

you, and I yield back the balance of my time. 

 MR. UPTON. Thank you. Mr. Terry? Mr. Pickering. 

 MR. PICKERING. Mr. Chairman, thank you, and I want to commend 

you and Chairman Barton for your work on this effort. I want to thank 
26

Mr. Markey and Mr. Dingell for the good-faith efforts that we engaged in 

in the best tradition of this committee in trying to reach an agreement, a 

bipartisan agreement on telecommunications. As we all know on this 

committee, it is our tradition to have a bipartisan approach on 

telecommunications and I still believe and hope that we can reach that, 

and I think you will see on both sides of the aisle as we move forward 

that there will be bipartisan support. 

 I would like to take a moment to put into context our effort in the 

legislation that is before us as we move forward. Understanding history 

gives us good insight into the present and into the future. If you look at 

the beginning of the discovery, Alexander Graham Bell’s, he started the 

telephone and at that time you had AT&T start, you had many 

independent providers of telecommunications service but you had no 

interconnection policy. And because of no interconnection policy, you 

had multiple networks that could not operate, function, or talk to one 

another. As a result, in 1934 the natural monopoly theory was adopted 

by Congress and that existed up until the breakup of AT&T in 1984. 

One of the great legacies of Ronald Reagan was the collapse of the Iron 

Curtain and the freedom that came through that across Eastern Europe 

and the former Soviet Union. One thing that is not often mentioned with 

the Reagan legacy is the breakup of AT&T, which changed and started 

the process that we are still working on today, and that is to bring 

competition to telecommunications. 

 It is extremely significant that we get this right, and the reason is 

because the gains of our economy, the efficiency, the productivity that 

has really driven the last decade and a half of growth, really the last 

decade of growth, has come through the telecommunications sector. One 

of the most significant things, probably the best thing we did in the 1996 

Act that no one disputes, which is a rare thing, is the removal of barriers 

to entry. We are continuing that today, and we also did in the 1996 Act 

is that we made sure that we preempted the States and local communities 

from blocking competitors in voice, and we set up a path to try to bring 

not only long distance competition enhanced but local voice competition. 

We hoped at that time that cable and telephone companies, facility-based 

providers as well as CLECs and others would then have a vibrant 

competitive opportunity. The reality is, ten years later we are just now 

beginning to see it, and this bill we hope will stimulate what we had 

hoped ten years ago and that would be that cable and telephone 

companies would actually compete against each other. Today we are 

seeing among our cable companies their emergence as voice over 

Internet providers and offering a bundle of services, both voice and 

video. What we did in this bill and the best thing that I believe we do in 

this bill, is that we complete what was started in 1996 and that we now 
27

bring all telecommunications policy to the Federal level. When you are 

now talking about IP applications, it does not make sense to have a 

patchwork of thousands of localities in 50 States regulating video in a 

different way. This gives both for cable companies and for telephone 

companies national franchises and it significantly advances a Federal 

policy and will advance competition in the video marketplace. But 

equally important is that we maximize competition in the voice 

marketplace and we should not lose sight of that goal. Right now after 

ten years the local incumbent telephone companies, the Bell companies 

control about 95 percent of the local voice market. In the cable video 

market, you have 30 percent penetration through satellite, so in many 

ways the video market is more competitive than the voice market. This 

bill through interconnection cable directly to local telephone companies 

will help expedite, enhance, and promote voice competition, and I want 

to make sure, Mr. Chairman, that I work with you to make the 

commitment and to assure that the language that we now have in the bill 

achieves that objective of getting competitive parity to voice over 

Internet providers so that they can enter the voice market and compete 

effectively with the local telephone companies just as we remove barriers 

to entry in the video marketplace there should be parity. I want to make 

sure as we move forward today that we get net neutrality right. It is very 

critical that we have not only two choices, but we have and maintain 

hundreds of choices for consumers. But this is a good start. It is a good 

framework and I am very pleased to join Chairman Barton and Mr. 

Upton and Congressman Rush as we start this process of great 

significance, and I hope that at the end of the process that we can say on 

our side of the aisle that we have promoted and continue the Reagan 

legacy of more competition and free market competition for every sector, 

every market, and that we have maximized that intent. Thank you very 

much. 

 MR. UPTON. Mr. Gonzalez. 

 MR. GONZALEZ. Thank you very much, Mr. Chairman. I am going 

to be brief. I always believe there are certain topics or issues that this 

committee takes up at hearings. I think opening statements should really 

be opening prayers and so I will do my best, and I wrote something 

quickly. It will only take me a second, and that is, I hope this committee 

will guard against views and even biases formed in years past in the 

technological world that no longer exists, that we will view our concerns 

through the clear lens that reflects new technology, its impact on 

markets, yet that we will be guided by the enduring principles of fairness, 

robust competitiveness, and sound economic policies. Amen. I yield 

back. 

 MR. UPTON. Ms. Blackburn. 
28

 MRS. BLACKBURN. Thank you, Mr. Chairman. I want to thank you 

and Chairman Barton for all the work that you have put into producing 

this bill and working to reform our franchising laws and for holding this 

hearing today, and I am pleased to see, and I know that my constituents 

are pleased to see, that this bill incorporates some of the key concepts of 

the bill that I have worked on with Representative Wynn, the Video 

Choice Act. 

 This bill--and I tell you, Mr. Boucher and Mr. Bass were 

complaining about it being thin. I think thin bills are very good. Thin is 

a good thing. If we get less government regulating and got out of the 

way, innovation and job creation could take place. But it makes it clear 

that we must change video franchising. We must change the process 

because it does stifle competition and innovation. We have great panels 

today. We appreciate you all being here. I am looking forward to 

talking with you, and wish I could have all my time for questioning and 

everybody else’s time. But the facts are clear that we do have to cut red 

tape and regulations and promote competition. The price consumers pay 

for long distance in their wireless minutes has gone down consistently in 

the last ten years, and at the same time cable costs have gone up 86 

percent. That is four times the rate of the consumer price index. That 

has to be addressed. And we know that it is no surprise that the FCC has 

found that only 1.5 percent of the markets have head-to-head competition 

for cable services. Right now video choice is limited to a cable provider, 

satellite, rabbit ears, and Congress does need to take action on this bill. 

We know competition brings lower prices. You can look at the Keller 

Texas example, $37 a month, and almost overnight Chartered 

Communication cut the price in half. 

 Finally, I think it is important to note that this is not just about 

choices in video service, it is also about broadband. Chairman Barton 

mentioned that cutting the regulations that prevent the companies from 

entering the video market will help with both our broadband deployment 

and our broadband penetration here in the U.S., and as the Chairman 

said, we are now at 16th. That is not acceptable. And I just that just like 

the bill that Representative Wynn and I had co-authored, that this will 

improve that standing, so we look forward to having you with us and 

hearing from you, and Mr. Chairman, I yield back. 

 [The prepared statement of Hon. Marsha Blackburn follows:] 

PREPARED STATEMENT OF THE HON. MARSHA BLACKBURN, A REPRESENTATIVE IN 

CONGRESS FROM THE STATE OF TENNESSEE

Chairman Upton and Chairman Barton I want to thank you for your work in 

producing this bill to reform our franchising laws and for holding this hearing today. I 

am pleased to see, and I know all our constituents will be pleased to see that this bill 
29

incorporates key concepts of the bill that I have been working on with Rep. Wynn, the 

Video Choice Act. 

Our bill, and now the committee’s bill, makes it clear that we must change the video 

franchising process that currently stifles both innovation and competition. We have two 

good panels today, but the facts are clear -- cutting red tape and regulations to promote 

competition helps consumers. 

The price consumers pay for long distance or wireless minutes has gone down 

significantly in the last ten years, but the price they pay for cable has gone up 86% over 

that same period -- that is four times the rate of the Consumer Price Index. Why is this? 

Well it should be no surprise that the FCC has found that only 1.5% of markets have 

head-to-head competition for cable services. Right now video choice is limited to a 

cable provider, satellite service, or rabbit ears. Congress needs to act on this bill. We 

know competition lowers prices. Right now Verizon is offering its video package for 

about $37 dollars a month in Keller, TX. Almost overnight Charter Communications cut 

its price in half to compete. 

Finally, it is important to note that this is not only about choices in video service. 

The pipes that deliver this video product will also have more space for data -- and cutting 

the regulations that prevent these companies from entering in the video market will only 

help broadband penetration in the US. The United States has fallen to 16th in the world 

in broadband penetration and I believe that like the bill I authored with Rep. Wynn, the 

chairman’s bill will improve this standing. 

The message is simple. Reducing the barriers to video competition is good for 

consumers. I want to commend you Mr. Chairman for your work and I look forward to 

the testimony. 

 MR. UPTON. Ms. Cubin. 

 MS. CUBIN. Thank you, Mr. Chairman. I do believe in the promise 

of Internet protocol technology and how it can improve and enrich 

American consumers, but I want to ensure mostly that any legislation 

that we consider does not harm those businesses who have made it their 

business, if you will, to serve the most remote subscribers in the country 

with telecommunications services. I represent the most rural state in 

America and we don’t even have cell phone service in many, many 

places in our state. So I really want to protect the businesses who have 

made investments in rural America, but I also want to protect issues like 

access to content, preservation of the universal service fund, and the 

freedom to access the Internet in an unfettered manner, so those will be 

my guide in this deliberation. Thank you, Mr. Chairman. 

 [The prepared statement of Hon. Barbara Cubin follows:] 

PREPARED STATEMENT OF THE HON. BARBARA CUBIN, A REPRESENTATIVE IN CONGRESS 

FROM THE STATE OF WYOMING

Thank you, Mr. Chairman. 

I want to thank you and those who have spent hours, weeks and months in 

negotiations to craft this bipartisan bill. We’ve come a long way from the start of this 

Congress when the idea of a national video franchise was first proposed, to the bill we are 

deliberating today. Thanks to the promise of Internet Protocol (IP)-enabled services and 

the deployment of fiber-optic infrastructure, however, we now find ourselves debating 

the novel concept of our constituents being able to receive video over their phone lines. 
30

It wasn’t too long ago when everyone was using dial-up connections to access the 

Internet and the concept of broadband in one’s home seemed prohibitively expensive and 

remote. Fast forward 10 years – as the Internet has become mainstream and 

commercialized – and many consumers now have a choice of broadband providers. 

While we still have a ways to go before this benefit truly affects all of those in 

Wyoming’s most rural communities, progress is being made. As a result of this 

broadband deployment, we are seeing intermodal competition and other new innovations 

no one could have foreseen. This is really to the benefit of consumers across America. 

I believe in the promise of IP technology and how it can improve the rich selection 

of competitive services for consumers. I also want to ensure that any legislation we 

consider does not harm those who have made it their business to serve the most remote 

subscribers with advanced telecom services. Issues like access to content, preservation of 

the Universal Service Fund and the freedom to access the Internet in an unfettered 

manner will guide me as we proceed on this bill. 

 I look forward to hearing from both of our distinguished panels on this draft today 

and want to continue our dialog as we tackle legislation modernizing the 

telecommunications laws. 

 I yield back the balance of my time. 

 MR. UPTON. Thank you. Ms. Solis. 

 MS. SOLIS. Thank you, Mr. Chairman. I want to thank you for the 

opportunity to give an opening statement. As a member of the full 

committee, I have been following this issue very closely. Prior to my 

election to Congress, I served in the California State Senate on the 

Utilities and Commerce Committee and worked back then in 1996 on the 

Telecommunications Act. While the world of telecommunications has 

changed dramatically since then, some issues such as the digital divide 

and redlining remain a challenge to many in our low-income 

communities, the community that I represent in Los Angeles. That is 

why I strongly support inclusion of strong enforceable antidiscriminatory language in the committee bill. Non-discrimination in 

telecommunications is critical to bridging the digital divide, particularly 

in communities of color, especially the Hispanic community. While 

Latinos are the fastest growing demographic of online users, only one in 

eight Latino households has access to broadband services. Indeed, any 

reform must ensure that Latino communities get access to the latest 

broadband technologies as quickly as non-Latino communities. In fact, 

11 members of the Congressional Hispanic Caucus and numerous civil 

rights organizations, consumer groups, and advocacy groups support 

strong enforceable anti-discrimination language in the video franchising 

agreements. Included in that is the leadership conference of the civil 

rights letters that we have received, the League of United Latin American 

Citizens, the National Hispanic Bar Association, the National Hispanic 

Caucus of State Legislators, the National Puerto Rican Coalition and the 

Hispanic Federation. I ask for unanimous consent to enter these letters 

from these groups into the record. 
31

 To be truly effective, any non-discriminatory broadband deployment 

provision adopted by this committee should carefully and specifically 

look at a method of enforcement, and some have suggested that the nondiscrimination provision only applies to community self-selected for 

access to video services by new service providers. But such a policy, in 

my opinion, would actually encourage discrimination. Take, for 

instance, in Los Angeles. If such a policy would allow a video service 

provider to provide service only to residents in Brentwood while 

disenfranchising the rest of Los Angeles so long as a provider didn’t 

discriminate within the boundaries of Brentwood, in effect video service 

providers could neglect service to low-income areas and the other parts 

of Los Angeles, for example, in the area I represent in East Los Angeles 

as well as South Central Los Angeles. I share my colleagues’ goals of 

passing legislation which will promote increased competition, lower 

prices, improved quality of service and the development of new 

advanced services, but the digital divide remains a reality for my 

constituents and many others. We should not let this opportunity pass. 

And I am pleased to hear that the latest draft put forward by Chairman 

Barton and others includes a placemaker for anti-redlining enforcement. 

 I look forward to working with my colleagues on that and working 

out particular language that would hopefully phase in with some strong 

enforcement language so this is done over time. I yield back the balance 

of my time. Thank you. 

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 MR. UPTON. Thank you. I would recognize Mr. Buyer, a very active 

Member on this issue, and I might ask Mr. Buyer, since I am the only 

one that hasn’t voted on this, maybe if you would assume the chair here. 

You voted, right? Did you vote on this? We have got about seven 

minutes to go so-- 

 MR. BUYER. I want to thank Howard here, because you have gone 

through the gamut. Last summer in Indiana I held two 

telecommunications forums, you can call them, with industry leaders last 

summer and last fall. Through those meetings we were able to come to 

agreement on principles which is extremely important, which is really 

challenging to do. Get everyone in this room to agree to a set of 

principles. Those principles are--whatever changes we made, we wanted 

to ensure economic security, encourage investment. We want to open 

markets, be deregulatory, regulate on parity. We want to empower 

consumers and be technology neutral. Those are all the principles which 

individuals had agreed to. 

 I then began the process of drafting legislation. Chairman Barton, 

Chairman Upton did not want me to do that at all. Well, I was not a very 

happy camper. I then met with Governor Mitch Daniels, asked Governor 

Daniels, what are you going to do about telecommunications reform, 
53

Mitch. He said well, Steve, what do you want it to look like. Now, that 

is an opportunity. So I sat down with the Governor of Indiana. I happen 

to have a State Senator who also works on my Congressional staff. That 

is a good thing, because Senator Brandt Hershman then took that 

legislation and we even went a step further, and in Indiana today on a 

bipartisan basis, by overwhelming votes, we have the most sweeping 

telecommunications reform in the country, and we completely 

deregulated phone. It is exciting. So I am pleased about the road that we 

have gone. It has been challenging through BITS I, BITS II, the third 

draft, now onto the fourth draft. We are still not there yet. We are 

getting closer. But there are a couple words out there that get thrown 

around that I don’t think I completely understand. 

 If I were to do an exercise and ask all of colleagues and everyone 

here to write on a piece of paper what does net neutrality mean, how 

many different definitions do you think we are going to get? A lot. I 

love how people throw out terms and use words but what do they mean? 

Well, my concern is right now with the present legislation and I have 

now back from legislative counsel my own legislation and I am going to 

hold on to it, but I am concerned about the use of the term “cable 

services.” And I understand that for drafting purposes, it is easier to use 

existing language in the Communications Act, but I believe that the use 

of the term “cable services” does not signify the new era of video 

providers. So this is more than just semantics. I am also concerned 

about the exclusion of satellite from any forward-looking video 

programming legislation. I do not favor the exclusion of satellite. This 

should be called video services and satellites should be included in this. 

And while the current structure might not support the development of 

satellite into the local franchising regime, we have an opportunity to 

create a new structure that treats everyone alike. I am also concerned 

that the existing cable providers cannot obtain a national franchise for a 

local franchise until a new entrant enters the marketplace. I believe this 

is in direct opposition to treating like services alike, and if we are going 

to support the creation of this new structure, then it should embrace all 

providers of all like services at the same time. I am also concerned about 

the definition of gross revenues. I also have concern about statewide 

franchises that are out there right now. We need to include in this bill 

grandfathering the choice of States to either go with what they have got 

or opt in. 

 With regard to municipal provisions of services, I have a strong 

concern out there that some of these cities and towns are getting into the 

business without realizing what they are getting themselves in to, or how 

also that competitor is going to respond and how then the taxpayer is left 

holding the bag, and I have some strong concerns about that. So maybe 
54

if we can include something that has a right of first refusal to an 

incumbent broadband video provider, perhaps that should be included in 

the bill. 

 I want to thank all of you for coming to provide your testimony 

today, and you have got to love the legislative process. 

 MR. BUYER. [Presiding] With that, the committee will be in recess 

temporarily for about six minutes. 

 [Recess.] 

 MR. UPTON. Okay. We are finished with the opening statements. 

Again, all Members will be able to put their statements into the record. 

 [Additional statements submitted for the record follows:] 

PREPARED STATEMENT OF THE HON. ANNA G. ESHOO, A REPRESENTATIVE IN CONGRESS 

FROM THE STATE OF CALIFORNIA

Mr. Chairman, I appreciate the work that you and your staff have put into this draft, 

but I’m disappointed that this bill fails to deal with several critical issues, particularly the 

need for strong “Network Neutrality” rules to protect consumers and preserve the open 

Internet. 

I understand and I support efforts to create more competition in both the video and 

broadband markets. We should applaud efforts by cable and others to provide 

alternatives to Bell telephone service, and we should do everything we can to encourage 

the Bell companies to build out their networks to compete against Cable TV. 

But the end result of this new “IP-based” world can’t be a newly reconstituted 

AT&T duking it out with the big cable companies. In order to ensure vigorous 

competition and innovation we need to make sure that other entrants have a fighting 

chance. 

And I think the legislation before us falls short. 

Congress should provide appropriate rules and policies for new IP video offerings, 

and ensure that the Bell companies have the appropriate incentives and regulatory 

environment to enter into competition with cable. 

But we shouldn’t do this at any cost; Bell entry into video is not the ultimate goal, 

but rather a means to a much more important outcome. 

The most important feature of the Internet and IP-based technology is the potential 

to provide any form of communication or content – voice, video, movies, music, 

messaging, etc. – over a single network. 

This means that through a single Internet connection – regardless of who the access 

provider is – consumers and businesses should be able to receive almost any information, 

entertainment, or commercial content. 

We have to ensure that the diversity of content and sources of information that we 

have on the Internet today does not get locked down as the Internet converges with the 

more traditional cable and telephone networks. 

I’m concerned that the bill before us does not provide sufficient protections for this 

diversity and appropriate “Net Neutrality” rules to prevent vertical integration of Internet 

access and content. In fact, this legislation is worse than doing nothing – it prohibits the 

FCC from doing anything other than preventing complete blocking of unaffiliated 

content. 

We all support the possibility of additional consumer choices and competition 

among broadband providers, but I believe that as we consider new regulatory “rules of 
55

the road” for broadband providers we should not enable them to stifle competition in the 

provision of Internet content, applications, and services. 

For the foreseeable future, the cable and phone companies will serve as a 

“chokepoint” for Internet access for the vast majority of Americans, and I believe it’s 

incumbent on this Committee and Congress to ensure that the non-discriminatory 

framework that has allowed both the Internet to thrive, and competition on the Web to 

flourish, is preserved. 

Without meaningful, enforceable “Net Neutrality” rules, we will be enabling 

network operators to fundamentally change the open nature of the Internet, allowing them 

to become gatekeepers for Internet users’ access to content. 

The major telephone companies have made it clear that they intend to establish “toll 

roads” on the Information Superhighway, making premium service levels available only 

for their preferred content. 

The Bell companies’ plans for “tiering” of Internet service would fundamentally 

change the way the Internet has always operated – openly and without barriers to content. 

There can be arguments about whether this system is fair or necessary, but it’s difficult to 

dispute that this will fundamentally change the Internet and the experiences of Internet 

users. 

I’m also very disappointed that the bill fails to institute any requirements for new 

video franchises to provide service throughout the franchise. 

Without such obligations, and without local governments able to exercise any 

authority over these franchises, new video providers will almost certainly gravitate 

toward the most lucrative – and often the most wealthy – portions of the service area. 

They will have no responsibility to expand service to all consumers, and local 

governments will be powerless to prevent the “cream skimming” that will likely follow. 

This Committee must carefully consider these important issues, and I hope develop 

a more balanced and more reasonable approach. There is too much at stake to get this 

wrong. 

PREPARED STATEMENT OF THE HON. GENE GREEN, A REPRESENTATIVE IN CONGRESS FROM 

THE STATE OF TEXAS

Mr. Chairman, although I am not currently a member of this Subcommittee, as a 

former member, I want to thank you for allowing me to submit this statement in writing, 

to be included in the hearing record. 

 America needs legislation to modernize our telecommunications laws, and this draft 

proposal is an important first step. This has been a long, on again, off again negotiating 

process. I wish we were marching together now, and I hope we will be soon in the near 

future. 

 We all want competition, and the authors’ deserve praise for their hard work in that 

direction. Even though it is not a fully bipartisan draft, it represents good policy in 

several areas. 

Most importantly, the bill will spur new competition into the video market 

nationwide, and it protects the ability of cities to offer wireless broadband in 

neighborhoods. It also applies 911 and E911 requirements to VOIP service. 

 I do however, have several concerns at this early stage, and I hope we can work on 

these issues: 

• I am worried that low-income areas with cable service because of previous 

cable build-out requirements might lose cable service altogether in an era 

without these requirements for anyone. Perhaps we should guard against this 

with a "hold harmless" provision. 

 
56

• We also should spell out the standard for the anti-income discrimination 

provision for national franchises--what would be a violation and how would we 

enforce against potential violations. Uncertainly leads to litigation. It feels like 

income discrimination if price cuts in high income areas with competition come 

only at the expense of price hikes in low income areas without competition. 

• Given the current digital divide between communities, is there something else 

proactive we can and should do to bring the benefit of competition to all types 

of communities that won’t deter competition in the first place? 

• Franchise revenue in the City of Houston and nearby cities supports police and 

fire department budgets. I think we should know whether the new calculation 

of gross revenues will cause life-supporting local revenues do go up or down or 

stay the same. 

• It is extremely important for cities to maintain control over their rights-of-way 

for beneficial public purposes like road and sewer projects, and perhaps we 

need to strengthen that control in these positive areas. 

• I am also curious whether a state can be a "local franchise authority" under the 

bill, and if that make sense for a state as large as Texas. For thing, that would 

mean that the State PUC would be the only option for consumer protection for 

millions of people, rather than their localities. 

• Finally, in what could be the biggest question of all, we may need to update the 

definitions of the Title II of the Communications Act for "cable service" and 

"video programming" since new kinds of Internet video could soon allow cable, 

telecom, or any other company a loophole out of national franchises. Under 

this bill, a company may be able install fiber in public rights of way in order to 

sell VOIP service, broadband Internet service, and video products and avoid 

this Act, creating a scenario with different regulatory regimes, just as the old 

1996 Act did. 

 I am confident that we can come to satisfactory understandings on these and other 

issues going forwards and end up with a strong bipartisan bill. I would also note that 

other controversial issues, such as wholesale changes to retransmission consent rules, 

probably should be left off this legislation, if we want it to move quickly. 

Mr. Chairman, thank you for allowing me to submit this statement. 

MR. UPTON. We are going to start on the first panel. I think we will 

be okay with votes for a little while. Members will be in and out, I am 

sure. Your statements are made part of the record in their entirety. I am 

going to try to limit your opening statements to no more than five 

minutes. 

 We are joined by the Honorable Ken Fellman, Esquire, Mayor of 

Arvada, Colorado, on behalf of the National Association of 

Telecommunications Officers and Advisors, the National Association of 

Counties, the National League of Cities, and the United States 

Conference of Mayors; Mr. Walter McCormick, President and CEO of 

the United States Telecom Association; Mr. Kyle McSlarrow, President 

and CEO of the National Cable and Telecommunications Association; 

Mr. Tim Regan, Senior Vice President, Global Government Affairs, 

Corning Incorporated; Mr. Paul Misener, Vice President for Global 

Public Policy of Amazon.com; Mr. David Keefe, CEO of Atlantic 

Broadband; Mr. Jerry Fritz, Senior VP for Legal and Strategic Affairs 
57

and General Counsel for Allbritton; and Mr. Jeffrey Citron, who was 

originally going to be on the second panel but because we have found his 

chair at the end, Chairman and Chief Strategist of Vonage. Mr. Fellman, 

we will start with you. Thank you. Welcome to the subcommittee. 

STATEMENTS OF HON. KENNETH FELLMAN, ESQ., MAYOR, 

ARVADA, COLORADO, ON BEHALF OF THE NATIONAL 

ASSOCIATION OF TELECOMMUNICATIONS OFFICERS 

AND ADVISORS, THE NATIONAL ASSOCIATION OF 

COUNTIES, THE NATIONAL LEAGUE OF CITIES, AND 

THE UNITED STATES CONFERENCE OF MAYORS; MR. 

WALTER MCCORMICK, PRESIDENT AND CHIEF 

EXECUTIVE OFFICER, UNITED STATES TELECOM 

ASSOCIATION; KYLE MCSLARROW, PRESIDENT AND 

CHIEF EXECUTIVE OFFICER, NATIONAL CABLE AND 

TELECOMMUNICATIONS ASSOCIATION; TIMOTHY 

REGAN, SENIOR VICE PRESIDENT, GLOBAL 

GOVERNMENT AFFAIRS, CORNING INC.; PAUL 

MISENER, VICE PRESIDENT FOR GLOBAL PUBLIC 

POLICY, AMAZON.COM; DAVID J. KEEFE, ON BEHALF 

OF THE AMERICAN CABLE ASSOCIATION, CHIEF 

EXECUTIVE OFFICER, ATLANTIC BROADBAND; JERRY 

FRITZ, SENIOR VICE PRESIDENT FOR LEGAL AND 

STRATEGIC AFFAIRS AND GENERAL COUNSEL, 

ALLBRITTON COMMUNICATIONS COMPANY, ON 

BEHALF OF THE NATIONAL ASSOCIATION OF 

BROADCASTERS; AND JEFFREY CITRON, CHAIRMAN 

AND CHIEF STRATEGIST, VONAGE 

MR. FELLMAN. Mr. Chairman, distinguished members of the 

committee, I thank you for the opportunity to be here. I am the mayor of 

Arvada, Colorado, and I appear before you today on behalf of 

organizations that represent elected and professional officials from nearly 

every municipal and county government in the United States. I 

commend you, Mr. Chairman, and your colleagues, Chairman Barton, 

Representatives Dingell, Markey, Pickering and Rush, who have worked 

diligently on these issues. Unfortunately, we have had less than 72 hours 

to read, review and consider the full impact of this draft legislation. 

 At the outset, we are concerned that as written this bill nationalizes 

what is presently an effective Federal local government partnership and it 

will likely result in litigation. The bill does respond favorably to some of 

the issues that we have raised with you in the past. However, we also 

have significant concerns which we would like to work with you to 
58

address. In particular, we are very concerned that the bill is unclear as to 

its applicability to IP television services. Certainly this debate will have 

been in vain if like services are not treated alike. This issue needs to be 

addressed. The bill appears to give telephone companies substantial 

relief from local franchising. It does not, however, provide consumers 

with the benefits that telephone companies have promised would follow. 

In particular, there are no assurances that more homes, especially those 

in rural communities, will actually get competitive broadband. Such 

assurances must be added to the bill. 

 We appreciate the efforts of the members to keep local government 

whole with respect to revenues and it appears that the gross revenues 

definition would largely do that. However, there appear to be unintended 

consequences in a provision of the bill that would allow providers to 

deduct from gross revenues the costs of bonding, indemnity and even 

damages and penalties. We trust that we can resolve this matter with the 

committee. 

 With respect to local public access, we hope that the committee 

would consider allowing local government to continue to receive the 

greater of one percent or the per-subscriber equivalent that they receive 

today as was done in Texas, and that way no local government will be 

forced to terminate services that they are currently providing. We are 

pleased that the bill recognizes that managing public rights-of-way is 

properly a function for local government. We hope you would agree that 

disputes pertaining to that authority do not belong at the FCC, but rather 

should be addressed in a local court, as is the case today. Similarly, we 

appreciate that the bill recognizes the authority of local government to 

provide services directly to our constituents. We are concerned that the 

bill does not provide subscribers with adequate recourse for consumer 

complaints. The FCC is not the appropriate venue to set these standards 

or address these complaints. Local governments do not require new 

video entrance to deploy to an entire community immediately. Requiring 

that entire communities have access to service on a realistic and 

equitable timetable, however, is not an unreasonable barrier. Guarding 

against economic redlining and requiring that all neighborhoods in our 

community see the benefit of competitive services is properly a function 

of local government and is therefore best enforced at the local level. The 

proposed bill does not yet sufficiently protect those interests. 

 Mr. Chairman and members of the committee, local government 

officials recognize the value that competition brings to local residents 

and we have actively sought it. Contrary to what many have maintained, 

current law regarding video franchising has not stifled competition. 

Indeed, the lack of competition is the result of business decisions made 

by telephone companies not to compete. Nationalizing franchising is not 
59

going to solve the problem of whatever telephone companies actually 

enter the market and compete. Furthermore, local video franchising has 

a long record of success. Those who are now making claims to the 

contrary have not been completely forthcoming about the nature of the 

franchising process or about their own recalcitrance in franchise 

negotiations. To my knowledge, no telephone company engaged in this 

current debate has ever been denied a video franchise in any community 

where they have applied for one. We believe, as you do, that the current 

law could be improved to further promote the provision of competitive 

video services to America’s communities. We look forward to working 

with you and your staffs to find the best way to address our shared goals 

of greater competition and wider access to the most modern video 

services available. Thank you. 

 [The prepared statement of Kenneth Fellman follows:] 

PREPARED STATEMENT OF THE HON. KENNETH FELLMAN, ESQ., MAYOR, ARVADA,

COLORADO, ON BEHALF OF THE NATIONAL ASSOCIATION OF TELECOMMUNICATIONS 

OFFICERS AND ADVISORS, THE NATIONAL ASSOCIATION OF COUNTIES, THE NATIONAL 

LEAGUE OF CITIES, AND THE UNITED STATES CONFERENCE OF MAYORS

Introduction 

Good morning Chairman Upton, Representative Markey and other distinguished 

members of this Subcommittee. My name is Ken Fellman, and I am the Mayor of the 

City of Arvada, Colorado. I want to thank all the members of the committee that have 

worked so hard to get us to this point. 

I appear here today on behalf of the local governments across the nation, as 

represented by the United States Conference of Mayors (“USCM”), the National League 

of Cities (“NLC”), the National Association of Counties (“NACo”), the National 

Association of Telecommunications Officers and Advisors (“NATOA”), the National 

Conference of Black Mayors (“NCBM”), the Government Finance Officers Association 

(“GFOA”), the International Municipal Lawyers Association (“IMLA”), and 

TeleCommUnity. 1

On behalf of local government, we would like to thank you for the opportunity to 

testify on this new legislation. Needless to say, the short time frame between the release 

of the draft and this hearing has presented some interesting challenges in reviewing the 

bill, but I hope I can shed some light on our continuing concerns. To begin, we believe 

this draft is more responsive to those issues we have raised with the Committee in the 

past, and stand ready to continue working with the Committee to correct what we 

perceive as flaws in the legislation. Having said that, we are very concerned that this new 

structure will lead to difficult and lengthy litigation, the will cost everyone dearly. 

 

1

 NLC, USCM and NACo collectively represent the interests of almost every municipal or county 

government in the U.S. NATOA's members include elected officials as well as telecommunications 

and cable officers who are on the front lines of communications policy development in cities 

nationwide. GFOA’s members represent the finance officers within communities across this county, 

who assist their elected officials with sound fiscal policy advice. IMLA is the association 

representing city and county lawyers in policy matters. TeleCommUnity is an alliance of local 

governments and their associations that promote the principles of federalism and comity for local 

government interests in telecommunications. 
60

Hopefully I can dispel many of the untruths that have been circulated recently 

pertaining to local government involvement in video franchising, while responding to 

specifics of the bill. We would like to be your “myth-busters” for today – to cut through 

some of the deceptive claims and to provide you with a truthful picture of the status of 

cable franchising in the market today, as well as how that franchising supports the desired 

delivery of new competitive entrants and services. 

Title VI Franchising is a National Framework with an Essential Local Component 

Congress struck the right balance in 1984 when it wrote Title VI into the Act, and 

again in 1992 when it made appropriate consumer protection improvements to it. Title VI 

established a light-touch national regulatory framework for cable television video 

services that includes appropriate local implementation and enforcement. The Act 

currently authorizes local governments to negotiate for a relatively limited range of 

obligations imposed on cable operators. Virtually none of these obligations is mandatory, 

and each is subject to decision-making at a local level. The current legal structure 

provides for something I hope we would all agree is important: local decisions about 

local community needs should be made locally. The proposed legislation retains the 

linkage to Title VI, which we see as appropriate, and attempts to address these local 

issues. However, we believe the language can be improved. 

Local governments embrace technological innovation and competition and actively 

seek the benefits such changes may bring to our communities and to our constituents. We 

want and welcome genuine competition in video, telephone and broadband services in a 

technologically neutral manner, and support deployment as rapidly as the market will 

allow. Local governments have been managing communications competition for many 

years now − it is not new. What is exciting is the potential for new entry into video by a 

few well-funded and dominant players who appear to have finally made a commitment to 

enter into the video arena. We look forward to developing an even more successful 

relationship in bringing these competitive services to our citizens. Unfortunately, this 

legislation would effectively remove local governments from helping to make that 

competition a reality. 

Local government remains concerned that rhetoric and not facts have led members 

of Congress to believe that competition and innovation will flourish only if local 

government is removed from the equation. We are here today to help you understand that 

nothing could be farther from the truth. Throwing away local franchising is not the 

solution that will bring competition or rapid entry by competitive providers. This 

legislation does not solve the many questions associated with accelerated entry into the 

video business. 

Local government has been anxiously seeking the competitive provision of video 

services for many years – and indeed the Communications Act has explicitly guaranteed 

such opportunities since 1992. Despite several previous changes in federal law to ease 

their entry into the video market, the telecommunications companies seeking new laws 

today have not brought forth the competition they promised. The reason is not local 

governments. The reason is not the current federal law. The reason is market place 

economics. The provision of video services has not yet proven to be as financially 

attractive as the telephone companies apparently require in order to provide the services 

they claim are the new lynchpin to their success. I believe that a brief review of the 

current law will demonstrate this trend. One of the shortcomings of the proposed 

legislation is an adequate definition of a threshold for competition. Is a single subscriber 

sufficient to trigger “cable competition”? The proposed legislation suggests that it is, and 

we would argue this is bad public policy. Is it reasonable for Congress to decree that 

locally negotiated franchises will be trumped whenever a competitor gets a national 

franchise only serving a small portion of the incumbent’s footprint, thereby allowing the 

incumbent to walk away from its local franchise and take advantage of that minor 
61

competitor? Also unclear is whether or not a company offering of IPTV as a video 

alternative to cable is actually covered in the definition of “cable operator” in the draft. If 

IPTV is not covered by this proposed legislation, is this not a futile exercise? These are 

the some examples of the issues that need resolution. 

Managing Public Rights-of-Way is a Core Function of Local Government 

Even as technologies change, certain things remain the same. Most of the 

infrastructure being installed or improved for the provision of these new services resides 

in the public streets and sidewalks. Local leaders are the trustees of public property and 

must manage it for the benefit of all. We impose important public safety controls to 

ensure that telecommunications uses are compatible with water, gas, and electric 

infrastructure also in the right-of-way. Keeping track of each street and sidewalk and 

working to ensure that installation of new services do not cause gas leaks, electrical 

outages, and water main breaks are among the core police powers of local government. 

And while it seems obvious, these facilities are located over, under or adjacent to 

property whose primary use is the efficient and safe movement of traffic. It is local 

government that best manages these competing interests. While citizens want better 

programming at lower prices, they do not want potholes in their roads, dangerous 

sidewalks, water main breaks, and traffic jams during rush hour as a consequence. We 

question whether this legislation adequately addresses constituent/citizen interests in 

protecting and managing the public rights-of-way. 

While the legislation preserves local authority, the draft fails to provide sufficient 

enforcement authority to assure compliance. We strongly object to the FCC being the 

appropriate forum for resolving local right of way disputes, and while the legislation is 

silent on the matter, we believe by default that task would move to the FCC. Just as with 

the current Act, a court of competent jurisdiction is a more appropriate forum for 

resolving such disputes. 

Neither Franchising nor Current Regulation is a Barrier to Competition 

The concept of franchising is to grant the right to use public property and then to 

manage and facilitate that use in an orderly and timely fashion. For local governments, 

this is true regardless of whether we are franchising gas or electric service, or multiple 

competing communications facilities – all of which use public property. As the franchisor 

we have a fiduciary responsibility to our citizenry that we take seriously, for which our 

elected bodies are held accountable by our residents.2

Our constituents demand and deserve real competition to increase their options, 

lower prices and improve the quality of services. As you know, a GAO3

 study showed 

that in markets where there is a wire-line based competitor to cable, cable rates were, on 

average, 15% lower. Please understand that local governments are under plenty of 

 

2

 As of five years ago, it was estimated that the valuation of the investment in public rights-of-way 

owned by local government was between $7.1 and $10.1 trillion dollars. Federal agencies such as the 

United States Department of Transportation, the U.S. Department of the Interior (Bureau of Land 

Management “BLM”), the United States Department of Agriculture (U.S. Forest Service) and the 

National Oceanic and Atmospheric Administration (“NOAA”) have all been actively engaged in 

assessing value for rights-of-way for years. Valuation of rights-of-way, and the requirement that 

government receives fair market value for their use, can be found in regulations (43 C.F.R. Sections 

2803 and 2883) statutes, and case law. 

3

 United States General Accounting Office, Telecommunications Issues in Providing Cable and 

Satellite Television Service, Report to the Subcommittee on Antitrust, Competition, and Business 

and Consumer Rights, Committee on the Judiciary, U.S. Senate, at 9, GAO-03-130 (2002)(“GAO 

2002 Study”), available at www.gao.gov/cgi-bin/getrpt?GAO-03-130 
62

pressure every day to get these agreements in place and not just from the companies 

seeking to offer service. I know this Committee has heard some unflattering descriptions 

and anticompetitive accusations regarding the franchise process, and I would like to 

discuss with you the reality of that process. 

Like Services Alike

We are encouraged that most of the telephone industry executives and their staff tell 

us that they fully support local governments’ management and control of rights-of-way; 

that they are willing to pay the same fees as cable providers; that they are willing to 

provide the capacity and support for Public, Educational and Governmental (“PEG”) 

access programming, and even that they are aware of and agree to carry emergency alert 

information on their systems. And yet – at least one company claims it is not subject to 

current law and they do not have to do these very things through local franchise 

agreements. 

Congress must realize that local government franchising has facilitated the 

deployment of not only the largest provider of broadband services in this country – 

namely the cable industry – but that we also facilitated the entry of literally thousands of 

new telephone entrants immediately after the passage of the 1996 Telecommunications 

Act. We are well versed in the issues of deployment of new services, and have managed 

competitive entry for the benefit of our communities for many years. Local government 

supports treating like services alike. 

Private Companies Using Public Land Must Pay Fair Compensation 

At the same time that we manage the streets and sidewalks, local government, acting 

as trustees on behalf of our constituents, must ensure the community is appropriately 

compensated for use of the public space. In the same way that we charge rent when 

private companies make a profit using a public building, and the federal government 

auctions spectrum for the use of public airwaves, we ensure that the public’s assets are 

not wasted by charging reasonable compensation for use of the public rights-of-way. 

Local government has the right and duty to require payment of just and reasonable 

compensation for the private use of this public property – and our ability to continue to 

charge rent as a landlord over our tenants must be protected and preserved. We believe 

the proposed legislation makes an attempt to do this, however, it may have fallen short of 

the goal because even though it provides for franchise fees, it does not provide for 

auditing the payments or provide for enforcing payment obligations. 

We are also specifically concerned about some exclusions in the definition of “gross 

revenues.” Paragraph C excludes revenue from “information services” in defining gross 

revenue. Since the Brand X decision by the Supreme Court, there has been a move to 

define most IP-based services as an “information service.” Some telephone companies 

have argued that IP video programming is an “information service” and not a “cable 

service.” Is this a backdoor way to avoid paying franchise fees? Also, Paragraph (E) 

excludes from gross revenues “any requirements or charges for managing the public 

rights-of-way with respect to a franchise under this section, including payments for 

bonds, security funds, letters of credit, insurance, indemnification, penalties, or liquidated 

damages;...” We believe this goes substantially beyond reasonableness and should be 

stricken from the draft. It would basically allow companies to exclude from gross 

revenues any costs associated with protecting the public or damages incurred as a result 

of being a bad actor in the franchising area. Essentially this language allows a company 

to take credit against franchise fee obligations for any damages it may cause in a 

community. Are FCC penalties and fees excluded from gross revenue? The draft is not 

clear. 
63

It is also unclear as to the definition of the local franchising areas for new entrants. 

What is their operational footprint? Who are they responsible for paying? How is that 

determined? 

Social Obligations Remain Critical Regardless of Technological Innovation 

Communications companies are nothing if not innovative. When you think back 

over the course of the past 100 years, the changes in technology are mind-boggling. At 

the same time, the social obligations developed over the last 60 years have endured. I 

strongly urge the Committee to engage in a deliberative process, and take the time 

necessary to engage in dialogue and debate to ensure that any legislative changes adopted 

this year will be as meaningful 20 years from now as they are today. 

Historical and Current Role of Social Obligations 

I appreciate the opportunity to discuss with you the important social obligations 

inherent in current video regulation, and to explain why these core functions must be 

preserved, regardless of the technology used to provide them. These include the 

allocation of capacity for the provision of PEG access channels, prohibitions on 

economic redlining, and a basic obligation that local government evaluates, and the 

provider meets, the local needs of the community it serves, including public safety needs. 

Public, Educational and Governmental (PEG) Access Channels 

Historically and today, locally produced video programming performs an important 

civic function by providing essential local news and information. Under the existing law, 

local government can require that a certain amount of cable system capacity and financial 

support for that capacity be set aside for the local community’s use. This capacity is most 

often used in the form of channels carried on the cable system and are referred to as PEG 

for public, educational and governmental channels. Traditionally the local franchising 

authority has determined the required number of channels and amount of financial 

support required to meet community needs, it then determines the nature of the use, 

which may be mixed between any of the three categories. Public channels are set aside 

for the public and are most often run by a free-standing non-profit entity. Educational 

channels are typically reserved for and are managed by various local educational 

institutions. Government channels allow citizens to view city and county council 

meetings, and watch a wide variety of programming about their local community that 

would otherwise never be offered on commercial television, including in some cases, 

television shows hosted by our Congressional representatives. Whether it is video 

coverage of governmental meetings, information about government services or special 

programs, local law enforcement’s most wanted, school closings or classroom 

instruction, the government access or PEG programming is used to disseminate this 

information and to better serve and interact with our constituents. Local governments 

continue to make innovative uses of this programming capacity as new interactive 

technology allows more valuable information to be available to our constituents. 

The proposed legislation acknowledges the importance of these video offerings and 

provides for PEG capacity on new entrant systems, provides for interconnection between 

existing PEG and INET capacity to the new entrant and provides a mechanism to make 

that happen. The proposed legislation also provides for PEG financial support and for 

expansion of PEG capacity every ten years. These are all very well intentioned, and 

clearly the Committee heard most of what local governments were saying about the 

importance of these resources. However, the draft provides for only one percent of gross 

revenues to go for PEG support. In some jurisdictions, this will be sufficient. In others it 

may not. We would recommend that along with the one percent, those jurisdictions that 

have negotiated a higher figure be allowed to maintain that rate per subscriber, sufficient 
64

for maintain existing services. We also recommend that the financial support use 

definition be expanded to include “operations.” 

Economic Redlining 

One of the primary interests served by local franchising is to ensure that services 

provided over the cable system are made available to all residential subscribers within a 

reasonable period of time. These franchise obligations are minimal in light of the 

significant economic benefits that inure to these businesses that are given the right to 

make private use of public property for profit. While there may be those who find certain 

franchise build out obligations unreasonable – we find them to be essential. The concept 

of “universal service” in telephone is no less important than in the case of broadband. 

Those who are least likely to be served, as a result of their economic status, are those 

whom we need most to protect. This deployment helps to ensure that our citizens – your 

constituents -- young and old alike, are provided the same opportunities to enjoy the 

benefits of cable and broadband competition – regardless of income. The capacity that 

broadband deployment offers to our communities is the ability of an urban or rural citizen 

to become enriched by distance education, and other opportunities that until recently 

were not available. But that will never happen if only the most fortunate of our residents, 

and the most affluent of our neighborhoods, are the ones who receive the enormous 

benefits of broadband competition. The spectre of “buildout” requirements haunts the 

discussion of serving the full community. Local governments have been managing this 

process for decades, and there is no reason to believe it cannot continue. Local officials 

have a responsibility to assure that the citizens of the community have access to 

competition. At the same time, we recognize that there needs to be sufficient flexibility 

on the part of the local franchising authority to address real world challenges, such as 

very low subscriber density, actual operational footprint of competitors and so on. The 

proposed legislation does take on the challenge of opposing redlining, but once again 

fails to provide sufficient enforcement authority (indeed, the draft is incomplete in this 

area) to protect constituents. These should be local decisions with local enforcement 

based on local factors, not issues decided by Congress or the FCC. 

Public Safety and Community Needs 

Local leaders often focus on the needs of their first responders when evaluating 

community needs. The current law provides that local governments may require cable 

franchisees to provide institutional networks as part of the grant of a franchise. An 

institutional network is a network dedicated to the purpose of governmental and 

institutional communications needs. These are essentially “intra-nets” serving 

government facilities including police and fire stations, hospitals, schools, libraries and 

other government buildings. Institutional networks are typically designed to use state-ofthe-art technology for data, voice, and video and allow local governments to utilize 

advanced communications services at minimal taxpayer expense. It has proven effective 

not only for day to day municipal and educational training and operations – but essential 

in emergencies such as September 11, 2001. 4

 The proposed legislation does address 

Emergency Alert Systems in that it provides for local government utilization of a cable 

operator’s emergency alerts system. The proposed legislation should make clear that new 

entrants can be required to provide emergency alter systems in our communities. Also in 

 

4

 Hearing on the Nation's Wireline and Wireless Communications Infrastructure in Light of Sept. 11 

Before the Committee on Commerce, Science, and Transportation, 107th Cong. (2002) (statement of 

Agostino Cangemi, Deputy Commissioner and General Counsel of New York City’s Department of 

Information Technology). 
65

the VoIP arena, the Committee acknowledges the need for 911 and E911 capability for 

public safety. 

Public Interest

I suggest to the Committee that these public interest obligations, noted above, 

continue to serve an important purpose and must be preserved, regardless of the 

technology that allows us to make the programming available. I hope that you would not 

yield to the simplistic notion that reducing public obligations on providers is always the 

best course. Customer service and consumer protection are examples of this concern. 

Should every community be required to do no more than what the FCC mandates, some 

citizens may not be afforded the protection they deserve. Telephone and cable companies 

are well versed in these arenas at the local level today. It should not be a problem for 

them to maintain (and hopefully improve) their customer service and consumer 

protection. Major problems with the customer service provisions of the legislation are 

that its local enforcement decision to be appealed (and ultimately enforced) at the FCC. 

Neither consumers nor local governments can afford the expense of that kind of 

enforcement mechanism. Moreover, the legislation allows a local government to charge 

a “nominal fee” to cover the cost of issuing enforcement orders. This “nominal fee” 

language should be replaced with a provision to cover actual costs, including reasonable 

attorney fees. Local government must be able to enforce these important safeguards, and 

must be able to the cost of doing so. 

We also believe that at renewal, providers should be subject to a public hearing to 

determine whether they have violated any of the four conditions for revocation, and 

whether they have met the customer service and consumer protection standards. 

 

Strong Enforcement 

As I have repeatedly said, local government should not be stripped of its power to 

enforce these local obligations. Currently, local government is able to audit companies 

that submit revenue and to enforce public safety obligations pertaining to rights-of-way in 

federal court. The Federal Communications Commission has no expertise in these areas 

and should not be given any authority over arbitrating revenue disputes or rights-of-way 

disputes. Such a radical expansion of federal power into local affairs is not warranted. 

Alternative to National Franchising 

Local Franchising is Comparatively Efficient and Must Be Fair to Protect All 

Competitors 

Franchising need not be a complex or time-consuming process. In some 

communities the operator brings a proposed agreement to the government based on either 

the existing incumbent’s agreement or a request for proposals, and with little negotiation 

at all, an agreement can be adopted. In other communities, where the elected officials 

have reason to do so, a community needs assessment is conducted to ascertain exactly 

what an acceptable proposal should include. Once that determination is made, it’s up to 

the operator to demonstrate that it can provide the services needed over the course of the 

agreement or demonstrate that the requirements would be unreasonable under the 

conditions of the particular market. 

Furthermore, while some of the new entrants have asserted that franchise 

negotiations have not proceeded as fast as they would like, it is important to recognize 

that every negotiation must balance the interests of the public with the interests of the 

new entrant. Some new entrants have proposed franchise agreements that violate the 

current state or federal law and subject local franchise authorities to liability for unfair 

treatment of the incumbent cable operator vis-à-vis new providers. Some also seek 

waiver of police powers as a standard term of their agreement. No government can waive 

its police powers for the benefit of a private entity. In the same way, the federal 
66

government cannot waive the constitutional rights of its citizens. Unlike other business 

contracts that are confidential or proprietary, local government franchise agreements are 

public record documents, so a new provider knows the terms of the incumbent’s 

agreement well before it approaches a local government about a competitive franchise. 

Local governments are obligated to treat like providers alike, and we believe in the 

concept of equity and fair play. In addition, many states have level playing field statutes, 

and even more cable franchises contain these provisions as contractual obligations on the 

local government. If the new competitor is seriously committed to providing as high a 

quality of service as the incumbent, the franchise negotiations should not be complicated 

or unreasonably time consuming. Moreover, local government has no desire to make new 

entrants change their current network footprint to duplicate the incumbent cable 

operator’s technology or network design. Local government’s concern is to treat all 

providers fairly, as required by current franchise agreements, by federal law, and good 

public policy. 

Franchising Provides for Reasonable Deployment Schedules – Objections to Reasonable 

Build Obligations are Red Herrings 

Nothing in franchising or current federal law requires a new video entrant to deploy 

to an entire community immediately. Local governments have been negotiating franchise 

agreements with new entrants for many years. In these cases, newly built developments 

may have one schedule while existing areas may have a different schedule. By managing 

the deployment as we do, we protect the new provider’s investment in infrastructure. We 

protect the public from unnecessary disruption of the rights-of-way, including safe use 

and enjoyment of the public rights-of-way. And, we ensure that new entrants are 

provided with unfettered access in a reasonable and timely fashion, while ensuring that 

they comply with all safety requirements. This system has worked well for cable, 

traditional phone and other providers for many years, and is necessarily performed by the 

local government. Congress, when it authored Section 253 of the Act, preserved local 

government authority and evidenced its desire to maintain the federalist, decentralized 

partnership that has served our country well for 200 years. Unfortunately, this bill 

appears to abrogate these important principles of federalism. 

The Current Framework Safeguards Against Abuse and Protects Competition 

The current framework ensures that all competitors face comparable obligations and 

receive the same benefits, ensuring a fair playing field and avoiding regulatory 

gamesmanship. Federal safeguards protect against abuse. Local governments generally 

are prohibited from requiring a video service network provider to use any particular 

technology or infrastructure such as demanding fiber or coaxial cable. Local governments 

can require that construction and installation standards be adhered to and that systems are 

installed in a safe and efficient manner. Local governments require compliance with the 

National Electric Safety Code to protect against the threat of electrocution or other 

property damage. Local rules can also require that signal quality be up to federal 

standards, and that systems are maintained to provide subscribers with state-of-the-art 

capabilities. Similarly, it is local government that inspects the physical plant and ensures 

compliance on all aspects of operations. We work closely with our federal partners and 

cable franchise holders to ensure that cable signal leaks are quickly repaired before there 

is disruption or interference with air traffic safety or with other public safety uses of 

spectrum. 

 

Local Government Helps Ensure Broadband Deployment 

We all share the concern of a lack of broadband access throughout America, in 

urban and rural areas alike. Regardless of the locality, it is likely that communications 

technologies will be a driving force in the economic opportunities enjoyed by these 
67

communities that have access to advanced services. I believe that the Cable Act has 

provided significant benefits to consumers and communities alike, and I believe that local 

governments should be applauded for ensuring that those benefits are provided in a 

timely, fair and efficient manner to as many constituents as possible. Under the current 

regulatory regime, cable enjoys the highest deployment rate of broadband in this nation, 

with over 105 million homes having access to cable modem service. The cable industry is 

now reaping the economic benefits of an infrastructure that is capable of providing 

broadband access to all of our citizens. It is local government’s oversight and diligence, 

through the franchise process, that has ensured that our constituents are not deprived of 

these services. Local government is the only entity that can adequately monitor and 

ensure rapid, safe and efficient deployment of these new technologies when they are 

being installed on a neighborhood-by-neighborhood level in our local rights-of-way. 

 

Changes Local Government Agrees Would Enhance the Competitive Environment 

We appreciate the opportunity to share with the Committee, based on our extensive 

expertise, those sections of the Act that, with some modification, would enhance the 

provision of competitive services within our communities, rather than pursue the 

strategies of this legislation. 

 

Application of Title VI 

Local government seeks modifications to clarify that the provision of multichannel 

video services through landline facilities, regardless of the technology used, falls within 

the scope of Title VI. The Act does not permit local government to dictate the nature of 

the technology employed by the provider. It does permit the local government to require 

that once the technology has been selected, that the quality of the service is acceptable. 

The quality of service should be maintained, and it should apply in a technology neutral 

manner. 

 

Uniform Assignment of Responsibilities Among Levels of Government 

Local government should retain authority over local streets and sidewalks, no matter 

what provider is offering service, or what service is being offered. At the same time 

Congress is considering allowing federal agencies to determine which companies can 

offer video services, all companies in the local rights-of-way should be responsive to the 

local government. 

Streamlining of Franchise Negotiations 

Title VI establishes the broad framework for those elements that may be negotiated 

in a local cable franchise. The provision of PEG access capacity and institutional 

networks is specifically protected in the current Act. Requirements in that regard should 

be presumptively reasonable, and a local government should be given the flexibility to 

determine the appropriate amount of capacity and the appropriate level and use of 

funding support necessary to meet its local community’s own particular needs. The 

current Act permits extensive community needs assessments, which while valuable, may 

be costly and time consuming, and may prove unnecessary when considering the 

applicability of the obligation on a new entrant. We believe that when a competitive 

franchise is under consideration, the local government should have discretion to use these 

tools on an as-needed basis to verify, but not be obligated to “prove,” the need for the 

particular PEG or institutional network requirement. The Act should require a new 

entrant to provide at least comparable capacity and support for the provision of PEG 

access, as well as for the provision and support of institutional networks. Similarly, local 

governments must be authorized to require the interconnection of these services between 

the incumbent provider’s system and new entrant’s system, to ensure seamless provision 

of services to our citizens. 
68

Time Limits for Negotiations 

Local governments have experienced just as much frustration as many in the 

industry with regard to the time consumed by franchise negotiations. While it is easy to 

claim that local governments are the cause for delay, let me assure you that the industry is 

also to blame for not always pursuing negotiations in a timely and efficient manner. Just 

as the industry would call upon local government to be under some time constraint for 

granting an agreement, so too should they be held to time frames for providing the 

necessary information on which a decision can be made and for responding to requests to 

negotiate in good faith. Otherwise, a time frame merely gives the applicant an incentive 

not to reach an agreement but to wait until the time frame expires. We do not believe that 

it is unreasonable to establish some time frames within which all parties should act, 

whether it is on an application for the grant of an initial franchise, for renewal, transfer or 

for grant of additional competitive franchises. But these obligations must apply to both 

sides and must be respectful of the principles of public notice and due process. 

Applicants must be required to negotiate in good faith rather than insisting on their own 

“form” agreement. No community should be forced to make a determination without 

permitting its citizens – your constituents – the opportunity to voice their opinion if that 

is the process that government has put into place for such matters. 

Network Neutrality 

While traditional cable operators under Title VI operate on closed platforms, the Act 

itself does not address the variety of services or content that may be provided over that 

platform. Recent press accounts have indicated that telephone company new entrants in 

the video marketplace also want to be able to control the ability of the end user to access 

information purchased over the network. Faster speeds for those who pay more; and 

faster access to those locations on the Internet for which the content provider has paid a 

higher price to the network owner. Local government believes that permitting such 

favoritism and content control by a network owner is bad for the end user, bad for 

business and bad for the future of the Internet. To the extent that such issues need to be 

addressed within Title VI, we encourage the Committee to do so. 

Consumer Protection and Privacy 

The Communications Act has significant and meaningful consumer protection and 

privacy provisions. These are national rules with local enforcement and they include the 

ability of the local government to continue to enforce more stringent local consumer 

protection requirements. These rules must be extended to all video providers – to ensure 

that information on your personal choices of what you watch on whatever device you 

choose to receive your video signal on – is not being used in an impermissible or 

improper manner. 

Finally, we continue to support the ability of local governments and the citizens they 

serve to have self-determination of their communications needs and infrastructure. Title 

VI has always recognized our ability to do so in the video marketplace, and we hope that 

Congress will continue to agree that such should be the case regardless of the services 

delivered over the network. Where markets fail or providers refuse, local governments 

must have the ability to ensure that all of our citizens are served, even when it means that 

we have to do it ourselves. 

Conclusion 

In the rush to embrace technological innovation, and to enhance the entry of new 

competitors into the market, it is still the responsibility of local government to ensure that 

the citizens of our communities are protected and public resources are preserved. We are 

concerned that this legislation will undermine all that has been achieved through years of 

thoughtful and careful deliberation. Local control and oversight has served us well in the 
69

past and should not be tossed out simply as the “old way.” This year, as the discussion of 

the delivery of new products and services over the new technology platforms includes not 

just video but new and enhanced video products and other potential services, I strongly 

encourage this Committee to rethink its headlong rush to judgment on this legislation. It 

has been available to the public for just three days. Certainly it is unnecessary to move so 

quickly as to ignore the substantial record of achievement evidenced by what we have 

shared with you today. Thank you. I look forward to answering any questions you may 

have. 

 MR. UPTON. Thank you. Mr. McCormick, welcome back. 

MR. MCCORMICK. Thank you, Mr. Chairman. On behalf of the 

United States Telecom Association and our member companies, I want 

to thank you for the opportunity to be here today to testify. I want to 

express our deep appreciation for the enormous work that has gone into 

this legislation. 

 Mr. Chairman, we strongly support your efforts to bring new video 

choice to America’s consumers. Franchise reform will unleash new 

competition, and experience has shown that competition will result in 

reduced rates for the nation’s 66 million cable television subscribers. 

Enactment of franchise reform will also encourage investment in nextgeneration broadband networks. The ways in which Americans 

communicate today, the ways in which they send and receive 

information have changed fundamentally since the passage of the 1996 

act. Today you can make a phone call using a wireline phone or a 

wireless phone or a cable phone or an Internet phone. You can get 

Internet access through DSL, cable modem, wireless, or satellite, and 

increasingly over power lines and municipal wi-fi systems. Technology 

has made it possible for cable operators who historically offered only 

video to offer voice and Internet services. There are no franchise barriers 

to cable operators doing so. Technology has also made it possible for 

voice providers to offer video, but an archaic governmental system that 

was meant for a time when technologies were segregated, rather than 

converged, is a barrier to competitive entry into video. This legislation 

recognizes that it is time to remove this barrier and to promote the same 

competition in video that now exists in voice. 

 Make no mistake, local franchising requirements impede entry. 

They extend the period during which consumers pay artificially high 

prices. Let me give you two real-world examples. First, Ben Loman 

Telephone Cooperative in McMinnville, Tennessee, has upgraded its 

network and has the capacity to offer video service to approximately 60 

percent of its 42,000 customers. However, in order to offer video, it 

must apply for and receive 25 different franchise agreements, some of 

which are required for areas in which it services just 100 to 200 

customers. After 18 months of trying, the company has received only 15 

franchises. In the case of Verizon, one year after engaging in franchise 
70

negotiations with 95 local franchising authorities, only 10 have granted 

franchises and 85 remain in negotiation. Typically the process takes 18 

to 24 months. 

 So Mr. Chairman, the quicker Congress acts, the better it is for 

consumers. Time is money. According to a study by the Phoenix 

Center, if franchise reform were to be postponed until the next session of 

Congress, that one year of delay would cost consumers an estimated $8 

billion. That equates to about $75 per household per year. So you are 

doing America a service by moving forward immediately on video 

choice, an area where there is clear consumer benefit as you continue to 

work towards finalizing other important telecom reforms relating to 

universal service, intercarrier compensation, and unleashing the full 

benefit of the free market to traditional voice services that face 

competition. 

 Mr. Chairman, as we share your goal to see action on other important 

telecom reforms before the end of this Congress, let me take a moment to 

express our concern about three matters unrelated to franchise reform 

that have made their way into this bill, matters that we believe would 

benefit from further consideration by the committee. 

 First, on the issue of so-called net neutrality, our industry has stated 

that it will not block, impair, or degrade consumer access to the Internet 

and the FCC has made clear that it has the authority to enforce its 

broadband principles. Therefore, legislation in this area we believe is 

premature. There are provisions in this legislation that benefit VOIP 

providers by giving them rights of telecommunications carriers, without 

imposing upon them the corresponding social responsibilities relating to 

universal service, consumer privacy, and access for the disabled. These 

matters should also be left to further telecom reform. 

 And finally, with regard to municipal broadband networks, we are 

concerned about this bill’s preemption of State authority over their own 

municipalities. Again, we would suggest that this subject be left to the 

broader telecom reform debate. 

 Let me conclude, Mr. Chairman, by saying thank you. We applaud 

you bringing Americans TV freedom and we look forward to working 

with you towards speedy and final action on video choice in this 

Congress. 

 [The prepared statement of Walter McCormick follows:] 
71

PREPARED STATEMENT OF WALTER B. MCCORMICK, JR., PRESIDENT AND CHIEF EXECUTIVE 

OFFICER, UNITED STATES TELECOM ASSOCIATION
72
73
74

 MR. WALDEN. [Presiding] Thank you, Mr. McCormick. Mr. 

McSlarrow, welcome. We look forward to your comments. 
75

MR. MCSLARROW. Thank you, Mr. Chairman. At the outset, let me 

just say, the cable industry supports reforming and streamlining the 

franchising process. We put out last year a roadmap to reform that 

consisted primarily of trying to ensure that if time was the issue for new 

entrance to get into the marketplace, that should be taken off the table 

and we would support any effort to grant them a franchise within as little 

as 30 days. We also thought it was important that there be a level 

playing field. We are talking about competing with the telephone 

companies, some of the largest communications in the world and 

certainly the largest in America, we ought to all be playing on the same 

field. We also thought it was important to recognize whether or not the 

scheme is called local franchising, national franchising, or even State, 

that we needed to grapple with fundamental realities of sets of 

responsibilities that are properly subject to the local control to State, 

perhaps, and to the Federal government. 

 The bill last year, and there were two versions, BITS I and BITS II, 

we opposed because we thought it was not the right course. We didn’t 

think it made sense to pick winners and losers on the basis of technology 

and so we are pleased that this bill moves away from that construct. We 

also have made the argument that Members have already recognized this 

morning, that you need to look at the entire marketplace. In a bundled 

world where voice, video, and data are being sold and marketed by many 

different providers to consumers, you need to look at that entire 

marketplace. We thought it was important that a recognition of the voice 

marketplace be reflected in the bill and so we are pleased that with the 

interconnection language that has been put in, that that has been 

recognized as well. And ultimately, it is clear that in this bill as 

introduced, there really was an effort to seek to provide a level playing 

field. So all of that in our view represents significant progress. 

 Some practical observations, however, about the bill. Even though 

our preferred solution is to reform and streamline the local franchising 

process, you can certainly make an intellectually coherent argument for a 

national franchising process. You can do it on the basis of simplicity, 

regulatory certainty, and deregulation, but frankly, if those are the goals 

of a national franchise, I would submit respectfully, this doesn’t actually 

accomplish that. A couple of examples. A telephone company comes 

into a market and starts offering video. Under this bill, they get a 

national franchise. If they do that, the good news is there is a level 

playing field so the incumbent cable operator can get a national 

franchise. However, if both the telephone company and a cable company 

already have franchises before date of enactment, those local franchises 

keep going until expiration. Most bizarrely of all, if a telephone 

company gets a national franchise followed by a cable company and then 
76

the telephone company exits the market, we are at risk of the national 

franchise and have to go reapply for a local franchise. Now, I am not 

certain that that is what was intended by the drafting, but that is what is 

present and so I would suggest and would be happy to work with you, 

there needs to be some work done. 

 When it comes to interconnection, I said a moment ago that we were 

pleased that there is a recognition of the voice market. As currently 

written, we think that the rights extended to VOIP providers ought to be 

expanded to at least match that of the CLECs, granted in the 1996 Act, 

and so we look forward to working with you on that as well. 

 Another issue that I think bears thinking about is this issue of nondiscrimination, in the provision of video service. Everybody, every 

Member that I have talked to, probably everybody on this panel, 

certainly my good friend Walter McCormick and his constituent 

companies, all say we support the anti-discrimination language, the antiredlining language that is in current law, but how can that possibly be 

effective language in a circumstance where you contemplate a 

company’s ability to self-select the markets they serve. It is just an 

illusion. So I would submit you can go down one of two paths. You can 

just say it is no longer a bipartisan policy as has been present for 20 years 

and just go down that path, or if it is going to mean something, then I 

think we need to step back and think about what non-discrimination 

means in the context of a national franchising scheme. 

 Last point, I hate to agree with my colleague from USTA, but real 

concerns that crafting the line on net neutrality where the marketplace is 

working and having the Government regulate the Internet for the first 

time is a mistake and so we just urge you to reconsider that as well. 

Thank you. 

 [The prepared statement of Kyle McSlarrow follows:] 

PREPARED STATEMENT OF KYLE MCSLARROW, PRESIDENT AND CHIEF EXECUTIVE OFFICER,

NATIONAL CABLE & TELECOMMUNICATIONS ASSOCIATION

Chairman Barton and Members of the Committee, my name is Kyle McSlarrow and 

I serve as President and CEO of the National Cable & Telecommunications Association 

(NCTA), which is the principal trade association representing the cable television 

industry in the United States. Its members include cable operators serving more than 90% 

of the nation’s cable television subscribers, as well as more than 200 cable programming 

networks and services. NCTA’s members also include suppliers of equipment and 

services to the cable industry. The cable industry is the nation’s largest broadband 

provider of high speed Internet access after investing $100 billion over ten years to build 

out a two-way interactive network with fiber optic technology. Cable companies also 

provide state-of-the-art digital telephone service to millions of American consumers. 

Thank you for inviting me to comment on proposed legislation to reform the video 

franchising process. I would also like to thank you, Chairman Barton, Chairman Upton 

and Congressmen Dingell, Markey and Pickering, and the members of this Committee for 
77

your work on these issues and your willingness to listen to the concerns and views of the 

cable industry throughout the process. 

Cable Embraces Competition and Less Regulation 

Mr. Chairman, the cable industry fully embraces, and thrives today in, a robust, 

competitive marketplace. Our policy for several decades has been to minimize regulation 

on us and our competitors. The cable industry has never asked Congress for a handout 

and we don’t seek to obtain regulatory advantages over our competitors. Nor have we 

opposed efforts designed to lighten regulatory burdens on our competitors in order to 

foster fair competition on a level playing field. 

For example, in 1999 the cable industry supported the Satellite Home Viewer 

Improvement Act (SHVIA), which authorized direct broadcast satellite (DBS) providers 

to offer local broadcast signals. DBS providers were given “local-into-local” authority 

but were required to follow the same rules as cable and other MVPDs when they offered 

local signals. SHVIA established a fair and level playing field for multichannel video 

competition. And as a result, growth in DBS subscribership exploded and competition in 

the multichannel video marketplace is thriving. Today, two national DBS providers have 

captured nearly 30 percent of the MVPD marketplace. 

The cable industry did not oppose a key provision of the 1996 Telecom Act that 

eliminated rules prohibiting telephone companies offering video service. Rather, we 

supported that legislation because it offered all competitors the ability to enter new 

markets on fair, market based terms and established a stable deregulatory environment. 

And, more recently, the cable industry supported the efforts of the telephone 

companies to deregulate their high speed Internet access service so that they could 

compete with all broadband providers on a level playing field. 

Franchise Reform Legislation Should Streamline the Process and Establish a Level 

Playing Field 

Our primary interest in franchise reform is to ensure that all competitors in the video 

marketplace compete under the same set of rules, rules that can undoubtedly be 

streamlined in a more deregulatory market. 

To the extent that Congress believes that the franchise process needs to be 

modernized, the cable industry has clearly stated its preferred path to reform. We have 

expressed support for franchise reform that embodies the following principles: 

• First, in order to expedite entry to market for new competitors, we believe 

that Congress should streamline the process by limiting the time that local 

franchising authorities have to consider an application to provide video 

service. 

• Second, it is critical for all providers of video services to be treated on a 

level playing field. An incumbent should have the right to opt into any 

new franchise agreement that has better terms and conditions. The 

government should not pick winners and losers in the broadband industry 

by establishing a different set of rules that favor one provider over 

another. 

• Third, local governments should maintain oversight with respect to rightsof-way management, meeting community needs and interests (including 

the equitable sharing of PEG and institutional network responsibilities), 

and enforcement of non-discrimination requirements. 

The Telephone Companies Have Had a Decade to Enter the Video Market 

In 1996 when Congress lifted the ban on telephone entry into the video business, it 

was a significant change in federal telecommunications policy. For decades, Congress 

kept the telephone companies out of the video business for fear that their monopoly 
78

control over the local phone market would allow them to exert market power in a way 

that would harm video competition. This threat was based on the telephone companies’ 

anticompetitive behavior regarding pole attachments and their incentive and ability to 

shift costs associated with video service into their regulated telephone rate base and 

thereby unfairly cross-subsidize their entry into the video business with revenues from 

their telephone monopoly. 

However, Congress lifted the ban in 1996 largely because the ‘96 

Telecommunications Act also established rules to promote competition in the local voice 

market. Congress hoped that such competition would inhibit the ability of the Bells to use 

their telephone monopoly to enter the video marketplace in an anticompetitive manner. 

The ‘96 Act gave the phone companies four options for entering the video business 

and expressly stated that if they chose to enter as a cable system, they would be subject to 

the same requirements of Title VI as any other cable operator. At that time, the telephone 

companies didn’t complain that the local franchising process was a barrier to entry and 

Congress evidenced no interest in freeing telephone companies that chose to enter the 

cable business from any of the traditional requirements that apply to cable operators, 

whether they were first to the market or last. To the contrary, recognizing that large 

incumbent telephone companies were fully capable of competing vigorously in the video 

marketplace, Congress stipulated that cable operators would be free from any remaining 

rate regulation whenever a telephone company entered an operator’s franchise area. 

Now a decade later, having made little effort to enter the video business, the phone 

companies are back claiming that they need special rules that would allow them to enter 

the video marketplace in a manner that would give them a regulatory advantage over their 

competitors. It is remarkable that Congress would even entertain the Bells new pleas for 

special favors when the very rationale for allowing the Bell companies to enter the video 

business in the first place has yet to materialize—competition in the local voice market. 

Rather than spending the last ten years offering video competition, as they promised, they 

have invested their time and tremendous financial resources in the courts and at the FCC 

attempting to frustrate Congressional efforts to promote voice competition. They have 

successfully crushed most of their local voice competitors and swallowed their long 

distance competition. Ten years after the passage of the 1996 Telecom Act, the 

incumbent telephone companies still have a vice grip on 85% of the local telephone 

marketplace. 

Meanwhile, during those same ten years, competition to cable operators from two 

large DBS companies has increased dramatically. In stark contrast to the behavior of the 

Bell companies, the cable industry responded to the deregulation of the 1996 Telecom 

Act and vibrant DBS competition by investing $100 billion in private risk capital to 

upgrade its facilities with state of the art fiber optic technology. The industry made this 

investment without government subsidies and with no guarantee of a return on its 

investment. And just like it created a multichannel video service from scratch, cable 

pioneered the residential broadband marketplace, while the telephone companies kept 

DSL technology on the shelf in order to preserve their high priced T1 business service. 

Cable’s innovation and risk taking created the nation’s largest broadband provider of high 

speed Internet access. Cable’s broadband platform delivers digital video, high definition 

television, digital telephone service, and an array of new interactive services. 

The Existing Franchise Process Is Not a Barrier to Entry 

Despite a promise ten years ago that they would compete in video, the Bells are 

back, smaller in number but much larger in size with annual revenues of $150 billion 

more than twice that of the cable industry, telling Congress that they can’t compete in 

video, in fact won’t compete in video unless they are granted another special favor. They 

want to enter the video business on favored terms without obtaining a local franchise 

agreement. 
79

The Bells complain that the franchising process is a barrier to entry and that it takes 

too long to obtain franchise agreements. An examination of the facts shows that those 

claims are simply unfounded. 

Telephone companies – and other new video entrants – have long received local 

cable franchises. Shortly after Congress repealed the ban on telephone companies 

entering the video business, Ameritech obtained more than one hundred cable franchises. 

Ameritech did not waste time complaining about or seeking to avoid the franchising 

process. It simply went about obtaining cable franchises and it did so without resistance, 

unreasonable demands or delays by local franchising authorities. Ameritech’s rapid 

progress in obtaining franchises continued until the company was acquired by SBC, 

which promptly sold off Ameritech’s systems just as it terminated the efforts of Pacific 

Telesis and Southern New England Telephone to offer competitive cable service after 

acquiring those companies. 

Smaller broadband competitors with a fraction of the Bells’ resources like 

WideOpenWest, Knology and RCN have managed to obtain franchises to compete with 

cable companies in hundreds of communities across America. And it looks like the 

telephone companies are managing to do so, too. 

Verizon CEO Ivan Seidenberg told investors in a January conference call that his 

company was making “good progress” on video franchising and that the franchising 

process does not pose “any impediment to our rolling out FiOS during the year 2006.”1 

As he explained to Business Week, “We haven’t been turned down anywhere we’ve 

gone.”2 

And he’s right. Verizon already has franchises covering approximately two million 

households, and there are many examples of Verizon obtaining approval in as little as 19 

days to 4 months (Beaumont, California; Sachse, Texas; Herndon and Fairfax County, 

VA). In fact, in several instances Verizon has obtained franchise agreements faster than 

they are able to deliver service. For example: 

 In Sachse, Texas, Verizon obtained a franchise in less than two months but took 

over a year to deploy video after being granted a franchise on December 6, 

2004. 

 In Fairfax County, Virginia, Verizon obtained a franchise in less than 3 months, 

but it took more than 5 months after receiving the franchise before it began 

offering video service in that community. 

 In Beaumont, California, where Verizon obtained a franchise in less than 3 

weeks, it did not begin to offer video service until more than 15 months after it 

was granted a franchise. 

 In Bellefonte, Delaware, where Verizon obtained a franchise in less than 50 

days, it still does not offer video service more than 3 1/2 months later. 

Ironically, some local governments complain that Verizon is actually responsible for 

delays in the franchising process. Several counties in Maryland have told the FCC that 

Verizon’s own internal bureaucratic machinery creates substantial delay and has 

significantly contributed to much of the regulatory lag about which Verizon complains. 

The bottom line: a review of Verizon’s franchises shows an average of 4.3 months 

to obtain a franchise, and interestingly, an average of 5.3 months after they get a 

franchise before they deliver video service. 

Most interestingly of all, AT&T can make no legitimate complaints about the 

franchising process at all because they, wrongly, assert that their video service does not 

require them even to comply with federal franchising rules. In other words, they haven’t 

even tried. 

 

1

 Conference Call Transcript, VZ-Q4 2005 Verizon Earning Conference Call, Jan. 26, 2006. 2

 Business Week Online, Sep. 28, 2005, “Verizon: “We’ve Got to Fix It”. 
80

What the Bells Truly Seek Is a Green Light to Serve Only “High Value” Consumers 

So the Bells’ complaints about process are nothing more than a smokescreen to hide 

the fact that what they really seek is to avoid the obligations that come with obtaining a 

video franchise. 

Specifically, what the Bell monopolies refuse to accept is the notion that the new 

competition they promise should be afforded to all of the communities they serve. It’s 

really that simple. Having built their networks on the backs of ratepayers as a regulated 

monopoly for nearly a century, the Bells do not believe that they should be required to 

upgrade those networks in a manner that is equitable and nondiscriminatory. 

The Bells are making the case that their video service will bring widespread benefits 

to consumers while, at the same time, telling Congress that they should not be required to 

provide such service to all communities within their service area. For example, SBC 

(now AT&T) has announced to Wall Street that it would serve 90% of “high-value” 

customers, 70% of “medium-value” customers, and only 5% of what they deem to be 

“low-value” customers.3 

Ironically, in the past the Bells attacked voice competitors for the same type of 

cherry-picking they now want to practice as they enter the video business. SBC paid for 

advertising in major newspapers criticizing competitors who wanted to selectively target 

their customers. “We proudly make SBC service available to everyone, in every 

neighborhood, in every region we serve,” the SBC ads declared. SBC should have added 

a disclaimer: “But when it comes to video, we’re not interested in serving ‘low-value’ 

customers.” 

If Congress believes that increased video competition is an important public policy, 

then it must confront how to ensure that the benefits of competition are made available to 

all citizens. Otherwise, the Congressional goal of promoting widespread deployment of 

advanced broadband services to all Americans will never be achieved and households in 

urban and rural America will be relegated to second-class service. 

The Committee Print is a Significant Step Forward 

The committee print under consideration today represents a significant step forward. 

Unlike previous drafts, the bill does not grant regulatory relief based on the technology 

used to offer video service. And the current proposal does not include new regulations on 

video services. 

As we have stated, we believe the better course is to reform and streamline the 

existing franchising process; however, we strongly support the policy decision reflected 

in the bill to seek to ensure a level playing field for video competition. While we can 

continue to debate the rules upon which new entrants offer video services, it is critical to 

ensure that all competitors compete under the same rules. There are also a number of 

areas where we believe the level playing field provisions of the Committee Print can be 

strengthened and clarified. Giving all providers of video services the ability to compete 

on a level playing field ensures that the marketplace rather than the government will 

choose winners and losers. Competitors will have the freedom to innovate and make 

business decisions based on marketplace realities rather than the vagaries of a skewed 

regulatory framework. 

A level playing field also creates a predictable and stable regulatory environment 

which is crucial for continued investment and innovation. In testimony before the Senate 

Commerce Committee on March 14, 2006, Aryeh B. Bourkoff (senior analyst at UBS 

Investment Research) said regarding franchise reform, “I stress the importance of 

maintaining a level playing field among all operators while allowing consumer 

preferences to dictate the changes to current models. Uncertainly among investors will 

 

3

 SBC Project Lightspeed Investor Relations Call, Nov. 11, 2004 
81

persist if the rules surrounding obtaining a video franchise fluctuate based on the nature 

of the new entrants.” 

Establishing a level playing field for video competition should be welcomed by the 

Bell companies who have argued for years that they should operate under the same 

regulatory framework as cable operators in the provision of high speed Internet access. 

AT&T said it best in comparing the regulatory treatment of cable modem and DSL 

service, “companies that provide similar services should be regulated the same. There is 

no reason for treating them any differently.”4 

Rights and Obligations of VoIP Providers 

We are pleased that the Committee Print includes language that seeks to clarify that 

the interconnection rights Congress established in 1996 to promote voice competition 

apply to all providers of voice services on a technology neutral basis. The 1996 Telecom 

Act provided interconnection rights to competitive local exchange carriers (CLECs) so 

they could exchange traffic with the Bells on an economic basis, without glitches or 

delays, in order to promote local voice competition. Limiting interconnection and related 

rights to providers of voice services using traditional technology would ensure the Bells 

retain their market dominance by hampering the introduction of digital voice services – 

the best hope for competition in the voice market. The bill correctly recognizes that any 

legislation to promote competition would be incomplete without addressing voice 

competition where the Bell companies still control 85% of the market. 

Network Neutrality Regulation Threatens Continued Investment 

We are concerned, however, that the committee print would, for the first time, 

impose regulation on the Internet. While simply codifying the FCC’s network neutrality 

principles may, at first blush, look like a reasonable and innocuous attempt to ensure that 

network providers maintain openness; it could lead to endless and expensive litigation. 

With bandwidth usage growing at a rapid pace, continued investment will be needed 

to keep broadband services robust. If broadband providers are to continue to make these 

investments, and if consumers are going to be given the levels of services and innovative 

new products and features they desire, all at prices they can afford, broadband providers 

need to have continuing flexibility to develop new business models and pricing plans. 

Network neutrality rules will stifle that flexibility and discourage capital investment. 

The marketplace is highly competitive, where no real world problems needing a 

solution have been identified, and where the pace of technological development is 

breathtaking. There can be no better circumstances than these to leave regulation to the 

marketplace rather than government. 

Practical Issues Raised by the Committee Print 

While we have only had a few days to review the draft bill, we have identified a 

number of practical issues that would create uncertainty and ambiguity and frustrate the 

stated objective of replacing local franchising with a national scheme. We describe these 

issues below. They include the limitations imposed on the availability of a national 

franchise for incumbent cable operators, but the problems are by no means limited to that 

section of the bill. At a minimum, these issues should be resolved before the bill moves 

forward. 

Clarifying that All Providers Are Covered. While the draft bill establishes a 

national franchise to enable faster entry by “new cable providers” and appears intended to 

capture video services provided by the telephone companies, the failure of the bill to 

amend the definitions of cable service or cable system undermines this purpose. AT&T 

 

4

 Press Release, SBC Communications, Inc., “SBC Urges FCC To Enact Regulatory Parity For 

Broadband, “Aug. 6, 2002.
82

has argued extensively that its proposed service does not fall within the existing statutory 

definitions because it has incorporated IP technology into its delivery system, and that 

therefore it should not be subject to any franchise requirements. Nothing in the draft bill 

precludes AT&T from continuing to assert this position. While we believe AT&T’s 

argument is meritless, Congress should use this opportunity to remove any ambiguity. 

Not to do so would abdicate to the FCC and the courts the fundamental question of 

whether this bill even applies to AT&T and other “IPTV” providers which, of course, 

could easily include cable operators. One could reasonably ask what the point of this bill 

is in such a circumstance. 

Ensuring A Level Playing Field. While the bill clearly seeks to establish a national 

franchising scheme allowing all providers to compete on a level playing field, in fact it 

creates a complicated structure in which providers offer cable service pursuant to a 

hodgepodge of national, state, and local franchises. It is, in short, a recipe for confusion. 

For instance, whether an existing cable operator is eligible for a national franchise is 

wholly out of its hands. Instead, it depends on the decisions and even the identity of its 

video competitor. In “franchise areas” that are unserved by a “new operator” on the date 

of enactment, for instance, an incumbent operator is ineligible for a national franchise 

unless and until a new operator “is providing service under a national franchise.” Thus: 

 No new entrant; no national franchise for the incumbent operator. 

 New entrant elects a local franchise; no national franchise for the incumbent 

operator. 

 New entrant obtains a national franchise; no national franchise for the 

incumbent operator until the new entrant actually starts providing service. 

 New entrant’s “franchise area” covers only a portion of the incumbent 

operator’s service area; unclear whether operator can obtain a national franchise 

for its entire service area. 

In areas where an incumbent local exchange carrier is already providing service on 

the date of enactment in competition with an existing cable operator, neither is eligible 

for a national franchise. Each must wait until its current franchise is no longer in effect 

until it can obtain a national franchise -- and then can only do so if the other provider is 

still providing service in that area. This means that a cable operator can be locked into a 

municipal franchise for years while a telephone company operates under a more 

favorable state franchise, and then, when it is finally eligible for a national franchise, its 

ability to obtain one is dependent on the decision of the telephone company to remain in 

the market. 

Oddly, too, the bill does not even ensure that both providers are eligible for a 

national franchise at the same time. Where the telephone companies have negotiated 

franchises that allow them to walk away from the agreement in only a few years, they 

will be able to terminate such franchises and enjoy the benefits of a single, national 

franchise long before cable operators are eligible to request one. 

All providers must be able to predict their regulatory environment with more 

certainty in order to continue investing in the market. If the policy objective is a national 

franchise, then that objective should be available to all providers under the same terms 

and conditions. At a minimum, the regulatory status of one provider should not be 

dependent on the business decisions of a competitor. 

“Snapback” Provision. Related uncertainty is created by the provision that 

automatically terminates an incumbent operator’s national franchise in any franchise area 

where there is no competing cable operator for one year. Upon termination, the operator 

is left with no continuing authorization to provide service. The operator may obtain a new 

local franchise, but getting one is not automatic and the terms of the new local franchise 

are not established by the bill. Again, the operator’s fate is dictated by the actions of its 

competitor. If the competitor pulls out of a market, the operator must apparently start 
83

from scratch to negotiate a new franchise with the local franchising authority. This entire 

section is absurd and should be deleted. 

No Meaningful Anti-Redlining. While the bill would prohibit a national franchisee 

from denying service to residential subscribers on the basis of income, it essentially 

allows a franchisee to self-define the “franchise areas” it will serve. A prohibition on 

redlining is essentially meaningless if a franchisee can simply limit its rollouts to 

wealthier communities or even neighborhoods. At a minimum, a “franchise area” should 

be defined as co-extensive with existing political subdivisions to limit the opportunity for 

the most blatant cherry-picking. 

The bill also undermines the redlining prohibition by moving responsibility for 

oversight of this requirement from localities to the FCC. Nondiscrimination is most 

effectively overseen and enforced by local officials who know their community best, not 

by the FCC. Further, the FCC is directed only to ensure that the cable operator extends 

access to the avoided group; a national franchisee violating the anti-redlining requirement 

faces no penalty for its discrimination and is not required to make service available 

within any particular time limit. Even though a nationwide franchise is the chosen 

method to ensure competitive entry, it is still important to preserve local input into that 

process. Localities are best positioned to determine whether deployment comports with 

anti-redlining rules. 

Large Increase in Fees. The bill substantially increases the fees paid by cable 

operators. First, the bill codifies an expansive definition of the “gross revenue” on which 

franchise fees are based, including revenues from advertising and promotional support. 

Second, all national franchisees would be required to pay up to an additional 1 percent of 

gross revenues to support PEG programming and institutional networks. This obligation 

would fall disproportionately on an existing cable operator which obtains a national 

franchise -- first, since 1 percent of its revenues would far exceed 1 percent of a new 

entrant’s, and second, because the existing operator would also have to continue to 

provide -- apparently in perpetuity -- any institutional network that was required under its 

superseded local franchise. By contrast, local franchising authorities are expressly barred 

from requiring other national franchisees from constructing such networks. 

Finally, in addition to requiring national franchisees to pay 6 percent of gross 

revenues -- and forcing existing operators to continue to provide institutional networks -- 

the bill authorizes new “rights-of-way management” fees. The intent may be to limit 

these fees to management-type activities such as permitting, inspection, etc., but unless 

the bill specifies that these fees must be “cost-based,” there will inevitably be litigation -- 

as there as been over the provision in the 1996 Act authorizing “fair and reasonable,” 

rather than “cost-based,” rights-of-way compensation -- over whether this provision 

authorizes localities to collect market-based rents. The bill should impose clear limits on 

the fees imposed on all providers, if we are to continue innovating and offering 

consumers new services and products. The bottom line is that the bill represents an 

increased tax on consumers for no additional benefits and should be substantially 

modified and reduced. 

Consumer Protection Requirements. The bill authorizes local franchising 

authorities to enforce the FCC’s cable consumer protection rules, permitting them to 

issue orders requiring compliance with such rules. What the bill doesn’t say is how a 

locality would enforce such an order. Would it be able to impose a fine? Would it be able 

to take an operator to state court, leading inevitably to a plethora of inconsistent 

interpretations of the FCC’s rules? In the absence of further guidance, the objective of a 

nationally consistent set of consumer protection rules will be undermined. 

Net Neutrality. I have already explained our strong reservations about codifying the 

FCC’s principles as binding requirements, enforceable by the Commission. Here I would 

only observe that the adjudication authorized by this section of the bill is without 

reference to any procedural safeguards, such as those applicable to cease-and-desist 
84

orders against broadcasters under section 312(b) of the Act or the imposition of 

forfeitures under section 503(b)(4). 

Interconnection. We recognize and applaud the bill’s inclusion of a provision to 

make sections 251 and 252 of the 1996 Act applicable on a technology-neutral basis to 

competitive voice providers using IP technology. It is a step in the right direction, but 

what it gives with one hand it may take away with the other. IP-voice providers get the 

rights and duties of a competitive local exchange carrier (CLEC) under sections 251 and 

252 of the Communications Act -- but only “with respect to interconnection” and 

“associated” rights and duties “necessary to effectuate interconnection.” Since these 

sections address more than just interconnection, such as numbering, access to unbundled 

elements of the incumbent’s network, and collocation at incumbent central office, IPvoice providers effectively have fewer rights than what CLECs presently have. 

Moreover, the language invites years of disputes over which parts of sections 251 and 

252 are “necessary” to “effectuate” interconnection. 

The bill also misses an opportunity to resolve the disputes pending in a growing 

number of states between rural carriers and CLECs over whether the latter can use their 

interconnection agreements in the provision of wholesale telecommunications service to 

IP-voice providers. While we are hopeful the FCC will address this issue, Congress can 

cut years off the process and provide needed certainty by clarifying the issue in law rather 

than also abdicating this issue to the agency and the courts. 

Municipal Broadband. The bill would overturn laws in over a dozen states that 

limit municipalities from constructing and operating broadband networks. These states 

have made the judgment that the risks to taxpayers outweigh any putative benefits of 

letting local governments enter this risky and competitive industry. The 1996 Act was 

successful in promoting substantial private sector investment in broadband facilities. The 

cable industry alone has invested nearly $100 billion since 1996. Government-provided 

service in areas served by private enterprise will impose substantial burdens on taxpayers 

and undermine competition from non-government providers who must rely on risk 

capital. 

At a minimum, municipal broadband should be limited to areas where the private 

sector does not or is not likely to serve. To oversee their entry into broadband, 

governments should have to establish entities separate from the agencies that regulate 

communications providers in order to avoid conflicts of interests. Finally, the possibility 

of cross-subsidization through a wide range of devices, from tax revenues to below-cost 

loans relying on government borrowing power to discriminatory access to poles and 

conduits that are exempt from the Pole Attachment Act, demand more specific safeguards 

than the general language contained in the bill. 

Conclusion 

As Congress drafts changes to the Telecommunications Act of 1996, we urge you to 

treat like services alike, preferably in a deregulatory environment. We will do the rest by 

raising private risk capital, investing in new technology, offering better customer service, 

creating innovative new programming, and competing with other multichannel video 

providers in order to provide consumers with the best voice, video, and data services 

possible. 

MR. WALDEN. Thank you, Mr. McSlarrow. Mr. Regan, welcome. 

We look forward to your comments, sir. 

MR. REGAN. Thank you, Mr. Chairman. Mr. Chairman, I am here 

on behalf of Corning Incorporated, as well as the Telecommunications 

Industry Association. At the outset I would really like to thank you and 

thank the members of this committee, and I am sure few people come 
85

here to thank you but I am here to thank you. I am here to thank you for 

your leadership on all the broadband issues. 

 As you know, the entire telecom equipment industry has been 

through some very, very difficult times. Over the last year after the 

telecom meltdown, Corning had to lay off thousands and thousands of 

people. We had six fiberoptic plants. We have one left today. And I am 

pleased to say because of the leadership of the members of this 

committee, we now find ourselves in the situation where we are actually 

hiring people again. Folks at this table are buying fiberoptics once again 

and I am pleased to say that since the TRO went into effect, we have 

added about 700 people. So it is great to be on the other side for a while 

adding people. 

 We approach the telecom issues from a narrow perspective. The 

question for us is really what is going to stimulate investment in new 

network technologies, create facilities-based competition in the interests 

of both consumers and producers. We step back, we sort of see this thing 

in terms of two technology shifts that are underway. The first 

technology shift was from dial-up access to current generation 

broadband. It has about a 20-fold increase in capacity. And the next 

generation is from current to next and that is another 20 fold. So let me 

talk about it in terms of a highway. It is like taking 95 from two lanes to 

40 lanes and then taking it yet again from 40 to 800. This is pretty 

significant. 

 Now, the good news is, the first shift is under way. Today in 

America, we now have about 40 million people hooked up to the Internet 

using current-generation broadband capability. That is up from five 

million, about an eightfold increase since the year 2000. And the thing 

that drove this--there are a lot of things--but two things that Government 

has control over are pro-competitive deregulatory policies, and those are 

the things that have helped drive this investment. In the case of 

fiberoptics, we have seen fiber to the prime increase in terms of home 

pass by over 15,000 percent in the case of homes served by over 10,000. 

Admittedly, they are over small bases. Now, the second broadband 

technology shift is just underway. Currently, there are about one-half of 

one percent of Americans getting Internet access over next-generation 

capability. This is a very immature industry. So the next step really is to 

promote competition through streamlined entry into the video domain. 

Video is the applications driver for the next-generation capability. Highdefinition bandwidth uses 150 times more bandwidth capacity than dialup Internet access. So, it is a huge step forward. Now, we studied the 

impact of franchising with respect to our narrow slice in the world and 

that is the narrow slice of fiber to the home or fiber to the prime. We 

have discovered that there are three changes that could make a 
86

significant difference in employment. One is speed of entry, critically 

important as people move into the triple-play market. The second thing 

is to avoid unreasonable build-out requirements, and the third thing is to 

avoid and limit these extraneous obligations that creep into these 

negotiations. Now, we think that your bill really makes a strive at getting 

all three things and we applaud that. 

 The second thing that is important is to promote more competition 

and that gets us into the question of municipal entry. Now, muni’s were 

one of the first early adopters for fiber to the home. It is hard to believe 

but they were. Now the courts have blocked that. This bill fixes that and 

we encourage that. Significantly, this bill also provides some level of 

parity, in that it gives cable companies the same treatment as telephone 

companies in competitive markets. We think that it is a good idea. 

 And finally, I would like to raise a flag of caution with regard to the 

question of net neutrality. Now, it appears to us that consumers are 

being protected today with respect to current generation broadband 

capability with a set of connectivity principles that really came out of the 

technology community. We developed these and proposed them to the 

FCC during the TRO and the FCC has seen light to put those into effect, 

and our friends in the carrier community have all endorsed them. Now, a 

lot of questions have been raised about another set of problems and we 

are concerned about those problems. We are concerned about those 

problems because building these networks is going rough. If you take a 

look at the stocks of the companies that are stepping up, Wall Street is 

not rewarding them for making those investments. In fact, you will see 

that with respect to fiber to the prim, Verizon, you know, has been 

criticized for making these kind of investments. I know that they are big 

companies and everybody said they can absorb these kinds of problems, 

but the fact remains that it is tough for these companies to do this and to 

satisfy their shareholders, so we would encourage you to move very 

carefully into this space to avoid unintended consequences. 

 Thank you, Mr. Chairman. You are on the right track. We 

encourage you to proceed. 

 [The prepared statement of Timothy Regan follows:] 

PREPARED TESTIMONY OF TIMOTHY REGAN, SENIOR VICE PRESIDENT, GLOBAL 

GOVERNMENT AFFAIRS, CORNING INCORPORATED. 

Summary of Testimony of Timothy J. Regan

We approach telecom policy from a very simple perspective. The question for us is: 

What policies will facilitate investment in network technologies to promote facilitiesbased competition in the interest of both producers and consumers alike? 

We believe that there are two technology shifts occurring in the broadband space. 
87

The first broadband technology shift is from dial-up Internet access to current 

generation broadband access. This is characterized as a shift from 56 Kbps narrowband 

Internet access to 1.5 Mbps broadband Internet access – about a 20-fold expansion in 

capacity. 

The second broadband technology shift from current generation to next generation 

broadband is characterized by yet another 20-fold increase in Internet capacity from 1.5 

Mbps to around 25 or 30 Mbps. 

The very good news is that the first shift is well on its way thanks to Congressional 

and FCC leadership. Deployment of current generation broadband in terms of 

subscribership has grown from five million subscribers in the year 2000 to nearly 40 

million last year, an 8-fold increase. Pro-competitive and deregulatory policies have 

facilitated this transition. 

The second broadband technology shift is just beginning. Only 0.5% of American 

households have access to next generation broadband. 

Congress now must decide whether it wants to facilitate investment in next 

generation broadband capability. If so, we recommend that Congress build on its past 

success by pursuing a pro-competitive, deregulatory agenda in the future. 

Promoting competition through deregulation in the video realm is the next logical 

step. The draft bill before you does this by vastly streamlining the franchising process. 

The draft bill also promotes competition by providing the necessary statutory clarification 

to allow municipal entry. 

Finally, we raise the flag of caution on the net neutrality issue because the problem 

we are trying to solve is not obvious. And, serious negative consequences on network 

investment could arise if the wrong action is taken. 

Mr. Chairman, I’m pleased to accept your invitation to testify today on behalf of 

both Corning Incorporated and the Telecommunications Industry Association. 

As you know, Corning is the inventor of low-loss optical fiber. In fact, your former 

colleague in the House of Representatives, Amo Houghton, should be properly identified 

as one of the fathers of fiber optics. He was at the helm of Corning at the time optical 

fiber was invented, and he invested hundreds of millions of dollars to prove to the world 

that data can be transmitted over extremely long distances using glass fibers as thin as 

hair. 

Corning is also a member of the Telecommunications Industry Association. TIA 

provides a forum for over 600 member companies, the manufacturers and suppliers of 

products, and services used in global communications. Many TIA members manufacture 

and supply products and services used in the deployment of the broadband infrastructure 

that enables the distribution of video programming. Because video programming and the 

franchise process is the core of the proposed legislation, my testimony today focuses on 

TIA’s interest in this area. 

We approach telecommunications policy from a very simple perspective. The 

question for us is: What policies will facilitate investment in network technologies to 

promote facilities-based competition in the interest of both producers and consumers? 

Contrary to popular view, we do not see the issue before Congress as a matter of 

choosing sides among the titans. Rather, we see the challenge as one of encouraging and 

allowing all parties to do their part in developing the most robust broadband 

communications network in the world. That is the outcome that will provide the greatest 

benefit to all Americans. 

The First and Second Broadband Technology Shifts

With that in mind, we think it is helpful to review the recent history of broadband 

technology. Essentially, we believe there are two technology shifts occurring in 

broadband. 
88

The first broadband technology shift is from dial-up Internet access to currentgeneration broadband access. This is characterized as a shift from 56 kilobit-per-second 

narrowband capability to around 1.5 megabit-per-second (“Mbps”) broadband capability 

– roughly a 20-fold capacity expansion. 

The second broadband technology shift is from current-generation to nextgeneration broadband access, characterized by yet another 20-fold capacity, from 1.5 

Mbps to as much as 25-30 Mbps. 

To give you an example of the effect of these two shifts, let me use the analogy of a 

highway. The first broadband technology shift is like going from a two-lane highway to 

40-lane highway. The second shift is like from going from 40 lanes to 800 lanes. Just 

imagine I-95 going from 2 to 40 to 800 lanes. 

The good news is that the first shift is well on its way. Progress in technology 

deployment is often measured by the substitution of the new for the old. By this 

measurement tremendous progress has been made in the deployment of broadband, where 

subscribership increased by more than 700% from 5.1 million in 2000 to 39.1 million in 

2005, while dial-up subscribership peaked at 47.3 million in 2002 and has since declined 

to about 40 million subscribers, the level that existed in 2000.1

 

U.S. Current Generation Broadband Subscribers 

(in Millions) 

 

 

 

Source: In-Stat/MDR, FCC, TIA, Wilkofsky Gruen Associates 

The second broadband technology shift has just begun and involves a number of 

different technologies, including fiber to the premises (FTTP), fiber to the node (FTTN), 

fiber to the curb (FTTC), VDSL, DOCSIS 2x and DOCSIS 3.0, satellite and various 

wireless technologies, all of which hold great promise and are in various stages of 

development and deployment. 

 Although TIA companies are involved in all of these technologies, I am most 

familiar with FTTP and will confine my remarks regarding the second broadband shift to 

that technology. With respect to FTTP, the second stage shift, although in its infancy, 

has been profound. From September 2001 to January 2006, FTTP deployment increased 

from 19,400 homes passed to 3.6 million homes passed, an 18,500 % increase in four 

 

1 See Telecommunications Industry Association , Telecommunications Market Review and Forecast, 

2005. 

0

5

10

15

20

25

30

35

40

45

2000 2001 2002 2003 2004 2005

5.1

10.0

16.4

23.9

32.3

39.1
89

years. FTTP subscribership increased from 5,500 in September 2001 to 548,000 in 

January 2006, a 10,000% increase over four years.2

FTTH Homes Passed 

(Cumulative—North America) 

in Thousands 

 

Source: RVA Research

FTTH Homes Connected 

(Cumulative—North America) 

in Thousands 

 

Source: RVA Research 

 

2 See RVA Research, FTTH/FTTP Update, Jan. 2006. 

0

500

1000

1500

2000

2500

3000

3500

4000

Sep-01

Mar-02

Sep-02

Mar-03

Sep-03

Mar-04

Sep-04

Mar-05

Sep-05

19.4 35.7 72.1 110 180.3 189

970

1,619

2,696

3,625

Jan-06

0

100

200

300

400

500

600

Sep-01

Mar-02

Sep-02

Mar-03

Sep-03

Mar-04

Sep-04

Mar-05

Sep-05

5.5 10.35 22.5 38.0

64.7 78.0

146.5

213

322.7

548

Jan-06
90

While Verizon accounts for much of the FTTP deployment in volume, the FTTP 

experience is broadly based. As of October 2005, FTTP had been deployed in 652 

communities across 46 states, with only 34% of those communities served by Verizon.3 

The Importance of Pro-Competitive, Deregulatory Telecommunications Policy

The first broadband technology shift was driven by four forces: competition, 

deregulation, consumer demand for bandwidth, and technology advancement. The 

federal government played a positive and significant role in the first two of those factors 

– competition and deregulation. House passage of the Tauzin-Dingell bill4

 in February 

2002 spurred three major decisions by the FCC which created a favorable environment 

for broadband investment: the cable modem decision of 20025

, the Triennial Review 

Order of 20036

, and, most recently, the DSL decision of 20057. Thus, the procompetitive, deregulatory actions taken by this body and by the Commission have 

worked to encourage the first broadband technology shift. 

To best facilitate the second technology shift, Congress should continue its procompetitive, deregulatory stance. And indeed, Congress has already taken steps in this 

direction. Most recently, with leadership from this Committee, Congress adopted a “hard 

date” for the DTV transition8

 which will release prime spectrum for the development of 

new wireless solutions. Congress has also encouraged the FCC to facilitate competition 

in the wireline voice market by applying the light hand of regulation for VoIP, which will 

enable cable companies and new entrants to compete with incumbent telephone 

companies.9

Promoting competition through deregulation in the video realm is the next logical 

step. Video is the application driver for the deployment of next generation broadband 

because video uses an enormous amount of bandwidth. Even with the latest compression 

techniques, a high definition television signal uses approximately 8 to 9 Mbps, several 

times faster than current-generation broadband. Therefore, a public policy facilitating 

entry of new video providers will result in the deployment of more robust infrastructure, 

increased competition and consequent consumer benefit. 

Specific Problems With The Current Video Franchise Process

Problem 1: Delay

Unfortunately, the current video franchise process does not facilitate the entry of 

new video providers in a timely fashion. The franchise-by-franchise negotiation process 

established under the old monopoly framework is simply too slow and unwieldy to 

encourage the speedy entry of new providers. Verizon has filed documents with the FCC 

establishing that, to serve its entire target area with video service, it must negotiate 

between 2,000 and 3,500 franchises, excluding those in Texas.10 Verizon began 

negotiations with 320 franchise authorities in November 2004 and, as of February 2005, 

 

3 See RVA Research, FTTH/FTTP Update, Oct. 2005. 4 See United States. Cong. House of Representatives. Internet Freedom and Broadband 

Deployment Act of 2001. 107th Cong. H.R. 1542. Washington: GPO, 2001. 5 See FCC GN Docket No. 00-185, CS Docket No. 02-52, (rel. March 15, 2002). 6 See FCC CC Docket No. 01-338, (rel. Aug. 21, 2003). 7 See FCC CC Docket No. 02-33. (rel. Sept. 23, 2005). 8 See Deficit Reduction Act of 2005, Pub. L. no. 109-171, Title III Digital Television Transition 

and Public Safety. 

9 See FCC CC Docket No. 04-267. (adopted Nov. 9, 2004). 10 See FCC MB Docket No. 05-311, Comments of Verizon on Video Franchising, Feb 13, 2006, 

Attachment A at 5. 
91

had only 26 franchises other than those that were automatically issued in Texas.11 For 

those franchises that have been successfully negotiated, negotiation time has ranged 

between two months and 17 months, with an average of 7.65 months.12 The more 

important focus, however, are the negotiations in which Verizon has not been successful: 

in over 80% of the franchise negotiations Verizon initiated in November 2004, a 

franchise still has not been granted.13 

A similar situation has been experienced by BellSouth, which needs to negotiate 

1,000 franchises. As of last month, it had received only 20 franchises, requiring between 

1.5 months and 32 months of negotiation time for each, at an average of 10 months.14 

Moreover, this is not just a problem for the Regional Bell Operating Companies. 

Smaller companies such as Knology, Grande Communications, Guadeloupe Valley 

Telecommunications Cooperative and the Merton Group have all reported a similarly 

protracted period of franchise negotiations, ranging between 9 months and 30 months.15

The delayed entry of these competitive video providers results in less competition, 

less consumer welfare benefit, and delay in the second broadband technology shift. 

Problem 2: Build Out

The second major problem with the current video franchise process is the practice of 

requiring new entrants to build out facilities beyond the area which they find economical. 

For example, in the case of a telephone company entering the video market, video 

deployment logically follows the existing wire center footprint, which typically does not 

follow franchise area boundaries.16 If a telephone company wants to offer video service 

throughout a wire center which covers, say, 30% of a local franchise area, the 

requirement to build out to the entire franchise area might well make it economically 

infeasible to provide video service at all within that franchise area. 

This is not merely a whimsical example. We recently analyzed telephone company 

wire centers in Texas – where the characteristics of wire center deployment are typical of 

the nation on average – and found that only 3% of the wire centers completely overlap 

the geographic area of franchise areas. 

Therefore, the requirement that new entrants build out to an entire franchise area 

will result, in many instances, in potential competitors delaying or even abandoning plans 

to enter new video markets. 

Again, this is not just a Bell Company problem. The National Telecommunications 

Cooperative Association has reported that many of its members, which tend to be small 

rural telephone companies, want to get into the cable business but have reported problems 

with local franchising authorities – particularly unreasonably short build out periods or 

requirements to build outside the carrier’s own service territory.17 

The solution, we believe, is to establish a franchise process which does not require 

such counterproductive build out requirements. 

 

11 See FCC MB Docket No. 05-311, Comments of Verizon on Video Franchising, Feb 13, 2006, 

Attachment A at 4. 

12 See FCC MB Docket No. 05-311, Comments of Verizon on Video Franchising, Feb 13, 2006, 

Attachment A, Exhibit 1. 

13 See supra footnote 11. 14 See FCC MB Docket No. 05-311, Comments of BellSouth Corporation and BellSouth 

Entertainment, LLC, Feb. 13, 2006, at 10, 11. 15 See FCC MB Docket No. 05-311, Comments of the Fiber-to-the-Home Council, Declarations of 

Felix Boccucci, Andy Sarwal, Jeff Mnick, Terrence McGarty. 

16 See FCC MB Docket No. 05-311, Comments of Verizon on Video Franchising, Feb. 13, 2006, at 

40. 

17 See FCC MB Docket No. 05-311, Comments of the National Telecommunications Cooperative 

Association, Feb. 13, 2006, at 4,5. 
92

Problem 3: Extraneous Obligations

The third major problem with the current video franchise process is the imposition 

of extraneous obligations that exceed 1% of revenues. 

The Congress has already indicated its intent to limit payments for franchises by 

establishing in Title VI of the Communications Act that the 5% statutory franchise fee is 

a ceiling for payments “of any kind”.18 Yet, franchise authorities often seek payments 

that far exceed the 5% fee by imposing requirements like the assumption of all Public, 

Education and Government (PEG) costs incurred by the incumbent cable operator over 

the entire span of its service, the installation of institutional networks (I-Nets), the 

requirement to bury aerial plant, the assumption of applications and acceptance fees, 

etc.19 These extraneous requirements increase costs and discourage the investment in 

next-generation broadband capability thereby delaying the second technology shift. The 

solution, we believe, is to prohibit the imposition of extraneous cost beyond 1% of gross 

revenues. 

Treatment of Existing Video Providers

We are also pleased that the draft bill would make its national franchise available to 

existing cable TV providers in competitive markets. We think this is very important in 

order to encourage investment by all providers and to spur healthy competition. 

Municipal Broadband

To promote competition, Congress also should enable municipalities to deploy next 

generation broadband capability. Particularly regarding fiber to the premises, 

municipalities were among the early leaders, even though recent court decisions have 

slowed deployments in a number of states. Although we believe municipalities should 

consider all options before entering the telecom field, if municipal leaders feel that they 

must build their own networks in order to provide satisfactory broadband services to their 

constituents, they should have the freedom to make that decision. The draft bill before 

you includes the necessary statutory clarification to allow municipal entry. 

Net Neutrality

Finally, Congress should avoid taking action which could, in fact, do harm. This 

principle must be applied to the issue which has gained a tremendous amount of attention 

of late – the so-called “net neutrality” issue. 

Clearly, consumers buying broadband access from any provider should get the 

capacity they purchase, it should not be blocked, and they should be able to connect 

devices of their choosing, provided such devices do no harm to the network. These 

principles were originally proposed by the High-Tech Broadband Coalition (HTBC), with 

the participation of TIA, and were adopted by the FCC last year. TIA recently released 

its Broadband Internet Access Connectivity Principles, which reaffirms and adds to the 

abovementioned principles. We attach a copy hereto for your use. 

Similarly, unaffiliated applications developers, as consumers of bandwidth, should 

have rights, as well. They, too, should be able to use the bandwidth they purchase 

without being blocked. However, we have yet to see significant evidence of an actual 

problem. Rather, net neutrality advocates appear to be concerned about potential 

misdeeds rather than actual misdeeds. 

 

18 See U.S.C. Sec. 542(g)(1). 19 See FCC MB Docket No. 05-311, Comments of Verizon on Video Franchising, Feb. 13, 2006, at 

57-75.
93

Conclusion 

We feel that it is crucial for the Congress to continue the string of pro-competitive, 

deregulatory federal policy actions that have occurred regarding telecommunications 

since 2002. The draft legislation now under consideration by this Committee follows in 

that vein. We believe this constitutes good public policy because it will: 1) help meet 

consumer demand for bandwidth; 2) enhance consumer welfare through price 

competition; 3) increase investment; 4) increase jobs; and 5) enhance American 

competitiveness. We are pleased to give it our support. 
94

 MR. WALDEN. Thank you, Mr. Regan. Mr. Misener, welcome. We 

look forward to your comments today, sir. 

MR. MISENER. Thank you very much, Mr. Chairman, and thank you 

for inviting Amazon.com to testify. 

 Mr. Chairman, the phone and cable companies are going to 

fundamentally alter the Internet in America unless Congress acts to stop 

them. They have the market power, technical means, and regulatory 

permission to control American consumers’ access to broadband Internet 

content and they have announced their plans to do so. 
95

 Mr. Chairman, as much as we wish it were otherwise, consumers 

have little or no real choice of broadband Internet access. For the 

foreseeable future, nearly all Americans will have two or fewer providers 

available, the phone company, the cable company or both. Unless 

Congress acts soon, American consumers will receive artificially limited 

choice of broadband Internet content. Phone and cable companies plan 

to restrict American consumers’ access to such content based in large 

part on the lucrative deals they intend to cut with third parties. 

 As best as we can tell, the network operators plan to artificially limit 

consumer choice of broadband Internet content in three essential ways. 

First, each network operator has or is constructing a fast lane for their 

affiliated broadband content provided by itself for its sister company, and 

a slow lane for broadband Internet company provided by others. Second, 

the network operators intend to offer paid prioritization, essentially a 

paid police escort for broadband Internet content providers. Their plan 

that as content enters their slow lanes from an Internet or other network 

access point, the speed with which this content transits their network will 

be determined in part based on whether the content owner paid for 

prioritization. No one is suggesting that certain types of services be 

denied prioritization, just like certain kinds of road traffic like emergency 

services deserve police escort, but such police escort should not be made 

available for a fee, otherwise those unable to pay the fee will always be 

stuck in traffic. And third, network operators intend to offer downstream 

content injection, essentially local on ramps to content providers who are 

willing to pay. This would enable content to be delivered from 

geographic locations closer to consumers and provide better user 

experiences. Although content providers have no expectation that such 

local on ramps must be provided for free, network operators must not 

offer local on ramps on discriminatory terms for affiliated traffic. 

 Mr. Chairman, the bill appropriately addresses the preservation of 

American consumers’ longstanding freedom of choice of Internet content 

in the context of national video franchising relief. Unfortunately, with 

all due respect, the bill’s provisions are wholly inadequate to preserve 

American consumers’ freedom of choice of Internet content. These 

provisions would not keep the network operators from cutting paid police 

escort deals that would adversely affect the traffic of other content 

providers who can’t or won’t pay and these provisions would not keep 

the operators from insisting upon unreasonable or discriminatory terms 

for leasing local on ramps. 

 Mr. Chairman, we respectfully ask that Congress insert and enact 

modest, but effective safeguards to reinstate limited protections that the 

FCC recently abandoned and thereby preserve American consumers’ 

longstanding freedom of choice of Internet content. First, for traffic 
96

within the broadband networks, Internet access lane police escort, a kind 

of prioritization, may be provided only based on the kind of traffic and 

whether the consumer has paid more for a somewhat higher speed limit, 

and second, local on ramps into the Internet access lane need not be free, 

but the road owner must not charge unreasonable or discriminatory rates 

to favor their own or some other’s traffic. 

 In conclusion, Mr. Chairman, the phone and cable companies are 

going to fundamentally alter the Internet in America unless Congress acts 

to stop them. They have the market power, technical means and 

regulatory permission to control American consumers’ access to 

broadband Internet content and they have announced plans to do so. I 

urge that you reject as inadequate the provisions of the bill and instead 

insert and enact modest but effective safeguards to preserve American 

consumers’ longstanding freedom of Internet content and choice. Thank 

you very much, and I look forward to your questions. 

 [The prepared statement of Paul Misener follows:] 

PREPARED STATEMENT OF PAUL MISENER, VICE PRESIDENT FOR GLOBAL PUBLIC POLICY,

AMAZON.COM

 Good morning, Chairman Upton, Mr. Markey, and members of the Subcommittee. 

My name is Paul Misener. I am Amazon.com’s Vice President for Global Public Policy. 

Thank you very much for inviting me to testify on this important matter. I respectfully 

request that my entire written statement be included in the record. 

 

I. INTRODUCTION 

 Mr. Chairman, the phone and cable companies are going to fundamentally alter the 

Internet in America unless Congress acts to stop them. They have the market power, 

technical means, and regulatory permission to control American consumers’ access to 

broadband Internet content, and they’ve announced their plans to do so. 

 American consumers have little or no real choice of broadband Internet access and – 

unless Congress acts soon to reinstate modest safeguards recently removed by the FCC – 

consumer choice of broadband Internet content will be artificially limited. In my time 

this morning, I will describe the market power of network operators and the details of 

how they intend to extend that market power to limit consumer choice of content, such as 

movies, television, and music. I then will describe how the Committee Print (the “bill”) 

fails to confront this clear and present danger. Lastly, I will propose modest but effective 

safeguards to preserve American consumers’ longstanding freedom of Internet content 

choice. 

 We simply ask that Congress keep the telco and cable operators from taking their 

market power over broadband Internet access and extending it to market power over 

broadband Internet content. 

 Amazon.com, an Internet-based retailer with tens of millions of American 

customers, is involved in these discussions because we want to ensure that our customers 

retain the unimpaired ability to access the broadband Internet content of their choice, 

including that content available from Amazon.com. Currently, consumers pay for 

Internet access, and have the freedom to select lawful content from providers like 

Amazon, who themselves have invested billions of dollars in content and pay network 

operators millions of dollars a year for Internet access. We fear a circumstance in which 
97

broadband network operators, among whom consumers have no real choice, are 

permitted to prefer certain content and thereby limit consumer access to other content. 

Other large companies, including eBay, Google, IAC/Interactive, Microsoft, and Yahoo, 

join Amazon in expressing this concern. 

 This is not just a big company concern, however. Earlier this month, six dozen 

entities, ranging from the AARP and the Consumer Federation of America, to Educause 

and Internet2, wrote to the full Energy and Commerce Committee to say that, “[w]hile it 

is appropriate for Congress to develop new legislation to promote competition among 

broadband networks, it must also ensure that consumers and providers continue to have 

the right to use those networks to send and receive content, and to use applications and 

services, without interference by network operators.” Amazon hopes that these views 

and, most importantly to us, the interests of our customers, will be thoroughly considered. 

II. CONSUMERS HAVE LITTLE OR NO REAL CHOICE OF BROADBAND 

INTERNET ACCESS 

 Mr. Chairman, as much as we wish it were otherwise, consumers have little or no 

real choice of broadband Internet access. For the foreseeable future, nearly all Americans 

will have two or fewer providers available: the phone company, the cable company, or 

both. And, unfortunately, even the lucky consumers for whom multiple service providers 

are available will continue to face discouragingly high costs of switching among them. 

Equipment swaps, inside wiring changes, technician visits, long term contracts, and the 

bundling of multiple services all contribute to these costs. 

 Despite the common misconception that the Internet grew up in an unregulated 

environment, its growth and success were due in large measure to the extensive rules that 

governed its infrastructure until last year when the FCC issued its final wireline 

broadband order. Although many of these rules were outdated and worthy of 

deregulation, it makes sense to completely abandon longstanding non-discrimination 

requirements only if and when the market is truly competitive. The FCC believes that the 

market is competitive, but it is not. 

 Indeed, the FCC’s data on the competitive availability of broadband access are 

fundamentally misleading. These data, which purport to show multiple broadband 

service providers in many areas of the country, completely obscure the realities faced by 

individual consumers. Unfortunately, however, these data also were the basis for the 

Commission’s recent actions. 

 In the first place, the data count as high-speed broadband any services that deliver as 

little as 200 kbps in one direction. Although this may have been a reasonable definition 

of broadband a decade ago, it is preposterously slow today, incapable of delivering even 

standard definition live video, and one five-hundredth the speed being deployed to 

millions of consumers in Korea and elsewhere. Second, the geographic areas analyzed 

are zip codes, not individual neighborhoods or households. So while there may be three 

or four true broadband network operators (for example, two telcos and two cable 

companies) serving small separate areas in a zip code, no one consumer may have access 

to more than two of them (one telco and one cable company). And, third, the data 

include lines of network operators that serve small businesses (for example, in office 

parks) but not residential neighborhoods. 

 The result of these misleading FCC data is that the amount of broadband consumer 

choice is portrayed as wildly optimistic, particularly when the aforementioned high 

switching costs are considered. If it really were easy for Americans to switch among 

five, six, or more true broadband Internet access providers, the market would be 

competitive and legislated consumer safeguards would be unnecessary. 

 What exists, unfortunately, is at best an oligopoly and, for the vast majority of 

Americans, a duopoly of the local phone and cable companies. Widespread deployment 

of alternative broadband technologies capable of high quality video remains a distant 
98

hope, and the promise of inter-regional local phone company competition is all but dead. 

In such oligopolistic conditions, firms easily can and do leave consumers with fewer 

services, higher prices, or both. 

 To be clear, we don’t oppose network operators’ entry into competing businesses so 

long as they are not allowed to leverage their market power over broadband Internet 

access to favor these ancillary endeavors. Also, we welcome broadband network 

operators’ innovations within the network. With Moore’s Law at work, network 

operators ought to be able to deploy innovative new technologies and services that, with 

increasing efficiency, provide benefits to operators and users alike. Moreover, we don’t 

begrudge the phone and cable companies their current market power over the network. 

Despite the longstanding desires and noble aspirations of policy makers, we’re stuck with 

this super-concentrated broadband Internet access market for the foreseeable future. 

 Lastly, although we oppose the collection of monopoly rents, we certainly don’t 

seek to deny network operators a healthy return on their investments. Content providers 

currently pay network operators for the amount of connection capacity they use, and 

network operators can charge consumers different prices depending upon how much 

bandwidth they use. This sort of connectivity “tiering” makes perfect sense. And, of 

course, network operators will charge consumers for the provision of any ancillary 

services, such as affiliated video content. 

 What we seek is more modest, yet far more important: We ask that Congress keep 

the telco and cable operators from taking their market power over broadband Internet 

access and extending it to market power over broadband Internet content. 

III. CONSUMER CHOICE OF BROADBAND INTERNET CONTENT WILL BE 

LIMITED UNLESS CONGRESS ACTS 

 Mr. Chairman, unless Congress acts soon, American consumers will receive 

artificially limited choice of broadband Internet content. Phone and cable companies 

plan to restrict American consumers’ access to such content based in large part on 

lucrative deals they intend to cut with third parties. Such business plans might be 

acceptable if consumers had meaningful choice among network operators. But, as 

described before, consumers have no meaningful choice. 

 In recent years, the FCC has reclassified broadband Internet access by wireline 

service providers, both telco and cable. Although the Commission adopted a policy 

statement that confirms the agency’s statutory authority and possible intentions to act, the 

statement fails to address some likely discriminatory behaviors and, in any case, the FCC 

decided to make it unenforceable. So, with the exception of weak merger conditions that 

apply the FCC’s policy statement to a few network operators, and expires for no apparent 

reason in 18 months (the market certainly won’t be competitive by then), telcos and cable 

companies may artificially limit consumer access to content at will. Because consumer 

access to content is in jeopardy, Congress needs to act. 

 Just as it is clear that the network operators have the market power to limit consumer 

choice of broadband Internet content, it has become equally clear that they fully intend to 

do so. Not only have the telcos and cable companies stridently and steadfastly opposed 

any meaningful network neutrality rules, their most senior executives have, over the past 

six months (noticeably after the FCC’s final reclassification actions), issued refreshingly 

honest statements that reveal their plans for limiting consumer access to content. Simply 

put, the network operators are planning to limit consumer choice of broadband Internet 

content based in part on deals they intend to strike with content providers. Although the 

network operators have been somewhat less clear on exactly how they intend to limit 

consumer access, their FCC filings and public statements reveal that they plan to do so in 

three key ways. 

 Before I describe the three key ways operators plan to limit consumer access to 

content, please allow me to summarize their technology plans. Although there are many 
99

differences among the technologies the duopoly network operators intend to use (hybrid 

fiber-coax by the cable operators and either fiber-to-the-home or fiber-to-the-node plus 

DSL twisted pair by the telco operators), all three technologies have been designed to 

operate the same way in practice, with two downstream components: a very high 

capacity (“fast lane”) cable-like private network component, and a much lower capacity 

(“slow lane”) downstream broadband Internet access component. The fast lane will be 

operated as a closed network, while the slow lane will be more (but, as it turns out, 

perhaps not entirely) open. 

 A. Specific Network Operator Plans 

 As best as we can tell, the network operators plan to artificially limit consumer 

choice of broadband Internet content in three essential ways: (1) a closed fast lane and an 

open slow lane; (2) paid ‘police escort’ within the slow lane; and (3) preferential “local 

on-ramps” into the slow lane. 

 1. Closed Fast Lane and Open Slow Lane. First, as noted before, each 

network operator has or is constructing a fast lane for their affiliated broadband content 

provided by a sister company and a slow lane for broadband Internet content provided by 

others. The fast lane they reserve for themselves is a closed, private network. This has 

always been the case for cable operators and, even for the telco operators deploying 

broadband, make no mistake: the overall broadband pipes they’re deploying are mostly 

just another version of cable TV, not broadband Internet. Consumers should recognize 

that despite the nearly ubiquitous and puffy advertising, it’s not about “your world, 

delivered,” it’s mostly about their world. 

 2. Paid Police Escort within the Slow Lane. Second, the network operators 

intend to offer paid prioritization (essentially a paid “police escort” in the slow lane) for 

broadband Internet content providers. Their plan is that, as content enters their slow 

lanes from an Internet or other network access point, the speed with which this content 

transits their network will be determined, in part, based on whether the content owner 

paid for prioritization. The terms of art the network operators use to describe this 

prioritization include “quality of service” and “tiering.” Each term is intentionally 

confusing. No one is suggesting that certain types of services be denied prioritization, 

just like certain kinds of road traffic, like emergency services, deserve police escort. But 

such police escort should not be made available for a fee; otherwise those unable to pay 

the fee will always be stuck in traffic. Put another way, to prioritize some traffic is to 

degrade other traffic. It’s a zero-sum game at any bottleneck. This fact is intentionally 

obscured by network operators, who incorrectly claim that they will not degrade anyone’s 

content. Neutral prioritization (for example, network management whereby all live video 

receives priority above all text files) would be perfectly acceptable. But for an operator 

to offer priority to the highest bidder, the degradation of service to content providers who 

can’t or don’t pay is unfair, at best. 

 As should be obvious, small businesses will have a very hard time innovating if they 

need to pay for ‘police escort’ prioritization to compete. When some companies like 

mine have noted this previously, some of the network operators respond with something 

to the effect of “beware when big companies are looking out for the interests of little 

ones.” That response seeks to change the subject and obscure three key points. First, it 

doesn’t change the underlying fact that small entrepreneurs – facing a possible bidding 

war among big companies – are going to be hurt unless Congress does something now. 

Second, many of the big companies noting this imminent throttle on small company 

innovation were, indeed, innovative small companies only just a few years ago. And, 

third, on behalf of our customers, we want to ensure that our innovations – essentially 

new businesses operating in start-up mode by our employees – are not hindered in the 

same way. We merely want, as Vint Cerf so clearly puts it, “to innovate without 
100

permission” of the network operators. Surely the small start-up entrepreneurs of today 

want the same freedom to invent. 

 3. Preferential Local On-Ramps into the Slow Lane. Lastly, the network 

operators intend to offer downstream content injection (essentially “local on-ramps” for 

the broadband slow lane) to content providers who are willing to pay. This would enable 

content to be delivered from geographic locations closer to consumers and provide better 

user experiences. Such local on-ramps already are provided in a competitive access 

market by companies such as Akamai, which has servers distributed throughout the 

United States so that content can be delivered quickly to consumers, rather than having to 

traverse great distances on the Internet. Although content providers have no expectation 

that such local on-ramps must be provided for free, network operators must not offer 

local on-ramps on discriminatory terms for affiliated traffic. 

 B. Network Operator Claims 

 So how do the network operators discuss these plans? They obfuscate. For 

example, most network operators say they won’t, quote, “block” websites. This 

relatively new concession is neither noble nor comforting and, in fact, it is quite 

misleading. While they may not actually block access to a particular website, they easily 

could make that site’s content unusable, either by overly constraining capacity (making 

the slow lane too slow); by providing prioritization only to those willing and able to pay 

(the paid “police escorts”); or by providing downstream injection (the local on-ramps) 

only on unreasonable or discriminatory terms. So it’s a matter of semantics: they may 

never block content but still could make it unusable. 

 Other network operators say, dismissively, that this is a “solution in search of a 

problem,” or that policymakers should wait for a problem to arise before acting. But 

what further proof is needed? The time to act is now. To ignore the network operators’ 

economic and technical power, their strident and steadfast opposition to meaningful 

safeguards, their bold announced intentions, and their increasingly clear specific plans, is 

truly to turn a blind eye to an obvious and serious threat to consumers. 

IV. THE BILL WOULD FAIL TO PRESERVE CONSUMER FREEDOM OF 

CHOICE OF INTERNET CONTENT 

 Mr. Chairman, the bill appropriately addresses the preservation of American 

consumers’ longstanding freedom of choice of Internet content in the context of national 

video franchising relief. The principal reason for granting national video franchising 

relief is, of course, the introduction of additional video competition for consumers. It 

would be counterproductive, however, to facilitate the delivery of content of one 

additional competitor (the phone company), while limiting the availability of thousands 

of other competitors via the Internet. In the interests of competition and consumer 

choice, therefore, video franchising relief must not be granted without meaningful 

broadband Internet content safeguards; otherwise, consumers will receive less, not more, 

choice of content. 

 Unfortunately, Mr. Chairman, and with all due respect, the bill’s provisions entitled 

“Enforcement of Broadband Policy Statement” are wholly inadequate to preserve 

American consumers’ freedom of choice of Internet content. The underlying vague FCC 

statements of how consumers have various entitlements need strengthening and 

elaboration, or otherwise could result in invitations to litigation in which the courts, not 

Congress, make critical policy. 

 Most fundamentally, these provisions would not keep the network operators from 

cutting “paid police escort” deals that would adversely affect the traffic of other content 

providers who can’t or don’t pay. Entitling consumers to “access” content and services 

does not clearly ensure that such content or services will be usable if it gets 

discriminatorily slowed in traffic. And these provisions would not keep the operators 
101

from insisting upon unreasonable or discriminatory terms for leasing “local on-ramps.” 

Entitling consumers to competition among content and service providers doesn’t clearly 

prohibit network operators from biasing the competition. 

 In short, the most likely and dangerous anti-consumer discriminatory behaviors of 

broadband network operators would not be thwarted by the provisions of the bill. 

 Moreover, as I noted in my testimony before this Subcommittee almost three years 

ago, and as the FCC recognized in its final wireline broadband reclassification order last 

August, the Commission does not need new authority to act in this area. What the FCC 

needs is to be directed by Congress to use its authority to prevent the network operators 

from artificially constraining American consumers’ choice of broadband Internet content. 

To deny the agency its general rulemaking and enforcement authority with respect to 

even the modest protections of the Commission’s earlier policy statement apparently 

disregards the operators’ power and intentions. 

V. MODEST SAFEGUARDS WOULD PRESERVE CONSUMER FREEDOM OF 

CHOICE OF INTERNET CONTENT 

 Mr. Chairman, we respectfully ask that, in lieu of the current “Enforcement of 

Broadband Policy Statement” provisions of the bill, Congress insert and enact modest but 

effective safeguards to reinstate limited protections that the FCC recently abandoned, and 

thereby preserve American consumers’ longstanding freedom of choice of Internet 

content. Without much effort, these safeguards can be narrowly drawn so that operators’ 

private networks are not invaded and so that operators are appropriately compensated for 

the services they provide. 

 Two essential consumer safeguards we seek can be summarized as follows: 

(1) Content transiting an operator’s broadband Internet access network may be 

prioritized only on the basis of the type of content and the level of bandwidth 

purchased by the consumer, not ownership, source, or affiliation of the content. 

(That is, for traffic within the broadband network’s Internet access lane, “police 

escort” may be provided only based on the kind of traffic and whether the 

consumer has a paid more for a somewhat higher speed limit.) 

(2) The terms for local content injection must be reasonable and nondiscriminatory; network operators must not be allowed to give preferential 

deals to affiliated or certain other content providers. (That is, “local on-ramps” 

into the Internet access lane need not be free, but the road owner must not 

charge unreasonable or discriminatory rates to favor their own or only some 

others’ traffic.) 

 With these two modest safeguards, appropriately drafted and clarified, American 

consumers could be confident that their longstanding choice of lawful Internet content 

will not be limited by network operators. 

VI. CONCLUSION 

 In conclusion, Mr. Chairman, the phone and cable companies are going to 

fundamentally alter the Internet in America unless Congress acts to stop them. They 

have the market power, technical means, and regulatory permission to control American 

consumers’ access to broadband Internet content, and they’ve announced plans to do so. 

 For the foreseeable future, American consumers will have little or no real choice of 

broadband Internet access. And – unless Congress acts soon to reinstate modest and 

longstanding consumer safeguards – consumer choice of broadband Internet content will 

be artificially limited. I urge you and your colleagues to recognize that, despite how we 

wish it were otherwise, the market for broadband Internet access is not competitive and 

that the network operators fully intend to extend their market power to limit consumer 

choice of content. I also urge that you reject as inadequate the provisions of the bill and, 
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instead, insert and enact modest but effective safeguards to preserve American 

consumers’ longstanding freedom of Internet content choice. 

 Thank you. I look forward to your questions. 

 MR. WALDEN. Thank you, Mr. Misener. Thank you for your 

testimony. Mr. Keefe, welcome. We look forward to your comments, 

sir. 

MR. KEEFE. Thank you. Good afternoon, Mr. Chairman. My name 

is Dave Keefe. I am the CEO and co-founder of Atlantic Broadband, 

which operates in six States. I am also a board member of the American 

Cable Association which has members in every State. 

 Mr. Chairman, I would like to separate my remarks into two distinct 

elements. To start, and in regards to the committee print, there are three 

issues I would like to address. 

 First, while we didn’t ask Congress to alter the franchising rules, we 

appreciate that the committee print takes on reform in a technological 

and competitively neutral manner. Second, regarding net neutral, ACA 

member companies are examining the effects of this language and will 

provide more specific comment to the committee. Finally, while 

competition is something our members welcome and experience, we 

have concerns with municipal overbills in communities where we have 

already invested. 

 In short, ACA members view favorably the evolution of the 

committee print. We appreciate this draft does not include the market 

test and uniform rate requirements that have been rumored for inclusion. 

Having said that, the American Cable Association cannot support 

legislation that is silent on what we consider to be one of the core issues 

still unaddressed, the lack of competition in the video marketplace. If 

Congress wants to improve video services as stated here, we must 

address the problems retransmission consent is causing. 

 Mr. Chairman, the ACA is not alone in recognizing the need for 

retransmission consent reform. In fact, Echostar, the National 

Telecommunications Cooperative Association, OPASTCO, the 

Broadband Service Providers Association and many other interest groups 

have joined forces for reform. Retransmission consent rules were put 

into place to allow local broadcasters to seek compensation from local 

cable operators for carriage of the local broadcast signals. This 

governmental grant was provided to free, over-the-air broadcasters, in 

addition to the grant of must carry. The Government supplemented these 

benefits by also granting broadcasters exclusivity rights in any given 

broadcast market to ensure that a competing channel in a neighboring 

market cannot be substituted. These anti-competitive rules guarantee the 

broadcaster is the sole supplier of broadcast network in a given market 

with absolute pricing power and the leverage to pull that broadcast signal 
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from the provider. Is it any wonder that such entities like ACA and 

Echostar, who see the problems retransmission consent is creating for 

consumers, are calling for action while the monopolists that benefit from 

the skewed regulatory scheme are telling Congress that there isn’t a 

problem. Doesn’t that tell you something? 

 So why must retransmission consent be eliminated? Well, first, it 

raises prices for programming without regard for the value that the 

consumer may or may not put on it. Second, it reduces diversity in 

programming by limiting most new channels to those offered by 

conglomerates that can compel carriage using their governmentalgranted spectrum signal leverage. And third, it does not encourage 

localism but it has become a means for extracting unjustified nonmarket-based fees for the consumer. Therefore, we urge you to allow a 

competitive marketplace to replace the regulatory scheme that today 

simply guarantees profits for the lucky few companies that won the 

spectrum lottery from the Government back in the ‘40s and the ‘50s. 

Broadcasters have attempted to discredit our concerns as misguided in 

order to deflect any review of the real story which would reveal the costs 

of this scheme to consumers. We have put some sunshine on this. But I 

urge you not to be distracted by their tactics. Listen to what the 

broadcasters not only are saying to Congress, but what they are telling 

Wall Street. CBS President and CEO Les Moonves was quoted earlier in 

the month as bragging to Wall Street that retransmission consent could, 

“amount to hundreds of millions of dollars to the CBS network.” 

Sinclair CEO David Smith joyfully told an investors’ conference earlier 

this month that he plans to quadruple retrans revenue to $100 million 

within three years, saying that “it is very clear to us, everybody is going 

to pay; the only issue is what day and how much.” It appears the 

networks view retransmission consent as a means to extract hundreds of 

millions of dollars from your constituents, our customers’ pockets in 

order to receive their free over-the-air signals. Is that really what you 

want to tell your constituents you let happen during this debate? 

 Mr. Chairman, many argue this topic is not appropriate for this bill 

and it should just be swept under the rug, but it is vitally important for 

you to consider fixing the problems for all providers before it is too late, 

even of the new entrants you aim to help with this bill. Creating a 

competitive pipe that dead ends at the doorstop of monopoly providers 

will not provide your constituents a better experience and will not allow 

me to innovate and create products your constituents and our customers 

would want us to offer. I urge you now to act to stand with cable 

operators, with family, faith-based organizations, satellite companies, 

rural telephone companies, rural co-ops, and consumer groups, a pretty 
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unusual and broad alliance, I might add, by unleashing the power of the 

marketplace for your constituents and my customers. Thanks. 

 [The prepared statement of David J. Keefe follows:] 

PREPARED STATEMENT OF DAVID J. KEEFE, CHIEF EXECUTIVE OFFICER, ATLANTIC 

BROADBAND, ON BEHALF OF AMERICAN CABLE ASSOCIATION

Thank you, Mr. Chairman. My name is Dave Keefe, and I am the CEO of Atlantic 

Broadband and a board member of the American Cable Association. My independent 

cable company, Atlantic Broadband, serves customers in six states. ACA represents 

1,100 smaller and medium-sized cable companies that primarily serve smaller markets 

and rural areas located in every state. 

Our members proudly invest their own capital into their systems to provide many of 

the services today that your legislation intends to promote. The advanced video and 

high-speed Internet access we offer in many of our more rural markets often represents 

the only option our customers have to avoid being on the losing end of the “digital 

divide.” 

I would like to separate my remarks today into two distinct elements. 

First, I would like to briefly give ACA’s commentary on the language currently in 

the Committee Print. 

Second, and more importantly, I would like to mention the one issue that ACA 

strongly urges the Committee to include in the legislation if it wants to ensure that the 

stated goal of promoting and enhancing broadband development and the many exciting 

services it can bring with it is to be realized by the consumers in the smaller and rural 

markets we serve. 

To start and in regards to the Committee Print, there are three issues I would like to 

address. 

First, while we did not ask Congress to alter the franchising rules and have largely 

enjoyed a productive relationship with our local franchising authorities, we do not oppose 

the language in the Committee Print and appreciate the Committee Print taking on these 

reforms in a technology and competitively neutral manner. 

Second, the language pertaining to “net neutrality” is another issue the ACA has not 

pursued with Congress. ACA member companies are still examining the effects of this 

language and I would ask if the Association be able to follow up with more specific 

comments soon. In the interim and on behalf of virtually all of our ACA member 

companies that currently offer high-speed Internet service in smaller and rural markets, I 

do not today see this language as posing monumental concerns at this time to ACA. 

Lastly, while competition is something our members welcome and currently 

experience on multiple fronts, we do have concerns with municipal overbuild efforts in 

the communities we have already invested in and would urge the Committee to 

encourage municipalities to invest in areas that are currently unserved by existing 

providers. 

In short, on behalf of the members of the American Cable Association, we do not 

oppose the Committee Print and appreciate the Chairman taking out of the Committee 

Print the market test based language we had seen in previous drafts. 

Having said this, the American Cable Association cannot support legislation that is 

silent on what we consider to be the fundamental issue facing our members in rural and 

smaller markets across this country, specifically the market abuses we witness on a daily 

basis by the programmers as a result of retransmission consent rules and regulations that 

are just as ripe for reform as the franchising rules you have addressed in the Committee 

Print. We are not alone in recognizing this need for retransmission consent reform. In 

fact, EchoStar, the National Telecommunications Cooperative Association, OPASTCO, 
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and the Broadband Service Providers Association have joined forces to push for reform. 

The common link among these diverse voices is the fact that we are not vertically 

integrated and do not own programming. 

Retransmission Consent rules were put in place 14 years ago to allow the local 

broadcaster to seek compensation from the local cable operator for carriage of that local 

broadcast signal. These rules were put into place as an alternative to broadcasters’ mustcarry rights which if exercised, obligate the pay-television provider to carry a broadcast 

station. In addition to this guarantee of carriage – whether it be for free via must-carry or 

for a price via retransmission consent – the government also granted the broadcaster 

exclusivity rights in any given local broadcast market to ensure that a competing channel 

in a neighboring market cannot be substituted. 

These anti-competitive rules allow the broadcaster to be the sole supplier of a 

broadcast network in a given market with absolute pricing power and the leverage to pull 

their broadcast signal from the provider. No wonder the NAB and the big networks are 

fighting to make no changes to the current retransmission consent regime! 

Over the past 14 years, the growing media consolidation we have seen in the 

broadcasting community has allowed for this regulatory regime to be manipulated to 

guarantee profit for the four network conglomerates and major broadcast groups. 

Retransmission consent and exclusivity, coupled with vastly increasing media 

consolidation, provide the means today for broadcasters and networks to extract increased 

costs from consumers and to force carriage of unwanted bundles of programming that 

appeal only to the bottom line of advertisers. 

The broadcasters argue that they do not “require” cable and satellite operators to 

carry channels they do not want. Our members experience something quite different. 

While they may not “require” us to take undesirable programming, they instead provide 

us with a Hobson’s choice: Either take the vast menu of other channels – no matter if 

they are objectionable, indecent, undesirable or invaluable to consumers in our markets – 

at increased prices and you can have our local affiliate at a reasonable price, OR don’t 

take the whole menu and get gouged for the price of the stand-alone affiliate. 

Clearly, these retransmission consent negotiations have evolved into simple 

exercises to increase the bottom line of the Big Four television networks and the major 

broadcast groups: if we choose to carry additional programming whether our subscribers 

find it offensive or not, the broadcaster will make their profit on additional ad revenue 

and additional programming fees for the unwanted programming. If we choose to answer 

our market’s demands and carry only the broadcast channel, the broadcaster will extract 

their profit more directly from my customers and your constituents through direct cash 

payments. 

The members of the American Cable Association are not asking for you to give us 

the broadcast signal for free. Rather, we ask that Congress address our inability to 

“negotiate” as a direct result of the market Congress dictated and designed. 

Pay-television providers, particularly those in smaller and rural markets, have no 

leverage against these programming conglomerates. We are offered a price and left with 

the option to take or leave it. 

We are simply asking for your help to level the playing field so that a real economic 

market can dictate the true cost and value of programming. 

Broadcasters have attempted to discredit our concerns as misguided. Naturally, as 

the beneficiaries of the current regime, they plead for you to make no changes to the 

current retransmission consent regime. However, I would urge you to not only listen to 

what the broadcasters say to Congress, but also look at what they tell Wall Street. 

CBS President and CEO Les Moonves was quoted earlier this month as saying that 

retransmission consent negotiations could “amount to hundreds of millions of dollars in 

revenue to the CBS network.” Sinclair CEO David Smith told an investor conference 

earlier this month that he plans to quadruple retrans revenue to $100 million within 3 
106

years, saying that, “It’s very clear to us everybody is going to pay; the only issue is what 

day and how much.” 

Again, we are not asking for the broadcast signal for free, but I do ask, how does a 

process that gives this much leverage to a few conglomerates to increase revenue at an 

alarming rate by pushing down costs and carriage to my members and your constituents 

promote localism? How does this help control cable and satellite rates? How does this 

give more flexibility and options to operators to deliver programming people want to see? 

You may ask “why is this relevant to the Committee Print we examine today?” I am here 

today to tell you that if the goal of this legislation is to inject competition in the 

marketplace in order to lower rates, you cannot inject competition only on the provider 

side of the equation. You must also assess the competition in the video programming 

market. 

If the government wants to uphold market exclusivity for the local broadcaster and 

allow him to seek compensation for his signal, fine. But Congress must also have a 

mechanism – whether it be accountability, transparency or competition for reigning in the 

egregious compensation sought by the broadcaster and paid for by the consumer. 

The current archaic regulatory-governed marketplace for programming gives the 

video provider two options: take it, or leave it. If an operator decides to ‘leave it’, he is 

abandoning localism. If he agrees to ‘take it’, he is raising cable rates for his subscribers. 

Video over IP, which is what your bill intends to promote, will be an exciting way that 

consumers will have choices and options they have never seen or experienced before. Do 

you really want to promote the build out of these pipes and leave analog-world rules in 

place that limit the operators’ flexibility in offering various packages of programming 

and impede the innovation we all envision from flowing through them? 

I urge you to see the same problems that ACA, Echostar, the National 

Telecommunications Cooperative Association, OPASTCO and the Broadband Service 

Providers Association see. Retransmission Consent, as currently constructed, is broken 

and must be fixed for this bill to achieve its stated goal. All the competition and 

infrastructure in the world is useless if the content is controlled by a select few who can 

use an outdated regulatory scheme to extract profits at any rate they see fit. 

 MR. WALDEN. Thank you, Mr. Keefe, and Mr. Fritz, it is good to 

have you here and representing the broadcasters, somebody named Fritz, 

it is unusual, even if it is a different spelling. 

MR. FRITZ. If I could get his checks. Thank you, Mr. Chairman, 

members of the subcommittee. My name is Jerry Fritz. I am the Senior 

Vice President for Legal and Strategic Affairs for Allbritton 

Communications Company. Allbritton operates broadcast television 

stations in several markets including here in Washington, Lynchburg, 

Virginia, Harrisburg, Little Rock, Tulsa, Birmingham, and Charleston, 

South Carolina. We also operate the 24-hour cable news channel here in 

the Washington market. 

 I am testifying today on behalf of the National Association of 

Broadcasters, of which I am a former board member. The television 

industry is pleased to be testifying about the proposed legislation. We 

applaud your effort to promote competition in the video marketplace. 

Greater competition will benefit consumers and broadcasters. We 

support the legislation for this reason and because we understand that it 

will preserve longstanding policies, including carriage and 
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retransmission consent for local broadcast signals and local program 

exclusivity. 

 Our comments on this bill are quite limited. As you know, broadcast 

TV comes to your constituents in several different ways. Some get it 

over the air. Some get it via satellite. Some get it from telephone 

companies and now even via cell phones. Most get it via cable. 

Broadcast television channels are the raw materials that cable and 

satellite operators package with other channels to sell to your 

constituents. This programming costs broadcasters quite a bit of money 

to produce or acquire and it has real value. The question is, should cable 

and satellite operators pay for that value? This question was answered 

14 years ago and the answer was yes. 

 Congress created the retransmission consent process in 1992 to 

reorient a skewed marketplace that prevented broadcasters from realizing 

that value. Congress undertook the complex task of leveling to permit a 

free market to flourish where broadcasters and cable operators could 

bargain as equals over the value of this raw material. Then came John 

Malone, who operated the largest group of cable systems in America. 

Malone drew a line in the sand proclaiming that he would not pay cash 

for broadcast channels. The rest of the cable industry fell in line and 

lockstep. Broadcasters could play chicken and risk losing access to 70 

percent of their customers or forego compensation, but Mr. Malone 

signaled that he would pay for new value to systems, meaning new 

program channels. Up sprang local weather, sports, and regional news 

channels. Your television sets in Cannon, Rayburn, Longworth, and 

Ford, and those on the Senate side as well, all carry news channel 8. 

That is the Allbritton 24-hour cable news channel co-owned with WJLA 

that together produce over 16 and half hours of live news per day. That 

is over four times the average news programming from a typical 

broadcast station. That is localism. It is similar to broadcaster-owned 

news channels in New England, Chicago, Columbus, Seattle, Orlando, 

Raleigh, Austin, Albany, Memphis, even Boise, Idaho. These 

remarkable channels are fostered by our ability to negotiate with cable 

operators. Cable doesn’t pay us for WJLA, but they do for news channel 

8. We win, cable operators win, advertisers win. Our local and regional 

government representatives win with daily access to their constituents 

and most of all, viewers win. Why? Because the retransmission consent 

regimen works. The negotiations are hard and extremely complex. Both 

sides come to the table with value. Cable and satellite together have 

virtual monopoly gatekeeper control over 80 percent of our viewers. On 

the other hand, broadcasters have the most desirable programming on 

cable. We each need one another. 
108

The system is working just as Congress had envisioned it. That was 

underscored just six months ago when Congress’s experts, the FCC, 

reported that broadcasters and cable/satellite operators negotiate on a 

level playing field. The Commission emphasized that the carefully 

balanced combination of copyright, exclusivity rules, and retransmission 

consent provides the benefits that Congress had foreseen. It strongly 

opposed altering just the retransmission consent regimen without also 

addressing other intricate components of the balance. 

 In this day of dramatic cable consolidation, it is important that 

Congress not put its thumb on the scales of free and balanced 

negotiations. We do not need a new Federal mandate interfering with 

private negotiations. 

 Mr. Chairman, broadcasters are happy to provide valuable channels 

to cable and satellite packagers, but like the baker or car manufacturer or 

homebuilder, our raw materials are not free. Tinkering with this freemarket model that demonstrably works will have severe unintended 

consequences including the loss of programming like news channel 8. 

This will dramatically alter the fair allocation of value freely negotiated. 

Thank you. 

 [The prepared statement of Jerry Fritz follows:] 

PREPARED STATEMENT OF JERRY FRITZ, SENIOR VICE PRESIDENT FOR LEGAL AND 

STRATEGIC AFFAIRS AND GENERAL COUNSEL, ALLBRITTON COMMUNICATIONS COMPANY,

ON BEHALF OF NATIONAL ASSOCIATION OF BROADCASTERS

Good morning Chairman Upton, Ranking Member Markey, and Members of the 

Subcommittee, my name is Jerry Fritz. I am the Senior Vice President for Legal and 

Strategic Affairs for Allbritton Communications Company, the parent company of eight 

broadcast television stations including WJLA, Channel 7 here in Washington, DC, along 

with NewsChannel 8, the 24-hour cable news channel in Washington, Maryland and 

Virginia. Today I am testifying on behalf of the National Association of Broadcasters 

(NAB), a trade association that advocates on behalf of more than 8,300 free, local radio 

and television stations and also broadcast networks before Congress, the Federal 

Communications Commission and the Courts. 

The television industry is pleased to be testifying about the proposed legislation, 

which is intended to promote competition in the multichannel video programming 

distribution (MVPD) market by encouraging new entrants. Greater competition in local 

video programming markets across the country would benefit consumers and 

broadcasters by providing new delivery platforms and more choices. Broadcasters 

generally support streamlining the franchising process as a way to promote entry by new 

competitors, such as telephone companies, into the consolidated MVPD marketplace. 

We support the proposed legislation on this basis, and on our understanding that it 

extends long-standing policies designed to promote localism, competition and diversity – 

including carriage and retransmission consent for local broadcast signals and local 

program exclusivity – equally to cable operators obtaining the new national franchise. 

Broadcasters understand that Congress’ basic public policy goal in proposing this 

legislation is to permit a competitive video marketplace to function. That same public 

policy goal was the basis for Congress’ 1992 action creating a marketplace in which 
109

broadcasters have the opportunity to negotiate for compensation for MVPDs’ use of their 

signals to attract paying subscribers. As the Federal Communications Commission 

(FCC) recently found, this retransmission consent marketplace functions as Congress 

intended and benefits broadcasters, MVPDs and, most importantly, consumers. Certain 

cable and satellite companies have recently asked Congress to interfere with these 

market-based negotiations for retransmission consent. These demands for a federal 

mandate purely to benefit MVPD self-interests while usurping the free functioning of the 

market are fundamentally unfair, and pose a very real threat to the ability of broadcasters 

to provide locally oriented programming to communities throughout the country. 

The Deployment of Competitive MVPD Services Will Benefit Consumers and 

Programming Providers, Including Broadcasters 

Television broadcasters support efforts to speed the deployment of new and 

innovative MVPD services. Particularly in light of massive consolidation in the cable 

industry, a new video distribution platform offers great promise. According to the FCC, 

the four largest MVPDs served 63 percent of all MVPD subscribers in 2005, up from 58 

percent in 2004. FCC, Twelfth Annual Report in MB Docket No. 05-255, FCC 06-11 at ¶ 

9 (rel. March 3, 2006). MVPD services offered over the platforms of new competitors 

have the clear potential to introduce much needed competition into this regionally and 

nationally consolidated marketplace. NAB sees this as a positive development for cable 

programming providers unaffiliated with cable operators, broadcasters and, most 

importantly, consumers. 

Simply put, competition leads to better service at lower prices. For example, the 

Government Accountability Office (GAO) has found that competition to an incumbent 

cable operator from a wireline provider resulted in cable rates that were 15 percent lower 

than in markets without this competition. GAO, Issues Related to Competition and 

Subscriber Rates in the Cable Television Industry, GAO-04-8 at 9-11 (Oct. 2003). In 

another study comparing markets with competition from an overbuilder with those 

lacking such competition, GAO found that communities with overbuild competition 

experienced an average of 23 percent lower rates for basic cable and higher quality 

service. GAO, Telecommunications: Wire-Based Competition Benefited Consumers in 

Selected Markets, GAO-04-241 (Feb. 2004). Without question, consumers will benefit 

from the lower prices, improved quality of service, and increased choices that 

competition should bring. 

Video programming providers will also benefit from the timely deployment of a new 

video distribution platform. The emergence of another platform for the distribution of 

video programming will provide programmers unaffiliated with cable operators with 

potential new outlets for reaching viewers and therefore with greater opportunities for 

success in the marketplace. A number of cable programming networks and regional 

sports networks have previously expressed concern that large, consolidated cable 

operators are increasingly able to exclude independent programming networks from their 

systems and, thus, from the marketplace. See, e.g., Twelfth Annual Report at ¶¶ 173, 184. 

The rapid deployment of a competitive video distribution platform will ameliorate such 

problems, thereby also benefiting consumers through additional, diverse programming 

options. 

Local television broadcasters will similarly benefit from the emergence of another 

competitive MVPD service. A new video distribution platform will represent another 

outlet for broadcast programming, including local news and information. Given 

broadcasters’ dependence on advertising revenue (and thus on reaching as many viewers 

as possible), the expansion of our opportunities for reaching consumers must be regarded 

as positive. The development of another video distribution platform for carrying 

broadcast programming may also encourage the development of innovative digital 

television programming, including multicast and high definition (HD) programming. If 
110

new MVPDs emerge as viable platforms for carrying local stations’ HD and multicast 

programs, broadcasters will be encouraged to make the substantial investments needed to 

bring their multicast service plans to fruition. In the end, it is consumers that will benefit 

by receiving a greater diversity of programming, including local programming, from 

multicasting broadcast stations and unaffiliated cable programmers via a competitive 

MVPD. 

Consumers will also benefit from extending long-standing policies designed to 

promote localism, competition and diversity – including carriage and retransmission 

consent for local broadcast signals and local program exclusivity – equally to the new 

multichannel platforms. Over the past decades, Congress and the FCC have adopted and 

maintained must-carry, retransmission consent and program exclusivity policies to 

preserve the viability of local television stations and their ability to serve their local 

communities with a high quality mix of network and local programming. As Congress 

has recognized, and the Supreme Court has affirmed, the preservation of our system of 

free, over-the-air local broadcasting is “an important governmental interest.” Turner 

Broadcasting System, Inc. v. FCC, 512 U.S. 622, 662-63 (1994). 

To maintain a level playing field, the well-established carriage, retransmission 

consent and program exclusivity policies applicable to traditional multichannel video 

providers should apply in a comparable manner to new competitors providing 

comparable video services that will be licensed under the proposed national franchise. 

Broadcasters therefore strongly support the extension of must-carry, retransmission 

consent and program exclusivity policies to MVPDs that will be franchised under this 

legislation. We understand that the legislation does extend these policies, as the new 

Section 630(j) of the Communications Act states that only a very limited number of 

specified provisions “shall not apply to cable operators franchised under this section.” 

Because must carry, retransmission and program exclusivity are not specified among 

these inapplicable provisions, they must accordingly apply to cable operators franchised 

under this new legislation. 

The Marketplace Congress Created for Retransmission Consent Works as Intended 

to the Benefit of MVPDs, Broadcasters and, Most Importantly, Consumers 

Because broadcasters support promotion of a more competitive video marketplace, 

we support Congress’ 1992 action creating a marketplace in which broadcasters have the 

opportunity to negotiate for compensation for MVPDs’ use of their signals to attract 

paying subscribers. As the FCC recently concluded, retransmission consent has fulfilled 

Congress’ purpose for enacting it and has benefited broadcasters, MVPDs and consumers 

alike. 

Prior to the Cable Television Consumer Protection and Competition Act of 1992, 

cable operators were not required to seek the permission of a broadcaster before carrying 

its signal and were certainly not required to compensate the broadcaster for the value of 

its signal. At a time when cable systems had few channels and were limited to an antenna 

function of improving the reception of nearby broadcast signals, this lack of recognition 

for the rights broadcasters possess in their signals was less significant. However, the 

video marketplace changed dramatically in the 1970s and 1980s. Cable systems began to 

include not only local signals, but also distant broadcast signals and the programming of 

cable networks and premium services. Cable systems started to compete with 

broadcasters for national and local advertising revenues, but were still allowed to use 

broadcasters’ signals – without permission or compensation – to attract paying 

subscribers. 

By the early 1990s, Congress concluded that this failure to recognize broadcasters’ 

rights in their signals had “created a distortion in the video marketplace.” S. Rep. No. 92, 

102d Cong., 1st Sess. at 35 (1991) (Senate Report). Using the revenues they obtained 

from carrying broadcast signals, cable systems had supported the creation of cable 
111

programming and services and were able to sell advertising on these cable channels in 

competition with broadcasters. Congress concluded that public policy should not support 

“a system under which broadcasters in effect subsidize the establishment of their chief 

competitors.” Id. Noting the continued popularity of broadcast programming, Congress 

also found that a very substantial portion of the fees that consumers pay to cable systems 

is attributable to the value they receive from watching broadcast signals. Id. To remedy 

this “distortion,” Congress in the 1992 Cable Act gave broadcasters control over the use 

of their signals and permitted broadcasters to seek compensation from cable operators 

and other MVPDs for carriage of their signals. See 47 U.S.C. § 325. 

In establishing retransmission consent, Congress intended to create a “marketplace 

for the disposition of the rights to retransmit broadcast signals.” Senate Report at 36. 

Congress stressed that it did not intend “to dictate the outcome of the ensuing 

marketplace negotiations” between broadcasters and MVPDs. Id. Congress correctly 

foresaw that some broadcasters might determine that the benefits of carriage were 

sufficient compensation for the use of their signals by cable systems. Id. at 35. Some 

broadcasters would likely seek monetary compensation, while others, Congress 

explained, would “negotiate other issues with cable systems, such as joint marketing 

efforts, the opportunity to provide news inserts on cable channels, or the right to program 

an additional channel on a cable system.” Id. at 36. 

Thus, even at the outset, Congress correctly recognized that, in marketplace 

negotiations between MVPDs and broadcasters, stations could appropriately seek a 

variety of types of compensation for the carriage of their signals, including cash or 

carriage of other programming. And while retransmission consent does not guarantee 

that a broadcaster will receive fair compensation from an MVPD for retransmission of its 

signal, it does provide a broadcaster with an opportunity to negotiate for compensation. 

The FCC Recently Recommended that No Revisions Be Made to Retransmission 

Consent Policies 

After some years’ experience with retransmission consent, Congress in late 2004 

asked the FCC to evaluate the relative success or failure of the marketplace created in 

1992 for the rights to retransmit broadcast signals. This evaluation shows that MVPDs’ 

complaints about retransmission consent disadvantaging them in the marketplace or 

somehow harming competition are groundless. In its September 2005 report to Congress 

about the impact of retransmission consent on competition in the video marketplace, the 

FCC concluded that the retransmission consent rules did not disadvantage MVPDs and 

have in fact fulfilled Congress’ purposes for enacting them. The FCC accordingly 

recommended no revisions to either statutory or regulatory provisions relating to 

retransmission consent. FCC, Retransmission Consent and Exclusivity Rules: Report to 

Congress Pursuant to Section 208 of the Satellite Home Viewer Extension and 

Reauthorization Act of 2004 (Sept. 2005) (FCC Report). 

In its report, the FCC concluded that local television broadcasters and MVPDs 

conduct retransmission consent negotiations on a “level playing field.” Id. at ¶ 44. The 

FCC observed that the retransmission consent process provides incentives for both 

broadcasters and MVPDs to reach mutually beneficial arrangements and that both parties 

in fact benefit when carriage is arranged. Id. Most importantly, according to the FCC, 

consumers benefit by having access to the broadcasters’ programming carried via 

MVPDs. Id. Overall, the retransmission consent rules have, as Congress intended, 

resulted in broadcasters being compensated for the retransmission of their stations by 

MVPDs and MVPDs obtaining the right to carry broadcast signals. Id.

Given these conclusions, the FCC recommended no changes to current law 

providing for retransmission consent rights. Moreover, the FCC explained that the 

retransmission consent rules are part of a “carefully balanced combination of laws and 

regulations governing carriage of television broadcast signals.” Id. at ¶ 45. Thus, if 
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Congress were to consider proposals to restrict broadcasters’ retransmission consent 

compensation, the FCC cautioned that review of other rules, including must carry and 

copyright compulsory licensing, would be necessary as well “to maintain a proper 

balance.” Id. at ¶¶ 33, 45. 

MVPDs’ Complaints about Retransmission Consent Are Groundless 

Especially in light of this recent FCC report, the various repetitive complaints of 

MVPDs about the alleged unfairness of retransmission consent ring hollow. For instance, 

some cable operators have complained about the retransmission consent fees purportedly 

extracted from them by broadcasters. These complaints are especially puzzling because, 

as the FCC recently reported, cable operators have in fact consistently refused to pay cash 

for retransmission consent. FCC Report at ¶¶ 10, 35. As a result, most retransmission 

consent agreements have involved “a cable operator providing in-kind consideration to 

the broadcaster,” and cash is not yet “a principal form of consideration for retransmission 

consent.” Id. at ¶ 10. This in-kind consideration has included the carriage of affiliated 

nonbroadcast channels or other consideration, such as the purchase of advertising time, 

cross-promotions and carriage of local news channels. Id. at ¶ 35. 

Given that cable companies have rarely paid cash for retransmission consent of local 

broadcast signals, this Committee should reject any MVPD claims that broadcasters’ 

retransmission consent fee requests are unreasonable or are somehow the cause of cable 

rates that for years have increased at more than double the rate of inflation. In fact, in 

late 2003, a GAO study did not find that retransmission consent has lead to higher cable 

rates. See GAO, Issues Related to Competition and Subscriber Rates in the Cable 

Television Industry, GAO-04-8 at 28-29; 43-44 (Oct. 2003). In contrast, the two GAO 

studies discussed above showed the lack of competition to cable operators, especially by 

wireline providers, to be a significant cause of higher cable rates. 

Complaints from MVPDs that some broadcasters attempt in retransmission consent 

negotiations to obtain carriage for additional programming channels are ironic, to say the 

least. As the FCC found, broadcasters began to negotiate for carriage of additional 

program streams in direct response to cable operators’ refusal to pay cash for 

retransmission consent of broadcast signals. FCC Report at ¶ 10. Certainly any claims 

that cable operators somehow have been forced to carry unwanted programming as the 

result of retransmission consent are disingenuous. Under the retransmission consent 

regime, no cable operator is compelled to carry any channel, whether a local broadcast 

channel or an allegedly “bundled” programming channel. And if a cable operator prefers 

not to carry any channel beyond a broadcaster’s local signal, cash alternatives are offered 

in retransmission consent negotiations. For example, EchoStar recently completed 

negotiations with Hearst-Argyle Television for a cash-only deal at a marketplace rate. 

Accordingly, there is no merit to allegations that broadcasters force MVPDs to carry 

indecent programming or that they limit MVPDs’ ability to offer “family friendly” tiers. 

Clearly, MVPDs want to have their retransmission cake and eat it too. In one 

breath, MVPDs complain that broadcasters are unreasonable in requesting cash payment 

for carriage of their local signals; in the next, they assert that negotiating for carriage of 

additional programming is also unreasonable. In essence, MVPDs argue that 

retransmission consent is somehow inherently invalid because broadcasters should give 

their signals to MVPDs without compensation in any form. But there is no legal, factual 

or policy reason that broadcasters – unique among programming suppliers – should be 

singled out not to receive compensation for the programming provided to MVPDs, 

especially given MVPDs’ increasing competition with broadcasters for advertising 

revenue. Indeed, when enacting retransmission consent, Congress noted that cable 

operators pay for the cable programming they offer to customers and that programming 

services originating on broadcast channels should be treated no differently. Senate 

Report at 35. 
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Some cable operators have also presented an inaccurate picture of the video 

marketplace by contending that, in rural areas and smaller markets, powerful broadcast 

companies have undue leverage in retransmission consent negotiations with local cable 

operators. This is not the case. The cable industry as a whole is concentrated nationally 

and clustered regionally and is dominated by a smaller and smaller number of larger and 

larger entities. See Twelfth Annual Report at ¶¶ 152, 154. This consolidation will only 

continue assuming that the pending acquisition of Adelphia Communications by Comcast 

and Time Warner is approved. In contrast, a strict FCC duopoly rule continues to 

prohibit broadcast television station combinations in medium and small markets. In fact, 

a majority of cable subscribers in Designated Market Areas 100+ are served by one of the 

four largest cable MSOs, while only about three percent of the television stations in these 

markets are owned by one of the top ten television station groups. Thus, in many 

instances in these 100+ markets, small broadcasters – which are facing severe financial 

pressures -- must deal with large nationally and regionally consolidated MVPDs in 

retransmission consent negotiations. In sum, local broadcasters in medium and small 

markets do not possess unfair leverage over increasingly consolidated cable operators. 

Indeed, in small and large markets alike, nationally and regionally consolidated 

MVPDs have been able to exert considerable market power in retransmission consent 

negotiations, at the expense of local broadcasters. In actual retransmission consent 

agreements, broadcasters have frequently had to accept a number of egregious terms and 

conditions, especially with regard to digital carriage. 

For example, it is not uncommon for MVPDs in retransmission agreements to refuse 

to carry a station’s multicast digital signal that contains any religious programming 

and/or any programming that solicits contributions, such as telethons or other charitable 

fundraising programming. MVPDs have refused to carry any digital multicast signal 

unless the channel is broadcasting 24 hours a day, seven days a week. This requirement 

is very difficult for most digital stations (especially small market ones) to meet, and 

thereby makes it virtually impossible for many stations to obtain carriage of digital 

multicast signals. Under other retransmission agreements, the MVPD agreed to carry 

only the high definition portion of a broadcast station’s digital signal, and the carriage of 

any portion of the broadcaster’s non-high definition digital signal (including even the 

primary digital signal) remained entirely at the discretion of the MVPD. Other MVPDs 

have declined to carry the primary digital signals of non-big four network affiliated 

stations, unless these stations achieved certain viewer rankings in their local markets. 

Thus, the digital signals of many stations, including WB/UPN affiliates, Hispanicoriented stations, religious stations and other independent stations, would not be carried 

by these MVPDs. It seems highly unlikely that broadcasters would accept such 

disadvantageous provisions in retransmission agreements, unless the MVPDs had 

sufficient market power so as to insist on such provisions. 

In light of these real-world examples, Congress should skeptically view any 

complaints from MVPDs as to how they are at the mercy of powerful broadcasters in 

marketplace retransmission consent negotiations. The current retransmission consent 

rules also already protect all MVPDs by imposing an affirmative obligation on 

broadcasters to negotiate in good faith and providing a mechanism to enforce this 

obligation. See 47 C.F.R. § 76.65. In fact, EchoStar was the complainant in the only 

“good faith” case to be decided on the merits by the FCC. In that case, the broadcaster 

was completely exonerated, while EchoStar was found to have abused the FCC’s 

processes. EchoStar Satellite Corp. v. Young Broadcasting, Inc., 16 FCC Rcd 15070 

(2001). Unwarranted MVPD complaints about retransmission consent certainly cannot 

undermine the FCC’s conclusion that MVPDs are not disadvantaged by the existing 

retransmission consent process. See FCC Report at ¶ 44. 

Some parties have suggested that Congress require baseball style arbitration for 

retransmission consent negotiations between broadcasters and MVPDs. While this may 
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seem like a plausible approach at first blush, when one considers the complexity of 

retransmission consent negotiations, it is clear that arbitration is not a viable option. This 

arbitration suggestion implicitly assumes that retransmission consent negotiations are 

only about money, and that one should be able to choose the offer of one side or the 

other. That is not the case. In fact, these negotiations may involve such issues as 

program insertion options given to the MVPD, spot sales by the broadcaster, fiber runs 

between transmitter and headends, promotion spot guarantees, channel position and tier 

placement, DTV channel carriage, system expansion options, distribution and 

construction costs, studio/personnel/equipment sharing, electronic program guide 

placement and news insertion options, to name but a few. Particularly when, as noted 

above, there is no evidence that the current free market negotiation process fails to serve 

the public, Congress should resist the call from MVPDs for a new federal mandate to 

interfere with the marketplace. 

Consumers Benefit from the Retransmission Consent Process 

Finally, I would like to elaborate on the FCC’s conclusion in its report that 

retransmission consent has benefited the viewing public, as well as broadcasters and 

MVPDs. As the FCC specifically noted, broadcasters’ ability to negotiate carriage of 

additional programming through retransmission consent benefits viewers by increasing 

consumers’ access to programming, including local news channels. See FCC Report at ¶ 

35. One excellent example is our company’s NewsChannel 8 here in the Washington 

metropolitan area. NewsChannel 8 is a local cable news network that has expanded as a 

result of retransmission consent negotiations over the carriage of Allbritton’s television 

station WJLA-TV. It provides local news, weather and public affairs programming, 

along with coverage of local public events. Further, this programming is zoned 

separately to better serve viewers in Washington, D.C., the Maryland suburbs and 

Northern Virginia. 

Similarly, Belo used retransmission consent to obtain carriage of its regional cable 

news channel NorthWest Cable News (NWCN) on cable systems serving over two 

million households in Washington, Oregon, Idaho, Montana, Alaska and California. 

NWCN provides regional up-to-the minute news, weather, sports, entertainment and 

public affairs programming to viewers across the Northwest. These efforts are 

coordinated with Belo’s television stations in Seattle, Portland, Spokane and Boise. 

In addition to local news channels, broadcasters have used retransmission consent to 

provide local weather information on separate channels carried by cable systems. For 

example, LIN Television provides these local weather channels in several markets, 

including ones with a history of frequent weather emergencies such as Indianapolis. 

Broadcasters have moreover used retransmission consent negotiations to obtain carriage 

of their digital signals, thereby both benefiting viewers and, according to the FCC, 

furthering the digital transition. See FCC Report at ¶ 45. 

Not only has retransmission consent encouraged broadcasters to create and launch 

these local news and weather programming services for carriage on cable systems, 

retransmission consent promotes localism in other ways. In particular, allowing local 

broadcasters to negotiate in the marketplace for compensation for the fair value of their 

signals helps local stations remain competitive in the face of competition from dozens, or 

even hundreds, of non-local cable and satellite channels in their markets. It also at least 

potentially provides revenues to help stations better fulfill their obligations to serve their 

local communities and their viewers. 

Congress Should Reject Demands to Interfere with Free Market Negotiations for 

Retransmission Consent 

As my testimony makes clear, Congress intended in the 1992 Cable Act to give 

broadcasters the opportunity to negotiate in the marketplace for compensation from 
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MVPDs retransmitting their signals. The FCC concluded just last September that 

retransmission consent has fulfilled Congress’ purposes for enacting it, and 

recommended no changes to either statutory or regulatory provisions relating to 

retransmission consent. This Subcommittee should accept the FCC’s conclusion and 

continue to let broadcasters and MVPDs negotiate in the marketplace for retransmission 

consent. Especially in light of the FCC’s conclusion that local broadcasters and MVPDs 

generally negotiate on a “level playing field,” FCC Report at ¶ 44, Congress has no basis 

for usurping the free functioning of the retransmission consent marketplace, as certain 

cable and satellite operators self-interestedly urge. Indeed, to do so would undermine the 

benefits that consumers gain from a well functioning retransmission consent market. 

Thank you for your time and attention. 
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192

 MR. WALDEN. Thank you, Mr. Fritz. We appreciate your 

comments. Mr. Citron, welcome. We look forward to your comments, 

sir. 

MR. CITRON. Thank you, Mr. Chairman, and thank you for the 

opportunity to testify before your committee regarding your draft 

telecommunications legislation. I will focus my remarks on the 

provisions that relate to emergency services. 

 As policy makers, you should share our vision that every American 

have access to E-911 regardless of whether they are fixed, mobile, or 

voice over IP communications technology. Vonage has no higher 

priority than delivering enhanced 911 to our customers nationwide and 

your legislation would help accelerate that objective. To this end, we 

have partnered with the FCC and public safety community officials to 

enable more than one million Vonage lines with E-911. This represents 

over 70 percent of our customer base as we work diligently to enable 

every customer with this service. The Vonage networks complete nearly 

1,000 successful E-911 calls every day. In addition to dedicating 

significant resources to our 911 effort, Vonage has also committed to the 

collection and remittance of statewide 911 fees to fund the build-out and 

upgrade of our nation’s local public safety answering points. 

Vonage’s services are inherently nomadic, meaning that they are 

capable of operating over any broadband connection anywhere in the 

world. For example, when Katrina devastated the Gulf Coast, New 

Orleans officials received their first call from President Bush on a 

Vonage phone, and as thousands of patients were pouring into Baton 

Rouge General Hospital, Vonage was the only long-distance line 

available for doctors and emergency medical personnel to use. Our users 

can be in New Orleans one day and then the next day in Texas. This 

allows flexibility that fixed and mobile services just do not have. This 

form of mobility presents enormous possibilities but also poses unique 

challenges to an antiquated 911 system, which was built to be fixed and 

local. While we have retrofitted our service to be compatible with this 

1960s-style network, we shouldn’t limit our vision to the technology 

from the 1960s. Nine-one-one should be the headlights, not the 

taillights, of the communications industry. 

 The challenge to you as policy makers and regulators is to enable all 

Americans with E-911. We honor the countless hours members of this 

committee, particularly Chairman Barton, Ranking Member Dingell, 

Congressmen Upton, Pickering, Markey, and Gordon have spent 

working on achieving this goal, and we commend the FCC’s endeavors 

in the scenario, but the FCC has done everything within its statutory 

authority and now it is time for Congress to act. Congress should 

mandate E-911 to all Americans regardless of whether it is fixed, mobile, 
193

or voice over IP. Congress should provide liability parity for all 

providers of emergency services. Additionally, Congress should require 

access to underlying 911 facilities, and lastly, Congress should grant the 

FCC authority to create a forward path for the industry. 

 Chairman Barton’s commitment to public safety and the FCC’s E911 rules have helped Vonage with the fastest deployment of nomadic 

911 services in history. Despite the FCC’s support and hard work over 

the last nine months, their powers are limited to grant VOIP providers 

the liability parity that public safety demands, nor can the agency grant 

access to critical telecommunications elements that providers use to offer 

E-911 to customers. Your legislation would help overcome the obstacles 

in gaining access to 911 facilities. Nomadic voice over IP providers like 

Vonage need access to all the 911 elements necessary to provide a 

comprehensive solution and the committee print addresses this concern. 

By including the 911 access provision in the legislation, you have 

ensured that the 911 system is held as a public trust, not abused as a 

competitive lever. 

 In addition to access challenges, liability issues continue to impede 

progress in several key areas of the country. Many 911 centers have 

refused to complete voice over IP emergency calls without the same 

liability protections that exist for wireline and wireless carriers. I 

underscore public safety’s concerns about the lack of liability parity for 

voice over IP emergency calls and request that the committee include 

this going forward. We second the National Emergency Numbers 

Association’s request that a provision for liability parity be added to the 

bill. 

 Finally, Congress should carefully contemplate a forward path 

towards building out a flexible, more technologically advanced 911 

network while preserving innovation and competition. Further, it is good 

policy for lawmakers to guarantee that every American has access to E911. Many Americans today still have no access to E-911 at all on the 

traditional wireline phone network. We humbly suggest, as part of going 

forward, review and oversight of our nation’s communications system 

that the leaders on this committee extend the E-911 capabilities to cover 

every American with a phone. 

 I will conclude by noting that Vonage strongly supports the 

interconnection provisions in the committee’s draft and would hope 

access to numbering resources would also be included. In short, Vonage 

supports this legislation and I want to thank the sponsors Chairman 

Barton, Congressmen Upton, Pickering, and Rush, as well as 

Representatives Shimkus, Eshoo, and Gordon for their leadership on 911 

issues. We look forward to working with the committee towards its 

passage. 
194

 [The prepared statement of Jeffrey Citron follows:] 

PREPARED STATEMENT OF JEFFREY CITRON, CHAIRMAN AND CHIEF STRATEGIST, VONAGE

 Mr. Chairman, thank you for the opportunity to testify before your committee 

regarding your draft telecommunications legislation. I will focus my remarks on the 

provisions that relate to 911 services. Vonage has no higher priority than delivering 

Enhanced 911 to our customers nationwide, and this legislation would help accelerate 

that objective. 

Vonage currently delivers Enhanced 911 to more than one million subscriber lines, 

covering 70% of our base—and we are working diligently to get this service to 100% of 

our customers immediately. We consider ourselves a partner with public safety, and have 

not only dedicated significant resources to our 911 effort, but have committed to paying 

911 fees on a statewide basis throughout the country. 

Chairman Martin’s commitment to public safety and the FCC’s E-911 rules have 

helped Vonage with the fastest deployment of nomadic 911 services in history. Working 

with our partners at the FCC and the public safety community, the Vonage network 

completes nearly a thousand successful 911 calls every day. 

 Despite this progress, significant challenges remain and your legislation would help 

overcome those obstacles. I want to make three points. First, nomadic VoIP providers 

like Vonage need access to all the 911 elements necessary to provide a comprehensive 

solution; the Committee print addresses this concern. Second, many 911 centers refuse to 

complete VoIP emergency calls without the same liability protections that exist for 

wireline and wireless carriers; this provision would need to be added to the bill. Third, 

Congress should carefully contemplate a forward path towards building out a flexible, 

more technologically advanced 911 network while preserving innovation and 

competition. 

 By including the 911 access provisions in this legislation, you have ensured that the 

911 system is held as a public trust, not used as a competitive lever. 

 Next, I would underscore public safety’s concerns about the lack of liability parity 

for VoIP emergency calls and request the Committee include this going forward. Unlike 

wireline and wireless carriers, VoIP providers do not have any liability protection for 

completing 911 calls. Unfortunately, there are instances today where 911 centers will not 

accept our emergency calls without such protection. 

 In 1999, this Committee and Congress passed the Wireless Public Safety Act, 

granting wireless carriers equivalent liability status to wireline services for 911 calls. We 

would simply ask that as this bill moves to the floor, the Committee consider extending 

identical liability provisions to VoIP providers and public safety centers. 

Finally, I would like to comment on innovations in communications technology and 

how they interact with the nation’s 911 system. 

Vonage offers a product that is inherently nomadic—meaning it’s capable of 

operating over any broadband connection, anywhere in the world. Our users can be in 

Texas one day and Tokyo the next. This allows flexibility that fixed services and 

traditional phone services do not. 

 For example, when Katrina devastated the Gulf Coast, New Orleans officials 

received their first call from President Bush on a Vonage phone. And as thousands of 

patients were coming into the Baton Rouge General Hospital, Vonage was the only long 

distance line available to doctors and emergency medical personnel. 

 This nomadic feature, which allows our service to work over any high-speed 

Internet connection anywhere, is the only reason these calls were able to get through. 

 This mobility also presents unique challenges to the 911 system which was built to 

be fixed and local. While we have retrofitted our service to be compatible with a 911 
195

network based on 1968 technology, we shouldn’t limit our vision to 1968. 911 should be 

the head lights, not the tail lights of communications. 

 I would like to be clear that we support the FCC’s efforts to bring E-911 to VoIP 

services. We embrace this obligation, and Congress can help provide a forward path that 

is sensible for public safety and moves us towards next generation 911 infrastructure. 

 Current E-911 regulations apply to Vonage but not to many other VoIP providers. If 

E-911 services are not available to VoIP providers in some markets, consumers in those 

markets will still buy VoIP without E-911. Vonage may not be the provider for these 

customers, but another company will be, and the public safety community will be all the 

poorer for having countless Americans without E-911 service. 

 The challenge for this Congress is to enable Americans who want VoIP to get those 

services with E-911 everywhere. 

 I will conclude by noting that Vonage strongly supports the interconnection 

provision in the Committee’s draft, and would hope access to numbers and number 

portability could be included with that provision. 

 In short, Vonage supports this legislation and I want to thank the sponsors—

Chairman Barton, Congressmen Upton, Pickering, and Rush—as well as Representatives 

Shimkus, Eshoo, and Gordon for their leadership on 911 issues. We look forward to 

working with the Committee towards its passage. 

 MR. WALDEN. Thank you, Mr. Citron, and thank you to all of our 

panelists today. I am going to start off with a question for Mr. Fellman. 

Mr. Fellman, I heard pretty quickly from my cities and their mayors 

when the first versions of this bill came forward and they expressed 

concerns about control over their rights-of-way, about the franchise fees, 

about the PEG channels, and additional fees. From your perspective as a 

mayor, does this bill take care or satisfy the issues relative to the rightsof-way in your community’s ability to control the rights-of-way? 

 MR. FELLMAN. Thank you, Mr. Chairman. Not completely. One of 

our biggest concerns is it that disputes over interpretation of what local 

governments might do go to the FCC. I will tell you that that in and of 

itself will probably be cost-prohibitive to the point of precluding many, 

especially small and medium-sized communities, from ever holding firm 

to their position of what it means to enforce local rights-of-way. 

Presently we go to local court if there is a dispute, whether it is a 

telecommunications company, a contractor of another kind, a utility 

company like gas or electric. Those issues are dealt with in local courts. 

The FCC should not be made the rights-of-way judge and jury for local 

governments in this Nation. 

 MR. WALDEN. All right. The franchise fee issue, it is five percent, 

up to five percent gross revenues plus one percent and some guarantee on 

PEG channels. Now, I know that is not everything every city wants but 

what on average do cities get today in terms of franchise fees? What 

percent of gross revenues? 

 MR. FELLMAN. In my experience, the majority of local franchising 

authorities get five percent of gross revenues. Now, gross revenues is 
196

defined differently in different areas so it is five percent of what piece of 

the pie. 

 MR. WALDEN. Sure, and the you get nothing from satellite 

providers, correct? 

 MR. FELLMAN. That is correct. 

 MR. WALDEN. Now, if we open up the market with technology 

expanding, it is perhaps likely that some of these folks who would come 

into our cities offering video services for the first time might take market 

share away from, say, satellite, correct? And so your cities might 

actually get additional revenue. It is conceivable, at least, that there 

would be additional providers in your communities providing service for 

which you would get revenue, correct? 

 MR. FELLMAN. That is theoretically possible, yes. 

 MR. WALDEN. All right. Okay. Mr. Misener, I want to go to you on 

net neutrality issues and perhaps get some feedback from Mr. McSlarrow 

and Mr. McCormick regarding this issue about the pipe and whether or 

not the providers, like Mr. Misener is representing, are going to get 

sidetracked in this information age. I know it is a very complex and 

controversial issue. I would like to get your response to his comments 

and then maybe his response to your comments. You heard his 

testimony, Mr. McSlarrow. 

 MR. MCSLARROW. I think the one issue we can set aside is whether 

or not net neutrality means something about whether or not people are 

going to get access blocked. I think we can set that aside. That hasn’t 

happened and it really has been a red herring. We are now engaged in a 

much more complex conversation about what the future of the network 

architecture looks like. I think our fundamental position is not that there 

isn’t good faith behind concerns expressed. It is that it does not reflect 

the reality of the world we live in. Four years ago, people made these 

same arguments and in that time, Google has grown to $100 billion 

market cap. The providers like Amazon.com and Google are flourishing. 

So in the absence of an identifiable problem, recognizing the networks 

that are in place today, that will ultimately be upgraded and who knows 

what the architecture looks like will cost vast sums of money and 

investment. Why would we risk freezing innovation and investment in 

place today? 

 MR. WALDEN. All right. I am going to run out of time. Mr. 

Misener, very quickly. 

 MR. MISENER. Yes. Thank you, Mr. Chairman. Mr. McSlarrow 

said earlier today that this would be regulating the Internet for the first 

time, and I think this is probably one of the most fundamental 

misconceptions here. The Internet has been regulated in the sense of 

non-discrimination since its inception until last year, and so the fact that 
197

bad things haven’t happened yet is largely as a result of regulation that 

was in place, and that has recently been removed by the FCC. 

Furthermore, a couple of the telcos are under merger restrictions that 

actually prevent them from, at least for the next 18 months, engaging in 

this kind of activity. Lastly, I think it is a big misconception. Mr. 

McCormick has said that they will not block, impair, or degrade content. 

Well, they also say simultaneously that they want to provide quality of 

service for a fee. These are fundamentally inconsistent statements. It is 

impossible to provide quality of service for a fee without degrading some 

content. 

 MR. WALDEN. All right. My time has expired. Mr. Markey. 

 MR. MARKEY. Thank you. Mr. McSlarrow, following up on this 

line of questioning, whether or not this point made by Mr. Walden is a 

red herring or not, I was dismayed to read recently that cable operators 

are refusing ads from AT&T and Verizon about video choice. In the 

Washington Post, it quotes a Time Warner spokesman as saying Coke 

doesn’t promote Pepsi; McDonald’s doesn’t promote Burger King; NBC 

doesn’t promote ABC. Now, Mr. McCormick, the article also states that 

AT&T has filed a complaint with the FCC on this matter. Now, Mr. 

McCormick, what if the cable guys were told they had to accept the ads 

but they then aired them on the least watched channel at 3:00 a.m. in the 

morning? Would that be acceptable to you? In other words, they are not 

blocking the ad, they are just burying it. So I find it more than a little 

ironic that you guys are fighting over something akin to what you claim 

you won’t do to Internet companies with respect to broadband services. 

You are having that fight right now. 

 So let us go over to you, Mr. Citron. You are an Internet-based 

entrepreneur. You are akin to Pepsi to their collective Coke. Are you 

reassured by the network neutrality section of this bill or do you think we 

need clear anti-discriminatory rules? 

 MR. CITRON. Sir, I think the bill makes a first good attempt at 

providing a framework to move forward, and I commend everyone’s 

efforts towards that. 

 MR. MARKEY. Are you satisfied, Mr. Citron? 

 MR. CITRON. I think there is more that we can do to protect 

consumers to ensure that they make-- 

 MR. MARKEY. On a scale to ten, how far have they gone? 

 MR. CITRON. They are on the right path but not there yet. 

 MR. MARKEY. Where do you put it on a scale to ten? 

 MR. CITRON. Oh, probably somewhere about midway along the 

way. 

 MR. MARKEY. Around what? 

 MR. CITRON. They are probably at the midpoint. 
198

 MR. MARKEY. Mr. Misener, you are here representing Google, 

eBay, Amazon, all the companies that are leading edge of revolutionizing 

our economy. Would you be satisfied if there were non-opposable 

standards to protect your companies and thousands of others? 

 MR. MISENER. Absolutely not. I think frankly if you were to give 

me the one to ten scale, I would give it about a negative three, and the 

reason it is negative is it actually takes away authority from the FCC. It 

seems to give regulatory authority to the Commission when, in fact, the 

Commission already has the authority, but it actually takes away the 

rulemaking and some of the enforcement powers that the Commission 

currently has. So frankly, in many respects, it is a step backwards. 

 MR. MARKEY. I thank you, Mr. Misener. Now, so we already see 

the problem over here and these are the giants fighting, not some kid in a 

garage that is going to be seeking extra access. 

 Now, Mr. McCormick, you want a deregulatory environment--I 

applaud you for that--for video services. You want to get out there and 

you want to get the Government out of the way so that the phone 

companies and the cable industry can just go at it in the free market and 

so I assume that that means you will be supporting my amendment to 

eliminate program access rights for national cable franchises for the 

telephone industry, because why should the cable industry have to give 

you their programming, their HBOs, their CNNs in the market. They 

made the investments. Why should the Government force them to share 

it with you, Mr. McCormick? Why should the Government make--why 

are you asking us to force the cable industry to share their programming 

with you? 

 MR. MCCORMICK. I think the issue, Mr. Markey, is this committee 

has long taken an interest in new entrants. 

 MR. MARKEY. Well, I agree with that but again, we are talking 

about new entrants for net neutrality, okay? 

 MR. MCCORMICK. I understand. 

 MR. MARKEY. And that is an interest you don’t seem to really share 

with us, so what I am saying is, I am going to move back the other way 

and say you guys should develop your own programming. 

 MR. MCCORMICK. No, no. I think that what we have said with 

regard to net neutrality is that we will not block, impair, or degrade, that 

we will provide full access to our networks. We want to have the same 

thing with regard to-- 

 MR. MARKEY. Do you want program access principles or program 

access rules, because I am going to change it to principles and then leave 

it to the FCC to enforce. Is that acceptable to you? 

 MR. MCCORMICK. Well, if the FCC said that it has the ability to 

enforce any problems that would arise-- 
199

 MR. MARKEY. No, what I am saying is, I am going to change the 

program access rules to principles and then you will have to go to the 

FCC and get them to enforce the principles. Would that be acceptable to 

you? 

 MR. MCCORMICK. Well-- 

 MR. MARKEY. Yes or no, Mr. McCormick. Yes or no. 

 MR. MCCORMICK. We think that the existing law with regard to 

programming-- 

 MR. MARKEY. You want rules. You want to be protected by rules. 

Mr. McSlarrow, can you pledge today that cable operators who obtain 

national licenses under the bill will not withdraw service from any 

geographic area they are currently serving? 

 MR. MCSLARROW. No. 

 MR. MARKEY. Can you pledge that service and technology upgrades 

will occur uniformly as they do under local franchising agreements when 

operators get national licenses? 

 MR. MCSLARROW. No. 

 MR. MARKEY. Can you pledge today that cable operators won’t 

cross-subsidize lower rates to consumers in the part of town where the 

Bell company has shown up with higher rates in the part of town where 

the Bells have chosen not compete in? 

 MR. MCSLARROW. No. 

 MR. MARKEY. Mr. McSlarrow, the final question, the remedy to this 

is making sure that Mr. McCormick’s companies compete over the same 

service area that you compete over, then the marketplace will force 

consumer-friendly activity, not just on the rich side of town but on the 

poor side of town, because otherwise my fear is, and I think it is going to 

happen, is that the poor side of town is going to wind up subsidizing the 

rich side of town where the competition is going to break out. You don’t 

need a business degree from Harvard Business School to know that that 

is the plan. Thank you, Mr. Chairman. 

 MR. UPTON. Thank you. Sorry that I had to step away for a few 

minutes. I appreciate that your testimony was submitted in advance so I 

could look at it last night. 

 Mayor Fellman, I appreciate your recognition in your testimony that, 

“this draft is more responsive to those issues you raised with the 

committee in the past and your willingness to continue to work with the 

committee going forward.” I thank you for that and I look forward to 

those discussions. 

 In your testimony you suggested that the existing franchise process is 

not a barrier to entry. However, according to the Verizon February 13, 

2006, filing with the FCC, during 2005 Verizon conducted franchise 

negotiations with approximately 320 LFAs. Verizon only obtained 44 
200

franchises as of year end 2005 and it obtained seven additional franchises 

at the time of their filing. Of those 51 total franchises, 29 were in Texas 

and most of those were obtained after the new statewide franchise law 

was enacted. Excluding the ones from Texas, it has often taken Verizon 

between six and 12 months and sometimes more to obtain the franchises 

that it has been awarded. Verizon estimates that it will need between 

2,000 and 3,500 franchises, all told and that obviously is just them. 

We know that there are other phone companies seeking to offer new 

video services. We also know that there are approximately 33,000 local 

franchises across the country. I want to read some excerpts from some 

interesting commentary regarding the existing local franchise process, 

and I quote: “Rapid technological advancements of our day require 

changes to be made to the current regulatory environment with regard to 

video service providers. The current regulatory barriers have not kept up 

with the latest technology, and have the effect of slowing down or 

preventing the American consumer from either enjoying new 

technologies or receiving a better price on existing services which would 

result from the increased marketplace competition. The current franchise 

system inhibits additional companies who might be subject to it from 

entering the marketplace and investing in infrastructure when they are 

challenged by the expense and difficulty of attaining enough market 

share to recoup costs. The effect of all this in trying to apply a 20-plusyear-old business model on today’s technologies cities is denying their 

consumers choice, unnecessarily raising the cost of such services, and 

stifling innovation. Competition has been stifled in the world of video 

services due to government regulation.” 

 Now, my question is a multiple choice. Who do you think made that 

statement? Do you think it was a CEO of a Bell, cable company, 

Progress and Freedom Foundation, or a mayor of a large town in 

California? I think you know: D, the mayor. The mayor of the city of 

Anaheim, a city of 345,000 folks, 47 percent Latino, 36 percent white, 12 

percent Asian, two percent black with 73 percent of its population having 

an income less than $75,000, and those excerpts are directly from the 

reply comments which the mayor filed with the FCC in its ongoing 

review of the local franchise process, and I will put that entire part of that 

into the record. 

 My point in raising this is to suggest that it is not just Chairman 

Barton, Mr. Rush, Mr. Pickering, myself, and others sitting here in D.C. 

who believe that the local franchise process is standing in the way of 

competition for the consumer. At least the mayor of an ethnically and 

income-diverse city in California appears to concur as well. And as I 

said in my opening statement, the bill balances the need, I think, for 

reforming the franchise process while preserving, in the national 
201

franchise, critical important elements of the legacy local franchise 

framework, namely the control over right-of-way, which we had 

conferred with before with the cities, the franchise fee of up to five 

percent of the gross with an additional one percent for the carriage of 

PEG, something that I support, and as well on top of the five percent 

franchise fee. I look forward to your input and your comments as this 

process unfolds, and I don’t know if you would like to comment on what 

we tried to get the mayor to come today and sit next to you but it didn’t 

happen. 

 [The information follows:] 

Before the 

FEDERAL COMMUNICATIONS COMMISSION

Washington, DC 20554 

_______________________________________ 

In the Matter of ) 

Implementation of Section 621(a)(1) of ) 

the Cable Communications Policy Act of 1984 ) MB Docket No. 05-311 

as amended by the Cable Television Consumer ) 

Protection and Competition Act of 1992 ) 

_______________________________________ 

REPLY COMMENTS OF THE CITY OF ANAHEIM

 These Comments are filed by City of Anaheim. As the Federal Communications 

Commission (FCC) reviews implementation of the Federal Communications Act, we are 

confident the Commission will hear from many cities as well as associations representing 

municipalities. No doubt, many of these entities will appeal to the FCC to maintain the 

status quo. We believe you will find Anaheim’s comments different from most 

municipalities. 

Anaheim believes that the rapid technological advancements of our day require 

changes to be made to the current regulatory environment with regard to video service 

providers. The current regulatory barriers have not kept up with the latest technology, 

and have the effect of slowing down or preventing the American consumer from either 

enjoying new technologies or receiving a better price on existing services which would 

result from the increased marketplace competition. Anaheim has set out a broader policy 

of dismantling outdated barriers to greater consumer choice, with the goal of eliminating 

franchise fees on these services as a relic of the past. In support of this belief, we wish to 

inform the Commission about the status of video franchising in our community and 

discuss why federal reform is needed. 

Community Information

 Anaheim is a city with a population of 345,317. Since 1979, the city of Anaheim 

has had a franchise agreement with various cable service providers, the most recent of 

which is with Adelphia Communications, and which in turn is being transferred to TimeWarner Communications. 
202

 In order to increase competition and provider greater options to our residents, the 

City recently reached an agreement with AT&T for the delivery of Internet Protocol 

Television (IPTV) to Anaheim residents. We believe this agreement is a model that 

shows the kind of local flexibility that an updated regulatory climate would further foster. 

As you would expect, AT&T agreed to offset the city’s cost of impact on local 

infrastructure. They do not escape any obligation to work with us scheduling or paying 

for the impact on streets as network enhancements are made under our roads. However, 

AT&T will not be required to pay the city a franchise fee, nor will the company be 

promised, either in writing on in effect, an exclusive right to provide Anaheim residents 

with IPTV. 

The agreement between AT&T and Anaheim currently includes provisions to: (1) 

reimburse Anaheim for any direct costs associated with the project; (2) provide continued 

access to Channel 3, our local Public/Education/Government (PEG) channel; and (3) 

maintain consistency with the City’s aesthetics, standards and procedures. This 

agreement is consistent with our overall policy described earlier. 

Introduction and Summary

 The City of Anaheim has expressed its commitment to provide innovative and 

robust communication options to its residents and businesses and to foster competition 

and capabilities, all without cost or liability to the City. City leaders do not believe that 

government should determine whether residents receive video content through 

established cable providers, growing competition from satellite television, or new 

concepts coming on line like internet protocol television (IPTV), or technologies on the 

horizon like Wi-Fi delivery of video content. Anaheim is supportive of maintaining open 

market competition in which any franchise fee is eliminated for consumers and a variety 

of service providers have an opportunity to earn customer support. 

The current franchise system inhibits additional companies who might be subject to 

it from entering the marketplace and investing in infrastructure when they are challenged 

by the expense and difficulty of attaining enough market share to recoup costs. At the 

same time, companies that are clearly exempt from franchising, like satellite providers, 

flourish. 

Franchise fees and many elements within franchise agreements, therefore, are 

merely an artificial intrusion by government into the consumer marketplace. Attempts to 

apply franchise fees and agreements to some providers, while exempting others, 

effectively eschews the market. Therefore, eliminating these fees and impediments, 

Anaheim contends, will allow equitable competition amongst the variety of video service 

providers. In this way, and without local government interference, the various systems 

compete in price, quality and quantity and consumers decide which service provider they 

prefer. 

It is perhaps most instructive to examine the arguments made by supporters of the 

status quo and the reasons why these arguments are not valid, in Anaheim’s experience. 

ARGUMENT 1: “LOCAL GOVERNMENTS NEED PROTECTION FROM FISCAL HARM” 

 Many cities argue, essentially, that because they have gotten used to the revenue 

from franchise fees, they should be entitled to continue to receive them forever more, 

whether the original justification for the fee still makes sense. Historically, cities and 

cable providers have had a mutual interest in franchise agreements. Cities wanted 

systems built out to their whole territory, and the cable provider wanted protection of the 

investment they made for citywide deployment in order to have time to recoup their 

costs. 

However, technology has passed these days by. Some video providers, by the nature 

of their technology, can bypass these outmoded models. For other potential providers, 
203

the ability to provide video entertainment content over their systems is a byproduct of 

upgrades they plan to make to their systems whereby they may provide other data 

services to potential customers. And, if they foreswore the ability to provide video 

entertainment (which would only hurt consumers) over their systems, municipalities 

would not have the ability to impose franchises. 

The effect of all this in trying to apply a twenty-plus year old business model on 

today’s technologies, cities are denying their consumers choice, unnecessarily raising the 

costs of such services, and stifling innovation. 

 In the past, local governments have been accustomed to using money brought in 

from the franchise fee to help pay for basic city services, such as public safety, traffic 

management and street and sidewalk preservation. But, in fact, cities have created an 

unfair tax on cable companies and limited competition in a fast-paced, competitive 

marketplace. Furthermore, many cities have used these fees to fund essential municipal 

services unrelated to cable, although the fees simply are not a long-term stable source of 

revenue for cities. As an example, just look at the emergence of satellite services. This, 

a non-taxed cable competitor, has increasingly taken a significant share of the 

entertainment market. As cable companies have lost customers to other competing 

entities, cities have seen a corresponding drop in the revenues that come from cable 

franchise fees. It is a weak fiscal model that subjects core municipal services such as 

public safety on a dwindling source of revenue, regulated by sources out of direct control 

of that municipality. 

 We question why new companies that can provide alternative video services to their 

residents outside the original intent of franchising should have to pay a franchise fee? If a 

company that wishes to do business in Anaheim does need to access government-owned 

land (for example, to upgrade networks under city roads, streets and other right-of-way), 

we already have the rights and protections to ensure that the company offsets any costs 

associated with the use (as we have done with AT&T’s IPTV service agreement). 

ARGUMENT 2: “ LOCAL GOVERNMENTS NEED TO PROTECT THEIR CONTROL OF RIGHTS-OFWAY” 

 Some local government officials want the federal government to protect their right 

to charge impact fees and rent for the use of public right-of-ways. That is well and good, 

but the concept of a franchise agreement is not necessary for a city to maintain control of 

their infrastructure. 

In Anaheim’s agreement with AT&T, they complied with existing state law, and 

with our local requests, for control over our right of way. They are to schedule any such 

digging up and replacement of right of way with us, and pay for the full cost, all without 

a franchise agreement. 

If a company needs to use public-owned land for their service delivery 

infrastructure, it makes sense for the local government to negotiate a fee for the use of 

that property. However, local governments shouldn’t have the power to prevent, 

effectively, other companies from entering in the marketplace. By the same token, if a 

private company wants to give away phone service in exchange for the use of publicly 

owned infrastructure, that shouldn’t be prohibited. But local governments shouldn’t be 

allowed to demand that a single company provide an array of free services in exchange 

for an effective monopolistic franchise, all the while preventing other companies from 

providing competitive service for their residents. 

 If a local government rents property or grants the use of a right-of-way, it is logical 

that representatives would ask for compensation as part of contract negotiations. 

Alternatively, city leaders can decide that they don’t need to charge any fees for use, as 

the City of Anaheim did with our recent agreement with Earthlink, our Wi-Fi provider. 

Earthlink will be installing a Wi-Fi network throughout Anaheim, using city-owned 
204

streetlights and other infrastructure. The city is not charging a franchise fee, but 

Earthlink is not guaranteed a monopoly on wireless service in Anaheim. They simply 

contracted with the city to install a citywide system because our city council wanted to be 

sure that our residents could enjoy the benefits of wireless communication throughout our 

community. 

 In their responsibility as city leaders, local government representatives have an 

obligation to manage their city’s rights of way in order to achieve the best benefit to 

residents and maximize public value. In addition, local governments are responsible for 

providing access to rights of way within their control in a fair and even-handed manner. 

In so doing, governments ensure that existing users of the rights of way are not unduly 

inconvenienced. We believe that when public rights of ways are responsibly managed, 

residents receive the best possible benefit, which includes receiving the most up-to-date 

technology with the greatest variety of choice. All of these goals can be achieved 

without strict franchising. 

ARGUMENT 3: “LOCAL GOVERNMENTS NEED THE AUTHORITY OF FRANCHISE 

AGREEMENTS” 

 It has been argued that cities need the power of franchise agreements in order to 

provide education and government access channels, local emergency alerts and other 

public services. Some believe that private companies should be required to give free 

services for police and fire stations, schools and libraries in exchange for doing business 

with and in their city. But we don’t believe that free services like these justifies allowing 

a single company to have a de facto monopoly on the market. Again with our IPTV 

agreement, we were able to request of AT&T that they carry our local Channel 3 (PEG), 

which they happily agreed to, without a franchise. 

Conclusions

 In the 21st century, technology is changing on nearly a day-to-day basis. To the 

extent that government needs to be involved in the marketplace in order to be responsible 

stewards of the public interest, government leaders at all levels should be working to 

create a regulatory environment that can nimbly respond to market changes that result 

from some new exciting technological breakthrough. In the past, competition has been 

stifled in the world of video services due to government regulations. 

 The City of Anaheim respectfully requests that the FCC implement reforms that 

allow the American consumer to benefit from increased competition in the marketplace, 

enjoying new delivery methods and potentially lower costs for those services. We invite 

the commissioners to visit our city and see a local community that is able to deliver topquality video service without a franchise fee, giving its residents real choice in the 

marketplace. 

 

 Respectfully submitted, 

 City of Anaheim 

 By: Mayor Curt Pringle 

 200 S. Anaheim Blvd., #733 

 Anaheim, CA 92805 

cc: John Norton 

 Andrew Long 

 
205

MR. FELLMAN. Well, I am sorry he wasn’t able to come, but- 

 MR. UPTON. Just hit your-- 

 MR. FELLMAN. It is on. Mr. Chairman, thank you. If I could 

respond briefly to just generally two of the points that you made, Verizon 

and Anaheim. 

 Here is what you didn’t mention that was part of Verizon’s 

comments. In that same FCC proceeding, Verizon indicated that its 

dedication to getting franchises was demonstrated by the fact that it had 

50 employees dedicated to getting franchises throughout this country--

50. Now, if you added up the number of lobbyists that Verizon has in 

every State where it was trying to end franchising and in this Congress, I 

would venture to say it is a few more than 50, and if they were dedicating 

appropriate resources to getting franchises, they would be deployed in 

half the places they are complaining about not having franchises now, 

and as a specific example, over four months ago Verizon went to the city 

of Bellevue, Washington, and said we want to get permits to start putting 

in our fiber network and do our upgrade, and the city of Bellevue, 

Washington, said let us start your franchise negotiations now because we 

want to be able to have those video services, we want you to be ready to 

be deployed when you are done putting in your upgrades. They said no, 

we are not ready to do that yet, and in the FCC filing that I made on 

behalf of a number of my clients, because outside of my service as mayor 

I do work for local governments in communications issues, there is 

documentation, the correspondence between Bellevue and Verizon, 

showing that the city is asking, can we start this franchise negotiation 

and Verizon saying no, we are not ready yet. 

 So I think there is another side of the story about how much some of 

these telephone companies are really interested in pursuing franchises. I 

think with respect to my colleague in Anaheim, Mr. Chairman, what 

works in Anaheim doesn’t necessarily work in Arvada or New York or 

Detroit or any other city in the country, and that is why localism is 

important. If Mayor Pringle thinks that franchising is a bad thing in 

Anaheim, then God bless him. Let them do it that way in Anaheim and 

maybe it will work for his citizens, maybe it won’t, but he is accountable 

to his constituents and his city council is accountable to his constituents 

by what they do in Anaheim just as I am accountable to mine, and 

Congress should not impose on local governments that accountability 

that we have to stand for. 

 MR. UPTON. I appreciate your comments. I yield for questions to 

Mr. Boucher. 

 MR. BOUCHER. Thank you, Mr. Chairman, and I want to extend my 

thanks also to the members of this panel for your participation in our 

deliberations today. We appreciate your comments. Mayor Fellman, let 
206

me pick up with you. There is a provision of the bill which I was pleased 

to note that says that municipalities may not be prohibited by the States 

in which they reside from offering commercial telecommunications 

services for their residents. I am sure you have examined that provision. 

It is fairly succinct. Do you find it to be sufficient? 

 MR. FELLMAN. Yes, I do. 

 MR. BOUCHER. And you are not recommending any changes to that 

provision to this committee? 

 MR. FELLMAN. Again, it is a short provision and we have just seen 

the bill for a few days as many as you have. I don’t know if we might 

suggest tweaking it a little bit but the concept of Congress saying that 

local government should have the right to provide these services if they 

decide at the local level that that is what their citizens-- 

 MR. BOUCHER. And the bill does carry forward that permissible-- 

 MR. FELLMAN. I read it that way, yes. 

 MR. BOUCHER. Good. Mr. Regan, would you like to comment on 

that? I know your company strongly supports the opportunity for local 

governments to be involved in these endeavors. 

 MR. REGAN. Yes, sir, Mr. Boucher. The municipalities were clearly 

the leaders and early adopters to our technology. Frankly, the fact that 

they have been blocked by the courts has really troubled us so our 

reading of that statute is, it does correct the situation and that 

municipalities, if that is enacted, will be able to enter back into the 

market. Thank you. 

 MR. BOUCHER. Thank you very much. Well, hopefully with that 

ringing endorsement from two sources, we can put this issue to bed. Mr. 

Misener, let me turn to you. I would welcome your comment on 

something that concerns me very much, and I made reference to this in 

my opening statement, and that is, the new business plan that has been 

announced by some last-mile providers that essentially would create 

something new on the Internet, and that is two lanes over the last mile, 

one fast, one slow. Access to the fast lane would be provided to content 

originators, the Internet-based companies operating out on the edge of 

the network, who could afford to pay for that access, and then everyone 

else would be relegated to the Internet slow lane. My concern is that this 

kind of structure, which is dramatically different from the way the 

Internet grew up, will have a significant adverse effect on innovation 

because the startup company won’t have the money to pay those lastmile fast-lane fees. Is this a valid concern? 

 MR. MISENER. Yes, sir, Mr. Boucher, it is. I have spoken about this 

on other occasions and I have had folks from the network operators come 

up and say well, it is kind of a scary thing when a big company like 

yours is purporting to talk on behalf of small innovators. Two thoughts. 
207

One is, it doesn’t change the underlying truth. The small innovators 

won’t be able to afford the paid police escort to get the prioritization and, 

therefore, they won’t be able to serve consumers in the same way the big 

companies are. Second, it wasn’t long ago that we were a small 

company. Just a decade ago we were a small, little innovative company, 

and if you count profitability, it was even less long ago that we were 

small. Lastly, our companies also operate innovative new services. We 

want to be able to develop new services for our customers and we want 

to be in a position to offer those without having to get permission from 

the network operators, so it really will affect innovation at the edge. 

MR. BOUCHER. All right. Thank you very much. What I see as a 

simple solution for this is a basic provision that says that if prioritization 

is necessary, if fast-lane treatment is required in order to deliver video 

effectively or some other high data rate application like gaming perhaps 

effectively, then that is fine. That prioritization could take place. 

However, if the last-mile provider is going to prioritize bits of any kind, 

it should offer that same prioritized access for bits of a similar kind that 

originate from some unaffiliated content provider. That is a simple 

solution. Does that solution make sense? Would that effectively address 

the problem? 

 MR. MISENER. Yes, it would for content as it transits the network 

operator’s network. In many respects, many video kinds of services, 

high bandwidth services require local injection. That is to say, instead of 

traversing the entire Internet, it behooves the service providers to inject it 

locally. We are not asking for that for free. To be very clear, we are 

willing to pay for that, but on reasonable and non-discriminatory terms 

that don’t favor the network operator’s preferred to affiliated content 

provider. 

 MR. BOUCHER. All right. Thank you very much. Let me simply ask 

Mr. McCormick if he wants to take a moment to respond. I know your 

companies have a somewhat different view. 

 MR. MCCORMICK. Yes, thank you, Congressman. Congressman 

Boucher, we have said that our companies will not block, impair, or 

degrade access to the Internet. We will not alter, modify, or change the 

data that consumers want. We have a hundred-year history of delivering 

you where you want to go. If you want to call Macy’s, we-- 

 MR. BOUCHER. Mr. McCormick, we understand that, and that is 

really not the issue. The issue is something that is very new and different 

that would not involve blocking or degrading. It would simply be 

creating two lanes of access, charging for one, leaving the slow lane for 

everyone who can’t afford those fees, and the concern is really what that 

kind of structure would do to innovation. 
208

 MR. MCCORMICK. Well, let me respond specifically to that because, 

yes, I think the CEOs of each of our companies have responded in a very 

thoughtful, candid, and forthcoming way to those concerns. Most 

recently, yesterday there was an article by Mr. Notabart in the Wall 

Street Journal. I think the answer is this. Companies like Amazon, 

Google and others, consumers will continue to access those Web sites the 

way that they always have, but similarly, we have a history in this 

country where companies, governments municipal governments, Federal 

government, banks, health care facilities come to us and they ask for us 

to construct for them using Internet protocol, networks that are secure 

that can maintain privacy, particularly with regard to healthcare data and 

financial data. These networks ride over the same Internet links as do the 

Google and the Amazon access, and those networks are called virtual 

private networks. We provide them today, we will provide them in the 

future, and if a company like Netflix or Disney wants to come and say 

will you construct for us a virtual private network that will be secure, that 

will have certain quality assurances, that will have privacy, just as we do 

that today, we should be free to do that in the future-- 

 MR. BOUCHER. And the effect on innovation. This really is the 

question. How do you respond to the concern that the startup won’t be 

able to afford that prioritized service and therefore can’t compete? 

 MR. MCCORMICK. Well, the answer to that question is this, that if 

we are talking about the startups along the lines of when Amazon was a 

startup or Google was a startup where consumers need to have access to 

those sites, there will be no blocking or impairing of that. 

 MR. BOUCHER. Mr. Chairman, I thank the gentleman and I yield 

back my time. Thank you. 

 MR. UPTON. Mr. Barton. 

 CHAIRMAN BARTON. I thank you, Mr. Chairman. I thank you for 

holding the hearing. I thank our witnesses for being here. This end of 

the panel has kind of been left out of these questions so far, so I am 

going to start with our friend from Vonage. I want just a concise verbal 

definition, and then I want you to let your lawyers work on it and send it 

to us in writing. I want a definition of net neutrality from each of you 

gentlemen, and I wish I could put cotton in your ears so you couldn’t 

hear everybody else, but let us start with you, Mr. Citron. What is your 

definition of net neutrality? 

 MR. CITRON. I think the hallmark of net neutrality is about 

consumer protection. It is the consumer’s right to bring any device they 

want to the network, it is the consumer’s right to get any access to any 

lawful content that exists on the network, the consumer’s right that 

should there be two lanes and it should be consumers who choose which 

lane they get to go ride in, not some other operator’s right to go ahead 
209

and decide for them. Those would be the hallmarks of net neutrality and 

the final point being that not one service, not one BIT should be treated 

favorably at the penalty or expense of another one. 

 CHAIRMAN BARTON. Mr. Fritz, I know NAB has just stayed up 

nights worrying about net neutrality. 

 MR. FRITZ. Fortunately, we have no position and no definition. 

 CHAIRMAN BARTON. Okay. Mr. Keefe? 

 MR. KEEFE. Same for me, Congressman. We are, you know, 

studying the issues and don’t have a position yet. I mean, we don’t 

practice any blocking in our company. I can tell you that. 

 CHAIRMAN BARTON. No, I just want a definition. I am not alleging 

wrongdoing. I just want to see if we can get a definition. I know Mr. 

Misener has got a definition. 

 MR. MISENER. Yes, sir. I think fundamentally it is preventing the 

extension of market power over the network to market power over 

content. I have tried to be super specific on the things that they are 

planning and how we would get at them and legislation so we could 

narrowly tailor it, but at base it is taking the market power that they have 

got over the network and extending it to market power over content, in a 

way that has never been possible before, because of law, regulation and 

frankly because of technology. That has changed. 

 CHAIRMAN BARTON. All right. Mr. Regan? 

 MR. REGAN. You got a minute? 

 CHAIRMAN BARTON. I got about 30 seconds. 

 MR. REGAN. Our points are all consumer related. Basically bottom 

line is, consumers ought to be able to get access to the bandwidth they 

buy. They ought to be able to run the applications that they choose to 

run within the constraints of the plan they buy. They ought to be able to 

attach devices to their Internet connection that don’t cause harm to the 

network, and they ought to be able to go on the Internet where they want 

to go within the bounds of their service plan. 

 CHAIRMAN BARTON. All right. Mr. McSlarrow--notice nobody has 

given anywhere close to the same definition yet. Just an editorial 

comment. 

 MR. MCSLARROW. Mr. Chairman, I guess my definition is that it is 

the first time regulation of the Internet will freeze investment and 

innovation. 

 CHAIRMAN BARTON. That is your definition? 

 MR. MCSLARROW. That is my definition. 

 CHAIRMAN BARTON. Okay. 

 MR. MCSLARROW. Otherwise I will have to turn to lawyers. 

 CHAIRMAN BARTON. Mr. McCormick? 
210

 MR. MCCORMICK. Mr. Chairman, I would agree. We are dealing 

with what-if questions and hypotheticals, so I don’t have an effective 

definition of what is meant by-- 

 CHAIRMAN BARTON. Well, that is an honest answer, and our friend, 

the mayor. 

 MR. FELLMAN. Mr. Chairman, the associations that I am 

representing have not come up with their own definition and some have 

not even taken a position on net neutrality, but my personal feeling, and 

in an effort to allow you to say that at least some of us are in agreement 

is, I tend to agree with Mr. Citron. 

 CHAIRMAN BARTON. All right. Now, I want the members of the 

committee to notice, we got one, two, three, four, five, six, seven, eight 

gentlemen that represent some of the largest trade groups and some of 

the brightest minds in the country, and not one of them really gave a--

Mr. Misener probably came closer than anybody. I would have to give 

him the best grade. Mr. McSlarrow gave a very negative kind of antidefinition, and we are tried up in knots in this bill potentially over 

something that we don’t even yet have a universally recognized 

definition of what it is. 

Now, the bill before us definitely gives the FCC the authority to 

enforce net neutrality, whatever it is. If anybody violates the principles 

that the FCC has put out on net neutrality, whoever that villain is, the bill 

explicitly gives the FCC the authority, on a case-by-case basis, to punish 

the villain. Now, since we don’t even know what it is, I think that is a 

pretty good start. Now, I understand the concerns and all that, but I think 

the committee print is headed in the right direction on net neutrality. I 

next want to ask Mr. McSlarrow under current law, are cable operators 

subject to price regulation in any locality that they serve? 

 MR. MCSLARROW. Yes, under current law, what is called a uniform 

price requirement throughout an entire franchise area for the basic 

package, so the 10 or 12 channels, not the full-blown expanded basic but 

for the basic package is in place until that market is deemed subject to, 

quote, unquote, “effective competition.” That happens in two instances 

under current law, satellite companies reach 30 percent market 

penetration or upon entry of a telephone company. 

 CHAIRMAN BARTON. But you get to set your price. You can set it. 

It has to be the same for everybody in the territory that you are serving. 

Is that correct? 

 MR. MCSLARROW. For the basic package, it is still a regulated rate. 

 CHAIRMAN BARTON. And who-- 

 MR. MCSLARROW. Congress deregulated the-- 

 CHAIRMAN BARTON. Who regulates that rate? 
211

 MR. MCSLARROW. The localities under a formula I think derived 

from the FCC, but it is delegated to them. 

 CHAIRMAN BARTON. Okay. Well, my time is expired, Mr. 

Chairman. I have about five other questions. I do want a written 

definition from each of you on net neutrality, if your trade group doesn’t 

have a dog in the hunt, just send us a letter that says we don’t have a dog 

in the hunt and we won’t worry with you. 

 MR. UPTON. Mr. Stupak. 

 MR. STUPAK. Thank you, Mr. Chairman. Before I start my 

questions, I would like to thank Chairman Barton and Chairman Upton 

for respecting the process and holding a hearing on this proposed 

legislation. Earlier this month, I and other members of the subcommittee 

had urged the committee to hold a hearing on the bill which if enacted 

would fundamentally alter our cable laws. I would also like to commend 

the authors for including sections on interconnection, municipal 

broadband, and ensuring that VOIP customers have access to 911. 

Earlier this year the Congressional Rural Caucus Telecommunications 

Task Force, which I co-chair, re-released our telecommunications rewrite 

principles. These principles included USF reform, intercarrier 

compensation, interconnection, and advanced access to broadband in 

rural areas to preserve strong phone service and promote strong 

broadband service. Mr. McCormick, I am pleased that you included USF 

and intercarrier compensation in your testimony. How important is it 

that Congress act on these issues this year? 

 MR. MCCORMICK. It is very important, Mr. Stupak, and we are 

hopeful that the committee will turn to those issues once it moves 

forward on the video choice legislation, as the Chairman has assured us 

that the committee will 

 MR. STUPAK. Thanks. On interconnection, it is crucial to preserving 

both competition in the voice market and affordable phone service in 

rural areas. That is why the rural caucus included in our principles for 

telecommunications reform the requirement for strong interconnection 

language. I am pleased that the draft of the legislation includes language. 

However, I see some room for ambiguity. Mr. McSlarrow, if you will, 

do you think the committee print should be clarified or do you think this 

section will be subject to litigation for years on what is or considered, 

quote, necessary, end quote and effectuate interconnection? Could you 

comment on that for me? 

 MR. MCSLARROW. I think as currently drafted, it would risk 

litigation. I think we can clarify it by making clear that just as the 

competitive local exchange carriers have access under Sections 251 and 

252 to all the necessary requirements and rights for interconnection that 
212

regardless of the technology, and if you are a VOIP provider that you can 

get all the same rights under those same two sections. 

 MR. STUPAK. Does anyone else care to comment on that? 

 MR. MCCORMICK. Yes. I think part of that you may want to 

include, regardless of regulatory statutory classification, since there is a 

definitional differential between certain types of providers. 

 MR. STUPAK. Anyone else? Okay. Let me ask about national 

franchise, and it is another issue that I have spoken about often in this 

committee, about my concern that we close the digital divide that the 

haves and the have-nots are not determined by region or city. I am 

concerned that this bill will actually turn the digital divide into a micro 

problem, as well where the haves and have-nots are determined by the 

neighborhood. While the bill does include an anti-discrimination 

provision, there is no enforcement language to enforce the provision and 

the bill includes no build-out obligations. The Telecommunications Act 

currently says that cable providers must build-out to all households in a 

franchise area, so Mr. Mayor, if I may ask Mayor Fellman to speak to my 

concerns, what specific enforcement tools and obligations do you need 

that are not in the bill right now, and also can you address my concern 

that it is unclear on how the rights-of-way disputes will be resolved? 

 MR. FELLMAN. Thank you, Congressman Stupak. I am glad you 

raised that issue. I was hoping that Chairman Barton would also ask us 

for our definitions of competitive cable services because I think you 

would get different definitions there, and your point about build-out goes 

to that point. Well, under existing cable franchises today there is a 

variety of mechanisms that local governments use to enforce build-out. 

It is not uncommon to see build-out or upgrade requirements phased in 

over a period of years with a provision that fines or penalties are paid by 

the operator if they do not meet those deadlines. Another option would 

be a court order mandating compliance within a certain period of time. 

Companies are usually required to post security in the form of bonds or 

letters of credit which have the potential to be forfeited if those 

requirements are not met. So having first the requirements to allow a 

reasonable deployment over a period of time to serve all citizens and the 

mechanism to enforce that through these variety of financial means is 

absolutely essential in our opinion going forward. 

 To your question about rights-of-way, again, similarly, we have 

bonds and letters of credit posted. If rights-of-way ordinances or 

regulations are violated, there is potential for financial penalties. Some 

of these violations could be violations not of franchises but of local 

police power ordinances where the remedy might be a citation to appear 

in municipal court and pay the fine that the court would impose for that. 

Our biggest concern, as I mentioned earlier, is that under the draft bill it 
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appears that the only remedy for someone--for a company challenging 

local enforcement of rights-of-way provisions--is to take that to the FCC. 

Number one, we are not comfortable with the FCC being the national 

right-of-way judge, but number two, I think it would be cost-prohibitive 

for many communities to come to Washington to defend their rights-ofway regulations. 

 MR. STUPAK. Does anyone else care to comment? Mr. Keefe? 

 MR. KEEFE. I have two quick points. Two quick points, and it gets 

back to the issue of, you know, how effective the telephone companies 

are being in the licensing process. In our experience at Atlantic, we 

haven’t seen telephone companies come in and say oh, we will take what 

the local franchise--just, you know, take that license, cross out their 

name, put in ours and we will move forward. They are always looking 

for a difference, and the two differences we have seen are, there is no 

specific deployment of network so you get a license and you turn it on 

whenever you want and not in our areas but wherever you want in some 

areas, and they have a right to withdraw without penalty, so if things 

don’t go well, presumably they close up shop and move away. None of 

my licenses have that right. 

 MR. STUPAK. Mr. McSlarrow? 

 MR. MCSLARROW. I think on the issue of non-discrimination, the 

problem we have is that with self-selection and the ability to cherry pick 

community by community and neighborhood by neighborhood is, you 

can have the language and it sounds good, but it is just an illusion. The 

issues about build-out, I mean, I represent the competitor. It would be an 

odd thing for me to urge you to tell the competitor to compete with us 

every place, but as a public policy matter, currently under law, that 

negotiation is placed with the localities to negotiate with providers. That 

makes sense to us. 

 MR. STUPAK. Mr. McCormick? 

 MR. MCCORMICK. Mr. Stupak, thank you. The cable industry 

deployed voice services over its network without any build-out 

requirement. They deployed Internet access services without any buildout requirement. There is a redlining prohibition in the bill. The 

redlining provision is enforceable in two ways. First, the FCC is given 

authority to require a build-out to specific communities or parts of the 

communities upon application. Secondly, there is a death penalty 

provision. If you redline and you are found guilty of a willful or 

repeated violation, the FCC can revoke your franchise. Those are pretty 

powerful enforcement provisions for redlining and they are provisions 

that do not in any way apply to the cable industry’s entrance into the 

voice market or any other competitor’s entry into the voice market. 
214

 MR. STUPAK. Going back to what Mr. Keefe said that, you know, 

there are two problems he has with it. There is no specific deployment 

requirement and there is a right to withdraw. I mean, by the time you get 

the FCC, you will never get there. You withdraw, then you assess a 

penalty to something that doesn’t exist? 

 MR. MCCORMICK. Well, if you withdraw, you lose your investment. 

This is an area where this committee has had wonderful success in 

bringing competition in telecommunications and in every area, whether it 

was CLEC entry into voice, whether it was the wireless industry, you 

have always allowed companies to enter the market and begin to design 

and build-out a business-- 

 MR. STUPAK. Well, we have greater reporting requirements, and this 

legislation for franchise, if you want to go for a national franchise, all I 

see you have to put down there is your name, who you are, your address. 

There is nothing in there who, when, or where are you going to deploy 

and what timeframe or anything. I think the reporting requirements 

would certainly have to be increased in this legislation, a national 

franchise at least. I thank you, Mr. Chairman. Thank you, gentlemen. 

 MR. UPTON. Mr. Ferguson. 

 MR. FERGUSON. Thank you, Mr. Chairman. I want to begin with a 

question for Mr. Citron from New Jersey. Welcome, glad to have you 

here. In your testimony you had emphasized how access to E-911 

infrastructure by VOIP providers is essential to provide consumers with 

the protections of E-911. You mentioned in your testimony that in 

Verizon service areas, particularly in our home state of New Jersey--it 

seems that Vonage is totally compliant--it provides consumers with fully 

enhanced 911 service. First, thanks for this cooperation. Your work 

with Verizon is really a model for how this sort of partnership can work 

and should work nationwide. In your opinion, why are other parts of the 

country taking longer to roll out E-911 service by VOIP providers? Are 

there technological hurdles, and if so, whatever the hurdles are, how have 

you and Verizon in working together, how have you overcome some of 

those hurdles? 

 MR. CITRON. Thank you. It is a great question. Verizon has been 

an excellent partner to voice over IP industry. When we got together 

with Verizon at the enactment of the FCC order, Verizon came up with a 

plan with Vonage to create one set of standards for interconnection to the 

entire Verizon E-911 network in every single local jurisdiction that they 

served. That has allowed us to nearly complete our entire build-out in 

this company with Verizon. 

By the same token, many of the other operators that are both RBOCs 

and more local exchange carriers do not have such capability or have not 

instituted one. So in those cases, we actually have to negotiate 
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interconnection capabilities and the technical standards in each and every 

local market. As a matter of fact, in some markets like Illinois, the one 

where we are finally making good progress but have had a lot of 

frustration, the incumbent operators and even the State operators have 

had difficulty in deciding how it is we would actually transmit those calls 

and under which standards we would use even though a number of 

national standards have already been published. By granting access 

rights to the underlying infrastructure, these operators will be forced to 

come to the conclusion in a reasonable period of time and grant access. 

 MR. FERGUSON. Thank you. Again, it is an example of something 

that had gone right and it is an example of a market and the private sector 

working cooperatively in a way that is really benefiting consumers and 

certainly from a public safety standpoint. Mr. Misener, I have a 

question. Here are some quotations I want to share. Bill Gates in June 

of 2003: “I am really pleased with how the cable industry has been 

providing openness on the cable model platform. There is a lot of 

openness being provided by that platform so I think the cable industry is 

to be congratulated for that.” Chairman Powell said in 2003 also: “I 

don’t know that I have yet seen sort of a compelling record that we have 

a clear and demonstrable problem on this issue,” when he is talking 

about whether the FCC should regulate broadband providers in terms of 

content. Commissioner Adelstein said also in 2003 on this issue: “We 

don’t have overwhelming evidence of a problem right now and there 

would have to be substantial evidence that such mandates are now a 

solution,” she said a solution awaiting a problem. We have a 

Republican, we have a Democrat, we have a billionaire innovator. All 

seem to be describing the same thing. They are saying that net neutrality 

regulation, it seems to be a solution in search of a problem, and until we 

have evidence, suggesting caution. What evidence do we have, or what 

evidence are you aware of that there is blocking or a problem in terms of 

access? What evidence do we have? 

 MR. MISENER. Thank you, Mr. Ferguson, very much. Currently, 

very little, but that doesn’t mean it is not going to happen. They have the 

power to do it. They have announced their intentions to do it and the 

regulations that prevented them from doing it just were released last year. 

 So they couldn’t do it earlier. They were waiting for both FCC 

action and court decision. They have been on their very best behavior, 

and noticeably, some of the CEO statements coming out of the telcos 

were issued after the FCC’s final decisions. So they have announced 

their intentions to engage in this kind of discrimination that I have 

described. 

 Moreover Microsoft is part of a coalition that I am involved with, so 

they’re very concerned about this as well as Amazon, and other players 
216

here. Just because it hasn’t happened, it doesn’t mean that we have to 

turn a blind eye to the reality of them planning to make it happen. And 

they have, you know, been refreshingly honest I have to say about their 

intentions. And so, it is nice to know that that is what they want to do, a 

nice try. But they ought not to be allowed as a matter of public policy to 

take their market power over the network and extend it to market power 

over content, in a way that has never been allowed before. 

 MR. FERGUSON. I would just echo, and my time is about up, what 

Chairman Barton was talking about before in terms of it is very difficult 

to address a problem unless we can really get our arms around it. And 

unless we can turn to the experts to help us get our arms around it, it 

doesn’t seem like there is any chance whatsoever, in the near future at 

least, that there will be any kind of consensus in terms of the experts, you 

all who we turn to get our arms around this problem. And it seems to me 

that the language that is included in this draft, in a very reasonable way 

in the short-term addresses this problem in an appropriate way. It leaves 

open the possibility obviously, of looking at this as we gather evidence. 

But I would, I don’t have any time left, but I appreciate your comments. 

I thank all of you for being here today. 

 MR. UPTON. Mr. Pallone? 

 MR. PALLONE. Thank you, Mr. Chairman. I wanted to ask about the 

emergency services also. And I know that Mr. Citron talked about his 

success in basically rolling out E-911 to 70 percent of the subscribers. 

So maybe I will ask Mr. McSlarrow, what is happening in terms of your 

voice over IP services in addressing E-911 in that issue? 

 MR. MCSLARROW. We are a facilities-based provider industry. And 

as such, we are fully compliant with E-911 today, and we think that what 

is in the bill today is a great step forward. 

 MR. PALLONE. Okay. And then in terms of--going back to Mr. 

Citron again, you said that you are at 70 percent. What would it take to 

build up the other 30 percent? I know you addressed that a little bit to 

Mr. Ferguson’s question. 

 MR. CITRON. Sure. We have plans in place currently to build-out to 

everyone of our customers E-911 capability. I think there are two points 

here that we should recognize. First, today, the requirements for E-911 

should be really extended to all Americans, not just those who use voice 

over IP. Secondarily, in order to continue to build that we absolutely 

need liability parity. There are emergency operation centers in this 

country who refuse to answer a Vonage voice or IP 911 call, because 

they are afraid of liability. Nina has actually written on this topic to this 

committee, and we would urge the committees to move forward to 

ensure that liability parity is provided. Then following access to 

underlying elements, one of the differences between us and the cable 
217

operators, we are not facilities based. So our consumers move around a 

lot. And therefore we need to build that now, not just where we 

physically have infrastructure, but the places where we don’t. And 

therefore we will need access to those underlying elements. 

 MR. PALLONE. I wasn’t going to ask about the liability issue, only 

because it is really not within this committee’s jurisdiction. I guess it is 

more with Judiciary. But I, you know, I understand the concern over that 

regard, but we just don’t normally deal with it in this committee. Let me 

ask the Mayor, in terms of these E-911 issues, in terms of, you know, 

local access or whatever. Would you want to comment on any of this in 

terms of, you know, the significance of it? 

 MR. FELLMAN. Well thank you, Congressman. I think anything that 

improves public safety we support. And we have in other proceedings at 

the FCC, the national associations have been pushing for, ever since 

VoIP was on the screen of requiring 911 services to be available on that 

kind of a service. So we appreciate the fact that it is in this bill. 

Personally, I am a little concerned that the FCC is going to have the 

authority to determine or to require it unless it is not technically or 

economically feasible. And I think if we are going to deploy this 

technology to all Americans, then all Americans ought to have access 

and to be able to call 911 if they have an emergency. And in just the 

concept that the Commission might say, well it might cost too much to 

do it with the kind of technology you are doing, so we won’t require it in 

that circumstance, gives me cause for concern. 

 MR. PALLONE. Okay. I have about a minute-and-a-half left, so if 

you want to talk about the liability a little more. I mean I know again, it 

is not within this committee, but if you want to talk about how that 

impacts you, you know, I would appreciate your comments. 

 MR. CITRON. Well absolutely. Well as recognized in my testimony, 

we do agree and share and worked with mayors in many towns about 

doing whatever is capable for making E-911 available to everyone. And 

the biggest problem we have is we have literally jurisdictions who will 

not take that call. And if mayors are empowered or other legislators, or 

let us say the bodies to afford the liability protection to mandate the 

ability to take those calls, of course that would be very helpful. The 

thing, and another note that has been raised as well and in reference to 

my testimony, is that we also do collect 911 fees and remit it back to 

States. And one of the things that we would ask for as well, is to make 

sure that these States use these fees to continue to upgrade the build-out 

of the 911 centers. So that they can have the most advanced technology 

in order to rapidly respond to a customer’s call. 

 MR. PALLONE. Okay, thank you. Thank you, Mr. Chairman. 

 MR. UPTON. Mr. Bass? 
218

 MR. BASS. Thank you very much, Mr. Chairman. I have to preside 

in exactly seven minutes. So I am only going to ask one question. I was 

wondering if those of you who have not made any comment yet, could 

you comment on the issue of a single Federal franchise, all local 

franchises, or the hybrid idea that I am pushing for which is to have a 

Federal franchise as a backstop, but enable the States to have a 

franchising option which they could adopt and implement in their own 

territories. Anybody want to comment? Yes, sir? 

 MR. FELLMAN. Congressman, thank you. I have listened with 

interest in your opening comments about the need for, in your opinion, 

States to have the flexibility to deal with their localities because of the 

unique nature. And I would just take that one step further and say we 

currently have in Title VI of the Communications Act a Federal franchise 

framework that allows for a local role in that process. So I guess where I 

would disagree with you, sir, is to continue to reform the Federal 

framework for franchising, but to allow the local decisions to be made 

locally, and not at the 50 State capitals. 

 MR. MCCORMICK. Thank you, Congressman, for our national 

scheme. And just get onto it. Allow consumers to have the benefits of 

choice. 

 MR. MCSLARROW. And like Mayor Fellman, I think our preference 

is to take the existent system and streamline it, and reform that. I think 

probably the least preferable would be one where we remove the local 

accountability. We don’t have national uniformity and we end up going 

to State PUCs. 

 MR. BASS. Anybody else want to comment? If you don’t, I will 

yield back, Mr. Chairman. 

 MR. UPTON. Mr. Inslee? 

 MR. INSLEE. Thank you. Mr. Misener, you talked about taking issue 

with the statement that we have had no protection or regulation of the 

Internet before. You asserted that we had an environment in that regard, 

and that has been successful until fairly recently in preventing 

discrimination and preventing the violation, sort of a neutrality principle. 

Could you elaborate on that and tell us from a historical standpoint, what 

you mean has occurred in that regard? 

 MR. MISENER. Certainly, Mr. Inslee. We had a circumstance where 

over the past three or four years, the FCC aggressively deregulated the 

broadband infrastructure, the broadband networks. In many of the rules 

that had heretofore applied to broadband networks provided by the 

telecos, primarily the wireline providers, truly were outdated and needed 

to be dispensed with. And it made a lot of sense to get rid of them. But 

unfortunately, we believe the Commission went too far and got rid of all 

the rules. And, in particular, it would make sense to us to remove a non-
219

discrimination requirement only after it was shown that the market were 

truly competitive. That is to say that a consumer had access to more than 

just true broadband service providers. And that simply isn’t the case 

now, as much as we would like it to be, and it won’t be the case anytime 

soon. And so we are asking essentially for a reinstatement of just the 

non-discrimination provisions. Not all the other things, tariff for filing 

requirements, entry/exit rules, those sorts of burdensome rules. And so it 

is just trying to preserve the longstanding environment in which the 

Internet in this country grew up and has been so successful. 

 MR. INSLEE. Now folk who have sort of suggested we don’t need a 

net neutrality provision have argued that they do not intend on degrading 

transmissions, like putting those annoying bells on your transmission. 

But you have made the argument they are essentially charging for 

additional services, that in a sense is degradation or an equivalent of that. 

Could you tell us what you mean by that? 

 MR. MISENER. It is a great point. And I think this is one that is 

missed frequently. That somehow you can prioritize some content 

without degrading other content. The way the Internet works is there are 

lots of very high capacity computers spread all around it, they are called 

routers. And these routers take information in, and they pump it out. 

And the way a router typically works, is the first bit of information that 

comes in, is the first one that goes out. But if you are in a circumstance 

where someone has been able to pay to have priority, that means that 

their bits could arrive later, at a later moment and actually is leapfrog 

over the prior arrived bits and be sent out first. Well that means that the 

other guys bits are degraded. It is not possible to offer paid quality of 

service, or prioritization in this way, without degrading other traffic. 

What we said is it is fine to prioritize some kinds of traffic, be it 

emergency services, be it live video over say data files which can be 

delayed a couple of seconds, and no one will care. But when you start 

getting payment for it, that means that some other people who can’t or 

don’t pay will necessarily have their service degraded. 

 MR. INSLEE. Thanks. Mr. McCormick, I wanted, one of the things 

that is troublesome to me in this draft is that I think for the first time that 

I am aware of would especially prohibit this agency from moving 

forward in what I consider a positive direction in net neutrality, and 

would sort of neuter this agency to be able to deal with that issue. And 

that causes concern to me. That in combination with this bill that simply 

talks about principles, you know, the good book has the Ten 

Commandments, it doesn’t have the ten suggestions, or the ten 

principles. And even the Ten Commandments aren’t always honored I 

am told. If we really want to have this principle to be followed, to be 

respected, if you bought these concepts that we would need to have a 
220

non-discrimination between bits on the Internet, shouldn’t we have a 

stronger regulation? And shouldn’t we stop removing the tools that are 

available for the FCC and move forward? 

 MR. MCCORMICK. Congressman, let me see if I can respond to that 

in a thoughtful word. The principles say here that consumers are entitled 

to competition among application service providers and content 

providers. And the bill says you shall not do rulemaking on that. So if 

the FCC were to have rulemaking authority, and if the concern was not 

about Amazon, but about the next Amazon. And the issue is how does 

the little garage store guy even get noticed on the search engine that 

categorizes searches by the most frequent searches? So if Amazon is 

already number one, then Amazon is always going to be number one on a 

Google search engine. So should the FCC prescribe that, because that is 

really not net neutrality, but if the FCC were able to write rules under 

these principles it could do so? Or similarly, if somebody were to say, 

we are really concerned that Google, what if Google begins to sensor 

political speech as it has done in China? It has done that. We are 

concerned it may do that here. So maybe we should apply to the FCC to 

write regulations to make sure that content and service providers don’t 

do that. 

Congressman, this is a very dangerous thing. We would be the first 

country in the world to be regulating the Internet. And other countries 

may then say, well if the United States is going to regulate the Internet 

pursuant to its culture and its values, then we should be regulating the 

Internet pursuant to our culture and our values as well. In the absence of 

a real problem, we should not give regulatory authorities this kind of 

jurisdiction. 

 MR. INSLEE. Just a quick follow-up. Our time is concluded, we 

have more to deal with tomorrow. Thank you. 

 MR. UPTON. Let me just say that we have a series of votes on the 

floor. I want to go to Mr. Terry, and after Mr. Terry is done, we will 

adjourn for about 20 minutes and come back. We are trying to get your 

hearing in the Senate delayed a little bit as we talk. So, Mr. Terry? 

 MR. TERRY. Thank you, Mr. Chairman. And I do appreciate the 

level of work that you and Chairman Barton and Jeff had put into this 

bill. And my focus is going to be on the franchise aspect of this. And 

Mayor Fellman, I am going to put this question to you. I spent eight 

years on the Omaha, Nebraska City Council before I came here. So 

when the issue of a national franchising plan was brought to this 

committee and myself, the first thing I thought of was the cities and their 

roles in here, considering I was Chairman of our Cable Subcommittee, 

and helped negotiate the city’s latest agreement with Cox Cable. So to 

make a long story short, I went through and I came up with a list of 
221

principles that I thought were appropriate in the sense that competition 

with video is appropriate. It is good. I have seen that in Omaha. It gives 

consumers or my constituents choices. I also thought that a streamlined 

approach would help the rule out of this competition. But I wanted to 

preserve some involvement by the cities. And so I developed a draft 

discussion that preserved the city’s role by what I call most favored 

nation. That a new entrant could automatically, it could do one of two 

things. If they wanted to streamline it and not have to sit down and 

negotiate with Omaha or Denver, they could just accept what the city had 

already adopted on the major contract elements. Or they can opt for 

negotiations. That was, I thought, the best deal for the cities, but the 

League of Cities disagreed with me and said, it didn’t go far enough for 

them. And that left me with the impression that they wanted an all or 

nothing approach, which really frustrated me in this process, and left me 

without any, my whole point was to protect the cities’ roles in this. I just 

wanted to ask you in your discussions, you are the representative from 

the League of Cities here today. What did they tell you has been their 

involvement and the League of Cities true desire if they were to write 

this bill, just status quo? 

 MR. FELLMAN. Congressman, thank you for that question, because I 

think there is a disconnect here. I serve on the National League of Cities 

Information Technology and Communications Committee, I am the past 

chair of that committee, and I have been one of the elected officials from 

the League that has been involved in some of these discussions. I don’t 

recall ever being told about your proposal, so I apologize if there has 

been a disconnect. What you described is actually very similar, not 

exactly the same but similar, to the principles that Senator Burns and 

Senator Inoue have come out on the Senate’s part. 

 MR. TERRY. Yes, although I came out with it first. 

 MR. FELLMAN. Well then I am here to give you credit for that. We 

support the principles and while I would tweak, and of course the devil’s 

always in the details, I would love to work with you and your staff on the 

framework that you just described. I am surprised to hear you say that 

the League said it was a non-starter or something like that. So I would–– 

 MR. TERRY. I will verify who told us that, because when even the 

League of Cities wouldn’t support it, it went on a shelf. And I told our 

Chairman that I had no amendment to that, even though I had drafted 

one, because I wasn’t going to introduce something that wasn’t going to 

be supported by you all. 

 MR. FELLMAN. I will commit to you on behalf of the League that we 

will sit down with you and your staff between now and the time of 

markup. And if what you are describing is consistent with our position, 
222

and I think we can reach some agreement to allow you to offer an 

amendment concerning your-- 

 MR. TERRY. Well I appreciate that support, but I am not sure it is 

going to be welcomed above, the--at this level in the discussions. But I 

wanted to get that out. I appreciate that that is something that you felt 

was important. I am going to go back and track down where the 

disconnect was from the people we talked to and you. 

 MR. FELLMAN. And I will do the same. 

 MR. TERRY. But then I also want to talk to Mr. McSlarrow from 

NCTA. I am sorry I missed your discussion. It is one of those days 

where you have a bazillion meetings, and you try and get here for the 

important parts. Now where do you stand on this committee’s draft, on 

the franchising language? 

 MR. MCSLARROW. Our preference is still along the lines, very much 

of actually what you described, which is reform and streamline the local 

franchising process. But as I have told the Chairman, I think this draft 

represents a significant process. If you are going to go down a national 

franchising route, I think there are fixes that I would recommend to this 

committee. But fundamentally, we think that you don’t have to throw 

everything over board. You can actually fix this system and ensure a 

speedy entry by new competitors. 

 MR. TERRY. Very good. That is all the questions. I think I will 

yield back. 

 MR. UPTON. Yeah, we have got four minutes to go. So we will 

come back in 25 minutes. 

 [Recess.] 

 MR. UPTON. I know that the members of the first panel are anxious 

to move along to various things, airplanes, and Senator Stevens. And we 

are going to continue--ou can shut those doors--with Mr. Gonzalez. Mr. 

Gonzalez? 

 MR. GONZALEZ. Thank you very much, Mr. Chairman. And I will 

try to hurry along. Mr. McSlarrow, let me ask you. The cable industry 

as we know it today, historically speaking, did it ever engage in any of 

the practices that you fear some of the new entrants may be engaging in, 

such as cherry picking, the selectivity that you were talking about? 

 MR. MCSLARROW. No, because in each case the rollout of the 

network itself, which initially was essentially just to deliver video 

service, was something that was negotiated with the community. And so 

there was recognition that you would provide service as broadly as 

possible within the community, there might be some places where that 

was uneconomic, but that was subject to negotiation with the cities. And 

then later, when we rolled out voice services and high speed data, we 

rolled those out to the entire network that was already in place. 
223

 MR. GONZALEZ. But when you were a first entrant, because you 

were the first of course in the video, the truth is you were incredibly 

selective, at least if I remember the experience in my city. And the 

reason for that is because economic models dictate that you have to 

basically survive the rollout and the build-out in order to continue to 

service all areas, as many areas as possible. And I think the mayor was 

talking about how you can do that, phasing it in and such. And you don’t 

think any of that is going to be applicable to let us say the phone 

companies, or Verizon, and Colorado, Texas or whatever, or in bigger 

areas? That there is not going to be any kind of negotiation at any level 

if we had a Federal franchise that will obligate them working within a 

reasonable economic model to provide their service? 

 MR. MCSLARROW. I don’t know is the short answer. I think you put 

your finger on it. Economic actors are going to do what is in their best 

interest. I am not pretending to have a white hat, no industry does. They 

will pursue their opportunities as they think makes sense economically. 

What is different historically in terms of how cable service has been 

delivered is that it wasn’t just up to us. We had to negotiate with 

someone. And that someone, the city municipality, whoever, may or 

may not have gotten it right. But they were an objective third party that 

was part of that equation. 

 MR. GONZALEZ. And you don’t think any other type of formal 

process, or economic factors, the realities of the marketplace will be in 

play that will basically result in these same companies, the new entrants 

taking into consideration the same factors that the initial cable providers 

did when they first rolled out and built out? 

 MR. MCSLARROW. It is quite possible. The only point I would 

make is that if you look at what SBC told Wall Street just months ago, 

they basically said that is not our plan. Our plan is we are going to go to 

particular neighborhoods, so-called high value neighborhoods. And we 

are not going to go to low value neighborhoods. So it may or may not 

turn out to be the case, but that is the plan. 

 MR. GONZALEZ. I am not real sure if that is the statement that was 

made in the complete form and such, because I don’t think that is what is 

going to happen. Nevertheless, I think we do have that responsibility, 

and that we are very mindful of it. But I think you ought to advance an 

argument, and I know some of my colleagues are, and we need to be 

careful about it, that the new entrant is going to come and cherry pick. 

And so if they are coming into Los Angeles, they are only going to go 

ahead and go into Brentwood, or whatever it is. Do you truly believe 

that is going to be the case? 
224

 MR. MCSLARROW. If you just look at it where they have announced 

that they are going to serve, I think it is plainly the case. I mean you 

can–– 

 MR. GONZALEZ. No, that is your honest opinion, that is fine. I 

understand where you guys are already out there. Your build-out is built 

out. Now let me ask you, some of the new services that you have, a 

voice over Internet protocol, your broadband, Roadrunner in San 

Antonio and such, do you selectively, and do you pick and choose certain 

market areas within your service area, to more aggressively promote 

those particular services? 

 MR. MCSLARROW. I am sure we do and-- 

 MR. GONZALEZ. Now why would you do that? 

 MR. MCSLARROW. In part, because it is subject to whatever 

competitive pressures you are under. I mean in other words, what is 

happening right now is with two satellite providers, you have got 

promotions and discounts happening all over the place, you know. 

 MR. GONZALEZ. Well, but you are ruling out a new service, this is 

new territory for you. It makes sense that if you want to be successful 

and be able to continue it, and to expand your market share, is to promote 

it in those areas where you probably have a more likely customer, 

doesn’t it? 

 MR. MCSLARROW. It could. 

 MR. GONZALEZ. Well I, you know, I never had a small business. I 

was a sole practitioner in law. But it seems to me that a lot of these 

things that you always talk about market forces, you do have some 

objection to it, and you would like to see the Government come in and 

maybe have a more direct approach to things. And we will explore all of 

that. My time is up, and I will submit some written questions to you and 

to other members of the first panel. Thank you very much for your time. 

 MR. UPTON. Mr. Pickering? 

 MR. PICKERING. Thank you, Mr. Chairman. Mr. McCormick, how 

are you today? 

 MR. MCCORMICK. I thank you, Congressman. 

 MR. PICKERING. Are you in support of a number portability dialing 

parity for competitors? 

 MR. MCCORMICK. Pardon? 

 MR. PICKERING. Do you support number portability dialing parity 

for competitors? 

 MR. MCCORMICK. Yes, we do. 

 MR. PICKERING. So you wouldn’t have any problem if the language 

is unclear on the interconnection, or the rights and obligations for VOIP, 

making sure that as cable enters that they would have the rights to 
225

numbers and dialing parity? So that wouldn’t be a problem to just 

clarify, in the underlying text? 

 MR. MCCORMICK. Well we think that if the VOIP providers wanted 

to be treated as telecommunications carriers, they should come in subject 

to the full societal responsibilities that obtain, including universal 

service, access for people with disabilities, and protections of customer 

privacy. 

 MR. PICKERING. So you would say, you know, CLECs today have 

interconnection rights to numbers and portability, and a limited access to 

network elements. And that is the current access and cable today goes 

through CLECs to get access to provide VOIP services. In the 

underlying bill we want to give cable that direct, same rights and 

obligations. You wouldn’t have a problem with that would you? 

 MR. MCCORMICK. Well, I guess I am not completely following your 

question, Congressman. If what you are saying is that IP voice providers 

want to be treated not as information services, but instead as 

telecommunications services, and you want to afford them the rights that 

are inherent with being telecommunication service providers, we have no 

objection to that, so long as they also undertake the obligations that 

obtain to telecommunications service providers. And those obligations 

are sort of fundamental, the societal fabric of our Nation. Access for 

persons with disabilities, customer proprietary network information, 

issues like those. So I think we are quite open to the competition in this 

area. 

 MR. PICKERING. So if we included those obligations, you would 

have no trouble giving cable the same rights and obligations as CLECs 

have? 

 MR. MCCORMICK. Well I think, yeah, I think the way the language 

is that in effect says that the VOIP providers will be considered, and elect 

to be considered providers of telecommunication services when it comes 

to voice services. 

 MR. PICKERING. So you have no problem with that provision? 

 MR. MCCORMICK. I already clarified that they have rights to 

numbers-- 

 MR. PICKERING. Obligations the same, right? 

 MR. MCCORMICK. Yeah, parity and obligations should go with 

parity to rights. So just to clarify, the intent of the interconnection, or 

VOIP rights and obligations, is to have competitive symmetry. So that as 

cable enters into voice services that they have the same rights, and 

importantly, the same obligations as CLECs currently have. And no 

more, no less, so that there is regulatory and competitive parity as we 

facilitate, just as we are removing barriers as you enter into the video 

market. There have been cases, for example, in South Carolina, where 
226

CLECs who are VOIP providers have been denied certificates as a 

telecommunications provider or service provider. 

 MR. PICKERING. And so we just want to remove any barrier on both 

sides of the fence, and I think that we are in agreement, is that correct? 

 MR. MCCORMICK. Well, I am aware of those cases, and what I am 

suggesting to you is that language in this legislation goes halfway. It 

confers rights, without conferring the corresponding obligations. Those 

obligations-- 

 MR. PICKERING. But at the same time you don’t owe the same 

obligations that--as you are a new entrant into video. Should you have 

the same obligations as cable companies have in providing video 

service? 

 MR. MCCORMICK. We believe, I am saying that with regard to 

VOIP operators, those telecommunications services with regard to 

interconnections should be subject to the same societal obligations with 

regard to any other services. 

 MR. PICKERING. I understand what you are saying as far as their 

entry into your market. If you entered into their market-- 

 MR. MCCORMICK. We have never suggested that CLECs or VOIP 

providers be subject to the full panoply of common carrier regulation that 

applies to voice. So there are at least nine specific requirements that 

apply to incumbent voice operators that don’t apply to either CLECs or 

to VOIP operators. And this committee has historically said that with 

regard to new entrants, we shouldn’t apply the legacy monopoly 

regulation. So in connection with video entry, we are willing to 

undertake those obligations of a competitive nature such as paying 

franchise fees, and having PEG channels. But with regard to 

requirements to build-out to a footprint that doesn’t match our footprint, 

those requirements were imposed in an era where there was in many 

cases a single provider who was receiving the franchise. 

 MR. PICKERING. Mr. McCormick, I understand what you are saying. 

 MR. MCCORMICK. Okay. 

 MR. PICKERING. But just again to clarify here. Mr. McSlarrow, how 

important is this provision for you, just as we want to accelerate video 

entry and maximize video competition? How important is this provision 

for cable and VOIP providers to provide voice competition and bundle 

services--voice, video, data and wireless--so that you can compete? And 

let me say this, for those who want build-out, the best way to get built 

out is to make sure that both Bells and cables completely compete in 

their full footprints. Interconnection policy is critical to having full 

competition in all services in both markets. And if you want build-out, 

getting this provision right is critical from a market perspective and 

having capital incentives, so that you don’t lose market share, instead of 
227

some government mandate driving market interaction and investment. 

So Mr. McSlarrow, how critical is that to cable that we get this right? 

And do we have it right in the current form? 

 MR. MCSLARROW. It is critical. You said it better than I could. I 

mean the reality is that in the video marketplace, we have satellite 

competition that already has 30 percent market share and cable 65. 

When you look at voice, ILECs have 85 percent plus market share. 

Fundamentally encouraging voice competition is important. With VOIP 

we have an opportunity for the first time, both with facilities-based and 

non-facilities based, to bring that kind of voice competition to America. 

Two things I would say--and you kind of hit on one of them already, or 

both of them, probably--that I would recommend we change is adding to 

the language on interconnection that is in the draft today, to make clearer 

that the other rights that CLECs have to number portability and things 

like that are also being referenced. And number two, to make sure that a 

VOIP provider really has two paths. They can either have direct 

interconnection rights, or they can go through a CLEC if they choose. 

And either way works. 

 MR. PICKERING. Thank you, Mr. Chairman. 

 MR. UPTON. Mr. Dingell? 

 MR. DINGELL. Thank you. First question to Mr. McCormick and to 

Mr. Fellman. Gentlemen, yes or no, would you characterize the wireless 

industry as competitive? Mr. McCormick and Mr. Fellman, what is your 

answer to that? 

 MR. MCCORMICK. Yes. 

 MR. DINGELL. Yes. Mr. Fellman? 

 MR. FELLMAN. Yes. 

 MR. DINGELL. Okay. Now to you, Mr. Fellman, does existing law 

allow localities to grant exclusive cable franchises? 

 MR. FELLMAN. No. 

 MR. DINGELL. It does not. Would you agree--oh, I am sorry. So 

when the localities impose franchise requirements on cable operators, the 

basis for doing so is not that the provider is a monopoly provider, but 

rather the basis for the franchise requirements is because the provider 

seeks to use public rights-of-way to offer service for profit. Is that right? 

 MR. FELLMAN. Absolutely correct, Congressman. 

 MR. DINGELL. So then again, Mr. Fellman, so it is the use of the 

public’s property interest, not the monopoly or exclusive rights that 

underlies the redlining provision in existing laws, and the requirements 

to build-out service to all residential households? Is that right? 

 MR. FELLMAN. That’s right. 

 MR. DINGELL. And then when residents of the town through their 

elected officials turn over valuable public property rights for commercial 
228

use by the private company, it is reasonable to ask in return that the 

public participate in the benefits of that use, is it not? 

 MR. FELLMAN. Yes. 

 MR. DINGELL. Do you differ with that, Mr. McCormick? 

 MR. MCCORMICK. No. 

 MR. DINGELL. And in fact that the Federal government when it turns 

over its property rights, it imposes similar requirements on private 

entities who they gave the right to use such valuable public property for 

their own commercial interest? Is that right, Mr. Fellman? 

 MR. FELLMAN. That is my understanding, yes. 

 MR. DINGELL. Now for example, the wireless industry, which both 

you and Mr. McCormick agree is a competitive industry, the Federal 

government imposes requirements on the use of its public property 

interests, in this case the spectrum? Is that correct? 

 MR. FELLMAN. Yes. 

 MR. DINGELL. Now in granting spectrum rights, the Federal 

government imposes construction and build-out requirements to foster 

ambiguous deployment of service, particularly in rural areas? Is that 

correct? 

 MR. FELLMAN. Yes, it is. 

 MR. DINGELL. Do you agree with that, Mr. McCormick? Yes or no? 

 MR. MCCORMICK. On a license basis, I do. 

 MR. DINGELL. I am sorry? 

 MR. MCCORMICK. Yes. 

 MR. DINGELL. Okay. Now some other companies are required to 

serve 75 percent of their marketer rights within 36 months. And PCS 

licensees are subject to geographic and population-based benchmarks, to 

ensure that licensees build-out their systems, or face automatic forfeiture 

of their license? Is that right, Mr. Fellman? 

 MR. FELLMAN. That is my understanding, yes. 

 MR. DINGELL. That meant that PCS licensees had to serve one-third 

of their market’s population within five years, two-thirds within ten 

years. Yet, nobody claimed then, or do they claim now that these where 

less companies were monopolies, is that correct? 

 MR. FELLMAN. That is correct. 

 MR. DINGELL. So when we heard the arguments that nondiscrimination in build-out requirements, are mere vestiges of the cable 

monopoly area era, that is not correct, is it? 

 MR. FELLMAN. I would agree with you, that is not correct. 

 MR. DINGELL. All right. And without a build-out requirement, this 

bill then would confer on a private company the rights to use the public’s 

property for service, to only a select few people? Is that correct? 

 MR. FELLMAN. Yes, it would. 
229

 MR. DINGELL. Now tell Mr. Fellman, as a custodian of the people’s 

property in your city, would this be considered by your citizens to be a 

responsible use of public property? 

 MR. FELLMAN. I don’t believe that it would. 

 MR. DINGELL. Thank you. Mr. Chairman, this is going to surprise 

you greatly. I yield back the balance of my time. 

 MR. UPTON. Thank you. Mrs. Blackburn? 

 MRS. BLACKBURN. Thank you, Mr. Chairman. And thank you all 

for your patience today, we appreciate it. We are interested in the issue 

and are anxious to hear your remarks. Mr. McCormick, I was listening 

to Mr. Fellman’s testimony and I got the not so subtle impression that he 

likes the status quo. And so I was thinking about my good friend, Leroy 

Knowles, over in McMinville and Shelbyville with Bendlum and 

Telephone Company, and I just would like for you to very briefly, 30 

seconds, tell me what you think Leroy would have thought of this 

testimony? 

 MR. MCCORMICK. Thank you Congressman. Well as you know, 

Leroy Knowles serves a little over 40,000 customers in middle 

Tennessee and, you know, his telephone company is a co-op. It is owned 

by its customers, and they have invested to upgrade their plant, so that it 

is capable of offering high-speed Internet access and video. But in order 

to offer video to the customers that own the cooperative, Leroy Knowles 

has to get 25 separate franchises. He’s been at it for a year-and-a-half, he 

doesn’t have half of those 25 franchises yet. And one of the reasons he 

doesn’t have the franchises is that every franchise area he goes into, he’s 

challenged by the incumbent cable operator. And some of those 

franchises he may only have 100 customers in that particular franchise 

area, because he crosses three rural counties in Tennessee. And the 

franchise authorities want him to build-out to the rest of the franchise 

area. So he may touch the corner of a county with 100 homes, and they 

say sorry, you can’t have a franchise until you build-out to the rest of the 

county. So as a result, his customers are being denied a choice, a choice 

that as owners of the cooperative they’ve invested in, but they can’t 

obtain. 

 MRS. BLACKBURN. Thank you, I appreciate that. Mr. Fellman, 

thank you for being here today. I need to ask you something. Reading 

your testimony, I understood you were here as the Mayor of Arvada, is 

that correct? 

 MR. FELLMAN. That is correct. 

 MRS. BLACKBURN. Arvada? 

 MR. FELLMAN. Arvada, right. 

 MRS. BLACKBURN. Well, I am southern girl. Arvada works real 

well with me. 
230

 MR. FELLMAN. However, you would like-- 

 MRS. BLACKBURN. Okay, let me ask you this then. You said you 

have a legal practice, and you also represent cities and counties, so are 

you imposing your position on representing cities, municipalities, on 

these issues into your testimony? 

 MR. FELLMAN. No. 

 MRS. BLACKBURN. No. So that doesn’t color your opinion at all? 

 MR. FELLMAN. Not at all. 

 MRS. BLACKBURN. Okay. Now let me ask you this. It is my 

understanding that you have got two cable companies that serve Arvada, 

correct? 

 MR. FELLMAN. Two that serve today, actually three that have 

franchises. Two that-- 

 MRS. BLACKBURN. Okay, so two that are serving. Do these two 

compete head-to-head? 

 MR. FELLMAN. They do not. 

 MRS. BLACKBURN. They do not. Now I had my staff call when I 

found out-- 

 MR. FELLMAN. I am aware. 

 MRS. BLACKBURN. You are? 

 MR. FELLMAN. Yes. 

 MRS. BLACKBURN. Okay. And I asked them why they didn’t 

compete. Do you know what their answer was to me? 

 MR. FELLMAN. I know what my Assistant City Manager told me his 

answer was. I don’t know how that was described to you by your staff 

members. 

 MRS. BLACKBURN. Their answer was because they don’t want to. 

That was the answer. Is that they don’t want to. They serve different 

areas. 

 MR. FELLMAN. My Assistant City Manager advised me that he 

began to describe the various legal threats and potential litigation and 

regulatory hearings that began when the council tried to bring this to a 

head. And that the conversation then took a different direction, so he 

didn’t complete his explanation. 

 MRS. BLACKBURN. Okay. All right, and the third franchise that has 

been granted is to Champion Broadband? 

 MR. FELLMAN. That is correct. 

 MRS. BLACKBURN. Okay. And how much of the city does 

Champion Broadband serve? 

 MR. FELLMAN. As I mentioned, they don’t serve anyone. 

 MRS. BLACKBURN. They don’t serve anybody at all. Okay. And let 

me ask you this. Looking at the situation that you have there, where you 

have two franchise operators that do not compete head-to-head, that are 
231

in separate areas, and then you have a third one that hasn’t been able to 

get off the ground. In your capacity representing the mayors in the cities, 

and looking at your experience that you have had, where build-out 

requirements promoted new entrants to come in and compete with, where 

you had to have the build-out requirements. In your situation where you 

have to have build-out requirements, does this help or hinder your 

customers? Is it helping with competition in your city? Is it hindering 

competition? Are your constituents better served looking at it not as 

legal counsel, but looking at it as the Mayor? 

 MR. FELLMAN. With respect to Champion Broadband, I don’t 

believe that the build-out requirements had anything to do with that 

company’s decision not to serve. They obtained franchises in almost 

every city in the metro Denver area, which is over 30 communities; they 

actually do serve in two cities. And when the market fell out on the 

industry in the late ‘90s, around 2000, they ran out of money and they 

stopped building their system. So the build-out requirement did not stop 

them, the market stopped them. As far as how build-out requirements 

help or hurt our customers and our citizens, I don’t believe that the buildout requirements are impacting it. When we had our legal battles with, I 

think it was AT&T Broadband at the time and U.S. Cable, it was more-- 

 MRS. BLACKBURN. So let me interrupt you, just a little bit there. So 

you don’t think build-out requirements have any affect on this at all 

whatsoever? 

 MR. FELLMAN. I think it has some affect on it, absolutely. 

 MRS. BLACKBURN. Okay. 

 MR. FELLMAN. But I don’t think it hurts our subscribers. I think the 

reason we don’t require that competition is not because of the build-out. 

 MRS. BLACKBURN. Okay. Do you represent any of these in the 

greater Denver area, of those 30 communities, do you represent as legal 

counsel any of those? 

 MR. FELLMAN. On a periodic basis, yes, I do. 

 MRS. BLACKBURN. Okay, all right. Thank you, Mr. Chairman, I 

yield back. 

 MR. FELLMAN. Including if I might add, communities that do have 

wire line competitors today. 

 MRS. BLACKBURN. Okay. Thank you. 

 MR. UPTON. Just trying to move along, because I know the Senate 

Hearing is starting very soon. Mr. Rush? 

 MR. RUSH. Thank you, Mr. Chairman. Mr. McSlarrow, you have 

indicated that cable always welcomes competition. And frankly, I want 

to say that you have been a passionate champion for minority rights. 

And as I said after this hearing, I really want to talk to you more about 

the lack of programming on cable networks. But the question that I have 
232

right now is what specific suggestions do you have that might address the 

issue of adequate enforcement to ensure non-discrimination that we 

might consider as a part of this draft? 

 MR. MCSLARROW. I can think of two. 

 MR. RUSH. And whether or not you want to address the issue before 

the sources are rolled out, or look back and make a judgment after they 

have been rolled out? If you want to do it beforehand, I guess I would, 

even in a national franchising framework, wonder why a local 

community, whatever the jurisdiction is defined, couldn’t participate in a 

deployment schedule with whatever the provider is? If you want to do it 

after the fact, and just make it an enforcement mechanism and make a 

judgment, then I would say you could do two things. One, how do you 

judge the selection process of the communities that are being served? 

And number two, I would say that the enforcement mechanism should. 

Mr. McCormick, do you have any response to that at all? 

 MR. MCCORMICK. Yes. First Congressman, we really appreciate 

your support for this legislation for video competition and video choice. 

We think that the legislation takes a very appropriate approach to the 

issue of redlining, or where there is any part of the community that is not 

being served on the basis of economic value. And that the penalty is 

basically injunctive relief, or revocation of license. So the FCC that can 

direct upon application of a community that there is an area not being 

served and it must be served. In the case of a willful repeated violation, 

it is a death penalty provision that says that the Commission can revoke a 

license. The cable industry 22 years ago came to this committee and said 

that there needed to be a Federal scheme, because of overreaching by 

cities. And we are coming to you today and saying with regard to 

introducing new competition there has been overreaching, and it is time 

for some more Federal schemes. So that is our position. 

 MR. RUSH. All right. Thank you, Mr. Chairman. I yield back. 

 MR. UPTON. Mr. Gillmor? 

 MR. GILLMOR. Thank you, Mr. Chairman, and a couple of questions 

for Mr. McCormick. I mentioned in my opening statement I represent a 

rural district in Ohio, and unlike many of the metropolitan areas, my 

constituents lack the availability of a lot of advanced telecommunication 

services that are generally commonplace and even expected in urban 

areas. Realistically, what are the prospects that this legislation will 

enable rural telephone companies to go into competition with local cable 

providers? 

 MR. MCCORMICK. Well realistically, a very high possibility. There 

is no group, or disadvantage in small rural telephone companies by the 

franchising process. In Minnesota for example, in Lakedale, Minnesota, 

it is a small community. It has one traffic light, one gas station, one 
233

grocery store. But there are four wireless providers of voice. There is a 

cable television operator who provides voice service. And there is a 

telephone company that provides voice service. So the telephone 

company upgraded its plant to deploy video, but the local franchising 

authority won’t let them offer it. They have for over two years taken this 

all the way to the Minnesota Supreme Court. And build-out 

requirements that go beyond the footprint of the telephone company have 

precluded that telephone company from being able to offer video service. 

So for small telephone companies to be able to compete head-to-head, 

they have to be able to offer the bundle of voice, video, and Internet 

access. So this is very important to rural companies. 

 MR. GILLMOR. Okay, thank you. Let me bring up something else, 

that is Ohio specific. The Cleveland Indians are partnering with local 

cable systems on a new channel that published reports have stated is 

going to be priced at nearly double the rate that the Indians games cost 

consumers last year. And I have been an Indians fan for a long time and 

I know what their record is. I am not sure why anybody would pay 

double of what they did last year, but some people apparently are willing 

to do that. In your opinion, is this increase in price going to hinder your 

member company’s ability to compete with the incumbent video 

provider? 

 MR. MCCORMICK. Congressman, we think it is very important that 

there be access to programming. Particularly that programming that is 

integrated with a multi-channel video provider. This committee has 

previously passed legislation to deal with that in the nature of satellite 

delivered programming. We think that when it comes to regional sports 

networks and others, that that is an appropriate area for action by this 

committee. 

 MR. GILLMOR. Thank you very much. I yield back. 

 MR. UPTON. Thank you. Mr. Buyer I know is going to ask 

questions, and as I understand it, he does not have questions for Mr. 

McCormick, or Mr. McSlarrow. So you two are excused. We will send 

you a note. Give Senator Stevens our best. And thank him for allowing 

us to keep you a little bit long. And I yield to Mr. Buyer. 

 MR. BUYER. Thank you, Mr. Chairman. You are very kind to let me 

sit in, as I am not a member of the committee. And this legislation is 

going to continue in the process, I would love to talk to the two 

gentlemen, but I am not going to hold them up. I am a little concerned 

when I was listening to the questioning by Mrs. Blackburn, and the 

mayor, because mayor, you are in a tough position. I don’t know who 

invited you to come here to testify, but I probably would have declined 

had I been you. Because you are a Mayor, you are also an attorney, you 

also represent individuals out there, you negotiate these deals. And how 
234

you can separate your views and opinions without having a conflict, you 

are a better man than I am, because I was just listening to the exchange, 

and it makes it pretty tough because you are making money out there, 

and supporting a family. And based upon contracts that you have, and 

that has to influence your judgments and your testimony. So there is a 

reason that we ask all of our witnesses what are your contacts, what are 

your communications, what are your consulting fees. So that the counsel 

that individuals give to us, that we can have our best judgments. You 

must be a lot better than I am. But I know that somebody has put you in 

a very tough position. 

 MR. FELLMAN. Well Congressman, I put myself in that position, but 

it is no different than the position of my local elected official colleagues, 

who work for the telephone companies and the cable companies. And 

there are many, and we have very heated and passionate discussions over 

these public policy issues. 

 MR. BUYER. Yeah, I am quite certain. I was intrigued by the first 

question from the Ranking Member, Mr. Dingell when he was really 

kind of excited about the competition, really that there is in wireless. 

Well yeah, it is thriving and it does really well because it is not regulated. 

Right? I mean so what do we want to do? We want to get in there and 

let everybody sort of have at it, push the bounds of technology, we all get 

the benefit. So whether it is the telephony versus others in voice, or in 

broadband. Let me ask this, is it an open question. I haven’t a clue how 

all of you would answer. Do any of you share my concerns beyond the 

semantics, about us, the difference between calling these things cable 

service versus a video service? Should we actually use the word cable? 

Is it better for us just to call it video services, since the beyond is 

undefined, or are you saying Steve, it is just semantics, don’t worry 

about it? Are there any thoughts, nobody? Great, I am the only one that 

gives a damn about it, huh? I think that is pretty sad ,guys, because none 

of you want to, you don’t care, or you don’t tackle, or don’t worry about 

it? 

 MR. FELLMAN. Congressman, I will jump in. You know, I think the 

real issue is how we treat the services. And if we end up with legislation 

that treats like services alike, then we will be doing the right thing. And 

whether we call it cable, and we define it to include IP television 

services, or whether we call it video programming services, I am not sure 

that matters. 

 MR. BUYER. Right, if we are going to treat all services alike, rather 

than get into this whole issue about reimbursement for what we do in the 

rights-of-way. You know, what they do in Florida, maybe is the smart 

way to do this. They do it as an entertainment tax and everybody is 

included, and everybody is treated the same. That is why it is pretty 
235

much preferable to call this a video service, and you include satellite in 

this. Does anybody have any thoughts on that? 

 MR. FELLMAN. I would love to see it-- 

 MR. BUYER. No, I don’t want to hear anymore. These guys are 

being too quiet. Does anybody have any thoughts about including 

satellite? Thank you, Mayor. 

 MR. MISENER. Mr. Buyer, not specifically on that, but to your 

broader point of looking at this holistically, I completely agree with you. 

That is why we think it is right to be talking about that with neutrality, or 

the ability of consumers to get their video services from Internet based 

sources in the context of national video franchising, because the ultimate 

goal of all policymakers here is to give consumers more choice. And we 

see the overwhelming choice picture, the more competition coming in 

the future from the Internet, rather than from just one more content 

provider. So rather than looking at this, as sort of doubling the number 

of providers that are available, we ought to be looking at it as hundred 

fold, thousand fold increase of possible video providers in the coming 

years. And so, I agree with you, we ought to look at video holistically, 

and also consider how regulatory changes recently could actually serve 

to constrict the amount of video competition, rather than enhance it. 

 MR. BUYER. Should we have any concerns out there with regard to 

these municipalities that want to get into the business where they can 

provide a service, and then find themselves in competition? And then 

find themselves in dire straits? Is this something that we should say, yes, 

municipalities you want to get into this business, it is okay? Does 

anybody have an opinion on this? 

 MR. KEEFE. I would say a couple of things about that. First of all, 

the question was municipalities getting into video or Internet, or even the 

telephone business. I think that the programs that we have seen from 

some municipalities don’t really take into consideration the financial 

risks that they are putting their cities in front of. And the programs that 

we have seen in places like Miami Beach, in our opinion are 

tremendously under the gun given the competition that is in the 

marketplace. They want to get into the business because they want free 

Internet for tourists. And it seems like a cool thing to do, and it has been 

done in other cities. But you know, the issue of network security, who 

has access to that network, what it is used for, whether or not it is 

available to fire and police, and the security that comes around that, are 

all issues that haven’t been answered. So I think the financial risk 

reward is some thing that hasn’t been investigated, and I think taxpayer 

dollars are not well served, getting into this business. And, you know, in 

my view there is a bit of today, of talking about competition like the 

telephone companies are going to bring competition to the video 
236

business. I got news for you; there are a lot of the satellite guys today 

that are out there competing very strongly in the marketplace. In some of 

our markets like Miami Beach, where we can’t buy media effectively 

because we are a small player in that marketplace, Echostar and 

DirectTV are pounding that market as well as BellSouth with their 

products, every second of every day. We don’t have that same 

capability, so we have to compete in other ways. So this isn’t bringing 

more competition to the marketplace, it is already there. If it is a new 

entrant, that is fine. 

 MR. BUYER. All right. Thank you, Mr. Chairman. 

 MR. UPTON. Ms. Cubin? 

 MS. CUBIN. Thank you, Mr. Chairman. I have only two questions 

because I know that the hour is getting late. But I would like to ask Mr. 

Misener, you were discussing premium charges for higher speed and the 

actions on the Internet. And, you know, talking about why you didn’t 

think that that was right. I agree with the four Internet freedoms that 

Chairman Powell brought forward and that I know you are familiar with, 

and he didn’t mention anything against premium charges. And if 

premium charges are so objectionable, why do you suppose he didn’t 

mention that? And then, you know, I make the analogy to a postage 

stamp. I can pay 39 cents for first class mail, or I can have bulk mail, or 

I can pay for three-day priority or whatever and, you know, I get 

different speed, but I have the choice on that. So go into the objection a 

little better if you will for me? 

 MR. MISENER. Yes, certainly. Thank you, Ms. Cubin. I have heard 

this mail analogy before, and there is a shipping analogy, and obviously 

Amazon does a lot of shipping itself, and so we are sort of familiar with 

that business. I will try to give you three different perspectives. From 

the consumer perspective, sitting in her home she has the choice of 

shipping companies coming to her. She has the choice of at least four, 

USPS, UPS, DHL and FedEx, probably more. And she can choose 

among them freely. In fact she can have things delivered to her from two 

different shippers in the same day at the same moment. Contrast that 

with delivery over the network, she has the choice of two, either the 

cable company or the phone company, if she is lucky for broadband 

content. And the switching costs among them are astronomical. They 

are very hard. There are long-term contracts, there are equipment rolls, 

and there are truck rolls, equipment changes; that sort of thing. 

From the perspective of the shipper or the content sender, like in 

Amazon who does both, we send out content on the Internet, and we also 

ship. We also have four choices of shippers that we can use freely. It is 

a competitive market. When it comes down to sending content to that 

one consumer in her home, we face an absolute monopoly. There is 
237

nobody else. No consumer takes two broadband Internet connections 

simultaneously, so it is a monopoly to get through there. And lastly from 

the perspective, and this may be the most important point of all, the 

perspective of the other shipper. The LL Beans of the world, LL Bean 

and Amazon could both give competing free shipping, great priority 

service deals to the same customer simultaneously. There is not, there is 

no capacity constraint that will prevent LL Bean or Amazon from doing 

a deal with FedEx and UPS, or both simultaneously. That is not the case 

on the network. If the network operator prioritizes some content over 

others, by definition, the others get degraded. And so if LL Bean does a 

great deal with the network operator, Amazon is actually physically 

precluded from doing the same deal. 

 MS. CUBIN. And the consumer, how much responsibility does the 

consumer have to find out those things, before they subscribe to one or 

another. 

 MR. MISENER. Well assuming they have a real choice among them. 

And assuming if there were a competitive-- 

 MS. CUBIN. Or if there are two, you know, then they have a choice? 

 MR. MISENER. Not as a matter of either practice or sort of theory, I 

mean the dualopolies do not behave like competitive markets. That has 

certainly been the experience, and especially when there was such high 

switching costs. A consumer sitting in her home, faced with this sort of a 

circumstance, is not going to want to call the truck to come out and 

switch out the boxes, and give up her year long contract, just-- 

 MS. CUBIN. Why do you suppose Chairman Powell didn’t mention 

anything about the premium charges? 

 MR. MISENER. Well, he didn’t get very specific. These are 

extremely high level principles that we are adopting. In fact, one of the 

principles that we are talking about adopting today is one that entitles 

consumers to competition among network operators. I mean, who is 

going to be the first person who files that complaint, based on this law, 

that entitles consumers to network competition, and I don’t know how 

that happens. 

 MS. CUBIN. Okay. I would like to ask this very quickly of anyone. 

I wanted to ask Mr. McCormick, but what do you think the scope of 

Section 717, and this is where VOIP service provider shall have the same 

rights, duties, and obligations as a requesting telecommunications carrier 

under Section so on and so on. Where do you think those rights, duties, 

and obligations are? Does it go so far as to include that cable companies 

should be able to access the Universal Service Fund? Do you know the 

section I am talking about in the bill? None of you know? Do you 

know? We know and you don’t know? I think this is an important 

question, because I am just going to take the time to just read the section, 
238

so that you understand. Let me put the glasses on. A VOIP service 

provider shall have the same rights, duties, and obligations as a 

requesting telecommunications carrier under Section 251 and 252 of 

such Telecommunications Act, with respect to interconnection, including 

associated rights, duties, and obligations necessary to effectuate such 

interconnection if the provider elects to assert such rights. So you don’t 

have any idea what those rights, duties, and obligations are? 

 MR. CITRON. Sure, maybe I will take a stab at this one for a second. 

So as a leading voice of every VOIP provider in this country, we would 

like to have the opportunity to purchase services directly from network 

owners and operators. Today statutorily we are prevented from getting 

access to underlying elements inside the network. We are statutorily 

barred from having direct inner connect from getting phone members, 

from number portability. And so today, in order to get those services, we 

actually have to go through a third party, a competitive local exchange 

carrier. There aren’t C-locks everywhere in this country, we will have to 

go and negotiate such deals. So part of the rights that this bill might 

afford us would be the choice, the choice to go ahead and get access to 

those elements as specified under Sections 251 and 252. Now those are 

telecommunication provisions. 

 MS. CUBIN. Right. 

 MR. CITRON. I think that the bill itself has made a remarkable step 

forward in this area. I think that it is has been offered some proffers, that 

a little extra clarity on what some of those rights are, should be included 

inside the bill. Also one of the other things I testified to earlier is that 

when doing so, I want you to also make sure not to lump us in as a nonfacilities based voice IP provider, job obligations that don’t make sense 

to us. Obviously obligations to put wires in the ground would not be 

something that may be appropriate. So we have to figure out a way of 

having those rights and obligations without actually worrying about the 

statutory classification that would exist for our provider. 

 MS. CUBIN. But does everybody agree, that the Universal Service 

Fund would not be accessed by cable companies? 

 MR. CITRON. I think the question of Universal Service is actually 

being raised in a number of different proceedings right now, because 

there is a question about how this function moved forward. There are 

questions about who should be able to put in, or be obligated to put in, 

under what mechanism they should put in, and who would have the 

rights to go ahead and draw out funding. That is something that needs to 

be resolved by the Congress. 

 MS. CUBIN. Thank you. 

 MR. UPTON. Mr. Markey assures me he has one question, a yes or 

no question, and a unanimous consent to request? 
239

 MR. MARKEY. Yes. I ask unanimous consent to add into the record 

letters from the AARP, the Association of Public Safety 

Communications Officials, and a letter signed by over 100 mayors, 

including mayors from some of the largest cities in the United States, in 

opposition to the bill. And I make that unanimous request? 

 MR. UPTON. Without objection. 

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 MR. MARKEY. Mr. Citron, just one quick question so we can get it 

on the record. Is it technically and operationally feasible for Vonage to 

provide enhanced 911 service today? 

 MR. CITRON. Yes, when the underlying PSAP allows us to test at 

inner camp. As I testified earlier to, PSAP where the clause would 

actually be entered by, have said we will not take your call unless you 

have liability parity. And without that, it is absolutely completely 

impossible. I would call that operationally impossible, although I admit, 

it is not all operational difficulty, it is the operation difficulty of the 

PSAP. 

 MR. MARKEY. Is it technically and operationally feasible for 

Vonage to offer just 911 service today? 

 MR. CITRON. It would be the same problem with the PSAP. The 

PSAP will not take a phone call from Vonage, as specified in a letter to 

this committee by NENA, the National Emergency Numbering 

Association, which specifies that their members will not take our calls 

without liability parity. 

 MR. MARKEY. Okay, thank you. 

 MR. CITRON. You are welcome. 

 MR. UPTON. Five hours and 25 minutes, you are now excused. 

Thank you, and I hope you make your flights. I appreciate your 

testimony today. We are going to take a four- or five-minute break, to 

get prepared for the second panel to step up. 

 [Break.] 

 MR. UPTON. We are ready to start the second panel. We thank you 

for your indulgence. We sort of knew that it was going to go long, the 

first panel. And I understand that Ms. Rodriguez-Lopez has an important 

phone call to make at 4:15. So we will let you, at the proper time slip 

away, as long as you promise to return, which I know you will. We are 

joined by Ms Lillian Rodriguez-Lopez, President of the Hispanic 

Federation; Ms. Julia Johnson, Chairwoman of the Video Access 

Alliance; Mr. Anthony Thomas Riddle, Executive Director of Alliance 

for Community Media; Ms. Jeannine Kenney, Senior Policy Analyst for 

the Consumers Union; Mr. Randolph May, Senior Fellow and Director of 

Communications Policy Studies for The Progress and Freedom 

Foundation; and Mr. James Makawa-- 

 MR. MAKAWA. Makawa. 

 MR. UPTON. Makawa, I am sorry. Co-Founder and CEO of The 

Africa Channel. Welcome all of you. And we will try to limit your 

presentation to no more than five minutes. Your testimony is part of the 

record in its entirety. Ms. Rodriguez-Lopez, welcome, we will start with 

you. You just need to press the button. 
255

STATEMENTS OF LILLIAN RODRIQUEZ-LOPEZ, 

PRESIDENT, HISPANIC FEDERATION; JULIA JOHNSON, 

CHAIRMAN, VIDEO ACCESS ALLIANCE; ANTHONY 

THOMAS RIDDLE, EXECUTIVE DIRECTOR, ALLIANCE 

FOR COMMUNITY MEDIA; JEANNINE KENNEY, SENIOR 

POLICY ANALYST, CONSUMERS UNION; RANDOLPH J. 

MAY, SENIOR FELLOW AND DIRECTOR, 

COMMUNICATIONS POLICY STUDIES, THE PROGRESS 

& FREEDOM FOUNDATION; AND JAMES MAKAWA, COFOUNDER AND CHIEF EXECUTIVE OFFICER, THE 

AFRICA CHANNEL 

MS. RODRIGUEZ-LOPEZ. Thank you, I pressed the button. Thank 

you, Mr. Chairman and members of the committee. I want to really tell 

you how appreciative I am and thankful for you inviting me to testify 

here today on behalf of the Hispanic Federation, a human service 

organization serving over one million Hispanic Americans. I am also a 

co-chair of Broadband Everywhere, a coalition of voices, supported by 

the American Cable Association and NCTA, that is focused on public 

polices that promote broadband deployment to every neighborhood in 

America. 

 I have met and discussed this issue with intelligent people 

representing both industries in an effort to better understand the 

implications of a Federal broadband bill. I feel it is important, very 

important to make clear from the outset that I am not anti-Bell. I clearly 

support their entry into the market given the possibility of additional 

competition and programming in the video marketplace. I think all the 

industries--cable, telephone and other technology industries--have 

offered a lot to this country, and at the end of the day, must all work 

together. 

 But I am here today to echo the position of many leading Hispanic 

civic organizations across the country--the position that any franchising 

reform legislation must contain provision that guarantee us a reasonable 

and equitable deployment in Hispanic communities. And the question is, 

will the current legislation bring broadband competition to our 

neighborhoods in this equitable and reasonable way? That is the central 

question for me, and the focus of my work in this area. 

 And I would pose a central question for this body. Today, only one 

in eight Latino households has broadband services. So the stakes are 

high. Thus, any video franchising reform legislation must ensure that 

Hispanic communities get access to the latest technologies as fast as 

other communities. Nothing more, and nothing less. 
256

 I want to state that for starters, the rationale for sweeping Federal 

legislative reform has yet to be proven. I believe that through the 

involvement of municipal and State governments, we can arrive at 

solutions that speed entry into the market while ensuring that every 

neighborhood sees the benefits of broadband and video competition. On 

average, there are three to four cable and satellite competitors in most 

markets today. And as I have learned by receiving information from the 

telecom companies, it seems that most new entrants get franchises 

relatively quickly. We can make a judgment as to whether 30, 60, 90, or 

120 days is quick. But given other things that happen in this country and 

how we have to wait for processes to kind of unravel, it seems 

reasonable. 

 But if we are going to deregulate new entrants into the video services 

industry, we must have meaningful non-discrimination provisions. 

Therefore, I urge the committee to include provisions that require all 

providers, new and existing, to make available their latest broadband and 

digital services to all communities within a particular service footprint, 

regardless of an area’s income, within a reasonable time period. 

 Just one example, in Dallas, Texas a limited non-discrimination 

provision as some have proposed, that allows a provider to limit 

deployment only to areas self-selected by new providers, would mean 

that a new provider could provide these services only to Park Cities, 

while potentially writing off, or delaying for a significant number of 

years service to the largely Hispanic Arcadia Park, so long as it didn’t 

discriminate within Park Cities. 

 In my home state of New Jersey, I and other Hispanic leaders insist 

that we--I apologize, I am slightly nervous. I and other Hispanic leaders 

want to see a deployment that includes a significant number of lowincome, urban, rural, and minority communities in a reasonable 

timeframe. I am not naïve. I do understand that deployment must occur 

in stages, and that certain priorities will be established. But at the same 

time, we need to maintain a legal system that protects the critical role of 

local governments in ensuring that historically under-served 

communities are guaranteed access to the latest broadband video services 

within a reasonable and enforceable time period. Both the telecom and 

cable industries must continuously work to erase the digital divide that 

afflicts both under-served and middle class communities. 

 And Congress must support policies and laws that serve to close the 

digital divide and promote American competitiveness and productivity. 

Only with policies that address those two priorities can the Hispanic 

community truly benefit. So the access test of any meaningful reform 

legislation is that it protects the access to the latest broadband 

technologies for the greatest number of Americans, including our poor, 
257

urban, and minority communities, within a provider’s entire service 

footprint. 

 And finally, non-discrimination provisions must have teeth. Indeed, 

the old saying that a right without a remedy is no right at all, is clearly 

applicable here. Federal and State enforcement authorities must 

therefore have the explicit authority to revoke licenses of any telecom or 

cable provider that discriminates in the provision of new advanced 

broadband and video services. I believe that Congress can pass 

legislation that will reform the process without doing damage to 

protections that have been in place for nearly 20 years, and would serve 

as the only meaningful national broadband policy in place today. But 

video franchising legislation without these protections and oversight will 

set our communities back decades in an age of information technology, 

and global competition where none of us, least of all Hispanic 

Americans, has a moment to lose. 

 Thank you so much, Mr. Chairman. 

 [The prepared statement of Lillian Rodriguez-Lopez follows:] 

PREPARED STATEMENT OF LILLIAN RODRIGUEZ-LOPEZ, PRESIDENT, HISPANIC FEDERATION

Mr. Chairman, members of the Committee, I want to thank you for inviting me to 

testify here today on behalf of the Hispanic Federation, a human service organization 

serving over 1 million Hispanic Americans. I am also a co-chair of Broadband 

Everywhere, a coalition of voices, supported by the American Cable Association and 

NCTA, that is focused on public policies that promote broadband deployment to every 

neighborhood in America. 

I have met and discussed this issue with intelligent people representing both 

industries in an effort to better understand the implications of a federal broadband bill. I 

feel it’s important to make clear from the outset that I am not anti-Bell. I clearly support 

their entry into the market given the possibility of additional competition and 

programming in the video marketplace. I think the cable, telephone and other 

technology industries have offered a lot to this country and, at the end of the day, must all 

work together. 

But I am here today to echo the position of many leading Hispanic civic 

organizations across the country – the position that any franchising reform legislation 

must contain provisions that guarantee us a reasonable and equitable deployment in 

Hispanic communities. Will the current legislation bring broadband competition to our 

neighborhoods in an equitable and reasonable deployment? That is the central question 

for me, and the focus of my work in this area. 

Today, only one in eight Latino households has broadband services, so the stakes are 

high. Thus any video franchising reform legislation must ensure that Hispanic 

communities get access to the latest broadband technologies as fast as other communities. 

Nothing more, and nothing less. 

For starters, the rationale for sweeping federal legislative reform has yet to be 

proven. I believe that, through the involvement of municipal and state governments, we 

can arrive at solutions that speed entry into the video market while ensuring that every 

neighborhood sees the benefits of broadband and video competition. On average, there 

are three to four cable and satellite competitors in most markets today. As I have learned, 

new entrants seem to get franchises relatively quickly. 
258

But if we are going to deregulate new entrants into the video services industry, we 

must have meaningful non-discrimination provisions. Therefore, I urge that the 

Committee include provisions that require all providers – new and existing – to make 

available their latest broadband and digital services to all communities within their 

service footprint, regardless of an area’s income, within a reasonable time period. 

 For example, in Dallas Texas, a limited non-discrimination provision, as some have 

proposed, that allows a provider to limit deployment only to areas self-selected by new 

providers would mean that a new provider could provide new video services only to Park 

Cities while potentially writing off, or delaying for many, many years, service to the 

largely- Hispanic Arcadia Park, so long as it didn’t discriminate within Park Cities! In 

Detroit, this kind of limited non-discrimination provision would mean that a service 

provider would first bring service to wealthier communities such as Bloomfield Hills 

while totally ignoring or intolerably delaying deployment to Dearborn Heights and 

Detroit, so long as the provider did not discriminate within Bloomfield Hills! 

In my home state of New Jersey, I and other Hispanic leaders insist that we see 

deployment that includes a significant number of low-income, urban, and minority 

communities in a reasonable timeframe. I am not naïve. I do understand that deployment 

must occur in stages and that certain priorities will be established. But, at the same time, 

we need to maintain a legal system that protects the critical role of local governments in 

ensuring that historically underserved communities are guaranteed access to the latest 

broadband and video services within a reasonable and enforceable time period. Both the 

telecom and cable industries must continuously work to erase the digital divide that 

afflicts both underserved and middle class communities. And Congress must support 

policies and laws that serve to close the digital divide and promote American 

competitiveness and productivity. Only with policies that address those two priorities 

can the Hispanic community truly benefit. 

Thus, the acid test of any meaningful reform legislation is that it protects the access 

to the latest broadband technologies for the greatest number of Americans, including the 

poor, urban and minority communities within a provider’s entire service footprint. 

 Finally, non-discrimination provisions must have teeth. Indeed, the old saying that 

“a right without a remedy is no right at all” is clearly applicable here. Federal and state 

enforcement authorities must therefore have the explicit authority to revoke licenses of 

any telecom or cable provider that impermissibly discriminates in the provision of new 

advanced broadband and video services. 

I believe that Congress can pass legislation that will reform the process without 

doing damage to protections that have been in place for nearly 20 years, and which serve 

as the only meaningful national broadband policy in place today. But video franchising 

legislation without enforceable protections and oversight will set our communities back 

decades in an age of information technology and global competition where none of us – 

least of all Hispanic Americans -- has a moment to lose. 

 MR. UPTON. Ms. Johnson? 

MS. JOHNSON. Thank you, Mr. Chairman and members of the 

committee. The invitation today to speak to you regarding video reform 

is an honor. The last time I had the opportunity to speak with many of 

you was about ten years ago, in my capacity as the Chair of the floor at a 

Public Service Commission. At that point, we were considering the 1996 

Act. I say that in a twisted way, this proceeding is a celebration of your 

success. I know that you may be feeling like victims of your own 

success. But Congressman Stearns said it well, when he spoke of the 

progress that this Nation has made under the leadership, our Federal 
259

leadership in implementing laws that allowed for the continued advanced 

communications development in information innovation, and 

infrastructure. Rapid introduction of video competition epitomizes that 

continued success. 

 Allow me to tell you a bit about the Video Access Alliance. We are 

a not-for-profit organization dedicated to promoting policies that 

encourage rapid deployment of innovative new video platforms. We 

serve as an advocacy and advisory group for independent, emerging and 

minority networks, content providers, programmers, entertainers, and 

industry participants. We are not against cable. We are not against the 

telephone companies. Unfortunately for consumers, much of the current 

debate has turned on a cable versus telecom fight. Much of the dialogue 

has focused on the policies and the benefits of competitors. We firmly 

believe that the focus should consistently, and relentlessly, be on the 

benefits to consumers. The Alliance is focused on ensuring that there are 

multiple platforms for the distribution and expansion of more robust 

content, at lower prices for Americans, and our everyday consumers. 

 Allow me to elaborate. Creating an environment that allows for 

rapid investment and deployment in new video platforms will have a 

compounding consumer benefit. That is to say, competition will lead to 

the underlying video distribution providers offering lower prices for that 

carriage. Additionally with competition, there will be a need for 

networks to distinguish their offerings, which will allow for more diverse 

and higher quality content. Furthermore, competition and programming 

in the content space will lead to more competitively priced programming, 

providing independent channels entering the market, and that will allow 

for downward pressures on affiliate channels. The results will be 

extraordinary savings for consumers, higher quality programming, and 

greater choice for all consumers. 

 We all recognize that the current market environment denies these 

full benefits to consumers. The facts are undeniable. Independent 

networks as a group are summarily excluded under the current structure. 

Recent research indicates that under the current market structure, the top 

video distribution networks carried on a non-premium national basis is 

less than one percent of channels with no media affiliation. 

 The only way to ensure diversity of information sources, lower 

prices for cable TV, higher quality programming, and more consumer 

choice is to create an environment that allows for rapid deployment of 

more platforms with greater choice. We believe that new choice and 

programming is just one of the benefits of reforming our video franchise 

laws. Equally important to minority communities is that, and to the 

minority communities that our coalition members serve, are the 

technological advances and increased capabilities that competition will 
260

create. As a great number of our members are minorities, or are focused 

on minority markets, the issue of availability of these offerings to our 

community is tremendously important to us. 

 The Alliance believes that the best way to ensure networks are built 

and are available to all is to allow the markets to work. Giving minority 

consumers enormous buying power, minority consumers will be 

particularly attractive to all providers in the video distribution 

marketplace. Minority consumers have been shown in recent studies to 

spend more on media products and services than other demographics. 

We over indexed in each category. We support the comments made 

earlier by Congressman Rush, as he talked about the need for antidiscriminatory standards and enforcement mechanisms. We look 

forward to working with you in those endeavors. 

 I applaud you again for your efforts, and I ask that you continue to 

make video franchise reform a priority this year. Thank you. 

 [The prepared statement of Julia Johnson follows:] 

PREPARED STATEMENT OF JULIA JOHNSON, CHAIRMAN, VIDEO ACCESS ALLIANCE

Good morning Mr. Chairman and members of the committee. Thank you for your 

invitation. I am Julia Johnson, Chairperson of the Video Access Alliance. I am honored 

today for this opportunity to speak to you about video franchise reform. We applaud 

your leadership and action in working on this very important issue. 

First I would like to tell you briefly about the Video Access Alliance. We are a notfor-profit organization dedicated to promoting policies that encourage rapid deployment 

of innovative new video platforms. We serve as an advocacy and advisory group for 

independent, emerging and minority networks, content providers, programmers, 

entertainers and other industry participants. We believe that as more platforms with 

greater capacity to carry programming are deployed, our independent and innovative 

voices—minority in particular—can be heard. Our coalition consists of entrepreneurs 

and executives from several different independent networks including ImaginAsian TV, 

MultiChannel Ventures, The Employment & Career Channel, The America Channel, and 

the Black Television News Channel, LLC. 

We are on the consumer’s side. We are on the entrepreneur’s side. We are on the 

side of economic development for our communities. We believe that all consumers, 

particularly minorities, have the most to gain from expanded video platforms. 

We are not against cable. We are not against telephone companies. Unfortunately 

for consumers, much of the current debate has turned into a cable versus telecom fight. 

Much of the dialogue has focused on polices that benefit competitors; we firmly believe 

the focus should consistently and relentlessly be on the benefits to consumers. 

The Alliance is focused on ensuring that there are multiple platforms for the 

distribution of expanded and more robust content at lower prices for America’s everyday 

consumers. 

We believe that consumers deserve more choices for their TV and entertainment 

services. We strongly support the need for more video distribution systems and 

encourage the use of advanced digital technologies and broadband deployment into 

communities to bring consumers innovative options. 

We support greater competition in the video delivery market—and we’re hopeful 

this legislation will do just that. We would like to see telecommunications companies 
261

expand their video networks as quickly as possible. We’d like to see the cable companies 

expand their networks as quickly as possible. Doing so could serve as an extraordinary 

opportunity for minorities and other entrepreneurs. And we again applaud the 

committees’ efforts in working to do so. 

Competition will super-charge the video delivery market and have a favorable 

economic impact on our economy. In a competitive and open market, video distribution 

networks will provide more opportunities for independent programmers to distinguish 

their service from their competitors. This will lead to greater content choice for 

consumers. The FCC found that cable television providers offer at least 6 percent fewer 

programs in the absence of competition. The mere presence of competing providers 

would give independent networks—like my members—more opportunities and give 

consumers greater choice. In fact, already we’re seeing new channels come online and 

programmers reach new audiences—we need to accelerate that process. 

We believe that new choice in programming is just one benefit of reforming our 

video franchise laws. Equally important to the minority communities that many of our 

coalition members serve are the technological advances and increased capacity that 

competition would undoubtedly create. When competing companies vie over customers, 

they create a storm of innovation. We strongly believe that innovation, open markets and 

fair competition will encourage investment in infrastructure that will allow for the new 

applications and distribution models. These applications, many of which have yet to be 

invented, will bring opportunities like distance education, global commerce and 

telemedicine closer to all consumers. These are innovations that can truly change lives. 

Ultimately video franchise reform will provide the incentives for new networks with 

capacity that we can’t even envision today. 

 As a great number of our members are minorities or focus on minority markets, the 

issue of availability of these new offerings is of tremendous importance to our supporters. 

We have a unique interest—both socially and economically—to ensure that 

consumers have access to all the amazing innovations video franchise reform will bring. 

We believe that the best way to ensure networks are built and available to all is to let 

the markets work. Given minority consumers’ enormous buying power, we firmly 

believe that minority consumers will be particularly attractive to all providers in the video 

distribution marketplace. 

Minority consumers have been shown in recent studies to spend more on media 

products and services than other demographics. According to a study by Horowitz 

Associates, minorities are the top subscribers to premium channels and have higher 

penetration rates for digital television. 

A market-driven solution, as proposed in the legislation, is the best solution to 

ensure all consumers benefit from video franchise reform. 

In sum, the more choices consumers have the better. We believe that expanded 

video distribution networks will result in lower consumer prices, higher quality consumer 

programming and greater consumer choice. Moreover, we know that with this expansion 

come greater opportunities for independent, minority and emerging networks to be 

distributed into all communities. 

I again applaud your efforts and ask that you continue to make video franchise 

reform a priority this year. 

Thank you for inviting me to testify today and I would be happy to answer any 

questions you may have. 

 MR. UPTON. Thank you. Mr. Riddle? 

MR. RIDDLE. I thank you, Chairman Upton. I would also like to 

thank-- 

 MR. UPTON. Is that mic button on, just make sure. 
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 MR. RIDDLE. --the entire committee for having us here, the subcommittee, and I would also like to give out a special thanks to staff who 

have spent a lot of time with us over the past few months working with 

you. 

 I represent the Alliance for Community Media, which for 30 years 

has represented the interest of the public educational and government 

access community in the United States. The Alliance members are 

localism in action, but we are tied to two communities, both civic and 

corporate. 

 First, we represent 3,000 channels, 250,000 organizations, 1.2 

million volunteers that use those channels every year. We are the local 

election debate. We are participants in the local budget process. We are 

the town council meeting and the land-use hearing. We are tens of 

thousands of religious organizations, which find their only outlet on PEG 

channels. We are you. Many of your colleagues use our channels 

frequently to get their message out to the community on an unfiltered 

basis. But we are equally bound to the visionary pioneers of science and 

industry who have created a bridge work of light, sound, data, and 

dreams that can connect communities of like spirited people. We are 

bound to the economic success of giant corporations who vie to deliver 

our dreams, and to the freedom of millions of small innovators who blaze 

a trail to the future. 

 We would like to thank you for the wonderful work that has been 

done on this bill. There are many things that we can be thankful for that 

are in the bill, namely, the interconnection language that governs 

interconnection between the PEG facilities and the new providers. If that 

wasn’t there, then there would be the possibility that new providers 

would actually be a source of extra expenditure to the PEG community. 

 We appreciate the language around marketing and promotion. And 

we particularly are pleased to see that there is funding for PEG based on 

gross revenues. The one percent funding for PEG is a good first step. 

We have some members which will not be made whole by that because 

they do have agreements that were previously created that exceed the one 

percent. But we are glad to see that we have moved in this direction. 

 Some of those benefits that our members have are the result of 

processes that included a community-wide public needs assessment, and 

numerous public meetings. And we ask that such an engaging political 

process be supported by grandfathering of agreements that were derived 

from that. 

 There would be some difficulty in smaller towns and rural areas, or 

other communities that have opted to devote more resources to PEG. 

There is a level of funding below which the doors just don’t open. For 

this reason, the Alliance has prepared a sliding scale national standard for 
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funding large and small communities. PEG support would be paid to the 

municipality on an inverse basis according to gross revenues. That is 

just a way of saying that if you have a very small community with very 

low gross revenues, the one percent might not make it, although it would 

be very useful in a large community like New York. The national 

standard sliding scales distribute resources according to local community 

needs. 

 We ask that the franchise fee revenue base not be reduced, and we 

are in complete agreement with the League of Cities and the Cities 

Group on this matter. We think it is a good idea that new video 

competitors match the existing number of PEG channels in most cases. 

It saves negotiation time and offers a level playing field. There are a few 

suggestions we would make though. The language of the bill covers two 

cases of channels, and those of the existing incumbent and those where 

there is no incumbent, and therefore no channels. But it doesn’t cover 

the situation where there is an incumbent but no channels, and offers no 

ability to negotiate for those channels in the future. So we would like to 

direct the subcommittee to look at the standards that we suggest for use 

in those communities where there are currently no PEG channels. Our 

suggested national standard for PEG channel capacity uses a bell curve, 

in which the vast majority of systems would have four PEG channels. 

The needs of both smaller and large communities are met by a balanced 

market based test. 

 We ask Congress to either adopt such standards or ask that the FCC 

consider the Alliance’s national standard sliding scale in any proposed 

rulemaking on PEG channel capacity. The Alliance also feels that there 

must be clear language governing IPTV and how that affects channel 

capacity and funding. Fixing PEG at a reasonable percentage of 

bandwidth based on current channel allotments, eliminates this tendency 

to redefine PEG out of existence and prevents PEG capacity from being 

reduced. 

 A brief word on network neutrality. We do have at least a passing 

interest in this, since we expect that most of the PEG channels will be 

within the IPTV, or the Internet part of the bandwidth at some point. 

And we don’t want to be left behind in a slower part of that system. We 

do have an interest in stronger language on build-out or redlining, 

although we don’t have technical ideas on how that should be done. But 

our interest is that nobody be left out of the kinds of conversations that 

PEG offers, and those folks that are not receiving the services will not be 

able to participate. 

 And I would just point to one quick piece on the Texas legislation 

and an unintended consequence that happened in San Antonio where the 

franchise ran out about the same time as the law went into effect. And 
264

there was unintended consequence of the PEG channels going dark 

immediately. We would like to see the language in your bill constitute a 

minimum below which State laws could not drop. 

 And you know again, we would like to recognize the hard work that 

has brought us to this point. We reaffirm our permanent relationship 

with the big cities and the small towns in which we live, and the 

governments, including the Congress, which we as free people have 

chosen to represent our interests. We hope you will continue this 

conversation with us, as we together design not a television system, but a 

brave new world. 

 We welcome your comments and questions. 

 [The prepared statement of Anthony Thomas Riddle follows:] 
265

PREPARED STATEMENT OF ANTHONY THOMAS RIDDLE, EXECUTIVE DIRECTOR, ALLIANCE 

FOR COMMUNITY MEDIA
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 MR. WALDEN. [Presiding] Mr. Riddle, thank you for your 

testimony. Ms. Kenney, welcome and we look forward to your 

comments. 

MS. KENNEY. Thank you. We very much appreciate the opportunity 

to testify today, and I am testifying on behalf of the Consumer 
280

Federation of America, Consumers Union, and Free Press. We are glad 

to be here particularly since, as Ms. Johnson noted, this battle really has 

been presented to you as a pitched battle among industries. And while 

they have a lot of stake in this fight, and it is a good sport to some to 

fight over who cares about consumers more. At the end of the day, 

consumers will be the ultimate winners or losers of this. And what you 

do here matters very much in that outcome. We are very grateful for 

your interests in promoting new video competition to provide consumers 

with some great relief from skyrocketing cable prices that have increased 

anywhere from 64 percent or more, depending on which number you 

pick over the last ten years. 

Regardless of the number, we know that number is high, and we 

know the increases are the result of the market power of the cable 

monopolies who force consumers to pay more each year for bigger 

bundles of channels that many of them never watch. So we know we 

need new competition in cable, and we are eager for it. We look to the 

video franchising debate, and the interest of the Bells in providing video 

services as an opportunity for at least a second wire line competitor in 

cable. 

 And as Ms. Blackburn noted, this is also about broadband. This is 

about bringing broadband access to people who don’t have it right now. 

And while two providers are better than one, more are needed. And 

without strong network neutrality policies, the opportunity for video 

competition offered over the Internet will be lost. That concern is made 

even greater by FCC’s DSL and cable modem order. 

 So having said that, we believe this is the time for the committee to 

be looking at the video franchising process, and to balance the consumer 

needs and community interest against the need for new entrants, and 

create strong enforceable network neutrality policies. 

 Having said that, we believe that the Act before the committee fails 

on both counts. We also believe those problems can be solved. We are 

grateful for the inclusion of provisions that protect the right of 

communities to offer their own broadband services. But we fear that 

under this bill Americans who are already frustrated with their cable TV 

prices, basic service, and limited choices will get more of the same or 

worse. Rather than promote competition in a manner that will benefit all 

consumers, it rolls back protections they currently have without any 

assurances that they will get new competition. 

 Let me briefly highlight our concerns. Obviously we are concerned 

that there is no build-out requirement for telephone companies that will 

allow them to effectively redline, picking the wealthiest neighborhoods 

and leaving middle and low-income families behind. It releases the cable 

companies from their obligations to build-out, to upgrade, and to provide 
281

for a uniform restructure when the Bell company serves just one 

consumer. Consumers who don’t get that service, don’t get a 

competitive service from the Bell company, get hit many times. They 

don’t have a competitive choice. They may face higher prices because 

cable is no longer obligated to provide for a uniform rate structure, and 

they may have reduced service quality. 

The bottom line is that cable should not be released from its uniform 

rate obligations, from its build-out and upgrade obligations, unless the 

Bell competitors are required to build-out to the entire franchise area 

over a reasonable period of time. 

 Let me talk to you just for a moment about network neutrality. This 

issue in particular has been presented as a battle between big Internet 

companies and big telecommunications and cable companies. In reality, 

this is the one provision of the bill that could most hurt consumers if it is 

not addressed. Currently, the bill strips the FCC of its authority to do 

more to protect consumers from network discrimination. History shows 

us that telecommunications and media giants will use their network 

power to discriminate. You don’t need to look much further than the 

media clips from the last few weeks to see that that’s happening. Cable 

is complaining about interconnection, Verizon is complaining about lack 

of access to program carriage, and telephone companies are complaining 

about their inability to get ads carried on cable television networks. 

They are different networks, but it is the same incentive to block access 

to competitors. The impact on consumers will be enormous. Innovation 

will be stifled without solid network neutrality policies. If the 

telecommunications and cable companies provide for access tiers, 

consumers will pay twice, because whatever the Internet companies 

charge will be passed on to them eventually, and there is an opportunity 

for competitive services offered over the Internet. 

 Let me speak briefly about bundling. This was a concern that Mr. 

Bass noted earlier today and Mr. Keefe alluded to. One of our 

significant concerns associated with video competition is access to 

programming on a fair and competitive basis. If the Bell entrants do not 

have the ability to negotiate fairly for program carriage, consumers will 

be left behind in terms of opportunities for more competitive bundles, 

more competitive prices, and more specialty tiers and so forth. Until we 

address anti-competitive bundling and tying arrangements that the 

dominant program providers require currently of distributors, you are 

going to have a difficult time. It will be very difficult for the new video 

distributors to offer carriage in a manner that is competitive. 

 We do not think these concerns are insurmountable. We think they 

can be rectified with reasonable build-out requirements for new entrants 

or in lieu thereof. Resources for the community to provide better 
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broadband access for underserved communities with higher competitive 

thresholds before cable is released from its own build-out obligations and 

uniform rate requirements, meaningful and enforceable network 

neutrality provisions, and strong consumer protections that are 

enforceable at the State and local level. 

 Thank you. 

 [The prepared statement of Jeannine Kenney follows:] 

PREPARED STATEMENT OF JEANNINE KENNEY, SENIOR POLICY ANALYST, CONSUMERS 

UNION

Summary 

Consumers Union,1

 Consumer Federation of America,2 and Free Press3 appreciate 

the opportunity to testify on the issue of national video franchising and competition in 

video services. We welcome the Subcommittee’s interest in fostering greater consumer 

choice by promoting competition in the concentrated cable marketplace. 

Consumers have suffered under monopolistic cable pricing that has resulted in a 64 

percent increase in rates—approximately two and a half times the rate of inflation—since 

Congress deregulated the cable industry in the 1996 Telecommunications Act. In addition 

to skyrocketing rates, consumers have virtually no choice of providers or channel 

offerings. Satellite television, the primary competitor to cable, has had little price 

disciplining effect. In the few areas where actual facilities-based competition exists, 

consumers enjoy cable prices that are 15 percent lower than non-competitive markets.4

 A 

national franchise system with strong consumer protections and appropriate provisions to 

meet local needs could foster new video competition and discipline ever-rising cable 

rates. 

Unfortunately, the Communications Opportunity, Promotion and Enhancement Act 

not only fails to ensure the national franchising system it creates will benefit consumers, 

it almost surely represents a significant step backward. While the legislation laudably 

protects community rights to establish broadband networks, it eliminates other 

protections that ensure all residents have access to competitive, advanced 

communications services. The legislation abolishes communities’ authority to ensure all 

residents are served by new and existing cable providers without establishing any federal 

build-out requirements in its place, opening a wide door to redlining. It rolls back state 

and local authority to establish and enforce consumer protections without requiring new, 

strong federal protections. And it strips the Federal Communications Commission of its 

 

1

 Consumers Union is a nonprofit membership organization chartered in 1936 under the laws of the 

state of New York to Provide consumers with information, education and counsel about good, 

services, health and personal finance, and to initiate and cooperate with individual and group efforts 

to maintain and enhance the quality of life for consumers. Consumers Union's income is solely 

derived from the sale of Consumer Reports, its other publications and from noncommercial 

contributions, grants and fees. In addition to reports on Consumers Union's own product testing, 

Consumer Reports with more than 5 million paid circulation, regularly, carries articles on health, 

product safety, marketplace economics and legislative, judicial and regulatory actions which affect 

consumer welfare. Consumers Union's publications carry no advertising and receive no commercial 

support. 

2

 The Consumer Federation of America is the nation’s largest consumer advocacy group, composed 

of over 280 state and local affiliates representing consumer, senior, citizen, low-income, labor, farm, 

public power an cooperative organizations, with more than 50 million individual members. 3

 Free Press is a national nonpartisan organization with over 200,000 members working to increase 

informed public participation in crucial media policy debates. 4

 GAO-04-8, p. 11. 
283

authority to establish rules ensuring that broadband network owners do not impair or 

block consumer access to competitive Internet content, services or applications. 

Moreover, enforcement provisions within the legislation are weak or absent. In short, the 

legislation not only fails to ensure that consumers will benefit from new video 

competition, it may expose them to the risk of higher cable rates, reduced quality and 

reduced access to competitive choices offered via the Internet. 

Consumers Who Most Need Competition Will Be The Least Likely To Receive It 

 Because the legislation does not require new cable providers operating under a 

national franchise to serve all consumers within a franchise area, new entrants will be 

free to offer service to only wealthy neighborhoods, leaving behind middle and lowincome consumers who most need cable rate relief. It also eliminates the existing 

authority of communities to require that cable providers serve all residents―something 

virtually every franchising authority has done. To ensure that the benefits of competition 

come to those who need it most, the legislation should require telephone companies 

entering the video market to build out their services to all consumers within a franchise 

area over a reasonable period of time, with appropriate accommodations for very lowdensity areas. This is not only critical to ensure video competition will discipline cable 

rates, it is also central to reversing the alarming trends in the broadband market. Next 

generation cable services bring broadband as well. Absent a build-out requirement, 

underserved areas will be permanently stranded on the wrong side of the digital divide. 

 Skepticism that telephone companies will offer their video services to all residents 

rather than just the wealthiest is particularly warranted given SBC’s statements last year 

that it would roll out Project Lightspeed, the company’s IPTV video offering, to 90 

percent of its high-value customers. It defined “high-value” customers as those willing to 

spend up to $200 on communications services per month. They make up just 25 percent 

of SBC’s subscriber base. SBC also contended it would provide the video service to just 

5 percent of low-value customers that constitute 35 percent of its customer base.5

 

Assurances that “low-value customers” would still be able to receive satellite video 

through SBC’s affiliation with Dish Network ring hollow, given the failure of satellite to 

provide meaningful price discipline. Instead, SBC’s statements suggest it will offer 

services only in largely affluent areas, disregarding communities made up predominantly 

of low- or middle-income consumers. 

 Similarly, Verizon’s conduct to date strongly suggests it is seeking franchise 

agreements for its FiOS service in only the wealthiest counties in the country. For 

example, Verizon has negotiated or signed franchise agreements with largely affluent 

local franchise areas—such as in Fairfax County, Va. (where it has four franchise 

agreements in place for Herndon, Fairfax County, Fairfax City and Falls Church); 

Howard County, Md.; Massepequa Park in Nassau County, N.Y.; Nyack and South 

Nyack, in Rockland County, N.Y.; and Woburn in Middlesex County, Mass. In terms of 

median family income, Fairfax County ranks No.1 nationally; Howard ranks fourth; 

Nassau 10th; Rockland 12th and Middlesex 17th.6

 New Jersey, in which Verizon is 

seeking a statewide franchise but resisting state-wide build-out requirements, is home to 

12 of the top 100 richest counties in the nation. 

 Verizon has agreed to universal or nearly universal build-out requirements in several 

of its franchise agreements. Given the wealth of those areas and the current authority of 

those franchise authorities to require build-out, Verizon’s agreement reveals little about 

whether the company will voluntarily build-out to all parts of mixed-income franchise 

areas, assuming it even enters them. What those commitments do show is both that build-

 

5

 USA Today. “Cable, phone companies duke it out for customers,” June 22, 2005. 6

 U.S. Census Bureau. Median Family Income; Counties within the U.S., 2004 American 

Community Survey. 
284

out has been important to those localities and that it need not be a barrier to the 

company’s entry. On the contrary, Verizon has quickly negotiated agreements that offer 

substantial community services and consumer protections. 

 SBC’s lightly veiled admission of its plans for economic redlining and Verizon’s 

video franchising practices suggest new entrants will enter only largely affluent, densely 

populated franchise areas and that if they enter mixed-income franchise areas (those with 

both high and low income populations), they’ll provide service only to portions of those 

markets unless required to serve all residents. 

 To effectively enhance competition and ensure that its benefits come to all 

consumers, any national franchising legislation must require new entrants to build-out 

their services to all consumers over a reasonable period of time. Particularly in areas 

where telephone companies already have facilities, build-out should be timely and 

mandatory. 

 In the absence of national build-out requirements, Congress should establish 

financial incentives for new entrants to serve the entire community. Telephone companies 

that do not agree to serve the entire community should be required to provide sufficient 

financial resources to local communities, in addition to reasonable rights-of-way fees 

paid, for use in fostering alternative means of ensuring broadband competition. Those 

resources could be used to establish community broadband networks, competitive 

commercial services to areas unserved by the new entrant, or other means of assistance to 

help low-income consumers access advanced telecommunications services at affordable 

prices and meet local community communications needs. 

Consumers May Be Denied Service Upgrades By Incumbent Cable Providers 

The legislation allows incumbent cable providers to jettison the build-out and 

upgrade requirements to which they are bound under local franchise agreements 

whenever a new market entrant offers service to just one household in the franchise area. 

If a telephone company offers its video service in only part of the franchise area, as they 

are allowed to do under the legislation, an incumbent cable provider will have both the 

ability and the financial incentive to offer service upgrades to competitive areas while 

denying them to customers in neighborhoods not served by the new entrant. Even the 

National Cable and Telecommunications Association has pointed out the importance of 

providing network upgrades in an equitable and non-discriminatory manner.7

Unfortunately, under the legislation, incumbent cable providers will be under no 

obligation to do so, and the communities they serve will be stripped of their ability to 

require non-discriminatory upgrades. Even more troubling, a cable incumbent operating 

under a national franchise would be equally free to withdraw service entirely from 

neighborhoods it currently serves. 

Consumers May See Their Cable Rates Rise, Not Fall 

The legislation also fails to protect consumers from discriminatory pricing that may 

result when local exchange carriers begin offering video service in a franchise area. 

Under current law, cable providers need no longer comply with the statutory requirement 

that they charge uniform rates across the franchise area once a common carrier offers 

video service to just a single household in that area. The legislation does nothing to 

change that. Therefore, under the legislation, an incumbent cable provider could lower 

rates in areas served by new competitors and raise them elsewhere to offset discounts. 

And regardless of how limited the competition, cable is given free-reign to price 

discriminate. Consumers who are not served by the new Bell competitor would be hit 

 

7

 National Cable & Telecommunications Association, 2006, “The Bell Monopolies Want a Special 

Break to Enter the Video Business.” 

Http://www.ncta.com/pdf_files/Bell_Myths_FINAL_03.06.06.pdf 
285

twice—they will lack a competitive alternative to the incumbent and they may face 

higher cable rates and declining service quality. If Congress does not require that new 

entrants build out to the entire franchise area, it must, at a minimum, require that cable 

incumbents maintain a uniform rate structure until uptake of competitive 

telecommunication video services reaches a significant threshold. 

Anti-Redlining Provisions Are Insufficient To Ensure Low- And Middle Income 

Consumers Are Not Left Behind

 The legislation appropriately prohibits redlining based on income. Unfortunately, in 

the absence of build out requirements, the anti-redlining provision, on its own, will be not 

be sufficient to ensure low-income areas will be served by new video providers. Existing 

Title VI anti-redlining provisions have only been effective because they exist in tandem

with the ability of local franchise authorities to require service throughout the franchise 

area over time. Without requirements for build-out, anti-redlining provisions are 

toothless. 

 Moreover, redlining, particularly as defined in this bill, will be difficult to prove and 

violations will be difficult to enforce. So long as the burden lies with authorities to prove 

that income is the sole reason a cable company has denied service or upgrades, the antiredlining provision will be largely symbolic. Providers may justify failure to provide 

service to particular neighborhoods based on insufficient demand or economic 

infeasibility. Therefore, any anti-redlining prohibition should place the burden of proof 

on cable providers, not local, state or federal authorities. That is, the providers should be 

required to prove that service denial is justified for reasons other than income. 

 The legislation should also provide for concurrent anti-redlining enforcement by 

states and localities and include strong penalties for violations. Localities, in particular, 

have specific knowledge of local economic circumstances; a providers’ service history in 

the community; and other knowledge that allows them to identify redlining concerns. 

They are also more accountable and responsive to their citizens than federal regulators 

and are more likely to take timely action to resolve redlining concerns. 

 In addition, to improve the effectiveness of anti-redlining enforcement, the 

legislation should require the FCC to collect data that will allow enforcement authorities 

to identify redlining violations. Currently, FCC lacks data that would help identify 

patterns of service and potential redlining in broadband―the technology over which 

telephone companies will deliver video services. Additional reporting requirements and 

analysis should be part of the systematic process of oversight. Cable service providers 

should be required to submit regular reports about the location, density, and level of 

service offered in each franchise area. Finally, the bill should provide for crosstabulation of census data with the cable service provider reports to identify. 

Consumer Protections Are Weakened 

Under current law, states and localities have authority to establish more stringent 

cable customer service standards than required by federal law. Localities are able to 

enforce those standards through the terms of and renewal process for their local 

franchising agreements. Many franchise authorities have staff and offices dedicated to 

resolution of cable complaints that provide for speedy resolution of customer billing 

concerns, service outages and more. Penalties in the form of liquidated damages or 

mandatory discounts for customers harmed by a provider’s violation of customer service 

standards are not uncommon. 

 The Communications Opportunity, Promotion and Enhancement Act strips states 

and localities of their authority to both establish and enforce consumer protections that 

exceed the federal minimum standards and gives enforcement authority solely to FCC, 

significantly weakening consumer protections. States and localities will have only the 

ability to issue compliance orders when providers violate Commission standards. They 
286

can take no enforcement action of their own unless FCC regulations so prescribe, raising 

serious concerns about the timeliness and resolution of complaints. Communities, now 

empowered to resolve customer disputes with their cable provider, would be left with 

only the ability to issue compliance orders that FCC alone may enforce. 

 Any national franchise legislation should retain state and local authority to establish 

customer service standards and consumer protections. Consumers must have a means for 

timely and local resolution of complaints against their service providers. Federalizing 

consumer protection is neither workable nor acceptable. The Federal Communications 

Commission is ill-equipped to address billing, services and outages complaints in a 

timely manner. Customer service, the process for resolving complaints, reporting 

requirements and accountability of providers to officials must remain local, with 

appropriate and meaningful sanctions for violations. At a minimum, the legislation 

should provide for strong federal minimum consumer protection requirements that reflect 

the more stringent criteria established to date by states and localities and provide states 

and localities with concurrent enforcement authority. 

 Finally, the legislation inexplicably and immediately eliminates the existing federal 

requirement that cable companies provide consumers with 30-day advance written notice 

before changing channel assignments. This uniform and common sense provision helps 

reduce consumer confusion and improves the accountability of cable providers. Even on 

the theory that competition under a national franchise may help discipline anti-consumer 

practices, under the legislation as drafted, many consumers in a given market will be 

without that competitive alternative. In fact, even if a telephone company offers service 

to just one household or one neighborhood, the dominant incumbent cable provider in 

that franchise area could seek a national franchise and be released from the written notice 

provision. Congress should maintain this commonsense consumer protection. 

Broadband Discrimination Protections Are Inadequate 

 It is critical that any video franchising legislation include strong, enforceable 

network neutrality policies required to protect consumers and preserve the Internet as a 

source of innovation and competition. However, as drafted, the network neutrality 

provisions in Section 201 of the Communications Opportunity, Promotion, and 

Enhancement Act are inadequate to protect consumers from network-owner 

discrimination against competitive, Internet-based content, applications, and services. 

Relying on the FCC’s policy statement on network nondiscrimination is insufficient. 

There is no mention in that statement of protection against the practice many network 

operators have announced they will undertake—dividing the Internet into pay-for-play 

tiers of service, or “access tiering.” Unfortunately, the legislation not only fails to provide 

for stronger protections than encompassed in FCC’s policy, it simultaneously strips the 

FCC of its rulemaking authority to protect consumers from discriminatory network 

practices and provides for only case-by-case enforcement of FCC’s already weak 

network neutrality policy. 

 Services, content and applications delivered via broadband offer consumers new 

opportunities for competitive telecommunications and video services. But the telephone 

and cable companies that dominate the broadband market have strong incentives to shut 

out those competitors through access tiering, by impairing transmission, or by prohibiting 

use of devices or applications on their networks. To protect consumers, Congress should 

pass clear legislation and require the FCC to issue strict and enforceable regulations 

prohibiting discriminatory practices. The enforcement process must be timely and require 

the network operator to bear the burden of proof. We must ensure that no entrepreneur is 

posthumously vindicated by the FCC after a complaint process drags on for months. In 

short, the FCC’s authority must be expansive and its direction clear. 

 As subscription video services are increasingly offered using Internet-based 

technologies, maintaining the Internet as a neutral platform on which network owners 
287

cannot discriminate becomes even more essential. The Bells are not the only providers 

who could compete with cable. Increasingly, “video on demand” is being offered over the 

Internet, where consumers can access movies or pay to watch a single episode of a single 

program. As Congress considers ways to increase competition in video services, it must 

not overlook independent Internet content providers as a third competitor. But that source 

of competition will be squelched without strong, enforceable prohibitions on network 

discrimination. Both cable and telephone companies can use their network control to 

prioritize their own video content over others. 

 Moreover, a network neutrality policy that permits “access tiering” virtually 

guarantees higher consumer prices. Recent media reports describe operators’ plans to 

create “access tiers” of service that will charge Internet companies fees to bring their 

products and services to subscribers. The fees charged to content and service providers 

will inevitably be passed onto consumers who have already paid for high-speed access. 

Though this may be rational market behavior for short-term return on investment, it is 

patently discriminatory and reflects a fundamental change in the nature of the Internet. 

Only those companies who can afford to pay for access will be able to reach consumers, 

stifling innovation, impeding competition and hiking end user costs. Hidden costs and 

discriminatory prices are anathema to consumer interests. 

 Ironically, both cable and telephone companies who now object to strong 

network neutrality legislation have a lengthy record of using their market control to 

preclude competition. And in recent weeks, these same players have complained about 

the discriminatory practices of their own competitors. AT&T has complained that Time 

Warner has refused to run telephone industry advertisements supporting national 

franchising on its cable network. Time Warner has filed complaints against incumbent 

telephone companies over refusals to provide interconnection for its VOIP services. And 

Verizon has complained that Rainbow Media, and its parent company Cablevision, are 

denying Verizon carriage of its regional sports cable networks. The complaint explicitly 

sites the discriminatory practices of a cable operator using market power to eliminate 

competition. 

In each of these cases, the discriminating party is using its control over the network 

to preclude a competitor. There is every reason to believe the both dominant cable and 

telephone providers will likewise use their control over broadband networks to 

discriminate against Internet-based companies that offer services that compete with their 

own. 

 With a strong network discrimination prohibition, the promise for competition in 

video will come not just from Verizon and AT&T, but from any other entrepreneurial 

company that offers video via the Internet in a manner more appealing to consumers. 

Without such a prohibition, however, that promise of competition and innovation will be 

lost. 

More Protections are Required to Ensure Community Needs Are Met 

 While the legislation includes requirements that any provider operating under a 

national franchise meet basic obligations to serve the community, we are concerned that 

the legislation falls short in a number of areas. 

o Institutional Networks: The legislation maintains existing obligations of 

incumbent cable companies to provide institutional networks (I-Nets) for schools, 

libraries and government buildings under their local franchise agreement, but 

makes no provision for communities who may not yet have an I-Net but have 

existing authority to negotiate for one. I-Nets have played an important role in 

providing communities with advanced communications services and have been 

critical in helping to bridge the digital divide. If localities are to be stripped of 

their ability to negotiate for these networks, any national franchise should also 
288

provide for national uniform requirements for I-Nets in communities that lack 

them. 

o Local, Independent and Diverse Programming: The legislation laudably 

requires new entrants to carry any public, education and government (PEG) 

access channels already carried by incumbents under incumbent franchise 

agreements and provides for incremental improvements in capacity over time. 

But, as with I-Nets, it fails to establish a national minimum requirement for 

carriage of local, independent channels, leaving those communities who lack 

carriage of such channels currently, but retain authority to negotiate for them, 

with no recourse. The legislation could remedy this by establishing a national 

minimum carriage requirements in all franchise areas. 

 Moreover, while establishing national requirements for financial support of 

institutional networks and public access channels, carriage of PEG channels, and local 

franchise fees, the bill provides for no explicit enforcement of those requirements. The 

only penalty for noncompliance appears to be franchise revocation―a heavy hammer 

FCC will be reluctant to bring down. Currently, localities enforce those provisions 

through their franchise agreements. Communities can prevent violation of franchise 

agreements before they occur by including penalties within their agreements. National 

franchise legislation must provide for explicit enforcement of franchise conditions in a 

manner that empowers communities and states to ensure the needs of communities are 

being met by video providers. 

To Foster Video Competition, The Legislation Should Include Prohibitions On 

Programmer Tying Arrangements 

 In order for true price competition to emerge in multichannel video markets, 

Congress must also address anticompetitive tying requirements imposed by dominant 

media companies. 

 At the same time that the cable distribution market has consolidated, concentration 

in video programming has increased dramatically. Broadcast giants and cable 

programmers have merged; broadcast and satellite distributors have merged; and cable 

distributors increasingly offer their own programming or have gained ownership stake in 

other video programmers. The anticompetitive effects of concentration in video 

programming decreases the likelihood that new Bell video market entrants will be able to 

effectively compete on price and on channel offerings. 

 Program carriage contracts typically stipulate that distributors offer several or all of 

the programmer’s channels in the most widely viewed tier (usually the expanded basic 

tier), regardless of consumer demand for them, and prohibit channels from being offered 

to consumers individually or in specialty tiers. These bundling requirements have 

contributed to increased size and price of the expanded basic tier, which has increased in 

cost by two and a half times compared to the basic tier.8

 

 Media companies can secure these commitments because of their market power. Six 

media giants, including the top four broadcasters, dominate the programming landscape, 

accounting for three-fourths of the channels that dominate prime time.9

 Four are networks 

(ABC, CBS, FOX and NBC) and two are cable operators (Time Warner and Comcast). 

The networks use the retransmission consent negotiations for carriage of the local stations 

they own and operate to leverage local cable carriage of their other channels. These six 

companies also completely dominate the expanded basic tiers and the realm of networks 

that have achieved substantial cable carriage. These six entities account for almost 80 

 

8

 Mark Cooper, Time to Give Consumers Real Cable Choices, Consumer Federation of America & 

Consumers Union, July 2004, p. 5. 

9

 MM Docket No. 92-264, Comments of CFA, CU, Free Press in the Matter of The Commission’s 

Cable Horizontal and Vertical Ownership Limits and Attributions Rules., August 8, 2005. 
289

percent of the more than 90 cable networks with carriage above the 20 million subscriber 

mark. 

 Moreover, cable operators are majority owners of one-fifth of the top 90 national 

networks―a substantial stake in the programming market.10 They also own minority 

stakes in other networks, as well. The Government Accountability Office found that 

vertically integrated distributors or those affiliated with media companies are more likely 

to carry their own programming, 11 contributing to the size and cost of the expanded basic 

tier. These vertically integrated networks continue to have the largest number of 

subscribers,12 and are the most popular.13 Program ownership by dominant incumbent 

cable distributors also provides the incentive to withhold carriage of cable networks they 

own from competitive video distributors. This is the basis of Verizon’s recent complaint 

against Rainbow Media and Cablevision over sports channel carriage. 

 Independent, unaffiliated cable distributors that do not own their own programming 

have consistently expressed concerns about exclusionary tactics, contractual bundling 

requirements, and coercive retransmission consent negotiations that limit their ability to 

respond to customer demand for more choice in program packages and for lower prices.14 

 It is therefore essential that Congress include in any national franchise legislation 

provision that address anticompetitive and coercive contractual requirements, including 

retransmission consent abuse. Failure to do so will impede the ability of any new video 

market entrant, including Verizon and AT&T, to compete on price. They’ll be forced to 

buy the same channels their competitor is carrying; pay the same or greater licensing 

fees; and offer the same packages. Worse, they will be precluded from offering 

consumers channels individually or in specialty tiers, rather than in a large and costly 

bundle, even though doing so may give them an opportunity to differentiate their services 

from the incumbent cable monopoly and respond to strong consumer demand for greater 

channel choice. 

 

The Right of Municipalities to Provide Broadband Networks is Protected 

 We offer our strong and unqualified support for Section 401 of the legislation, which 

prohibits state preemption of municipal broadband networks—a critical component of 

any legislative package that seeks to increase consumer access to advanced 

telecommunications services and foster competition in data, video and voice services, and 

expand affordable high-speed Internet access to all Americans. 

 Hundreds of communities have responded to the lack of affordable broadband 

access by creating their own networks through public-private partnerships, offering new 

opportunities for entrepreneurs. Community broadband networks offer an important 

option for communities in which broadband services reach only certain areas or are 

offered at prices out of reach for many consumers. Equally important, the mere 

possibility that a community may develop a broadband network helps discipline the 

marketplace. 

 Efforts to prohibit these community networks stifle competition across a range of 

telecommunications services, stall local economic development efforts, and foreclose 

 

10 GAO-04-8, p. 27. 

11 Id. at 29. 

12 Federal Communications Commission, Annual Assessment of the Status of Competition in the 

Market for the Delivery of Video Programming: Eleventh Annual Report, January 14, 2005, ¶150. 13 Id. at ¶151. 

14 EchoStar Communications Corporation, Testimony of Charles Ergen, Chairman & CEO, EchoStar 

Communications Corporation before the Senate Committee on Commerce, Science and 

Transportation, January 19, 2006; Testimony of Bennett Hooks, Chief Executive Officer, Buford 

Media Group on behalf of the American Cable Association, before the Subcommittee on 

Telecommunications and the Internet, July 14, 2004.
290

new educational opportunities. Section 401 ensures that communities that want to foster 

broadband access are not precluded from doing so. 

 

Conclusion 

 The need for greater competition in the monopolistic video marketplace is an urgent 

one—but it has been urgent for a decade. We urge Congress to take the time to consider 

the many policy issues that must be addressed before abandoning the fundamental 

consumer protections encompassed in current law. These include mandatory build out 

requirements or in lieu thereof resources to meet the needs of underserved consumers; 

provisions that prevent cable providers from backsliding on their current obligations to 

serve the entire community; strong consumer protections with state and local 

enforcement authority; prohibitions on anticompetitive contractual channel bundling 

requirements that reduce consumer choice and prevent product differentiation; and a 

strong enforceable prohibitions on broadband network discrimination. 

 We thank the Subcommittee for the opportunity to testify and look forward to 

working with you on legislation that promotes competition in the video marketplace that 

benefits all Americans. 

 MR. UPTON. Mr. May? 

MR. MAY. Mr. Chairman and members of the committee, thank you 

very much for inviting me here to testify today. I am Senior Fellow and 

Director of Communications Policy Studies at the Progress and Freedom 

Foundation, a non-profit, non-partisan research and educational 

foundation located here in Washington. 

 During the past year, I have chaired PFF’s Digital Age 

Communications Act Project, the purpose of which has been to draft a 

new model communications law. While my views have been informed 

by the work of the participants in the DACA project and my PFF 

colleagues, the positions I express here today are my own. 

 When Congress passed the 1996 Act and I was glad Ms. Johnson 

actually referred back to it, it stated that it intended “to provide for a procompetitive deregulatory national policy framework.” While the 1996 

Act in my view should have been much more unambiguously 

deregulatory and should have gone further in creating a national policy 

framework at that time due in part to the changes of law and policy 

brought about by the Act and to an even greater measure to the rapid fire 

technological changes enabled by the digital revolution. 

 We now enjoy a communications marketplace characterized by 

competition and convergence. I do not have time today to belabor this 

point by citing the readings of statistics or the very latest news stories 

about new competitive entrance or new services or new applications. It 

should be sufficient to point out that we live in a world in which firms 

that we still sometimes call cable television companies provide voice 

services to their subscribers at every increasing rates. Companies we still 

call telephone companies are racing to provide video services and 

competition with cable and satellite television providers. New market 
291

entrants like Vonage, which calls itself the broadband telephone 

company, utilize super efficient internet connection to carry voice traffic. 

Wireless providers we still call cell phone companies integrate voice, 

video, and data for delivery any time anywhere to a small screen, which 

you carry in your pocket. They now even distribute television 

programming. And popular websites such as those operated by Yahoo, 

Google, Microsoft, and thousands and thousands more that are not as 

dominant as those companies, but which have their own intensely loyal 

viewers, compete with the traditional cable companies and broadcasters, 

not to mention newspapers and magazines for consumer’s eyeballs. 

While we may quibble around the edges about degree, competition and 

convergence of services are realities in today’s communications 

marketplace. 

 Now in my written testimony, I have outlined a broader program of 

more comprehensive communications reform. But with the time that I 

have available for the initial statement, I want to focus on the broadband 

section of the bill because in the form proposed, it has the real potential 

to cause substantial harm to the broadband marketplace. This section of 

course provides that the FCC has the authority to enforce the four 

broadband connectivity principles the agency adopted in August 2005. 

In essence, the FCC principles embody the bundle of access rights that 

are commonly referred to as net neutrality mandates. Congress should 

not enact into law any specific neutrality provision mandating access 

rights and non-discrimination obligations. Assuming for the sake of 

argument that Congress nevertheless is intent on doing so, any net 

neutrality-specific provision should be revised in the manner that I will 

suggest. 

 The increasing competitiveness in the existing contestability of the 

broadband marketplace makes it very unlikely that broadband operators 

will take any actions of the type intended to be prohibited by the net 

neutrality prohibitions. If they did and as we already heard this morning, 

thus far, essentially they have not. Broadband operators which, excuse 

me, consumers would switch providers. Broadband operations are in the 

distribution business. Consumers do not demand bare broadband by 

itself. They want the content that broadband distribution provides. If 

broadband operators are going to invest billions of dollars building out 

new broadband networks, operators will not find it in their interest to 

block, or impair, or degrade subscribers from accessing services and 

content that the consumers find valuable. 

 It is also true that when broadband operators contemplate investing 

billions of dollars in new high speed networks, the ability to bundle 

distribution with content and to enter into efficient business 

arrangements with unaffiliated content and application providers may be 
292

crucial to providing the incentive to invest. And the ability of an 

operator to differentiate its service from that of another operator may be 

critical to the decision to invest in new networks and service 

applications. 

 Competitive markets often involve legitimate price and service 

discrimination and network owners often are pursuing legitimate 

technological or business objectives in particular cases when they 

differentiate their services. Take one example, I think which illustrates 

this point vividly. Clearwire is a new wireless entrant into the 

marketplace. Clearwire gave Bell Canada exclusive rights to distribute 

VOIP over Clearwire’s new wireless broadband network in exchange for 

$100 million investment by Bell Canada. Would consumers be better off 

if this discrimination were prohibited as it would be under any neutrality 

provision and Clearwire’s new network not be built? I do not think so. 

 So I do not think Congress should enact a neutrality-specific 

provision. But if Congress is going to do so, it is very important that it 

not enact a broad overly inclusive mandate. To prevent this, the 

committee should incorporate into the provision an unfair competition 

standard that should explicitly tie the FCC’s authority to enforce the 

broadband principles to this unfair competition standard. While the 

preference in the bill for adjudicatory proceedings is positive, alone it is 

not sufficient that the new law will not be interpreted by the agency or by 

the courts on reviewing the agency’s decision in a way that is essentially 

equivalent to traditional common carrier principles. 

The hallmark of common carriage is the obligation not to 

discriminate and charge reasonable rates. Without the competition, 

without tying these principles to a competition base provision that looks 

at particular markets, the market structure and market power, it is very 

likely that these principles will be interpreted in a way that equates 

precisely with traditional notions of common carriage. 

 When Chairman Barton asked all of the participants this morning on 

the first panel this afternoon to define net neutrality, we heard a bunch of 

different definitions. But Mr. Misener from Amazon, who is a proponent 

of net neutrality, actually came close, I think, to having it right. He said 

basically that net neutrality is market power extended into other markets. 

But the way to deal with it is to ensure that if there is going to be any 

determinations made, that they are dealt with in adjudications, as you 

provided, and specific circumstances looking at particular facts so the 

situations like the Clearwire example probably would not constitute a 

violation of net neutrality. 

 MR. UPTON. If you could sum up, you have gone four minutes 

longer than the five. 
293

 MR. MAY. Okay. I am outnumbered here about four to one but I 

will do that, thank you, Mr. Chairman. 

 The way I would sum up is just this, that I think that what is 

important for the committee to focus on as it goes forward is to import 

into this bill notions of regulations that are tied very specifically to 

competition assessments and standards. 

 Thank you. 

 [The prepared statement of Randolph J. May follows:] 

PREPARED STATEMENT OF RANDOLPH J. MAY, SENIOR FELLOW AND DIRECTOR,

COMMUNICATIONS POLICY STUDIES, THE PROGRESS & FREEDOM FOUNDATION

SUMMARY 

 The Committee should be commended for the substantial progress it has made since 

the earlier two staff drafts in proposing a bill that will represent sound communications 

policy. Especially with regard to the national cable franchise proposal, in many respects 

the proposal furthers the worthy intent stated by Congress when it passed the 

Telecommunications Act to adopt a “pro-competitive, deregulatory national policy 

framework.” 

 As for the Broadband Policy section, it would be far preferable for Congress not to 

include a net neutrality-specific provision in the bill. There certainly have not been more 

than a few scattered instances of alleged marketplace abuses. Moreover, in the 

increasingly competitive broadband marketplace, there is no reason to anticipate that 

broadband operators will not be responsive to making available services that consumers 

value. Assuming for the sake of argument that Congress is intent on including a netneutrality-specific provision, however, it should explicitly tie enforcement of the FCC’s 

broadband principles to determinations made under a market-oriented unfair competition 

standard such as the one I suggest in my testimony. Absent clearly tying FCC authority to 

a competition-based standard that will require the agency to undertake a rigorous factbased economic analysis of the particular marketplace circumstances that exist at the 

time, there is a great danger that enforcement of the access mandates at the core of the 

broadband principles will turn into a general common carrier regime for broadband 

operators. Extending the non-discrimination obligations and rate regulation requirements 

that are hallmarks of a common carrier regime, and which may have been appropriate in a 

monopolistic narrowband era, to the competitive broadband era will certainly stifle new 

investment and innovation and impose an overall drag on the nation’s economy. 

 In light of the competition that already exists in the video marketplace, and the 

potential for even more competition from telephone companies and other new entrants, 

there is no longer any rationale for local franchising authorities to play a public utilitytype economic regulatory role. This is true for new entrants such as the telephone 

companies and for incumbent cable operators alike. The proposal for a national franchise 

will speed the development of further video competition and, indeed, the deployment of 

new broadband networks. At the same time, the Committee should consider further 

improvements in the video section of the bill suggested in my testimony, such as 

eliminating the PEG and institutional network mandates. 

Mr. Chairman and Members of the Committee, thank you very much for inviting me 

to testify today. I am Senior Fellow and Director of Communications Policy Studies at 

The Progress and Freedom Foundation, a non-profit, nonpartisan research and 

educational foundation located in Washington, DC. PFF is a market-oriented think tank 

that studies digital revolution and its implications for public policy. During the past year, 
294

I have also co-chaired our Digital Age Communications Age (“DACA”) project. The 

purpose of this project has been to draft a new model communications law. In order to 

carry out this purpose, PFF assembled into working groups a diverse group of leading 

academics and think tank scholars—lawyers, economists, and engineers—who are 

experts in the field of communications policy. The views I express here today have been 

informed by the work of the participants in the DACA project. But I want to emphasize at 

the outset that while my colleagues at PFF, and other participants in the DACA project, 

may share many of my views, the positions I express here today are my own. 

I. Introduction 

It has been ten years since enactment of the Telecommunications Act of 1996. 

Recall that when Congress passed the 1996 Act, it stated that it intended “to provide a for 

a pro-competitive, deregulatory national policy framework designed to accelerate 

rapidly private sector deployment of advanced telecommunications and information 

technologies and services to all Americans by opening all telecommunications markets to 

competition.” While I believe that the 1996 Act could have been much more 

unambiguously deregulatory, the fact of the matter is that, due in part to the changes in 

law and policy brought about by the act, and due in even greater measure to rapid-fire 

and ongoing technological changes enabled by the digital revolution, we now enjoy a 

communications marketplace characterized by competition and convergence. I am not 

going to belabor this point here by citing reams of statistics or the very latest (usually this 

morning’s!) news story about a new competitive entrant or a new communications 

service or application. For my purpose today, it is sufficient to point out that we live in a 

world in which firms we still sometimes call “cable television” companies provide voice 

services to their subscribers at ever increasing rates. Companies we still call “telephone 

companies” or “telecommunications providers” are racing to provide video services in 

competition with cable and satellite television providers. New market entrants like 

Vonage, which calls itself “the broadband telephone company,” utilize super-efficient 

Internet connections to carry voice traffic. Wireless providers we still sometimes call 

cellphone companies integrate voice, video and data for delivery anytime, anywhere to a 

screen you carry in your pocket. They now distribute popular “television” programming. 

And popular web sites, such as those operated by Yahoo, Google, Microsoft, and 

thousands and thousands more that are not as dominant but which have their own 

intensely loyal “viewers”, compete with traditional broadcasters and cablecasters, not to 

mention newspapers and magazines, for consumers’ eyeballs. 

So while we may quibble around the edges about degree, competition and 

convergence of services are realities in today’s communications marketplace. That being 

the case, any communications law reforms enacted should be consistent with the procompetitive, deregulatory, and national policy goals Congress articulated in the 1996 Act, 

and it is against those objectives that I will consider the present bill. 

Before addressing more specifically the bill before us, I do want to sketch briefly 

what I believe, ideally, communications reform legislation should include.1

 In light of the 

realities of the current communications marketplace, ideally, Congress would jettison 

most of the current statue, that at its core is grounded in many different service 

definitions (“telecommunications”, “information service”, “cable service”, “mobile 

service”, and so on). These existing service definitions are based on what I have called 

“techno-functional constructs.”2

 I use this term because the service definitions are all tied 

 

1

 Not surprisingly, much of what I sketch here is embodied in the work of PFF’s DACA Project. For 

all of the reports and other materials that have been published thus far in connection with the project, 

see http://www.pff.org/daca/. 

2

 See Randolph J. May, Why Stovepipe Regulation No Longer Works: An Essay on the Need for a 

New Market-Oriented Communications Policy, 58 FED. COMM. L. J. 103 (2006). 
295

to some combination of technical characteristics or functional capabilities. In a world of 

convergence driven by technological change, drawing distinctions for regulatory 

purposes between and among the variously-denominated services becomes a largely 

metaphysical exercise.3

In today’s digital age, this regime of so-called “stovepipe” regulation should be 

replaced by a new market-oriented regulatory paradigm based on competition law 

principles grounded in antitrust-like jurisprudence enforced by the Federal 

Communications Commission.4 Under the DACA proposal, most of the FCC’s regulatory 

actions would be subject to an “unfair competition” standard—akin to the standard 

employed by the FTC under the Federal Trade Act. This unfair competition standard, 

which would be at the heart of the new communications law, would anchor the FCC’s 

regulatory activities firmly in market-oriented competition analysis. I will say more about 

this proposed regime, which like antitrust law, makes competition and consumer welfare 

paramount, when I discuss Title II, the bill’s broadband provision. Here I just want to add 

that, it light of the radical marketplace changes I have described, ideally Congress would 

enact a comprehensive reform of the nation’s communications laws that would include, 

in addition to the change in regulatory paradigm, (1) alteration of the division of 

jurisdictional authority that recognizes the increasingly national and international nature 

of communications; (2) reform of the universal service system of subsidies that 

recognizes the extent to which consumers in rural areas and low income consumers have 

opportunities to avail themselves of new, lower-cost communications technologies than 

those traditionally supported by the subsidies; and (3) reform of spectrum policy that 

recognizes that increased flexibility of use and more secure property-like rights leads to 

more efficient and consumer-welfare enhancing use of this valuable resource.5

II. The Net Neutrality Provision 

 Now I want to turn to the bill before us. Although it is only two pages, I first want to 

address Title II, “Enforcement of Broadband Policy Statement.” This section is very 

important, in a fundamental sense, to the future development of the broadband and 

Internet markets, and, indeed, to the future of sound communications law reform. In 

essence, this section provides that the FCC has authority to enforce, through 

adjudications and not rulemakings, the four “connectivity” principles the agency adopted 

in August 2005. The bill provides that if “the Commission determines that such a 

violation [of the principles] has occurred, the Commission shall have authority to adopt 

an order to require the entity subject to the complaint to comply with the broadband 

policy statement and the principles incorporated therein.”6

The FCC’s September 2005 policy statement describes the broadband principles as 

follows: (1) consumers are entitled to access the lawful Internet content of their choice; 

(2) consumers are entitled to run applications and services of their choice; (3) consumers 

 

3

 Id. And see Randolph J. May, The Metaphysics of VoIP, CNET News, January 5, 2004, available at 

http://news.com.com/The+metaphysics+of+VoIP/2010-7352_3-5134896.html. 

4

 For a bill that embodies this new market-oriented regulatory paradigm, see S. 2113, the “Digital 

Age Communications Act,” introduced by Sen. Jim DeMint on December 15, 2006. Sen. DeMint’s 

bill is modeled on the recommendations and legislative proposal contained in the DACA Regulatory 

Framework Working Group Report, Release 1.0, which may be found at http://www.pff.org/issuespubs/other/050617regframework.pdf. 

5

 For the DACA Project’s proposal in each of these areas, see Report from the Working Group on 

Federal-State Framework, Release 2.01, at http://www.pff.org/issuespubs/books/051026daca_fed_state_report2.01.pdf;; Proposal of the Universal Service Working 

Group, Release 2.0, at http://www.pff.org/issues-pubs/books/051207daca-usf-2.0.pdf; and Report 

from the Working Group on New Spectrum Policy, Release 1.0, at http://www.pff.org/issuespubs/books/060309dacaspectrum1.0.pdf. 

6

 Proposed new Section 715 (b)(2). 
296

are entitled to connect their choice of legal devices that do not harm the network; and (4) 

consumers are entitled to competition among network providers, application and services 

providers, and content providers.7 (Note here that this last principle, as I read it, appears 

to extend the FCC purview to application and content providers, such as Google, EBay, 

and Yahoo, perhaps providing a basis for complaints to the FCC that the market segments 

in which they participate are not “competitive”.) When adopted, the Commission 

characterized the principles as “guidance”, not rules in the sense of positive law, although 

it said that “to ensure consumers benefit from innovation that comes from competition, 

the Commission will incorporate the above principles into its ongoing policymaking 

activities.”8

The FCC’s principles embody the bundle of access rights that are often referred to as 

“Net Neutrality” mandates. I want to explain first why it is far preferable for Congress 

not to enact into law any specific net neutrality provision mandating access rights and 

non-discrimination obligations. And then I want to explain why, assuming for the sake of 

argument that it nevertheless does so, any such net neutrality-specific provision, such as 

the one included in the bill, should be revised as I suggest below. 

It is important to emphasize again here the increasing competitiveness, and the 

existing contestability, of the broadband marketplace, makes it very unlikely that 

broadband operators will take any actions of the type intended to be prohibited by the net 

neutrality prohibitions which consumers value. If they did, consumers would switch 

broadband providers. Broadband operators are in the distribution business. Consumers 

don’t demand “bare” broadband by itself, of course; they want the content that broadband 

distribution provides. If they are going to invest billions of dollars building out new 

broadband networks, it is safe to assume that the operators will not find it in their interest 

to block or impede subscribers from accessing services and content that the customers 

find valuable. 

It is also true that when broadband operators contemplate investing billions of 

dollars in new high-speed networks, the ability to bundle distribution with content, and to 

enter into efficient business arrangements with unaffiliated content and applications 

providers, may be crucial to providing the incentive to invest. In this regard, the ability of 

an operator to differentiate its service from that of another operator, or even in some 

circumstances to discriminate among unaffiliated providers, may be critical to the 

decision to invest in new networks and service applications. As the members of the 

DACA Regulatory Framework Working Group explained in a recent joint statement: 

“Competitive markets often involve legitimate price and service discrimination, and 

network owners often are pursuing legitimate technological or business objectives in 

particular cases.”9

 To take one example, new broadband wireless entrant Clearwire 

apparently gave Bell Canada exclusive rights to distribute VoIP over Clearwire’s 

broadband network in exchange for a $100 million investment by Bell Canada. Would 

consumers be better off if this “discrimination” were prohibited and Clearwire’s new 

network not built? I don’t think so. 

In any event, although we have yet to see more than a handful of claimed instances 

of abuse occur, my purpose here is not to argue that, in today’s environment, there might 

not be some instances in which, due to the particular marketplace circumstances, we 

ought to be concerned about discriminatory conduct or denial of access rights of the type 

encompassed by the FCC’s broadband principles. Perhaps the oft-cited case involving 

 

7

 Appropriate Framework for Broadband Access to the Internet over Wireline Facilities, FCC 05-

151, CC Docket No. 02-33, September 23, 2005. 

8

 Id. Indeed, shortly thereafter, when the agency approved the mergers of SBC Communications, Inc. 

and AT&T Corp. and Verizon Communications Inc. and MCI, it incorporated into its approval a 

condition requiring that the merger applicants “conduct business in a way that comports with the 

Commission’s Internet policy statement....” 

9

 See a Statement of the DACA Regulatory Framework Group attached as Appendix A. 
297

Madison River, in which the dominant local telephone company allegedly refused to 

provide access to its network to independent VoIP providers is just such an instance. My 

purpose here is to suggest that it is important that Congress not enact a provision that is—

or that even possibly will be turned into—a broad, overly-inclusive net neutrality 

mandate. Rather, if Congress insists on dealing with this issue in this bill, it should 

incorporate into the provision the unfair competition standard that is at the heart of PFF’s 

DACA regulatory framework. And it should specifically tie the FCC’s authority to 

enforce the broadband principles to violations of the unfair competition standard. 

The bill already adopts one of the key elements of the DACA recommendation in 

that the Commission must proceed through adjudication in deciding whether the 

broadband principles have been violated. Because rulemakings, especially as the FCC has 

conducted them in the past decade or so, often are interminable proceedings that, when 

completed, lead to overly broad and vague anticipatory prohibitions, the bill’s preference 

for case-by-case adjudications is very commendable. The Committee might consider 

imposing a time limit upon the Commission for deciding complaints to ensure that net 

neutrality-like complaints are decided in a timely fashion, and it might make clear that 

the agency has the authority, upon a strict showing that there is a substantial likelihood 

the complainant will prevail on the merits and will otherwise suffer substantial and 

irreparable harm, to issue administrative injunctive relief, pending the prompt final 

decision. 

While the preference for adjudicatory proceedings is positive, alone it is not 

sufficient to ensure that the new law will not be interpreted by the agency, or by the 

courts upon review of the agency’s decisions, in a way that is essentially equivalent to 

traditional common carrier principles. Indeed, that is what the net neutrality advocates 

seek. The hallmark of common carriage is the obligation not to discriminate and to 

charge “reasonable” rates. In effect, it is a very short (or non-existent) leap from 

enforcing the principle that consumers are entitled to access any content of their choice to 

determining that the provider may not differentiate its service from another provider by 

favoring some content and applications over others. Such common carrier regulation may 

have been appropriate in an era generally characterized by monopolistic service 

providers, but it is not appropriate in today’s competitive broadband environment. As 

explained above, in a competitive marketplace, imposing common carrier-like obligations 

stifles investment and innovation and puts a drag on the overall economy. 

Therefore, the Committee should revise the broadband section to provide that the 

FCC may find a violation of the broadband principles only if it finds that the broadband 

operator has committed an unfair competitive practice. An unfair competitive practice 

should be defined as an act that presents “a threat of abuse of significant and nontransitory market power as determined by the Commission consistent with the application 

of jurisprudential principles grounded in market-oriented competition analysis” such as 

that commonly employed by the FTC and the Department of Justice in enforcing the 

antitrust law. Incorporation of this competition standard will force the FCC to ground its 

decisions in rigorous economic analysis based on the marketplace realities at the time of 

the complaint. Under the specific circumstances of the case, the FCC would examine 

factors such as the number of existing and potential competitors, barriers to entry, 

technological dynamism in the markets at issue, and impacts on investment and 

innovation. Thus, for example, in a case such as Madison River, the agency might well 

find that that the complainant has proved an anticompetitive practice that should be 

remedied, while in the Clearwire example, the agency might well determine that under 

those circumstances that the exclusive arrangement does not constitute an anticompetitive 

practice. Moreover, if the agency does find that an unfair competitive practice has been 

committed, in the adjudicatory proceeding that the bill wisely envisions, it can tailor the 

remedy to fit the circumstances. So, in conclusion, if the broadband section is to remain 

in the bill despite my recommendation that it not be included, a competition standard 
298

such as I have suggested should be married with the requirement for case-by-case 

adjudications. 

III. Video Competition 

The section of the bill creating a national franchise for cable operators10 is a positive 

step that will further enhance and speed up the development of competition in the 

multichannel video market and, more broadly, the broadband market. Harking back to the 

stated goals of the 1996 Act that I mentioned earlier—pro-competitive, deregulatory, and 

a national policy—the video section generally furthers those goals. Nevertheless, in light 

of the competition that presently exists and which will continue to develop, the 

Committee should consider going further to reduce the regulatory requirements 

applicable to the cable operators, especially in the area of content regulation, where the 

First Amendment rights of the providers are implicated. And, once it establishes a 

national framework for cable operators applicable to new entrants and incumbents, as 

much as possible, it should apply to them in like manner. 

Competition in the video marketplace has been increasing steadily over the past 

decade or so. I went back and examined the FCC Annual Video Competition Report that 

was issued in January 2000. There, while noting that cable and satellite operators 

dominated the marketplace, the FCC stated that the following entities were also providing 

video programming alternatives in some places: wireless cable operators, SMATV 

systems, local telephone companies, Internet video, home video sales and rentals, and 

electric utilities. Obviously, not all of these entities (for example, electric utilities or local 

telcos) were meaningful competitors or even, at that time, exerted meaningful pressure on 

the market as potential competitors. But, looking ahead, it was easy for the FCC to 

conclude then that, “[t]he technological advances that will permit MVPDs to increase 

both quantity of service (ie., an increased number of channels using the same amount of 

bandwidth or spectrum space) and types of offerings (e.g. interactive services) 

continue.”11

Fast forward to this year. In its 12th Annual Video Competition Report, the FCC 

recently concluded: 

In this year’s Video Competition Report, the FCC finds that the competitive 

MVPD market continues to provide consumers with increased choice, better 

picture quality, and greater technological innovation. The report concludes that 

almost all consumers may opt to receive video services from over-the-air 

broadcast television, a cable service, and at least two DBS providers. In 

addition, a growing number of consumers can access video programming 

through digital broadcast spectrum, fiber to the node or to the premises, or 

video over the Internet. Moreover, once consumers have selected a provider, 

technology such as advanced set-top boxes, digital video recorders, and mobile 

video services give them even more control over what, when, and how they 

receive information. Furthermore, many MVPDs offer nonvideo services in 

tandem with their traditional video services.12

 

10 It is useful to have in mind that the bill retains the existing “stovepipe” definitions to which I 

referred earlier, even though convergence is rendering them obsolete. In today’s digital environment 

the traditional “cable operators” such as Comcast provide voice and data communications over the 

same broadband “pipes” that they provide video programming, and the new “cable operators” such 

as Verizon will provide video over the same digital broadband pipes that carry voice and data 

communications. These services that now go by the name of video, voice, and data are all carried in 

the same digital stream and are represented by different 1s and 0s traveling along together. 11 Annual Assessment of the Status of Competition in Markets for the Delivery of Video 

Programming, CS Docket No. 99-230, FCC 99-418, January 14, 2000. 

12 News Release, “FCC Issues 12th Annual Report to Congress on Video Competition,” February 10, 

2006.
299

 So, we have seen the video marketplace become increasingly competitive over the 

past decade, due largely to technological advances. But there is no doubt that the market 

will become even more competitive—even more quickly—if national franchises are 

available as an option to replace the more than existing 30,000 local franchising 

authorities (“LFAs”). In the past, in granting and overseeing franchises to cable 

operators, the LFAs played a role akin to a traditional public utility regulator. While they 

served other claimed purposes as well, such as managing the cable operators’ use of 

public rights-of ways and imposing social obligations such as making available free of 

charge Public, Educational, and Government (“PEG”) channels and institutional facilities 

for government use, in essence the LFAs primarily were seen by the local governments as 

a way to constrain market power. This public utility-type regulatory function 

demonstrably is no longer necessary. Under a general national franchise regime such as 

that proposed in the bill, the authority of the LFAs to manage ROWs can still be 

maintained and properly constrained, and Congress can make judgments concerning, 

whether in the current and anticipated market environment, it is consistent with sound 

policy to maintain the non-economic regulatory social obligations. 

While endorsing the national franchise approach, and commending the Committee 

for avoiding the imposition of unnecessary build-out requirements, here are some 

suggestions to consider for improving the bill further: 

• Once a decision is made to implement a national franchise regime in light of the 

changed competitive environment and lack of need for traditional economic 

regulation, it is not clear why the LFA should be able to petition to revoke a 

national franchise obtained by an incumbent cable operator if no new 

competitor provides service in the franchise area during a one year period. 

There is a sound policy basis for providing the national franchise option that is 

not dependent on whether a particular competitor enters or remains in the 

market. 

• Again, in light of the changes in the competitive environment, it is time to 

consider eliminating the PEG and institutional network mandates. In an 

environment in which there are a multiplicity of information sources for 

educational and government programming activities, the rationale for 

maintaining that “cable operators”, incumbent or otherwise, (as opposed to 

local newspapers, Internet sites, broadcasters, etc.) must turn over their facilities 

for PEG channels is very weak. Whatever the original merits of the extraction 

of these channels for public use, the purposes for which they are intended can 

be met—and almost certainly are being met today—in the free marketplace 

absent government compulsion. Certainly government mandates on private 

communications systems to carry particular types of programming implicates 

First Amendment free speech interests. And the PEG mandates, along with the 

mandate for continued support of the institutional networks of the localities 

implicates the property rights of the private operators under the Fifth 

Amendment. I suggest that, in the competitive marketplace environment that is 

now a reality, increased sensitivity to these free speech and property-rights 

constitutional considerations by Congress will also point the way towards sound 

communications law and policy. 

IV. Conclusion 

The Committee should be commended for the substantial progress it has made since 

the earlier two staff drafts in proposing a bill that will represent sound communications 

policy. As for the Broadband Policy section, it would be far preferable for Congress to do 

nothing at all now to include a net neutrality-specific provision in the bill. There certainly 

have not been more than a few scattered instances of alleged marketplace abuses. 

Moreover, in the increasingly competitive broadband marketplace, there is no reason to 
300

anticipate that broadband operators will not be responsive to making available services 

that consumers value. Assuming for the sake of argument that Congress is intent on 

including a net-neutrality-specific provision, however, it should explicitly tie 

enforcement of the FCC’s broadband principles to determinations made under a marketoriented unfair competition standard such as the one I suggest in my testimony. Absent 

clearly tying any FCC authority to a competition-based standard that will require the FCC 

to undertake a rigorous fact-based economic analysis on the particular marketplace 

circumstances at the time, there is a great danger that enforcement of the access mandates 

at the core of the broadband principles will turn into a general common carrier mandate 

for broadband operators. Extending the non-discrimination obligations and rate regulation 

requirements that are hallmarks of a common carrier regime and which may have been 

appropriate in a monopolistic narrowband environment to the competitive broadband era 

will certainly stifle new investment and innovation and impose an overall drag on the 

nation’s economy. 

In light of the competition that already exists in the video marketplace, and the 

potential for even more competition from telephone companies and other new entrants, 

there is no longer any rationale for local franchising authorities to play a public utilitytype economic regulatory role. This is true for new entrants such as the telephone 

companies and for incumbent cable operators alike. The proposal for a national franchise 

will speed the development of further competition. At the same time, the Committee 

should consider further improvements in the video section of the bill suggested in my 

testimony. 

ATTACHMENT A

The Digital Age Communications Act’s Regulatory Framework 

and Network Neutrality 

---- 

A Statement of the DACA Regulatory Framework Working Group∗

Randolph J. May 

James B. Speta 

Co-Chairs 

Kyle B. Dixon 

James L. Gattuso 

Raymond L. Gifford 

Howard A Shelanski 

Douglas C. Sicker 

Dennis Weisman 

Members

 One of the hottest issues in the current telecommunications reform debate is the 

discussion of “Network Neutrality,” which generally refers to a nondiscrimination 

mandate for all broadband Internet networks similar to the common-carrier rule that 

applied to traditional telecommunications services in a monopolistic era. Most of the 

legislative proposals for telecom reform include a Network Neutrality rule,1

 and the FCC 

 

∗This statement is adapted form remarks delivered by James B. Speta at the March 9, 2006 Digital 

Age Communications Act Conference in Washington, DC. 

1

 The most recent bill to be introduced is S. 2360, Senator Ron Wyden’s “Internet NonDiscrimination Act of 2006.” This bill provides that a network operator shall not “interfere with, 

block, degrade, alter, modify, impair, or change any bits, content, application or service transmitted 
301

in 2005 issued a policy statement in which it backed a version of Net Neutrality 

principles.2

 The exception to this trend is Senator Jim DeMint’s “Digital Age 

Communications Act.”3

 

 Senator DeMint’s bill echoes much of the position taken by the DACA Regulatory 

Framework Working Group.4

 This release explains the general structure of the DACA 

proposal, and explains why it provides a better framework for dealing with Network 

Neutrality issues. In brief, DACA adopts an “unfair competition” standard which is 

based on competition law and economics and which is robust enough to deal with truly 

anticompetitive instances of exclusion on the Internet, but without prejudging business 

practices that may spur investment and deployment of new facilities and services. 

DACA’s case-by-case approach to Network Neutrality is superior, because it avoids 

thickets of ex ante rules while maintaining the availability of ex post relief. 

The DACA Regulatory Framework In General 

 The DACA framework is designed to respond to two well-known and, in our view, 

largely incontestable developments. First, communications markets are increasingly 

competitive. Although that competition is not perfect and does not mirror the stylized 

markets of microeconomics textbooks with very large number of competitors, 

technological developments have increased – and are likely to continue to increase – 

competition in communications. Second, those same technological developments mean 

that service-based regulatory categories – one kind of regulation for telecommunications 

carriers, another for information services, and another for cable services – are no longer 

sustainable.5

 The DACA is a technologically neutral regulatory paradigm, in that the Federal 

Communications Commission is given the same regulatory authority over all electronic 

communications networks. That regulatory authority is two-fold. The agency’s principal 

authority is to punish and prevent “unfair methods of competition,” which is a phrase 

intentionally borrowed from the Federal Trade Commission Act. The core idea is to 

punish and prevent practices that violate competition law principles (or that potentially 

would do so). Thus, DACA charges the agency to condemn “practices that present a 

threat of abuse of significant and non-transitory market power” consistent with marketoriented competition principles.6

 Beyond the general incorporation of competition law principles, DACA also states 

that it is an unfair method of competition to substantially impede the interconnection of 

public communications facilities and services in circumstances in which the denial of 

interconnection causes substantial harm to consumer welfare. This “interconnection 

authority” is not necessarily dependent on traditional antitrust doctrine. Given the result 

of the Trinko case7

 and the importance of interconnection in communications markets, 

the DACA provides separate authority for the FCC to order interconnection. But this 

 over the network of such operator.” And it also provides that “a network operator shall...offer just, 

reasonable, and non-discriminatory rates, terms, and conditions” for all its broadband services. 2

 Appropriate Framework for Broadband Access to the Internet over Wireline Facilities, FCC 05-

151, CC Docket No. 02-33, September 23, 2005. 

3

 S. 2113, Digital Age Communications Act, December 15, 2005. S. 2113 embodies the proposals 

released by The Progress and Freedom Foundation’s Digital Age Communications Act (“DACA”) 

Regulatory Framework, Federal-State Relations, and Universal Service Working Groups. 4 See Proposal of the Regulatory Framework Working Group, Digital Age Communications Act 

(Rel. 1.0, June 2005) (available at http://www.pff.org/daca). 5 See, e.g., Randolph J. May, Why Stovepipe Regulation No Longer Works: An Essay on the Need for 

a New Market-Oriented Communications Poilicy, 58 FED. Com. L. J. 103 (2006). 6

 DACA § 4(a). 

7 Verizon Communs., Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398 (2004). 
302

authority, under DACA, must still be linked to a theory of consumer welfare.8 It is 

important to recognize that net neutrality is linked to the welfare of independent content 

and applications providers, but not to a sound theory of consumer or aggregate welfare. 

Even the most nuanced versions of network neutrality limit a network’s ability to charge 

an application that imposes comparatively high costs on a network accordingly, leaving 

the network to recover at least some of those costs through subscription prices paid by 

consumers. Net neutrality thus risks being regressive: relatively low use consumers 

within a service tier may end up subsidizing those consumers whose use imposes 

relatively high costs on the network. 

 A last, general point about DACA: the regulatory framework is expressly tilted 

towards resolving competition problems that arise through adjudication and ex post

remedies. The agency is still given rulemaking authority, although it must meet a higher 

evidentiary burden before promulgating rules. But the statute contemplates, and we 

prefer, the agency to act not through the development of a thicket of rules, but through 

case-by-case considerations. 

Net Neutrality Claims Under the DACA Framework 

 Although there is some – indeed, it is fair to say, much – disagreement about how a 

network neutrality rule would operate in practice, such a rule is essentially an attempt to 

impose on the Internet the sort of nondiscrimination rule that traditional common carrier 

regulation has long imposed on telephone companies. The supposed point of network 

neutrality is to ensure access for applications and content providers, against the alleged 

incentives that network providers might have to deny or degrade access to certain 

unaffiliated content and services. 

 DACA proposes to handle these issues without the necessity of a specific rule, and 

without the need for a blanket rule that tries to anticipate every imaginable harm, and 

which would present opportunities for regulatory litigation. Antitrust law and economics 

has a well-developed body of learning about acts of vertical foreclosure – which is what 

denials of access would be.9

 Network neutrality may be a new label, but it is just a 

specific example of a more general competition issue with which there is over a century 

of enforcement experience and accumulated knowledge. Antitrust analysis takes into 

account the possibility of foreclosure, but also looks on a case-by-case basis for justified 

or efficient business arrangements. Competitive markets often involve legitimate price 

and service discrimination, and network owners often are pursuing legitimate 

technological or business objectives in particular cases. The “unfair competition” 

prohibition in DACA provides sufficient authority for the FCC to condemn and prevent 

anticompetitive violations of network neutrality. Indeed, DACA goes beyond antitrust 

law by giving the FCC authority to regulate vertical interconnection where necessary to 

protect consumers. For Congress to legislate such interconnection in advance of actual 

market experience to justify its necessity risks economic harm to consumers and 

producers—harm that has not been adequately considered in the case for network 

neutrality. An ex ante approach to actual harm, backed by the FCC’s proposed authority 

under DACA, provides a more targeted approach to real harms. To take only the most 

famous case to date of a Network Neutrality complaint, the Madison River foreclosure of 

a competing VoIP provider,10 antitrust analysis would handle this as a classic monopoly 

 

8

 DACA § 4(b). 

9

 For one excellent summary of the economics as applied to Internet access, see Joseph Farrell & 

Philip J. Weiser, Modularity, Vertical Integration, and Open Access Policies: Towards a 

Convergence of Antitrust and Regulation in the Internet Age, 17 Harv. J.L. & Tech. 85, 117-18 

(2003). 

10 In the Matter of Madison River Communications, LLC, 20 F.C.C. Rcd. 4295 (2005). 
303

maintenance scenario. At the same time, DACA’s case-by-case approach preserves the 

space companies need to develop new network facilities and services and to enter into 

new business arrangements. 

 In addition, DACA’s interconnection authority would also achieve a substantial 

amount of the same openness that network neutrality proponents claim to be seeking. In 

particular, net neutrality would allow applications and content providers to reach users of 

all interconnected carriers, so long as they are able to reach a negotiated agreement with 

some carrier. The necessity of one negotiated agreement is an important check on 

regulatory opportunism, however. It channels efforts at entry into the marketplace and 

away from litigation at the FCC. 

Conclusion 

 Given that DACA has the analytic power and the regulatory tools necessary to 

handle truly anticompetitive network neutrality issues, institutional design becomes all 

important. And the institutional design of the DACA framework and the way that it 

would handle net neutrality issues comes back to its fundamental premises. One of 

DACA’s fundamental premises is that, given developing competition, an extensive web 

of ex ante rules would have unintended consequences that would harm consumers and 

likely stifle markets. DACA is also premised on the view that infrastructure providers 

will act, in general, to promote applications and services that consumers want. 

Consumers do not purchase bandwidth for its own sake; they buy connections if those 

connections provide services and applications that consumers want.11

And so, if the evidence supports the requisite conditions – that the markets will be 

reasonably competitive, that the risks of truly anticompetitive actions are reasonably 

small, and that antitrust-based competition analysis is powerful enough to address it when 

it happens – then DACA is the right framework through which to address net neutrality. 

 

11 For this argument, see, e.g., James B. Speta, Handicapping the Race for the Last Mile?: A 

Critique of Open Access Rules for Broadband Platforms, 17 Yale. J. on Reg. 39 (2000).

 MR. UPTON. Thank you, Joe. 

 Mr. Makawa? 

 MR. MAKAWA. Thank you, Mr. Chairman. 

 I will get right to it. I am CEO and Co-Founder of the Africa 

Channel and I come before you with probably one of the most 

compelling media projects of our generation. The reason I say that, I am 

one of those guys that was working in the garage five years ago to try to 

get something like this off the ground. 

 The Africa Channel is everything the political media and consumer 

landscape in this country is ready to engage and to experience. I have 

got something to show you in 90 seconds. 

 [Video] 
304

 Chairman, the Africa Channel is here in the name of diversity. 

America stands for diversity. Our cable, telephone, and satellite 

companies say they understand the importance of diversity. We embrace 

that position, support that position, and pray that we are not getting 

hollow promises and lip service. The landscape has got to change. 

Africa is about diversity. All our roots, collectively here take us back 

there. It is the cradle of mankind. It is the most diverse place on earth. 

With that diversity comes a host of realities like the celebration of life, 

conflict, tragedy, vibrant cultures, adventure, wildlife, dance, music, 

history, food, tranquility, all part of the African experience unmatched or 

experienced anywhere else on the planet, something truly unique. 

 Double click on any one of these realities and you get some of the 

most compelling stories and pictures to share with the rest of the world. 

In this case, the United States of America. It is this experience that as an 

independent network, we have been able to capture the imagination of 

cable companies that have committed to carry us, in this case COX and 

COMCAST. We applaud them for that, but they must do more. And the 

incumbent telcos must do more. More markets, audiences that we are 

reaching, are elated and so are the cable operators. 

 So where are we with all the other carriers? We are either under 

discussion or negotiation depending on who you are dealing with. The 

process is either swift or moves at the speed of molasses which is why 

we embrace competition. Competition is good, it is healthy. It means 

choice and access for everyone. That is the American way. One or two 

gatekeepers is unacceptable. It is downright un-American. New 

technologies are opening up bandwidth, something that continues to 

challenge the cable companies. We just want a level playing field. We 

want the opportunity to compete on every platform. Whether that be 

cable, telco, satellite, broadband, wireless, and future platforms still to 

come. We have enough fresh quality content to fill all the digital pipes. 

Case in point, it does not matter whether the consumer is in Detroit, New 

York, or Chicago, every consumer should have the opportunity to access 

what we have to offer. If the telcos are going to be in Washington, D.C., 

why shouldn’t all consumers of Washington, D.C. have access to that 

platform? 

 We have almost 1800 hours yet to be seen in this country, a case 

where opportunity meets the right cause. Let us not forget the Africa 

Channel is not the problem, we are part of the solution. In demystifying 

Africa, people start to become aware of how important Africa is to 

America’s future, its resources, energy, and ultimately security. We are 

a catalyst in ramping up trade and commerce. Our channel brings forth 

access for those with a hunger to learn, those with a hunger for history, 

those with a hunger for business opportunities, those with a hunger to 
305

simply connect and understand, those who also want to be entertained. 

We are here doing something positive to that end. We have done 

everything the MSOs and the telcos have asked us. Bring forth a quality 

product they say. Be relevant to the community. Have a business model 

that makes sense and make sure you can market your product and add 

value to our business. To all of the above, we can, we are, and we will. 

 I thank you. 

 [The prepared statement of James Makawa follows:] 

PREPARED STATEMENT OF JAMES MAKAWA, CO-FOUNDER AND CHIEF EXECUTIVE OFFICER,

THE AFRICA CHANNEL

I COME BEFORE YOU WITH ONE OF THE MOST COMPELLING MEDIA 

COMPANIES OF OUR GENERATION. 

THE AFRICA CHANNEL IS EVERYTHING THE POLITICAL, MEDIA AND 

CONSUMER LANDSCAPE IN THIS COUNTRY IS READY TO ENGAGE AND 

EXPERIENCE. 

(ROLL VIDEO TAPE: Running time 1:20secs.) 

THE AFRICA CHANNEL IS HERE IN THE NAME OF DIVERSITY. 

AMERICA STANDS FOR DIVERSITY. BOTH CABLE, TELEPHONE AND 

SATELLITE COMPANIES SAY THEY UNDERSTAND THE IMPORTANCE OF 

DIVERSITY. 

WE EMBRACE THAT POSITION, SUPPORT THAT POSITION AND PRAY 

THEY WE ARE NOT GETTING HOLLOW PROMISES OR LIP SERVICE. 

AFRICA IS ABOUT DIVERSITY. ALL OUR ROOTS TAKE US BACK 

THERE.....IT IS THE MOST DIVERSE PLACE ON EARTH. 

WITH THAT DIVERSITY COMES CELEBRATION, CONFLICT, TRAGEDY 

VIBRANCY IN THE NAME OF CULTURE, ADVENTURE, WILDLIFE, DANCE, 

MUSIC, HISTORY, FOOD, TRANQUILITY.....ALL PART OF THE AFRICAN 

EXPERIENCE...UNMATCHED OR EXPERIENCED ANYWHERE ELSE ON THE 

PLANET. 

DOUBLE –CLICK ON ANY ONE OF THESE CATEGORIES AND YOU GET 

SOME OF THE MOST COMPELLING STORIES AND PICTURES TO SHARE WITH 

THE REST OF THE WORLD.....IN THIS CASE THE UNITED STATES OF 

AMERICA. 

IT IS THIS EXPERIENCE THAT AS AN INDEPENDENT NETWORK WE 

HAVE BEEN ABLE TO CAPTURE THE IMAGINATION OF CABLE COMPANIES 

THAT HAVE COMMITTED TO CARRY US. IN THIS CASE COX AND 

COMCAST. ALL THE OTHER PLAYERS ARE UNDER DISCUSSION OR 

NEGOTIATION. DEPENDING ON WHO YOU’RE DEALING WITH, THE PROCESS 

IS EITHER SWIFT OR MOVES AT THE SPEED OF MOLASSES. 

WHICH IS WHY WE EMBRACE COMPETITION......COMPETITION IS 

GOOD, ITS HEALTHY, IT MEANS CHOICE AND ACCESS. THAT IS THE 

AMERICAN WAY. ONE OR TWO GATEKEEPERS IS UNACCEPTABLE.....IT IS 

DOWNRIGHT UNAMERICAN. 

NEW TECHNOLOGIES ARE OPENING UP BANDWIDTH, SOMETHING 

THAT CONTINUES TO CHALLENGE THE CABLE COMPANIES. WE JUST 

WANT A LEVEL PLAYING FIELD. WE WANT THE OPPORTUNITY TO 
306

COMPETE ON EVERYPLATFORM.....WHETHER THAT BE CABLE, TELCO, 

SATELLITE OR BROADBAND. 

IT DOES NOT MATTER WHETHER THE CONSUMER IS IN DETROIT, NEW 

YORK, WASHINGTON DC , LOS ANGELES OR ST. LOUIS MISSOURI. EVERY 

CONSUMER SHOULD HAVE THE OPPORTUNITY TO ACCESS WHAT WE HAVE 

TO OFFER......IF THE TELCOS ARE GOING TO BE IN WASHINGTON DC WHY 

SHOULD’NT CONSUMERS IN ALL OF WASHINGTON DC HAVE ACCESS TO 

THEIR PLATFORM? 

WE HAVE ALMOST 1800 HOURS OF CONTENT YET TO BE SEEN IN THIS 

COUNTRY....A CASE WHERE OPPORTUNITY MEETS THE RIGHT CAUSE. 

LET US NOT FORGET, THE AFRICA CHANNEL IS NOT THE PROBLEM 

BUT PART OF THE SOLUTION WITH DIVERSITY. 

IN DEMISTYFYING AFRICA....PEOPLE START TO BECOME AWARE OF 

HOW IMPORTANT AFRICA IS TO AMERICAS FUTURE....ITS RESOURCES, 

ENERGY AND SECURITY. 

OUR CHANNEL BRINGS FORTH ACCESS FOR THOSE WITH A HUNGER 

TO LEARN, THOSE WITH A HUNGER FOR HISTORY, THOSE WITH A HUNGER 

FOR BUSINESS OPPORTUNITIES THOSE WITH A HUNGER TO SIMPLY 

CONNECT AND UNDERSTAND 

WE ARE HERE DOING SOMETHING POSITIVE TO THAT END. WE HAVE 

DONE EVERYTHING THE MSO’S AND TELCOS HAVE ASKED OF US. BRING 

FORTH A QUALITY PRODUCT, BE RELEVANT TO THE COMMUNITY AND 

HAVE A BUSINESS MODEL THAT MAKES SENSE AND MAKE SURE YOU CAN 

MARKET YOUR PRODUCT AND ADD VALUE TO OUR BUSINESS. 

TO ALL OF THE ABOVE, WE CAN....WE ARE... AND.... WE WILL. VISIT 

OUR WEBSITE AT WWW.THEAFRICACHANNEL.COM AND YOU SEE WHY WE 

ARE READY FOR BUSINESS AND WELCOME AN OPPORTUNITY TO 

PARTICIPATE ON A LEVEL PLAYING FIELD IN THIS DIGITAL AGE. 

THANK YOU. 

 MR. UPTON. Well thank you very much. 

 And I know Ms. Rodriguez you have got to take a conference call 

shortly so you are watching the clock so-- 

 MS. RODRIGUEZ-LOPEZ. Actually-- 

 MR. UPTON. You did it already? 

 MS. RODRIGUEZ-LOPEZ. No. 

 MR. UPTON. I appreciate your testimony. 

 A couple of question that I have, I do not know that I will take my 

whole five minutes. Ms. Johnson, as I listened to your testimony, as I 

listened to Ms. Rodriguez-Lopez’s testimony, to a degree they were very 

much on the same page. Now you are talking about diversity and choice, 

and actually, Mr. Makawa as well. The need for rapid deployment, it is 

equally important that we have competition availability. Obviously, we 

need to make sure that there are strong non-discrimination policies and I 

will bet that Mr. Rush is going to want to talk about that, so I will not 

steal his thunder. 

 Ms. Johnson, the one thing that I did not hear you say in your 

comments, as we look towards trying to see that competition, is your 

comment specifically on the draft that we released earlier this week. Do 
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you think that we, it is a good draft, that it accomplishes the very things 

that you sought in your testimony? 

 MS. JOHNSON. I think that it is an extraordinary start. I and my 

members are excited about the draft. We believe that it will open up 

markets, that it will allow for expeditious investment. Our members are 

negotiating as well with both cable and telecommunications 

infrastructure providers and believe that this will help initiate and 

jumpstart even more opportunities for us to provide that diverse content. 

As well as we look at the issue of and I know there has been quite a bit of 

discussion, while we do not consider ourselves experts with respect to 

the build-out requirements, we do look at market trends and do quite a bit 

of economic analysis. Our livelihood also depends upon those that take 

our service. And as we look at our minority communities, and I have 

heard lots of people talk about the high valued customer and in that they 

sort of assumed that that would not be minority communities, but as all 

of the surveys and all of the research that we have seen demonstrates that 

there is extraordinary buying power in those communities and to the 

extent that there are, that the companies are allowed to make the 

investment, that they too will be investing in our communities. So we 

are very encouraged by what we have seen to date. 

 MR. UPTON. Great, thank you. 

 Mr. Riddle, you may know that in an earlier hearing, I want to say it 

was last summer, we heard testimony from many of the same 

organizations that we heard today, that PEG channels were ably 

represented by one of my constituents, who is in the room actually sitting 

a little bit behind you, and met with him recently back in Kalamazoo. I 

advocated then at the hearing, as I do now, that I support PEG channels. 

I am interested in your thoughts as we, as part of our draft, you know, we 

added one percent on top of the five percent for gross to make sure that 

PEG channels are adequately funded. What is your sense, in terms of 

that in essence the mandate that we put into that as part of our bill with 

the addition on future years of adding additional channels as well? 

 MR. RIDDLE. I think overall it is the right move in the right 

direction. I think I am being instructed a little bit by a question I got by 

Senator Stevens when we testified. He only asked one question, which 

was how many channels do you want? And, you know, I thought about 

it and, you know, because he was proposing four. And I thought about it 

and I used to work in Manhattan and we had ten PEG channels more or 

less and it was entirely uncomfortable because of the large size of the 

population, and yet we have a lot of communities where two or three 

might be entirely adequate. So it occurred to us that we ought to set up a 

scale. Of course the numbers we are not discussing, but a scale both for 

funding and for channel capacity which would eliminate the need for 
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people to be able to have to go in and negotiate what is the specific 

community need that we would tie these to, you know, the size of the 

community or the size of the gross and that we would really make the 

commitment to try to stick around those kind of median, those sorts of 

numbers that you had discussed before either the one percent or in his 

case the four channels so that we are hovering around those numbers. 

 MR. UPTON. So as my time expires, you are pretty happy with that 

one percent that we added in the bill, and it was probably, if I could put 

words in your mouth, a surprise perhaps, pleasant surprise. 

 MR. RIDDLE. Because of what we had heard might have been 

happening, we were happy with that as it was. We would like to make 

some adjustments just to help the rural communities and the small towns 

so that if you are talking about one percent in a very small town, it might 

be hard to pay the rent with that, so you are talking about a small amount 

of money if you increase the percentage there but we think with the 

larger cities, they will kill me for this, but the one percent may get them 

close to being where a lot of their agreements are. 

 MR. UPTON. Thank you. 

 Mr. Markey? He is only moving because this mic does not work. 

 MR. MARKEY. Thank you, Mr. Chairman. 

 Ms. Johnson, welcome back. 

 MS. JOHNSON. Thank you. 

 MR. MARKEY. In a March 9 Technology Daily story you are quoted 

as saying that your group opposes a build-out requirement, but you said 

that your group’s opposition on that would change if there is evidence of 

segments of the minority community seeking service but being denied it 

within a reasonable period of time. What is a reasonable period of time 

in your opinion for the Bells to serve the minority community in a city 

that they are deploying this new technology? 

 MS. JOHNSON. Sir, it would be, and I am not punting, but I guess I 

do not know what a reasonable amount of time would be in terms of an 

absolute number. 

 MR. MARKEY. Yes. Would 20 years be too long? 

 MS. JOHNSON. Would 20 years be too long to build-out to-- 

 MR. MARKEY. To build-out to the minority community. 

 MS. JOHNSON. I would think that 20 years would be too long. 

 MR. MARKEY. Is ten years too long? 

 MS. JOHNSON. I would think that where we should focus is on where 

the market would take us. I think that-- 

 MR. MARKEY. I know, but what I am saying is if the market does 

not go there and they just decide not to go there, is ten years too long for 

them to still build-out in the minority community? The cable companies 
309

have built out the entirety of the cable community. Do you think ten 

years is too long for the Bells to have to build-out? 

 MS. JOHNSON. I do not think that there should be a number attached 

to the build-out requirement. 

 MR. MARKEY. But you say a reasonable period of time. What is 

reasonable? 

 MS. JOHNSON. I think that reasonable will be dictated by the 

circumstances. 

 MR. MARKEY. So you do not think we should actually be talking 

about any specific time frames then in the bill? 

 MS. JOHNSON. You know at first blush as I have watched the buildouts that have occurred in the areas where they have penetrated the 

market, they appear to have a very diverse build-out in terms of minority 

communities, in terms of full communities. So the process seems to be 

working. 

 MR. MARKEY. Okay. So should the local community have an 

ability to determine what is reasonable? 

 MS. JOHNSON. I think that the process has been outlined to date is a 

good start and that has a Federal process in place. 

 MR. MARKEY. A Federal process. Is your organization financially 

supported by the Bell companies in any way? 

 MS. JOHNSON. No we are not. 

 MR. MARKEY. At all? 

 MS. JOHNSON. Yes, and let me elaborate upon that, too. We are a 

relatively new organization. 

 MR. MARKEY. No, that is okay, I can go along with that answer. 

That is fine, thank you. And are you compensated in any way by the 

Bell companies? 

 MS. JOHNSON. I have a consulting firm that works for a variety of 

companies generally in the regulatory space we had-- 

 MR. MARKEY. But are the Bell companies amongst those companies 

that-- 

 MS. JOHNSON. Yes. 

 MR. MARKEY. --that pay you. Okay, thank you. 

 Let me ask you, Ms. Rodriguez-Lopez. You said that only one in 

eight Hispanic families have access. 

 MS. RODRIGUEZ-LOPEZ. Correct. 

 MR. MARKEY. So there has been plenty of opportunity here for the 

companies to reach the minority, the Hispanic community but they have 

not done so. Do you think that we should put in a time limit in terms of 

the company’s responsibilities to reach the Hispanic community? 
310

 MS. RODRIGUEZ-LOPEZ. I have a little bit of a different take on that 

and my specific answer would be, I am really looking for equity in the 

deployment from day one. 

 MR. MARKEY. Right, I am with you. 

 MS. RODRIGUEZ-LOPEZ. Which is a little different. People are 

saying, well, I believe that they are going to reach the diverse markets. I 

just believe that we need to look at the markets--Hispanic, African 

American, low-income, urban, minority communities--and from day one 

say we are going into those communities because we could never reach 

every community as they deploy. 

 MR. MARKEY. Do you think that should be in the bill that they have 

that requirement or just leave it to the company to decide? 

 MS. RODRIGUEZ-LOPEZ. No, I would leave that to the great minds 

that are on that side. 

 MR. MARKEY. Thank you so much. 

 MS. RODRIGUEZ-LOPEZ. If it is possible to build that in as a 

principle then I would hope, but that has been what I have been 

articulating. 

 MR. MARKEY. I thank you. Well great minds are not thinking alike 

at this point in time. We are hoping we can get them all to agree on that. 

And this is-- 

 MS. RODRIGUEZ-LOPEZ. They are not thinking alike here either. 

 MR. MARKEY. Yeah. 

 Mr. Makawa, you say in your testimony, you say if the telcos are 

going to be in Washington, D.C., why should not all consumers and all 

of Washington, D.C. have access to their platform. So do you support a 

requirement that would be built in the bill that the Bells would have to 

serve all parts of Washington, D.C.? 

 MR. MAKAWA. Absolutely. 

 MR. MARKEY. And would you support a provision here that 

required build-out to all parts of the community? 

 MR. MAKAWA. Absolutely. 

 MR. MARKEY. Excellent. 

 And Ms. Kenney, on the first panel I asked the head of the cable 

industry association, Mr. McSlarrow, whether he could pledge when 

cable operators get national franchises and have no local service 

obligations that incumbent cable operators have. One, would that they 

would not withdraw service from certain areas, two, would not fail to 

upgrade service and technology uniformly, three, would not raise rates 

on consumers in the part of town that did not have deployment by the 

Bell company in order to lower prices for those lucky enough to be on 

the good side of town, the wealthier part of town where the Bell 

company has chosen to serve. He would not pledge to any of those three 
311

items. So in the absence of a build-out requirement ensuring service area 

parity so all consumers get the benefits and all providers compete across 

the franchise area isn’t there great risk of harm to consumers there? 

 MS. KENNEY. Oh, absolutely Congressman Markey. I mean that is 

probably what is most concerning in this bill, the opportunity to look at 

video franchising and provide new competition to consumers is really 

exciting, but that competition has to come to everyone for people to truly 

benefit from it. And if it does not, then you have to at a minimum make 

sure that those consumers who are getting that competitive service are 

not harmed, and under this bill and based on Mr. McSlarrow’s 

comments, it certainly seems like they would be. 

 MR. MARKEY. Okay, I thank you. 

 I thank you, Mr. Chairman. 

 MR. UPTON. Mr. Barton. 

 CHAIRMAN BARTON. Thank you, Mr. Chairman and I want to thank 

this panel for being so patient and waiting half a day to testify to five 

congressmen. But you have got five quality congressman and women 

here. I am telling you, you have got four of us that have been negotiating 

the bill for over a year and a half and Mrs. Blackburn is the author of a 

similar bill down in Tennessee and has been very involved in the 

negotiations in following them and has introduced her own bill along 

with, I think Mr. Inslee, so while you do not have a full subcommittee 

here, the people that are still here are very interested in what you have 

got to say. 

 Mr. May, your group is kind of a think tank I think. Would that be 

an adequate characterization? 

 MR. MAY. We are, exactly. 

 CHAIRMAN BARTON. Mr. Markey’s premise in our negotiations was 

that these new entrants in the video services, almost by definition, were 

not going to try to serve the minority community for some reason and we 

went round and round with him on build-out requirements and uniform 

pricing requirements and things of this, in very honest, open dialogue. 

On the other hand, Mr. Rush who has a congressional district that 

probably is a majority minority district, I do not know that for a fact, but 

my guess is it probably is and has looked at the same set of 

circumstances and feels like, that at least the minority community that he 

represents is going to be well served by a national franchise with no 

build-out requirement or things like this. 

From just a think tank economic perspective, what is your version of 

the reality with the Verizons and the AT&Ts and these new entrants, do 

you think they are going to go in and just serve white effluent America or 

do you think they are going to look at wherever if there is a large demand 

for these type of services, regardless of ethnicity or whatever, they are 
312

going to serve where they can feel like they get the biggest take rate from 

the beginning? 

 MR. MAY. It is going to be exactly the latter of course, Mr. 

Chairman. I mean one thing I am sure of is that they have no interest in 

this competitive environment that we are now in. Basically I think while 

you were out of the room or--and in my written testimony, the video 

marketplace is already, you know, somewhat competitive or quite 

competitive. And this national franchise, which I think is a very positive 

step, will make it even more competitive than it already is at this time. 

And the basic fact is that none of these companies are going to make any 

judgment based on race, ethnicity, or anything like that. They are 

fighting for market share and they are going to go where the market is 

and they have incentives to do that. The danger is really in trying to 

regulate in that type of environment and dictate to them, you know, 

where to go first, exactly how quickly, and under what timetables you 

have to get there and assume that as smart as you are and even with the 

right Congress people in this room right now, that you are going to be 

able to know how to do that better than the marketplace, which will drive 

these companies in exactly the direction that you suggest. 

 CHAIRMAN BARTON. What is your view, Mr. May, of the number of 

new entrants that would tend to come into a market if you have an 

incumbent cable provider that is already there and you have a satellite 

provider that is already there. Do you, would the incumbent telephone 

company, who I tend to think might be the first new entrant, would a 

wireless entrant also tend to come in rather early or do you think the 

wireless guys are going to wait to see how the phone companies fair in 

this competition? 

 MR. MAY. I think in some of these markets that there will be room 

for the wireless guys to come in as well, and they might do that. You 

know, I think that it is just the, I think it is very positive to establish the 

national franchise and move away from the local franchises, which really 

were originally a way of getting what was thought to be a monopoly 

problem. Now it is obviously true that the cities need to manage their 

rights-of-way and you take care of that, well you can take care of it, but 

the franchises were really an economic regulatory device. We are in a 

situation now where with the competitors that exist and with the 

technology being as dynamic as it is to include wireless. I mentioned 

again in my earlier statement that, you know there are people, including 

my daughter for one, who watches television over her cell phone now. I 

mean there are people that are doing that. That is video competition. It 

is not perfectly substitutable. But the thing that I think you do not want 

to do is to dictate and try and define in advance what the parameters of 

that competition should be. 
313

 CHAIRMAN BARTON. Okay. I just have one final question Ms. 

Johnson. Tell me a little bit about what the Video Access Alliance is. 

 MS. JOHNSON. The Video Access Alliance is made up of 

independent networks, TV channels that are providing programming 

very similar to the Africa Channel of independent networks not affiliated 

with any of the providers. And our group serves as an advisory group, as 

well as, an advocacy group for their interests. We are extraordinarily 

interested in this process of video franchise reform because we see 

multiple platforms as a means for us to achieve greater carriage. 

 CHAIRMAN BARTON. So your group is primarily interested in 

providing support to get your channels carried by these as you call them 

platforms. 

 MS. JOHNSON. Absolutely. 

 CHAIRMAN BARTON. So it is not really a mouthpiece for the Bell 

companies or anything like that? 

 MS. JOHNSON. Absolutely not. We are interested in providing 

quality programming and we believe that if we are allowed to provide 

that quality programming that all consumers will benefit by lower rates, 

as well as having a diverse group of voices to be heard. 

 CHAIRMAN BARTON. Okay, thank you. 

 MS. JOHNSON. Thank you. 

 MR. UPTON. Mr. Rush? 

 MR. RUSH. Thank you, Mr. Chairman. 

 Ms. Johnson in, to be in addition to the Chairman’s comments, I 

want to just ask you because I have a little concern that we do not send 

wrong messages here. 

 MS. JOHNSON. Sure. 

 MR. RUSH. There are most members of this committee and members 

of this body who accept contributions from all kinds of people, including 

the telephone companies, the Bells and almost every other industry that 

comes before this committee including the industries that have a 

legitimate interest in the discussions. And most take the positions that 

although we might accept campaign contributions from them, there is no 

way that those contributions dictate or influence our positions here. So 

my question to you is have you, are you here at the behest of any of the 

providers, any of your contractors or your ones that you consult with or 

are you at the behest of an independent organization representing their 

interests? 

 MS. JOHNSON. Yes, sir, I am here at the request and honorably here 

at the request of my members. My members are independent networks 

made up a diverse collection of entrepreneurs who are providing diverse 

rich content that adds value for all consumers. 
314

 MR. RUSH. And so any implications that you might be a 

spokesperson or a mouthpiece for any stakeholder in these discussions 

other than your independent providers would be absolutely incorrect. Is 

that-- 

 MS. JOHNSON. Yes, sir, absolutely incorrect. 

 MR. RUSH. Okay. Let me just lead to the next question that I have. 

In your statement, now this is Ms. Kenney’s statement, I am sorry, we 

will move onto Ms. Kenney very quickly. Ms. Kenney, in your 

statement and you talked about the anti-redline prohibitions, that the 

burden of proof should be placed on the cable providers. Do you think 

that this will strengthen the anti-redlining provisions of this bill if the--

and what do you mean by that? 

 MS. KENNEY. Well, first of all, we do not believe that anti-redlining 

provisions on their own are sufficient to actually prevent redlining. You 

know, cable has the act, currently has an anti-redlining provision in it as 

well. We have not seen redlining in cable to date because communities 

have had the ability to require build-out albeit over too slow of a time 

period, but redlining provisions in the absence of build-out we do not 

believe are effective. 

Secondly, we would rather not see that redlining occur in the first 

place. We would rather not have to litigate for consumers to get access 

to competitive services. So flipping the presumption of proof, requiring 

a provider to demonstrate that they are not providing service in an area 

for reasons other than the income of that particular area would certainly 

make it easier for a community to demonstrate that redlining was or was 

not occurring. Otherwise, the community has to prove that income is the 

reason. There are lots of excuses we believe that providers can and have 

made in the past for why they have not provided a service in a particular 

area. 

 MR. RUSH. Mr. Makawa, would you give us some brief synopsis of 

your experiences in terms of how difficult it was for you to get the Africa 

Channel, get that on any kind of channel at all and service to provide it. 

 MR. MAKAWA. It is probably the most arduous journey I have ever 

been on to be perfectly honest and perfectly blunt. But nonetheless, 

independent channels trying to get on today, there is probably a handful 

of us and part of the reason I am for this specific direction that this body 

is taking is with all due respect to the cable companies when you walk 

into them, some of them have been very friendly but the first thing out of 

somebody’s mouth when they say hello to you is we do not have any 

bandwidth. That is the first thing that is said. Now with all the 

technological geniuses that exist in this country, how is it that the toilet 

pipes are going to clog up? I do not understand it. So all of these folks 

have said, you know, one thing Congressman that people are not 
315

unpacking here, it is not just the cable companies, it is not just the telcos, 

it has got to do with the price of content. The price of content has gone 

through the roof. And those are issues that have to be addressed. Now, I 

am perfectly comfortable coming before this body and saying to you that 

we did not take $100 million to launch this network, we launched this 

network for less than $8 million bucks. Those pictures you saw there, 

we did not spend $100 million on that. And when we walked into every 

cable company, we walk in and they say Africa, they go oh, it is going to 

be grainy, there is no value, and then all of a sudden the attitude changes. 

But we have had to walk in with a business proposal, number one, with 

content with high quality at a low price, and we have had to deliver 

things that other people have not even had to think about. The playing 

field is not level, it has got to change. 

 MR. RUSH. Okay, yeah. 

 Ms. Johnson, I have sat here all day and I have heard about these 

high performing clientele of this group that is the high preference group 

and the low preference group and I just wondered can you, I mean I kind 

of instinctively, you know, react to that because I know that in every 

instance in my community, where I live and where I work and what I 

represent, every time there is a new technology, the people I represent to 

my amazement become the greatest, they have the greatest market share 

of that technology. I remember when the cell technology for wireless 

phones first came. You know, all of a sudden they discovered that and 

the so-called low performing communities that there was a significant 

market, a great market, and I think that competitively speaking that that 

community has more cell telephones than any other community now. 

The same thing with cable, you know, the poor people, the African 

Americans, minority communities, they have the greatest market share in 

terms of cable television. Do you see any difference between what this 

bill offers and what has been the past experience and how do you react 

again to this distinction that folks have about minorities being low 

preference or low performing or have some kind of a low interest. How 

do you react to that kind of-- 

 MS. JOHNSON. I react in a similar manner to which you have reacted 

and most of that reaction is based on real life experience, Sunday 

afternoon at my mamma’s house understanding that the services that they 

use and that they value. And I understand that they are the high value 

customer and I understand the power that that brings. One of my 

concerns with respect to onerous build-out requirements is that, my first 

concern is what will that do to, or will that stifle the investment being 

made because, see, these people do not have a choice as to whether or 

not to invest that money. And then secondarily, let us assume that it 

doesn’t stop at investment. What would that do to the cost of service? I 
316

submit to you that that would increase the cost of service to even these 

high-value customers. Specifically to your question, many studies have 

shown, and if you will allow me, I will give a few stats, particularly with 

respect to the minority communities. Minorities have higher penetration 

rates for digital TV, premium channels, and are the best pay per view 

customers. Minorities are the top subscribers to premium channels 

including HBO and Showtime. Seventy-four percent of black urban 

cable users, 63 percent of Asians are users, and 61 percent Hispanic 

subscribe to more than one extra fee service, compared to 43 percent 

white. Blacks spend 59 percent on cable satellite, 20 percent more than 

whites. Blacks spend $27 on premium channels, 23 percent more than 

whites. I submit to you that if you are looking at the high-value 

customers that are looking for these services, that will receive these 

services, this is the community that will have the biggest benefit. And if 

you overlay that with new content--the gentleman with the Africa 

Channel talked about his offering--if you overlay the content competition 

which will help decrease the price of content and couple that with where 

the market will take you, I submit to you that all consumers will benefit 

but particularly African Americans. 

 MR. RUSH. In summation, you know, there is a real simple reason 

for it. The cable, these channels, they are the ones that offer programs 

that have, in their content, they have African Americans so they have 

more African American family shows, more African American music, 

and that is why your channel, the Africa Channel is going to really be 

quite a success if we can get it more broadly seen because of the fact that 

there is just a demand for more programs that feature African Americans. 

That is the reason why cable is such a success in African American 

communities, exactly the reason. 

 MR. UPTON. Thank you. 

 Mrs. Blackburn. 

 MRS. BLACKBURN. I know you all are all so glad to see me come 

around. That means I am the last one. 

 Ms. Johnson, I appreciate so much what you have had to say. I 

represent a little bit of Memphis, a little bit of Nashville in my district 

and have worked for many years with some of our content producers 

down there and also our content providers and do recognize the 

distinction and appreciate the distinction between the two of those. I 

actually have spent some time working on this issue as a small business 

issue. Mr. Makawa, as you were saying, it is entrepreneurs that have a 

dream. They want to get in there, they want to produce their product, 

they want to find an outlet for that product, they want access to the 

marketplace, they want access to consumers so that they can build a 

constituency for their programming. And it takes a lot of hard work. It 
317

takes a lot of time. And when I do a town hall meeting in my district 

with all of these songwriters and producers and content great thinkers, as 

I like to say, or great creative community, one of the things I hear from 

them regularly is when in the world are you all going to put the pencil to 

the paper and free up this marketplace and start deregulating this thing 

and free up some of this bandwidth and open up these pipes and let us 

have more access to the marketplace. That is what we hear from them 

regularly. 

 So my question is I want to be sure I understand you all on this. Ms. 

Johnson, you all do not favor a build-out requirement. Is that correct? 

 MS. JOHNSON. That is correct. 

 MRS. BLACKBURN. Okay. Mr. Makawa, I was confused, I thought, I 

could not, I did not realize what you said. Do you favor build-out or do 

you not favor build-out requirements? 

 MR. MAKAWA. Yes, Ms. Blackburn, I do favor it. Here is the thing. 

 MRS. BLACKBURN. Okay. 

 MR. MAKAWA. This is not-- 

 MRS. BLACKBURN. No, I just need a yes or no from you, we are 

quick on time. 

 Okay, Ms. Kenney, you favor build-out? 

 MS. KENNEY. Yes. 

 MRS. BLACKBURN. Okay, all right. That is--and Mr. Riddle? 

 MR. RIDDLE. I think that is one remedy. I do favor correcting 

market-- 

 MRS. BLACKBURN. You favor build-out, okay. You see that-- 

 MR. RIDDLE. Well perhaps. 

 MRS. BLACKBURN. Perhaps? 

 MR. RIDDLE. Yes. 

 MRS. BLACKBURN. Mr. May? 

 MR. MAY. No. 

 MRS. BLACKBURN. You do not favor build-out, okay. See, when 

you talk about freeing up the marketplace and you talk about opening up 

and having access, I get a little bit confused when you say you favor 

build-out. Now Mr. Makawa go ahead and finish what you were going 

to say very fast, 30 seconds. 

 MR. MAKAWA. Thirty seconds. If these people are not going to 

build-out, but we know that we have got community to spend in excess 

of $700 billion a year and they are going to go into Brentwood instead of 

going into Compton, then we are going to have issues. 

 MRS. BLACKBURN. Okay, all righty. You know, I do not see how 

you can be on both sides of that argument but if it is your opinion, it is 

your opinion. 
318

 Very quickly some of you have mentioned net neutrality. I will tell 

you what I want to do with that and just have you respond to me in 

writing. When we look at Section 201 and then you go in and we have a 

study in here Point C is a study. I would like to hear from each of you 

how you would define that neutrality and how you would address that 

issue. If you conducted this study on behalf of your members, on behalf 

of the groups that you work with, then what would you want us to know? 

How would you write that provision? How would you have the FCC 

address that? 

 And Mr. May, I am going to come to you with my last question. I 

am down to 58 seconds. The DACA project, I have read some on that. I 

appreciate the work that you all have done on this project and I agree 

completely with two of the premises that you mentioned, that the markets 

are increasingly competitive, and with the technological developments 

that service based regulatory categories that we have got to look at one 

kind of regulation for Telcom and other for information and another for 

cable. And I would like for you just to talk a little bit for, we have got 19 

seconds so it might not even be possible about how you would approach 

that division in regulation on services, not on technology, but on 

services. 

 MR. MAY. Well, thank you, Congresswoman. It is really important 

to replace the service definitions including cable operator, that kept 

coming up this morning and all the others which are based on what I 

have called the techno functional constructs. They are all linked to 

technical characteristics and functional capabilities. Just replace all of 

those with a provision or the heart of the new act should be typing 

regulatory activity to a competition standard so that the regulator is 

judging whether to intervene based upon where there is a potential for 

anti-competitive abuse. We have suggested as you know in our DACA 

project, a standard that does that. It is an anti-trust like standard. It is 

not totally coincident with the anti-trust laws. But in that way when 

there is an allegation of abuse, say a net neutrality-like allegation, then 

the FCC would look at the particular circumstances of the allegation, it 

would look at the market power, the market structure, the potential entry, 

the technological dynamism, and it would make a decision on that case 

and it could impose a remedy that would be very particular. It is very 

important in this environment we are in now, where the technology is 

changing so quickly, the marketplace is changing, to establish a regime 

in which the regulation takes place-- 

 MRS. BLACKBURN. Mr. May if I can cut you off right there. Let me 

just--but what you are--also this would be a more flexible structure to 

work from and-- 

 MR. MAY. It would be absolutely more flexible and it would not-- 
319

 MRS. BLACKBURN. --would allow for new and emerging 

technologies and delivery systems. 

 MR. MAY. Exactly. You would not anticipate in advance all of the 

potential harms which may then well cut off the new technologies, the 

new services because you have anticipated too broadly without 

understanding what developments may take place. So it is more flexible. 

It is more targeted, but it also allows you to remedy true marketplace 

abuses. 

 MRS. BLACKBURN. Abuse problems. Thank you, sir, I appreciate 

that. 

 Mr. Chairman, thank you. 

 MR. UPTON. Mr. Markey wants me to ask, as we conclude this 

hearing, if you had one thing you wanted us to remember from your 

testimony today that we should think about as we mark-up next week, if 

you could try to sum it up in 30 seconds each. We will start at this end 

since you were gone from the room, but Mr. Makawa we will go right 

down the line and then we will finish up the hearing. Mr. Makawa, one 

thing for us to remember next week. 

 MR. MAKAWA. Do not try to regulate the Internet. It is the biggest 

aggregator and that is the one leveling playing field that is going to 

gravitate from where we are currently. There are developments that are 

happening with the telcos and the cable companies, that needs to play 

itself out but until some of these companies can behave like good little 

boys and good little girls, somebody needs to be the watch dog. 

 MR. UPTON. Mr. May? 

 MR. MAY. In 1980, I was Associate General Counsel at the Federal 

Communications Commission and I remember at that time when 

Congress was beginning to look at telecommunications reform of the 

existing 1934 Act, sitting in Mr. Markey’s office for one long evening 

talking about how we need a new act, how the world was beginning to 

change at that time. It was a wonderful conversation. So the thing that I 

would want all of you to remember is that fortunately due to 

technological change we are in a very much different environment than 

we were when Mr. Markey and I had that conversation back in 1980 here 

in 2005. Thank you very much. 

 MR. UPTON. Ms. Kenney? 

 MS. KENNEY. I would urge the committee to consider that as you 

look at a national franchising model, you are giving a lot of local control 

up and a lot of consumer protection up in the form of customer service 

standards and local enforcement and build-out requirements. And so as 

you move to a national franchise, which we do not object to, you have 

got to figure out how to maintain those protections at the national level to 

ensure that if competition comes, it comes to everyone. 
320

 MR. UPTON. Mr. Riddle? 

 MR. RIDDLE. Local design and control, standardize PEG funding, 

standardized PEG channel capacity, Federal minimum supersedes State 

law and protect this agreement against the migration of services to an IP 

or other technically different system. 

 MR. UPTON. Ms. Johnson? 

 MS. JOHNSON. That consumers will benefit from multiple platforms 

by way of diverse content, lower prices, more choice, and to couple with 

that an understanding and respect for the fact that minorities are high 

value customers. 

 MR. UPTON. Thank you. Ms. Rodriguez-Lopez? 

 MS. RODRIGUEZ-LOPEZ. Thank you so much again, Mr. Chairman. 

You are a very patient man. I appreciate you giving me the time to go 

out. 

 I am going to draw an analogy. When I was asked how I felt about 

abortion rights and the constitutional right, I said there are protections 

that exist in the constitution, the right to bear arms because reasonable 

people call on certain things when they require them. This bill must 

contain the anti-discrimination provisions. It must contain those 

protections. If we believed that every one would always do the right 

thing at the right time, we would not have laws in place to govern. And 

so in an ideal world, everyone will be deployed equally and benefit from 

competition, but we also know that we have a history of not always 

doing the right thing. So thank you so much for this opportunity. 

 MR. UPTON. Well again, I want to thank all of you for being patient 

with us since we started seven hours ago and appreciate your testimony. 

I told my friend, Mr. Markey, that we intend to have opening statements 

next week on Tuesday at 5:00. We will do opening statements as long as 

it takes. I know it is 6:30, so there is a doorstop there and we will 

resume with the markup then on Wednesday, at 10:00 a.m., and 

hopefully be finished on Wednesday, but if we have to carry over to 

Thursday we will. So with that, again I appreciate everyone’s testimony 

and we are now adjourned. 

 [Whereupon, at 4:55 p.m., the subcommittee was adjourned.] 

SUBMISSION FOR THE RECORD BY BOB FREUDENTHA, PRESIDENT, AMERICAN PUBLIC 

WORKS ASSOCIATION

Mr. Chairman and members of the committee, thank you for the opportunity to 

submit this testimony for the hearing titled Communications Promotion and 

Enhancement. My name is Bob Freudenthal, President of the American Public Works 

Association (APWA), and Deputy General Manager of the Hendersonville Utility District 

in Hendersonville, TN. I submit this statement today on behalf of the 27,000 public 

works officials who are members of APWA, including our nearly 2,000 public agency 
321

members. We appreciate the opportunity to submit a statement with regard to this new 

legislation. 

APWA is an organization dedicated to providing public works infrastructure and 

services to millions of people in rural and urban communities, both small and large. 

Working in the public interest, APWA members design, build, operate and maintain 

transportation and rights-of-way; natural gas, electricity and steam distribution facilities; 

water supply, sewage, and refuse disposal systems; public buildings and other structures 

and facilities essential to our nation’s economy and way of life. 

I appreciate the opportunity to address the important role local governments and 

public works departments play in managing local public rights-of-way and how local 

franchising supports that role. APWA has been and will continue to be an advocate for 

the development of policies which ensure the safe and efficient management of public 

rights-of-way. We urge your support for two important principles relating to local 

governments and rights-of-way management when advancing legislation to rewrite the 

nation’s communications laws and policies. 

The first is that local government officials have a fiduciary responsibility on behalf 

of the citizens we serve to manage public property, including the public rights-of-way, a 

public asset with an estimated value of more than $7 trillion. Respect for local control 

and local governments’ long-standing authority to manage rights-of-way is necessary to 

ensure their safe and efficient operation. It is vital that local governments and other 

public agencies retain their authority to fulfill their statutory obligations and duties 

related to managing public rights-of-way. 

This authority includes the ability to establish permit, location, inspection and 

pavement restoration controls and rights-of-way restoration; to encourage cooperation 

among and develop scheduling and coordination mechanisms for all rights-of-way users; 

to obtain and maintain accurate information for locating existing and new facilities in the 

public rights-of-way; to hold responsible parties accountable for the restoration of the 

public rights-of-way; and to charge and receive compensation for the use of the public 

rights-of-way. 

The second principle is that local governments support competition in 

communications services and technology. We embrace innovations that make possible 

competition in video, telephone and broadband services. Moreover, we support 

deployment of these technologies as rapidly as possible. However, as new 

communications technologies and services enter the marketplace, local governments must 

be kept whole and our authority to manage public rights-of-way preserved. 

We share the concerns of our local government partners regarding the impact of the 

legislation on managing rights-of-way. Without a franchise agreement, the only effective 

mechanisms that local government has to manage its public rights-of-way, ensure 

competition for everyone and collect franchise fees are eliminated. Another concern is 

that, although the legislation preserves local authority over the management of rights-ofway, it does not provide sufficient enforcement authority to assure compliance. In 

addition, while the legislation is silent on the appropriate forum for resolving local rightsof-way disputes, by default that task would move to the Federal Communications 

Commission. 

Preserving full local franchising authority is critically important to rights-of-way 

management. Franchises do not just provide permission to offer video services; they are 

the core tool local governments use to manage streets and sidewalks, provide for public 

safety and emergency response capability, enhance competition and collect compensation 

for private use of public land. Eliminating or limiting local franchises will cause chaos, 

undermine safety and deprive local government of the power to perform its basic 

functions. 

Public agencies have the responsibility to keep public rights-of-way in a state of 

good repair and free of unnecessary encumbrances. The public expects local 
322

governments to ensure that the deployment of new services does not result in potholes, 

traffic backups and congestion, damaged sidewalks, ruptured water or gas lines, disrupted 

electrical power or diminished community aesthetics, particularly with respect to 

managing above ground versus below ground installations. 

The right to obtain and use land for public benefit is a long-standing tradition and is 

provided for by law. For more than a century, the concept of accommodating both public 

and privately owned utilities in the public rights-of-way has been recognized to be in the 

public interest. Public rights-of-way are normally acquired and developed by public 

agencies for transportation routes, water supply, waste disposal, power distribution, 

means of communications and similar services. Such services are provided for the 

common good of the public, and are generally authorized and directed by public 

agencies, which have an obligation to regulate and manage the use of public rights-ofway in the interest of the convenience, health, safety and welfare of the public. 

It is our duty and responsibility as public agencies and that of elected officials to be 

good stewards of the public rights-of-way and to adopt reasonable ordinances that allow 

public officials to: manage the public rights-of-way on behalf of their citizens to ensure 

public health, safety and convenience; manage the surface of the public rights-of-way to 

ensure structural integrity, availability, safety and a smooth street surface for the traveling 

public; manage the space below the surface of the public rights-of-way to ensure safe and 

economical access for all current and future users of the rights-of-way; and manage the 

space above the surface of the public rights-of-way, including the placement of overhead 

utility facilities, to ensure efficient use of space and to minimize safety hazards and 

impact on community aesthetics. 

As the pace of implementing new communications technologies accelerates, the 

number of damages incurred by owners of both private and public utilities is sure to 

grow, if local governments are not allowed to manage their rights-of-way. Managing 

public rights-of-way is complex, and decisions regarding management and control of 

local public rights-of-way belong to local governments. Each utility provider installs a 

separate system in its own unique location within the public rights-of-way. The systems 

are often installed on existing pole lines, in narrow trenches or in conduits that are bored 

into place. There is a correlation between the number of excavations and corresponding 

damage, and repeatedly cutting and repairing streets can permanently damage street 

pavement structures. Moreover, in the absence of compensation from utilities, taxpayers 

bear the burden of significantly increased street maintenance costs. 

APWA has a Utility and Public Rights-of Way Technical Committee whose 

members provide education and information to raise awareness and promote the best use 

of the public rights-of-way for the public good. Our committee provides a forum where 

stakeholders can come together to discuss common issues and best management practices 

that will promote the effective integration of all users and stakeholders within the public 

rights-of-way. 

In conclusion, APWA supports competition and the rapid deployment of 

communications technologies and services in the communities we serve. We support a 

balanced approach that encourages innovation and preserves local governments’ longstanding authority to manage public rights-of-way and to receive fair and reasonable 

compensation for their use. Franchising authority is a core tool local governments use to 

manage rights-of-way in the public interest in order to protect public safety and public 

infrastructure. 

Mr. Chairman, we are especially grateful to you and Committee members for the 

opportunity to submit this statement. APWA and our members stand ready to assist you 

and the Committee in any way we can. 

Contact: Jim Fahey 

Director of Government Affairs 
323

American Public Works Association 

202-218-6730 

jfahey@apwa.net 

RESPONSE FOR THE RECORD BY WALTER MCCORMICK, PRESIDENT AND CHIEF EXECUTIVE 

OFFICER, UNITED STATES TELECOM ASSOCIATION

The Honorable Barbara Cubin 

Question 1

The scope of Section 717’s “rights, duties and obligations” clause is restricted to 

those rights, duties and obligations set out in Sections 251 and 252 of the 

Telecommunications Act of 1996. Those sections deal exclusively with interconnection 

and do not apply to universal service contribution or reimbursement, which are dealt with 

in Sections 214 and 254. If VoIP providers are to be accorded the same rights, duties and 

obligations under Sections 251 and 252 as telecommunications service providers, they 

should also have the same social obligations, including being required to contribute to the 

universal service fund. 

The Honorable Anna Eshoo 

Question 1 

Yes, up to now the Internet has experienced significant growth and innovation 

precisely because the government has maintained a virtual hand-offs approach. 

However, this so called “Net Neutrality” regulation, and I take strong exception to the 

name because I believe it is extremely misleading, would dramatically alter the way the 

Internet works today— replacing the freedom to innovate and American entrepreneurial 

spirit with heavy-handed government interference. 

Today, consumers have a variety of choices in obtaining high speed internet access. 

They can choose high speed internet access from cable, from DSL, from wireless, from 

satellite, and in some areas from new technologies such as wi-fi and wi-max systems or 

Broadband Over Power Line. According to the FCC, as of June 2005, consumers living 

in 75% of zip codes have three or more high speed lines in service to choose from, 60% 

of zip codes have four or more high-speed lines to choose from, and 17.5% of zip codes 

have ten or more high-speed lines to choose from. In California, on April 27th, the 

California Public Utilities Commission voted to allow the state’s electric utilities to 

deploy broadband over power line technology, and in doing so, cited a California PUC 

report that in the state’s most densely populated areas -- metropolitan San Francisco, Los 

Angeles and San Diego – consumers have up to 23 choices for high-speed internet 

access. Indeed, among the many choices consumers have for high-speed internet access 

is that offered by Google and Earthlink which provides consumers with a fast lane of 

1Mbps for $20 per month, or a slower lane of 300Kbps that is offered without charge in 

exchange for viewing local advertising through Google. (This latter offering, of course, 

comes at some cost in time spent wading through ads and in consumer privacy.) 

In San Francisco, and across the nation, the number of broadband providers is 

exploding due to the fact that anyone who is willing to invest has the ability to enter the 

business free of archaic, stifling, and discriminatory economic regulation. Indeed, the 

number of high speed providers in the United States nearly tripled, from 485 to 1,270, 

between June 2004 and June 2005. This is extraordinary growth, given the fact that in 
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June 2001 there were just 160 such providers around the country. One of the biggest 

investors in high-speed internet access is Google, which has found it easy to enter the 

market both through investments in both wireless and BPL technologies. 

As a result of this broad choice and intense competition, prices for internet access 

have fallen and penetration has increased. On May 28th, the Associated Press reported 

that “Middle and working-class Americans signed up for high-speed internet access in 

record numbers in the past year, apparently lured by a price war among phone 

companies.” 

Clearly, consumers are benefiting from the free market environment. According to 

the Associated Press, citing a survey by the Pew Internet and American Life Project: 

• Broadband adoption increased 59 percent from March last year to March 2006 

among U.S. households with incomes between $30,000 and $50,000. 

• It increased 40 percent in households making less than $30,000 per year 

• It increased 121 percent among blacks. 

• Overall, 42 percent of adult Americans, or 84 million people, have broadband, 

compared to 30 percent a year ago. 

Therefore, it is clear that the marketplace is working. There is no problem that 

requires Congressional action. Telephone and cable companies have indicated that they 

will not block, impair or degrade access to any website, and they are not doing so. If they 

did, the Chairman of the FCC has said that he has the authority to stop them, and that he 

will use it. And, with the choices available, consumers would clearly go elsewhere. 

But, all this investment, all this innovation, could come to an end if the government 

begins adding new regulation. Wall Street has warned that enacting “Net Neutrality” 

regulations in the absence of a definable problem would be premature and could trigger 

substantial, negative unintended consequences. As Craig E. Moffitt, a VP and senior 

analyst at Sanford C. Bernstein and Co., told the Senate Commerce Committee in March: 

“Mandated “Net Neutrality” would further sour Wall Street’s taste for 

broadband infrastructure investments, making it increasingly difficult to sustain 

the necessary capital investments. It would also likely mean that consumers 

alone would be required to foot the bill for whatever future network 

investments that do get made. That would result in much higher end-user prices, 

much steeper subsidies of heavy users by occasional ones, and, in all likelihood, 

a much sharper ‘digital divide.’ ... The United States as a whole would, in all 

likelihood, fall further behind other countries in broadband availability and 

reliability.” 

Many of the leading telecom manufacturers, such as 3M, ADC and Cisco, have all 

expressed similar reservations about prematurely enacting “Net Neutrality” regulations. 

 The Internet is the success it is today because the government has maintained a 

vigilant, hands-off approach that has allowed companies to innovate in direct response to 

the evolving wants and needs of their customers. The marketplace today is competitive, 

and as the barriers to entry are low, the market is also contestable. Regulatory or 

legislative solutions wholly without justification in marketplace activities would stifle, 

not enhance the Internet. Laws can be inflexible and difficult to fine-tune—particularly 

when applied to technologies that are rapidly evolving. 

Question 2

“Tiered” internet is your term, not ours. It is inaccurate and misleading. There are, 

today, voice networks, data networks, and various managed networks and virtual private 

networks that provide increased level of security and reliability for financial, 

governmental, and healthcare purposes that all operate on internet protocol and involve 

various levels of prioritization. We are not proposing to change the internet experience. 
325

We have indicated that we will not block, impair or degrade access to any website. The 

internet experience that the consumer has today, and that those who operate websites 

have today, they will have tomorrow. The consumer will be in control of making his or 

her own choices with regard to the amount of speed and bandwidth purchased. This is as 

it should be. Consumers should not be forced to purchase a higher level of speed simply 

because a Google, or an Amazon, or some other company wants to profit off of offering a 

new service that would benefit from a higher speed. 

There is nothing that telephone or cable companies have proposed that would inhibit 

the next Jeff Bezos to build an on-line bookstore, or the next Google to come along. 

Indeed, to the contrary, locking new “Net Neutrality” rules in place would actually hurt 

new, innovative companies from competing against established Internet companies as 

such rules would make it more difficult for start-up companies to differentiate themselves 

in the market. 

 Currently, Google is spending $800 million on servers and other electronics to be 

deployed all over the country to speed access to its websites. How many start ups have 

$800 million on hand to do the same thing? The fact is that one way a start-up can 

compete with Google, and one way consumers would benefit from more competition for 

Google-type services, is if the start-up could purchase private network services to 

compete on a more equal footing. 

Allowing commercial arrangements with companies that seek to purchase high 

levels of security and reliability from network providers may be one way for new 

companies to distinguish themselves in the market and compete with incumbents like 

Google and Amazon. 

Our member companies simply want to deliver an additional choice—both to 

consumers and to business. 

RESPONSE FOR THE RECORD BY PAUL MISENER, VICE PRESIDENT FOR GLOBAL PUBLIC 

POLICY, AMAZON.COM

VIA EMAIL AND US MAIL 

June 7, 2006 

The Honorable Anna Eshoo 

Member 

Subcommittee on Telecommunications and the Internet 

Committee on Energy and Commerce 

U.S. House of Representatives 

Washington, DC 20515 

Dear Representative Eshoo: 

 Thank you very much for your support for meaningful, enforceable “net neutrality” 

legislation. Thank you also for your two additional questions after the Subcommittee’s 

recent hearing on the subject. Please accept my apologies for being so tardy with my 

response; I was traveling in Europe. My answers follow each of your questions below: 

Q1. As indicated in my opening statement, I have great concerns about where this 

legislation could lead the Internet, and your testimony certainly does nothing to allay 

those fears. In Silicon Valley, we take it as an article of faith that the reason the Internet 

has flourished and become the most important instrument of change in our lifetime is its 
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open architecture. Anyone in the world can post virtually anything they wish on the Net, 

and it can be viewed by anyone else in the world, without barriers. Most broadband 

providers say the concerns you and I share regarding the preservation of "Net 

Neutrality" are speculative and farfetched. So, is this a real problem? Is it necessary to 

protect "Net Neutrality"? 

 

A1. Yes, the problem is real, and net neutrality needs to be protected by law, as it was 

before last summer. It reasonably is an article of faith that the openness of the Internet 

was the reason it flourished with the obvious benefits to consumers and innovation. But, 

in ways never before possible, consumer broadband Internet service providers (the phone 

and cable companies) recently have acquired the technical means and regulatory 

permissions to restrict that openness, and several of their top executives have announced 

their plans to do so. And, because there are, and will be for the foreseeable future, only 

one or two such network operators widely available to consumers, they have the ability to 

constrict content choice without losing business. 

Amazon seeks to reinstate the historic non-discrimination rules, dropped by the FCC last 

summer, in order to ensure that our customers retain unimpaired access to our current and 

future content and services without us having to seek permission from network operators, 

both here and abroad. 

Some of these network operators say that government should let the competitive free 

market work. Yet, as I noted before, the market is far from competitive: in the U.S., 

according to the FCC, some 99.5% of residential broadband subscribers get their 

advanced (broadband) Internet access from a phone company or a cable company and, of 

course, such a duopoly is not meaningfully competitive. (The situation is at least as bad 

elsewhere around the world, where state-owned operators often have an absolute 

monopoly.) The network operators also say net neutrality would regulate the Internet for 

the first time. Not true. As I indicated above, consumer Internet access has been 

regulated. Until last summer, federal non-discrimination rules governed most, and 

arguably all, American consumers’ Internet access. Similar rules are in place, but under 

attack, in other countries, including Germany. 

So we are on the side of maintaining the open paradigm of the Internet. It has been good 

for our customers and for innovative companies, including many in Silicon Valley. 

Years from now, we hope to see vibrant competition among broadband network 

operators. But until then, we will continue to oppose efforts by the network operators to 

leverage their position over access to artificially constrain consumer choice and content 

provider innovation. 

Q2. There's been a lot of discussion about "tiers" on the Internet, and I'd like you to help 

clear up what we're really talking about. The telephone companies maintain that they 

need to have the flexibility to manage the network to ensure performance and security. 

Internet companies that I have spoken with acknowledge that these are important 

concerns, and support some sort of controls that would manage the traffic for the benefit 

of all. Please distinguish for us what network management is necessary to make the 

Internet function well for all of us and what network management would likely have only 

an anti-competitive purpose? 

A2. The fairly simple answer is that network management, with few exceptions (e.g., for 

law enforcement and anti-spam efforts) should be allowed only on a non-discriminatory 

basis – i.e., without regard to the source or ownership of the bits being transmitted. That 

is, network operators may decide to prioritize (give faster speeds to), e.g., Internet video 
327

services over, say, transmission of static data files, but they may not prioritize based on 

the source of the Internet video service or who owns the video bits. Or they may choose 

to prioritize telemedicine traffic over all other traffic. But they must not be allowed to 

favor one health care organization over another. Otherwise the network operators 

become the equivalent of HMOs, deciding which medical services are most readily 

available to consumers. 

Of course, we believe they should be allowed (as many do today) to charge different rates 

for different capacity. But again, this sort of “tiering” (where, for example a 24/7 gamer 

would pay more per month than an occasional email sender, or where Amazon.com pays 

more for access than a small website because we need more capacity to connect to the 

Internet) must not be discriminatory, favoring some bits over others on the basis of their 

source or ownership. In sum, we believe that non-discriminatory network management 

and end-user tiering, both at the consumer and content provider connections to the 

Internet, should be permitted. 

Thank you again for your interest in net neutrality and for your support for reinstating 

longstanding nondiscrimination safeguards. 

Sincerely yours, 

Paul Misener 

Vice President for Global Public Policy 

Amazon.com 

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