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66-805 PDF 2011

H.J. RES 37, DISAPPROVING THE RULE SUBMITTED BY THE FEDERAL COMMUNICATIONS 

COMMISSION WITH RESPECT TO REGULATING 

THE INTERNET AND BROADBAND INDUSTRY 

PRACTICES 

HEARING 

BEFORE THE

SUBCOMMITTEE ON COMMUNICATIONS AND 

TECHNOLOGY 

OF THE

COMMITTEE ON ENERGY AND 

COMMERCE 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

MARCH 9, 2011 

Serial No. 112–18 

( 

Printed for the use of the Committee on Energy and Commerce 

energycommerce.house.gov 

COMMITTEE ON ENERGY AND COMMERCE 

FRED UPTON, Michigan 

Chairman 

JOE BARTON, Texas 

Chairman Emeritus 

CLIFF STEARNS, Florida 

ED WHITFIELD, Kentucky 

JOHN SHIMKUS, Illinois 

JOSEPH R. PITTS, Pennsylvania 

MARY BONO MACK, California 

GREG WALDEN, Oregon 

LEE TERRY, Nebraska 

MIKE ROGERS, Michigan 

SUE WILKINS MYRICK, North Carolina 

Vice Chair 

JOHN SULLIVAN, Oklahoma 

TIM MURPHY, Pennsylvania 

MICHAEL C. BURGESS, Texas 

MARSHA BLACKBURN, Tennessee 

BRIAN P. BILBRAY, California 

CHARLES F. BASS, New Hampshire 

PHIL GINGREY, Georgia 

STEVE SCALISE, Louisiana 

ROBERT E. LATTA, Ohio 

CATHY MCMORRIS RODGERS, Washington 

GREGG HARPER, Mississippi 

LEONARD LANCE, New Jersey 

BILL CASSIDY, Louisiana 

BRETT GUTHRIE, Kentucky 

PETE OLSON, Texas 

DAVID B. MCKINLEY, West Virginia 

CORY GARDNER, Colorado 

MIKE POMPEO, Kansas 

ADAM KINZINGER, Illinois 

H. MORGAN GRIFFITH, Virginia 

HENRY A. WAXMAN, California 

Ranking Member 

JOHN D. DINGELL, Michigan 

Chairman Emeritus 

EDWARD J. MARKEY, Massachusetts 

EDOLPHUS TOWNS, New York 

FRANK PALLONE, JR., New Jersey 

BOBBY L. RUSH, Illinois 

MICHAEL F. DOYLE, Pennsylvania 

ANNA G. ESHOO, California 

ELIOT L. ENGEL, New York 

GENE GREEN, Texas 

DIANA DEGETTE, Colorado 

LOIS CAPPS, California 

JANICE D. SCHAKOWSKY, Illinois 

CHARLES A. GONZALEZ, Texas 

JAY INSLEE, Washington 

TAMMY BALDWIN, Wisconsin 

MIKE ROSS, Arkansas 

ANTHONY D. WEINER, New York 

JIM MATHESON, Utah 

G.K. BUTTERFIELD, North Carolina 

JOHN BARROW, Georgia 

DORIS O. MATSUI, California 

SUBCOMMITTEE ON COMMUNICATIONS AND TECHNOLOGY

GREG WALDEN, Oregon 

Chairman 

LEE TERRY, Nebraska 

Vice Chairman 

CLIFF STEARNS, Florida 

JOHN SHIMKUS, Illinois 

MARY BONO MACK, California 

MIKE ROGERS, Michigan 

BRIAN P. BILBRAY, California 

CHARLES F. BASS, New Hampshire 

MARSHA BLACKBURN, Tennessee 

PHIL GINGREY, Georgia 

STEVE SCALISE, Louisiana 

ROBERT E. LATTA, Ohio 

BRETT GUTHRIE, Kentucky 

ADAM KINZINGER, Illinois 

JOE BARTON, Texas 

FRED UPTON, Michigan (ex officio) 

ANNA G. ESHOO, California 

Ranking Member 

EDWARD J. MARKEY, Massachusetts 

MICHAEL F. DOYLE, Pennsylvania 

DORIS O. MATSUI, California 

JOHN BARROW, Georgia 

EDOLPHUS TOWNS, New York 

FRANK PALLONE, JR., New Jersey 

BOBBY L. RUSH, Illinois 

DIANA DEGETTE, Colorado 

JOHN D. DINGELL, Michigan 

HENRY A. WAXMAN, California (ex officio) 

(II) 

(III) 

C O N T E N T S 

Page 

Hon. Greg Walden, a Representative in Congress from the State of Oregon, 

opening statement ................................................................................................ 1 

Prepared statement .......................................................................................... 4 

Hon. Henry A. Waxman, a Representative in Congress from the State of 

California, opening statement ............................................................................. 6 

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

opening statement ................................................................................................ 8 

Prepared statement .......................................................................................... 10 

Hon. Joe Barton, a Representative in Congress from the State of Texas, 

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

Prepared statement .......................................................................................... 13 

Hon. Anna G. Eshoo, a Representative in Congress from the State of California, opening statement .................................................................................... 15 

Hon. Edolphus Towns, a Representative in Congress from the State of New 

York, prepared statement .................................................................................... 222 

WITNESSES

S. Derek Turner, Research Director, Free Press ................................................... 17 

Prepared statement .......................................................................................... 19 

Answers to submitted questions ...................................................................... 223 

Robin Chase, CEO, Buzzcar .................................................................................... 52 

Prepared statement .......................................................................................... 54 

James Cicconi, Senior Executive Vice President, External and Legislative 

Affairs, AT&T ....................................................................................................... 64 

Prepared statement .......................................................................................... 66 

Anna-Maria Kovacs, Ph.D., Strategic Choices ...................................................... 70 

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

Answers to submitted questions ...................................................................... 225 

Shane Mitchell Greenstein, Ph.D., The Elinor and Wendell Hobbs Professor, 

Kellogg School of Management, Northwestern University ............................... 97 

Prepared statement .......................................................................................... 99 

Answers to submitted questions ...................................................................... 230 

Tom DeReggi, President, RapidDSL & Wireless ................................................... 127 

Prepared statement .......................................................................................... 130 

SUBMITTED MATERIAL

Letter of March 1, 2011, from faith-based organizations to subcommittee 

leaders, submitted by Ms. Eshoo ........................................................................ 160 

Letter, undated, from Consumers Union to subcommittee leaders, submitted 

by Ms. Eshoo ........................................................................................................ 163 

Letter of March 9, 2011, from Consumer Federation of America to subcommittee leaders, submitted by Ms. Eshoo ...................................................... 165 

‘‘Internet Access and Network Management Practices: The Public Remains 

Concerned and Wants Policies and Energy Access,’’ March 2011 survey 

conducted by Consumer Federation of America and Consumers Union, submitted by Ms. Eshoo ............................................................................................ 176 

Letter of March 8, 2011, from Wally Bowen, Executive Director, Mountain 

Area Information Network, to subcommittee leaders, submitted by Ms. 

Eshoo ..................................................................................................................... 194 

‘‘The FCC’s neutral Net,’’ editorial dated March 3, 2011, Los Angeles Times, 

submitted by Ms. Eshoo ...................................................................................... 196 

‘‘Net Neutrality, Back in Court’’ editorial dated March 6, 2011, New York 

Times, submitted by Ms. Eshoo .......................................................................... 197 

Page

IV 

‘‘Our view on ‘net neutrality’: On the Internet, the pipes shouldn’t control 

the content,’’ editorial dated January 3, 2011, USA Today, submitted by 

Ms. Eshoo .............................................................................................................. 199 

Letter of April 28, 2010, from Seth P. Waxman, Counsel for the United 

States Telecom Association, to Julius Genachowski, Chairman, Federal 

Communications Commission, submitted by Mr. Walden ................................ 211 

(1) 

H.J. RES 37, DISAPPROVING THE RULE SUBMITTED BY THE FEDERAL COMMUNICATIONS COMMISSION WITH RESPECT TO 

REGULATING THE INTERNET AND 

BROADBAND INDUSTRY PRACTICES 

WEDNESDAY, MARCH 9, 2011 

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON COMMUNICATIONS AND TECHNOLOGY, COMMITTEE ON ENERGY AND COMMERCE, Washington, DC. 

The subcommittee met, pursuant to call, at 10:34 a.m., in room 

2123 of the Rayburn House Office Building, Hon. Greg Walden 

(chairman of the subcommittee) presiding. 

Members present: Representatives Walden, Terry, Stearns, 

Shimkus, Rogers, Blackburn, Bilbray, Bass, Gingrey, Scalise, Guthrie, Kinzinger, Barton, Upton (ex officio), Eshoo, Markey, Doyle, 

Matsui, Barrow, and Waxman (ex officio). 

Also present: Representatives Christensen and Inslee. 

Staff present: Jim Barnette, General Counsel; Neil Fried, Chief 

Counsel, Communications and Technology; David Redl, Counsel, 

Communications and Technology; Ray Baum, Senior Policy Advisor; Peter Kielty, Senior Legislative Analyst; Alex Yergin, Legislative Clerk; Roger Sherman, Minority Chief Counsel; Shawn Chang, 

Minority Counsel; Jeff Cohen, Minority Counsel; Sarah Fisher, Minority Policy Analyst; Pat Delgado, Minority Chief of Staff (Waxman); and Phil Barnett, Minority Staff Director. 

Mr. WALDEN. I would like to call the Subcommittee on Communications and Technology to order. 

OPENING STATEMENT OF HON. GREG WALDEN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF OREGON 

Mr. WALDEN. Today, we have a hearing and a markup on network neutrality and H.J. Res 37, the resolution of disapproval I introduced to stop the FCC from regulating the Internet. This is our 

second hearing on this topic. On February 16, 2011, this committee 

had a 3-hour hearing with all five FCC commissioners. At the request of our Democrat colleagues, I delayed a previously scheduled 

markup and scheduled this hearing to shed even more light on the 

impact of the FCC’s rules for deregulating the Internet—for regulating the Internet. 

I have introduced the resolution under the Congressional Review 

Act, which provides Congress with an expedited process to nullify 

agency rules. The resolution requires a simple majority in each 

2 

chamber, and is filibuster-proof in the United States Senate. Because the form of the resolution is provided for in statute, it is not 

subject to amendment. 

Senate Majority leader Harry Reid, an original co-sponsor of the 

CRA, has described the process as ‘‘reasonable, sensible approach 

to regulatory reform’’. 

We have an open and thriving Internet, thanks to our historical, 

hands-off approach. The Internet works pretty well. It is the government that doesn’t. However, on December 21, 2010, the FCC 

adopted rules regulating the Internet without statutory authority 

to do so. 

Before we get into the harm that government regulation of the 

Internet will cause, it is important to realize that the FCC’s underlying theory of authority would allow the Commission to regulate 

any interstate commerce communications services on barely more 

than a whim and without any additional input from Congress. I do 

not want to cede such authority to the Federal Communications 

Commission. 

Section 230 of the Communications Act makes it U.S. policy to 

‘‘preserve the vibrant and competitive free market that presently 

exists for the Internet and other interactive computer services unfettered by federal or state regulation.’’ Under the FCC’s rationale, 

its authority is bounded only by its imagination. This new rule is 

little more than a weak attempt to do an end run-around the D.C. 

Circuit’s Comcast/BitTorrent ruling that the FCC failed to show it 

had authority to regulate the Internet. 

Do my Democratic colleagues agree the FCC has the authority to 

regulate the Internet in coffee shops and bookstores and airlines 

and other entities? Well, the FCC believes it has that authority, 

and in its rule it declined to subject those entities to their new regulations. My opinion, this is an agency exceeding its congressional 

authority, and its actions will hurt investment and cost jobs. 

A small cable and Internet provider from my district recently 

wrote to me about her concerns, stating ‘‘Last spring, the FCC 

chairman primed the pump, threatening to apply portions of Title 

II of the 1934 Telecom. Act to broadband. The cable industry has 

invested billions of dollars of private capital to build broadband and 

infrastructure to over 90 percent of American homes. Commissioners are looking in the rearview mirror, attempting to regulate 

the Internet of yesterday, absent any market failure. How will companies like BendBroadband be able to compete if we bear the brunt 

of the regulations against, while the giants like Google, Amazon, 

and Netflix go free? The Internet is evolving. All members of the 

ecosystem need to work together to innovate. The chairman has 

picked winners and losers in this recent effort to impose net neutrality regulations. These efforts will cost jobs, stall innovation, and 

dampen investment.’’ 

This is not a partisan issue. In 2006, 58 Democrats voted with 

us on the House floor to oppose a network neutrality amendment 

to video legislation. Some of those Democrats are still on the full 

committee. Some are still on this subcommittee. That was not a 

vote against a Title II versus a Title I approach, that was a vote 

against imposing network neutrality rules. 

3 

There is no crisis warranting the FCC’s deviation from our historical hands-off approach. Rather than show an actual problem, 

the Federal Communications Commission relies on speculation of 

future harm. The FCC even admits in the order that it conducted 

no market power analysis. See footnote 87. Dr. David J. Farber, 

grandfather of the Internet and former FCC chief technologist, 

warned on December 21, 2010, in an op ed that the FCC’s ‘‘order 

will sweep broadband ISPs and potentially the entire Internet into 

the big tent of regulation. What does this mean? Customer needs 

take second place and a previously innovative and vibrant industry 

becomes a creature of government rulemaking.’’ 

This will also make it harder for upstarts to compete with web 

incumbents. New entrants will have fewer resources to advocate 

before the FCC, and will also lack the needed flexibility to strike 

creative deals to compete with web incumbents. As we will hear 

today, what is even more universally damaging is the rule’s potential to destroy the ability of infrastructure providers to raise capital. That would threaten the infrastructure which both customers 

and content providers rely. 

We will also hear that the FCC’s rule will transfer wealth from 

broadband providers to application providers. ‘‘That does not begin 

to grasp the problem for both parties. The transfer of wealth between two independent parties can be beneficial to one at the expense of the other. A transfer of wealth that will ultimately cripple 

the party in which the other relies for its very existence is profoundly harmful to both.’’ These regulations will cost jobs. They will 

hinder the necessary investment in network upgrades on which 

customers and content providers rely, thus thwarting the competitive free market vibrancy, and innovation of the Internet. 

Let us keep the Internet open and innovative. I urge my colleagues to support the resolution. 

[The prepared statement of Mr. Walden follows:] 

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66805.002
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Mr. WALDEN. With that, I will recognize my friend from California, Ms. Eshoo, for an opening statement. 

Mr. WAXMAN. Mr. Chairman, I am going to—— 

Mr. WALDEN. With that, I will recognize my friend, the gentleman from California, Mr. Waxman, for an opening statement, as 

he needs to go to another committee hearing. 

Mr. WAXMAN. Thank you very much, Mr. Chairman, and I want 

to thank my colleague, the Ranking Member of the Committee, 

Representative Eshoo, for allowing me to go before her in making 

this statement. 

OPENING STATEMENT OF HON. HENRY A. WAXMAN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA 

I want to thank you, Mr. Chairman, for agreeing to our request 

for a legislative hearing on H.J. Res 37. It is a resolution of disapproval under the Congressional Review Act. Democrats on this 

subcommittee felt strongly that before we rush to consider this legislation, we would all benefit from hearing from companies, public 

interest groups, and economists. 

My concern is that there is an enormous disconnect between the 

facts and the Majority’s policy objectives. As we will learn today, 

technology innovators oppose the disapproval resolution, consumers 

oppose the resolution, and economists oppose the resolution. Even 

broadband providers do not support the resolution. 

In a letter the Committee received on Monday, the cable industry 

said it supports the FCC order because ‘‘it largely codified the status quo which the industry has voluntarily committed. It contains 

helpful clarifying language around what constitutes reasonable network management. It provides greater certainty about our ability 

to manage and invest in our broadband services, and the alternative of Title 2 regulation presented a stark and much worse 

risk.’’ Well, here is similar testimony from AT&T today. Yesterday, 

the Consumer Federation of America and Consumers Union released a poll showing the overwhelming public support for an open 

Internet. By a two to one margin, consumers opposed congressional 

action to block the FCC rule. 

But none of these facts seem to matter. The reason we are debating the disapproval resolution is that Republicans claim that FCC 

regulation will stifle the Internet and hurt our economy. But the 

fastest growing, most innovative companies in America, companies 

like Google, Amazon, Netflix, and others say exactly the opposite. 

They urge the FCC to adopt open Internet rules because ‘‘baseline 

rules are critical to assuring that the Internet remains a key engine of economic growth, innovation, and global competitiveness.’’ 

In fact, most of the Internet companies wanted stronger rules than 

those adopted by the FCC. 

I wanted to get independent advice, so our staff contacted economists at Stanford, NYU, USC, and other leading academic institutions. They told us that the FCC got the rules right. The phone and 

cable companies have near monopolies as providers of Internet access, especially wireless Internet access. Without sensible regulation, they could choke off innovation by charging Internet companies for the right to communicate with consumers. 

7 

One of the costs of this misguided resolution is that it is distracting us from important telecommunications issues that we 

should be addressing, and we could do so on a bipartisan basis. We 

are to be working together to grow our economy by freeing up spectrum. We should be working together to make our Nation safer by 

building a broadband network for public safety. We should be protecting taxpayers and consumers by enacting Universal Service reform. But we are doing none of these things. Instead, we are wasting time with a destructive resolution that should threaten openness and innovation on the Internet. 

I thank our witnesses for being here. I look forward to your testimony. I want to yield the balance of my time to Mr. Markey. 

Mr. MARKEY. Thank you, Mr. Waxman, very much. 

Why is the Internet so important? It enables freedom of expression and the sharing of ideas across town or around the world. It 

prevents a single entity, whether it is a broadband behemoth or the 

government from exercising total control. It is a vital tool that 

helps small businesses compete and expand, pumping life into our 

economy. That is what an open Internet is all about. 

One of our witnesses here this morning, Robin Chase, embodies 

the importance of an open Internet to our economy. Ms. Chase cofounded and ran Zipcar, a car-sharing service that is available in 

more than 200 cities across the U.S. She used the open nature of 

the Internet to build her innovative business from the ground up, 

without having to ask permission from Verizon, AT&T, Comcast, or 

any other carrier for permission. Here are Zipcar’s current numbers: 474 full-time employees, $186 million in revenue, 540,000 

members. That is what the open Internet means to our economy. 

This debate we are having today is not just a solution in search 

of a problem, it is a resolution in search of a problem. If we want 

to move forward here in a way that deals with this issue, Comcast 

agrees they can live with these Rules. AT&T agrees they can live 

with these rules. The key to the Internet is ensuring that it is open 

so that new companies, new applications, new gadgets are being invented on a daily basis in hundred and thousands of cities across 

our country that utilize this engine for economic growth as a way 

that keeps America’s lead over the rest of the world. That is what 

makes us great, the open Internet. If we allow a small number of 

companies to control how fast that change, that innovation moves, 

then we will be stifling our ability to continue to be the engine of 

growth in the world, using the Internet as our way of revolutionizing the rest of the world. 

If we did not have an open Internet, no Facebook, no Twitter, 

Hulu, YouTube. 

Thank you, Mr. Chairman, for extending graciously that extra 

time to me. 

Mr. WALDEN. Thank the gentleman from Massachusetts. I would 

now turn to the chairman of the full committee, Mr. Upton, for 

opening statement. 

Mr. UPTON. I would just thank you, Mr. Chairman. I just remind 

my friend from Massachusetts that we have all of those currently, 

and we don’t have net neutrality now. 

8 

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

Mr. UPTON. I urge my colleagues to support H.J. Res 37 that nullifies the FCC’s attempt to regulate the Internet. President Obama 

has said that it is now his priority to focus on jobs. He has also 

said that his Administration will avoid onerous and unnecessary 

regs that stifle investment and innovation. In fact, in a January 

Executive Order, the President said that agencies must base regulations on a reasoned determination that the benefits, in fact, justify their cost. 

While the Executive Order does not apply to independent agencies like the FCC, the President urged such agencies to follow it. 

FCC chair Genachowski has said that he does agree with the Order’s principles. Well, if the FCC had taken this approach for the 

last year, we might not have needed this resolution today. The reality is that if the FCC was truly weighing the costs and benefits 

of its actions, that the agency would not be attempting to regulate 

the Internet. 

There is no crisis warranting intervention. The Internet is open 

and it is thriving, precisely because we have refrained from regulating it. Imposing these rules will cause more harm than good by 

chilling the very investment and innovation that we need to ensure 

that the Internet keeps pace with the growing demands being 

placed on it. This will only hurt our economy. 

The Internet is not broken. The market has not failed. To justify 

its power grab for a favored sector, the FCC is simply speculating 

about the possibility of future harm. Apparently, they never heard 

the old phrase, ‘‘If it ain’t broke, don’t fix it.’’ Well, we can go one 

step further. As the late James Crowell, who served as Democratic 

FCC commissioner, said, ‘‘If it ain’t broke, don’t break it.’’ 

The FCC actually confesses in the order, albeit in the footnotes, 

that it did not conduct a market analysis. Where is the rigorous 

cost benefit analysis and demonstration of need? We have reviewed 

the response to our follow-up, and quite frankly, it is lacking. They 

point to paragraphs that contain little more than conclusory statements or summaries of comments. 

Let us be clear. I do not believe we should be regulating the 

Internet, but if we follow the FCC’s logic, the agency would ultimately be regulating Google and any number of other Internet 

companies. Press accounts indicate that Google engages in subjective prioritization of some search results over others. This not only 

affects what traffic Internet users see, it also can have a financial 

impact on Web sites. Should the FCC be determining whether 

Google is engaged in unreasonable discrimination? Is Google’s traffic management reasonable? Would it be appropriate for the government to intervene because of the possibility of future harm 

without an analysis of current problems or market power? I think 

not. Not for Google, and not for anybody else. 

Ultimately, there is a question of authority. The FCC has 

changed its story about where it gets the power to issue these rules 

more times than it has uttered the word ‘‘transparency’’. Each time 

it teeters from one weak explanation to another, based on the most 

legal or political impediment it is facing. None are consistent with 

its own precedent, and all are end runs around the D.C. Circuit’s 

9 

decision in the Comcast case that the FCC has failed to show its 

authority in the space. 

For these reasons, I urge my colleagues to vote for the resolution, 

and I yield the balance of my time to my friend, the Chairman 

Emeritus, Mr. Barton. 

[The prepared statement of Mr. Upton follows:] 

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Mr. BARTON. Thank you, Chairman Upton. You gave an excellent 

explanation of why we should all support H.J. 37. 

OPENING STATEMENT OF HON. JOE BARTON, A 

REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS 

Mr. BARTON. To be as succinct as possible, the Internet has 

thrived, I think, in large part because this Congress repeatedly has 

stated that we did not want it to be regulated, and the FCC keeps 

attempting to get some nose under the tent, so to speak, so that 

in the future they can come back with real heavy handed regulation. This latest attempt, the three to two vote, in my opinion is 

simply an effort to establish the principle that the FCC can regulate the Internet. It is not as important what they do now, but the 

fact that they have the authority to do it. H.J. 37 would explicitly 

say they do not have the authority. As Chairman Upton has just 

said, if it is not broke, don’t fix it. All these great things that are 

happening are happening under a deregulated environment, and 

we should keep it that way. 

With that, I yield back to the subcommittee chairman. 

[The prepared statement of Mr. Barton follows:] 

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Mr. WALDEN. Thank the gentlemen for their opening statements. 

I would now yield to the gentlewoman from California, Ms. 

Eshoo, for 5 minutes. 

Ms. ESHOO. Good morning, Mr. Chairman, and all of my colleagues. To the witnesses, thank you for being here today. 

OPENING STATEMENT OF HON. ANNA G. ESHOO, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA 

Ms. ESHOO. Given the significance of the resolution under consideration today, I want to thank Chairman Walden for respecting the 

request of the ranking member of the full committee, Mr. Waxman, 

myself, and members of the subcommittee to have a legislative 

hearing. I think it is essential that members of the subcommittee 

have an opportunity to hear from key stakeholders who are here 

today before voting on a resolution that would overturn the FCC’s 

Open Internet rules. 

It is so fascinating to me to listen to the statements that members make. This is all about an open and free Internet. In fact, 

those words are really the hallmarks of the Internet. All of the reasons that my Republican colleagues are saying they are doing this 

is fascinating, because the stakeholders themselves are on the 

other side of the issue. They do not believe that the light touch of 

the FCC is menacing; in fact, they have said and weighed in. We 

know the testimony. You have seen it—not only the testimony, but 

the letters that have poured in to this committee of groups and organizations across the country, from religious leaders to consumer 

organizations to high technology associations, they have all 

weighed in and said don’t do this. It is fascinating to me that they 

say they are for an open Internet after reviewing the record of 

where there have been abuses. We want to see consumers making 

the choice, not corporations. We want companies to grow to be successful, and there is a long, long, long list of them, so many of them 

constituent companies from my congressional district. 

I think that everyone here really needs to think very carefully 

about the direct and indirect consequences of passing this resolution. Disapproving the FCC’s rule is a serious threat to our economy, and I think it is a direct attack on transparency. It could also 

lead to further uncertainty in areas beyond the December order, 

such as the FCC’s ability to promote public safety and ensure online safeguards that prevent piracy and protect children from accessing harmful Internet content. 

As I said or alluded to a moment ago, the history of an open 

Internet speaks for itself. Businesses that rely on an open Internet 

continue to grow—an open Internet continue to grow. A stunning 

example is eBay. In just over 15 years, it has gone from a living 

room startup to a company that enables hundreds of thousands of 

American small businesses and entrepreneurs to sell their goods to 

consumers across the country and around the world. The significance to our economy is enormous. It is actually stunning. Sixty 

billion dollars in goods sold on eBay marketplaces globally in 2009. 

A similar story of success is Netflix, which in just the last year 

has added eight million new subscribers. With over 2,000 employees and a physical presence in every state, Netflix is continuing to 

16 

grow, and there is a reason for it. Open, accessible, consumers 

making the choice. That is what we seek to protect. 

So why are the basic rules of the road essential to the continued 

growth of these companies? By preventing blocking and unreasonable discrimination, the Internet can remain a source of innovation 

and new ideas, not a platform where consumers and businesses are 

told which sources of news, information, and entertainment they 

can access. 

The witnesses that are here today, we are all grateful to. I want 

to express a very special thanks to Robin Chase, who flew from 

Paris, France, to be here today, only to fly back to Berlin, Germany, this afternoon. That is one hell of a commitment, to come 

here and to speak on this really extraordinarily important issue, 

and we are very grateful to her. I think this is just one example 

among thousands of Internet innovators who understand how the 

CRA will hinder job creation and consumer choice. I am also 

pleased that members will be presented with the economic theory 

supporting the FCC’s rules. 

So Mr. Chairman, thank you for making sure that we have this 

legislative hearing. I thank the witnesses, and I don’t have any 

time to yield back. Thank you. 

Mr. WALDEN. That is all right. I thank you for your comments, 

and we look forward to hearing from the witnesses. Obviously, as 

you all have been briefed, the Prime Minister of Australia is going 

to be speaking to a joint session of Congress, so at some point here 

we will recess because we are not allowed under our rules to meet 

during a joint session. 

I would like to point out how much we appreciate your being 

here. Ms. Chase, I know as a witness you had to fly from France 

and back to Germany today. We could have used high technology 

maybe to get your testimony and take your questions. We could 

have worked on that. 

I would also like to point out for the record, this is our second 

hearing on this topic. We had all five FCC commissioners before, 

and now we have six witnesses here, equally divided, I would point 

out, between the Republicans and the Democrats, the Majority and 

Minority. At the conclusion of this hearing, there will have been 

two hearings, and probably one of the first times in the history of 

the committee that the Minority has actually had more witnesses 

on a topic than the Majority. 

So we are trying to hear from people. We are trying to be open 

and fair and balanced about this, and we look forward to your testimony when we resume. So at this point, I will recess the committee 

until after the Prime Minister. It will be probably about an hour, 

we are guessing, by the time members go and get back, maybe a 

little bit more. So if you can kind of hang out not too far away, that 

would be helpful. 

With that, the committee is—stands in recess. 

[Recess.] 

Mr. WALDEN. I am going to call back to order the Subcommittee 

on Communications and Technology, and welcome our witnesses 

this morning—or now this afternoon. Thank you for being here. 

Thank you for making the extra effort to be here from Europe and 

back, and so we will start. Let us start with—I believe we will just 

17 

go left to right with Mr. Turner. We appreciate your willingness to 

come and testify. 

Mr. Turner, if you want to go ahead and start, research director 

for Free Press. We welcome you here, and we look forward to your 

testimony, sir. 

STATEMENTS OF S. DEREK TURNER, RESEARCH DIRECTOR, 

FREE PRESS; ROBIN CHASE, CEO, BUZZCAR; JAMES CICCONI, 

SENIOR EXECUTIVE VICE PRESIDENT, EXTERNAL AND LEGISLATIVE AFFAIRS, AT&T; ANNA–MARIA KOVACS, PH.D., 

STRATEGIC CHOICES; SHANE MITCHELL GREENSTEIN, 

PH.D., THE ELINOR AND WENDELL HOBBS PROFESSOR, KELLOGG SCHOOL OF MANAGEMENT, NORTHWESTERN UNIVERSITY; AND TOM DEREGGI, PRESIDENT, RAPIDDSL & WIRELESS 

STATEMENT OF S. DEREK TURNER 

Mr. TURNER. Thank you. Good afternoon, Chairman Walden and 

Ranking Member Eshoo, members of the committee. On behalf of 

Free Press and the Free Press Action Fund, as the coordinator of 

the Save the Internet Coalition, representing more than 800 groups 

and their 10 million members, I appreciate the opportunity to offer 

the perspective of Internet users in today’s hearing on House Joint 

Resolution 37. 

Let me begin by acknowledging an often-forgotten truth. The 

principle of non-discrimination, which is the bedrock of net neutrality policy, was not always the political football it is today. Unfortunately, the debate around non-discrimination has become immune to the calming powers of historical fact and susceptible to the 

ills of special interest politics and false partisan frames. 

This recent rhetorical drift is very much at odds with the long 

bipartisan effort to prevent market power abuses by owners of our 

Nation’s critical communications infrastructure. It was the Nixon 

administration that put in place strong rules of non-discrimination 

in order to ensure abuses of market power would not stifle the 

growth of an infant network computing industry. This successful 

framework was later improved upon by both the Carter and 

Reagan administrations. 

In the Telecom Act of 1996, a bipartisan Congress recognized 

that in order to foster new industries, we needed the FCC to act 

to ensure that everyone had open access to the information superhighway. Look no further than Section 10 to see that Congress intended non-discrimination survive any deregulation. 

In the early 2000s, the FCC began to abandon the Telecom Act’s 

blueprint for reasoned deregulation through forbearance; however, 

the Commission still recognized that the underlying nondiscriminatory outcomes were worth preserving. FCC Chairman Michael 

Powell first articulated the four Internet freedoms that subsequently served as the basis for the Open Internet provisions in the 

COPE Act adopted by the House in 2006. Chairman Kevin Martin 

took action in 2008 to stop Comcast’s secret discrimination against 

certain Internet content. 

But recently, we have seen this debate move away from the 

shared goal of preserving the open Internet. The problem of market 

18 

power in communications networks is very real and increasingly 

politically inconvenient. As a result, we have seen those who used 

to recognize this problem abandon those views. Some policy makers 

now seem resigned to the misguided notion that the duopoly Internet access market is perfectly competitive. This is unfortunate because I believe we all agree that the Internet should be preserved 

as an open platform. Allowing gatekeepers to erect barriers to 

speech and commerce is an unacceptable outcome, and public policy 

should be used to prevent it. 

If we can agree that ensuring access to an open platform is a 

worthy policy goal, then we have a duty to confront the reality that 

network owners have strong incentives to close the platform and 

favor their own content at the expense of everyone else’s. Now, I 

recognize that some of you are uncomfortable with the FCC’s Open 

Internet order. My organization, too, ultimately opposed it. We felt 

that it failed to adequately preserve and protect the open Internet; 

however, we oppose the resolution of disapproval. It will leave consumers completely unprotected. It will remove the limited certainty 

that the FCC’s rules provide. Most importantly, it will prevent the 

FCC from addressing blatant censorship and anti-competitive activities in the future. This resolution is an unnecessary and dangerous overreaction to a policy framework that is, at its core, very 

similar to the bipartisan COPE Act of 2006. Make no mistake, 

adoption of this resolution will increase market uncertainty and 

harm economic growth. 

Most ISPs have told Wall Street the truth, that these rules are 

no burden, so to borrow a very tired old phrase, the resolution of 

this approval is a solution in search of a problem. 

Innovators in the applications and content sector believe they 

now have a certain, albeit imperfect, framework to live under. This 

resolution, if enacted, will remove that certainty and subject them 

to the discriminatory whims of the ISPs. There may be much to 

dislike about what this FCC did and how it did it, but the fundamental point here is that we cannot simply set up a false choice 

between what the FCC did and no policy at all. We can’t wish away 

the concentrated market structure. We can’t simply hope that the 

duopoly ISPs will make decisions in the best interest of all Americans. 

I am a strong believer in free markets, but I understand the immovable barriers to effective competition in markets like this that 

have natural monopoly characteristics. Internet users cannot afford 

for Congress to remove what little oversight is left. 

So instead of pursuing this perilous path, we urge this body to 

remember its commitment to protecting non-discrimination, and 

work on constructive solutions that will benefit all Americans. 

Thank you for your attention, and I look forward to your questions. 

[The prepared statement of Mr. Turner follows:] 

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Mr. WALDEN. Mr. Turner, thank you for being here today. We appreciate your testimony. 

Ms. Chase, we welcome you to the subcommittee. We appreciate 

your testimony as well, and your extra effort to be here today. 

Please go ahead. 

STATEMENT OF ROBIN CHASE 

Ms. CHASE. Chairman Walden, Ranking Member Eshoo, and 

members of the subcommittee, thank you for this opportunity to 

discuss the importance of network neutrality rules to job creation, 

economic development, and innovation. 

I am the founder of GoLoco, an online ridesharing community; 

the founder of Meadow Networks, a consulting firm that advises 

governments about wireless applications in the transportation sector; and the founder and former CEO of Zipcar, the world’s largest 

carsharing company. When I received the invitation late last week 

to testify before this committee, I was working across the Atlantic, 

and later this afternoon I will fly back. Despite the significant resources and travel time to come here, I accepted the invitation because the course of action Congress is considering, namely repealing and eliminating the authority of the FCC to enact policies that 

preserve an open Internet, will greatly harm our country’s ability 

to innovate, produce jobs, and remain globally competitive. As a 

successful American entrepreneur, I care deeply about maintaining 

our leadership within the world marketplace. 

Eleven years ago, I co-founded Zipcar. Our innovation was to 

make renting a car as simple as getting cash from an ATM, and 

open access to the Internet was central to Zipcar’s success. It is 

only because of the ease, speed, and zero marginal cost of finding, 

reserving, and unlocking a car that anyone would be willing to rent 

a car for an hour or to sell only an hour of a car’s time. Without 

an open Internet facilitating these transactions, Zipcar would simply not exist. 

Eliminating the FCC’s network neutrality rules would put future 

entrepreneurs and small businesses at a significant disadvantage. 

Network neutrality prevents the telecommunications industry from 

discriminating against new applications and supports innovative 

new services like Zipcar. 

I want to draw an important parallel. Imagine, for example, if 

Zipcar had been forced to rely on the auto industry’s definitions of 

car ownership, or worse yet, had to ask their permission to exist. 

Our vision of a fleet of cars being shared among a community of 

individuals would have been seen as implausible and threatening. 

Likewise, we cannot rely on the telecommunications industry to define the Internet or what people may use it for. Without consumer 

protections like network neutrality, these companies will define the 

Internet to mirror their preferred ‘‘triple play’’, their telephone 

services, their video channels, and their notion of the ideal Internet 

experience, and they will seek to squash any service that threatens 

their revenue stream, a perfect recipe for stifling innovation. 

This is not just mere speculation about the potential for shortsightedness, but rather personal firsthand experience. During the 

initial years of Zipcar, the wireless industry was simply unable to 

think outside the box. When we first approached cell phone compaVerDate Nov 24 2008 10:07 Sep 27, 2011 Jkt 037690 PO 00000 Frm 00056 Fmt 6633 Sfmt 6633 F:\112-018 HJ RES 37-PDF MADE\112-018 PDF MADE WAYNE
53 

nies to buy a data plan access in 2000, we were met with blank 

non-responsive stares. The industry had only one vision of wireless 

at that time, and therefore only one product to sell. I recall many 

representatives not actually understanding the difference between 

purchasing kilobytes versus purchasing minutes. In their minds, 

their customers all used cell phones. Others simply did not exist. 

Today, innovation is the lifeblood of a competitive economy, and 

the Internet is its circulatory system. An open Internet gives everyone both access and the ability to apply new ways of thinking to 

problems. An open Internet breaks through silos that often do not 

get new thinking applied to them. For entrepreneurs, the open 

Internet allows for extraordinarily low input costs, which allows 

them to efficiently tap into unused excess capacity and leverage 

ideas at virtually no cost. 

Ensuring that the Internet will continue to promote innovation 

is the reason we are having this debate, and I absolutely agree that 

excessive regulation stifles innovation and prevents free markets 

from innovating. But the most important thing I have to say to this 

committee, and the reason I am here and flew all this way, the protections enacted by the FCC will help ensure an open Internet. 

Network neutrality is not excessive regulation that will stifle innovation. Network neutrality promotes innovation and protects consumers by preventing telecommunications companies from stifling 

new thinking, new services, and new applications. 

Indeed, I think the FCC’s rules actually do not go far enough, especially with respect to wireless. The idea that different rules 

should apply, and that my experience of the Internet would be different depending on whether I am sitting at home on my desk connected or a park bench accessing those same pages wirelessly is 

nonsense. These arbitrary distinctions dramatically complicate life 

for innovators and entrepreneurs who will now have to contend 

with two different Internets, one wireless and one wireline, in everything they do. If Congress wants to truly unlock the economic 

and job creating potential of the Internet, and fully tap into the innovation potential of our country, it should do so by improving the 

FCC’s rule in this regard, not repealing it. 

Twenty years ago, no one was thinking that the Internet would 

be used to share small numbers of cars among large numbers of 

people, and I don’t know what brilliant and unexpected use the 

Internet will enable tomorrow. No one here does. That is why it is 

critical that fundamental characteristic of the Internet, its ability 

to accommodate, adapt, and evolve, is protected from companies 

that want to control how entrepreneurs and the general public use 

our networks. Public policies to ensure this outcome are vital if 

America wants to remain competitive in the 21st century economy. 

Protecting the open Internet and preventing an oligopoly from controlling how entrepreneurs like me use the Internet is in America’s 

best interests. 

Thank you for letting me testify, and I look forward to your questions. 

[The prepared statement of Ms. Chase follows:] 

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Mr. WALDEN. Thank you, Ms. Chase, again for your testimony. 

Now let us go to Mr. Cicconi. Thank you for being here from 

AT&T, senior executive vice president, external and legislative affairs. We welcome your testimony, sir. 

STATEMENT OF JAMES CICCONI 

Mr. CICCONI. Thank you, Chairman Walden, Ranking Member 

Eshoo, members of the committee. Thank you for inviting me to 

testify today on behalf of my company, AT&T. I recognize it is unusual to be asked to testify on a resolution on which we have not 

taken a position; however, as I am sure all of you know, we have 

been involved for years in the issue that underlies H.J. Res. 37, 

and that is the protracted dispute over net neutrality regulation by 

the FCC. 

Let me first stress that AT&T has long supported the broadband 

principles laid out by the FCC over 6 years ago. We support an 

open Internet, we promise to abide by that concept voluntarily. But 

like many issues that start from a shared belief, this debate long 

ago devolved into a long discussion over specifics, whether the FCC 

should be able to enforce the broadband principles, whether a 

broad set of rules was needed, what legal authority the FCC has 

to put such rules in place. And all of this, despite any real evidence 

of a problem. 

As in most regulatory debates, this one does not lack for radical 

voices. Many sought heavy-handed government regulation and control of free markets, some for commercial advantages, others to advance their own ideology. Since this debate began back in 2005, 

AT&T has consistently opposed any FCC regulation of Internet 

services or facilities. This is still our strong preference today. We 

feel the anti-trust laws, the Federal Trade Act, and the discipline 

of highly competitive markets are more than adequate to police any 

potential abuses. 

Nonetheless, the pressure for Internet regulation continued over 

the years. You have all heard the saying that there is nothing so 

powerful as an idea whose time has come. Unfortunately, this is 

sometimes also true of a bad idea. The versions of net neutrality 

put forth by our opponents were, in many cases, truly bad and 

truly radical ideas. 

In October of 2009, some of these bad ideas found their way into 

a proposed net neutrality rule at the FCC. AT&T and the entire 

industry strongly opposed this proposal. It created a high degree of 

market concern, and needless to say, a very bad climate for investment. Unfortunately in the spring of 2010, the situation went from 

bad to worse. Following a decision by the D.C. Circuit Court of Appeals that questioned the FCC’s legal authority to enforce its 

broadband principles, the Commission reacted by proposing to subject all broadband facilities to common carriage regulation under 

Title II of the Communications Act. This proposal was both extreme and without foundation in law, we feel strongly, and we 

fought it vigorously. Again, this even more radical proposal upset 

the financial markets in a very delicate economic situation. 

By the summer of last year, and after hearing from a bipartisan 

majority of House and Senate members, Chairman Genachowski, to 

his credit, began seeking a different approach. Discussions began 

65 

between the opposing sides. AT&T participated, because quite 

frankly, we felt the issue was on a dangerous path that could end 

very badly for our company and for the industry. This process was 

long, hard, contentious. It led ultimately to discussions last fall 

under the auspices of Chairman Waxman, and a compromise with 

which, like most compromises, no one was entirely happy, but most 

participants felt to be fair. However, legislation proved impossible 

in that short timeframe, and the FCC made clear its intentions to 

move forward with a vote on net neutrality regulations by year 

end. 

In this situation, my company faced a difficult decision, given 

that the only proposals currently before the FCC were either bad 

or worse, in our view. With others in the industry, we decided we 

would be willing to accept a rule modeled on the compromise we 

reached in the Waxman process, but we were unwilling to support 

anything that went beyond that. Chairman Genachowski, I might 

add, was under tremendous pressure from others, including voices 

on the Commission, to impose Title II regulations. Instead, he and 

his staff worked with the industry in good faith, and with the various stakeholders to craft a compromise rule to try to balance major 

differences, while avoiding more extreme proposals. 

I would be the first to stress this is not a perfect solution. Our 

preference has always been that the FCC should not regulate any 

Internet space. But it was also clear to us that a majority of the 

FCC was determined to move forward in December, and that we 

would not be representing our shareholders well if we let the perfect be the enemy of the good. We faced opponents pressing for 

more extreme regulations, and knew that absent a fair middle 

ground, a good bit of harm might be done to our industry and to 

needed investment. Chairman Genachowski resisted those pressures and acted in good faith to find that fair middle ground. The 

rule is consistent with AT&T’s current open Internet policies. It 

would not require us to change any of our business practices or 

plans, assuming it is applied in a reasonable narrowly tailored 

way. 

As the chairman of AT&T has said, it provides a path for continued investment by removing much of the uncertainty this issue has 

caused. It was a factor, along with recent tax law changes, and 

AT&T’s decision to accelerate the investment in the build-out of 

our LTE wireless network. 

In short, we believe the result, given the alternatives before the 

Commission, is both fair and will help maintain our company’s 

ability to invest. 

Thank you. 

[The prepared statement of Mr. Cicconi follows:] 

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Mr. WALDEN. Thank you, Mr. Cicconi. We appreciate your testimony. 

Now we are going to go to Dr. Anna-Maria Kovacs with Strategic 

Choices. We appreciate your willingness to come and testify on the 

financial implications of this rule in the markets. Thank you. Go 

ahead. 

STATEMENT OF ANNA–MARIA KOVACS 

Ms. KOVACS. Thank you. Good afternoon—— 

Mr. WALDEN. Please pull that microphone close and make sure 

it is turned on. 

Ms. KOVACS. Good afternoon, Chairman Walden, Ranking Member Eshoo, and distinguished members of this subcommittee. 

Thank you for the opportunity to appear before you today. 

I spent roughly 25 years working as an investment analyst covering the communications industry before retiring as an analyst at 

the end of 2010. While I intend in the future to work as a consultant, at the present time I have no clients and I represent myself. 

The Internet has become central to the lives of most Americans, 

and it is certainly something I rely on almost every day for news, 

information and communication. I agree with the stated goals of 

the FCC’s order. The desire for an open Internet, for transparency, 

for an environment in which innovation and investment flourish to 

the benefit of both consumers and providers at all levels of the 

Internet ecosystem. 

I am concerned, however, that some aspects of the order will ultimately result in unintended, but nevertheless detrimental, consequences to investment and innovation, both at the edge and the 

core. And I think it is important to emphasize that the debate is 

not about whether blocking or degradation of service are good or 

bad. It is about whether they are more likely to occur through the 

intentional actions of broadband Internet access providers or 

through lack of investment. That really is what the debate boils 

down to. 

The order appears to be premised on the view of the Internet ecosystem that assumes that the edge is embryonic and innovative, 

and the core is mature and static. 

Application providers, including content and service providers, 

are left free to transform their business plans at will. One of their 

key inputs, transport, is provided to them free over the networks 

of broadband Internet access providers, carriers with whom they 

may compete at the application level. Conversely, the order restricts the carrier’s flexibility in designing their business plans, 

limits their sources of revenue, dictates that they spend capital to 

expand the networks at the edge provider’s will, and forces them 

to subsidize competitors who cannibalize their customer base. 

To characterize this as a transfer of wealth from broadband 

Internet access providers to application providers is accurate, but 

does not begin to grasp the problem for both parties. A transfer of 

wealth between two independent parties can be beneficial to one at 

the expense of the other. A transfer of wealth that will ultimately 

cripple the party on which the other relies for its very existence is 

profoundly harmful to both. Thus, it is the order’s implicit assumption that it is possible to protect the edge at the expense of the core 

71 

that concerns me most. The two are inextricably entwined. To protect the edge, it is vital to protect the core. 

Far more devastating to Google, Skype and Netflix than being 

charged for transport is an Internet whose evolution and capacity 

are flash frozen for lack of investment. That is because their innovative applications can only follow a step behind the network’s capacity and quality. 

Networks have a voracious and unending need for capital, just 

as new applications cannot safely rest on its laurels, neither can 

networks. They must constantly be upgraded to satisfy the need for 

ever-increasing speed, quality, and security. But carriers can only 

raise capital to invest if they have enough to cover their costs. To 

raise the necessary revenues, companies need flexibility. They need 

to be able to address their business plans to changing market conditions. Above all, they need to be able to charge for their services 

and to have flexibility in doing so. Just as professional application 

providers cannot afford to give away their content and services for 

free, neither can the carriers. 

As an example, the FCC’s model forbids Frontier to charge Skype 

at the wholesale level, even while Skype takes away because the 

voice customers at the retail level from Frontier. If carriers are 

forced to charge only for broadband access because they can no 

longer charge for video and voice, the price of that broadband access will increase and investment will fall. That is damaging not 

only to the carriers, it is also damaging to the application providers 

that ride on the carrier’s networks and are constrained by the capacity and quality limitations of those networks. 

My concerns is there is a false dichotomy that drives the net neutrality debate, that views the edge as separate from the core as 

needing to be protected from the core, as able to prosper only at 

the expense of the core. In fact, because innovation at the application level is so completely tied to investment and innovation at the 

transport level, the edge can only exist if the core prospers. The 

best way to encourage innovation, investment, and jobs at the edge 

is to also promote innovation, investment, and jobs at the core. 

[The prepared statement of Ms. Kovacs follows:] 

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Mr. WALDEN. Dr. Kovacs, thank you for your testimony. We appreciate it. 

Next is Dr. Shane Mitchell Greenstein, Ph.D., the Elinor and 

Wendell Hobbs professor at the Kellogg School of Management, 

Northwestern University. Dr. Greenstein, we welcome you, and 

look forward to your comments. 

STATEMENT OF SHANE MITCHELL GREENSTEIN 

Mr. GREENSTEIN. Thank you for giving me an opportunity to 

speak. I am happy to share my views with you. Please understand 

I do not work for anyone, neither firm nor advocate. I come as a 

professional economist who has had the privilege to study and 

write about the commercial Internet access market almost since its 

inception. 

From the standpoint of the economics of the Internet access market, there are great potential risks from disposing of the Open 

Internet order, and the gains from continuity are high. The order 

looks like good innovation policy and good economic policy. If we 

want to create a prosperous commercial Internet in the next 15 

years, think about how well the Internet works today. Now think 

about all the ways it could have gone wrong, and my advice boils 

down to avoid the same problems we avoided in the past. 

How do you do that? You keep transactions, costs low for entrepreneurs. The United States commercial Internet functions well 

today because it avoids a number of industry practices that would 

have raised transaction costs of innovation that would have introduced hassles, delays, and haggling. Instead, today any entrepreneur can enter without worrying about the gains—gaining the 

permission of a gateway firm. 

If the U.S. government commits to no regulatory intervention in 

Internet access markets, would that invite problems? Experience of 

the last 50 years suggests that there is a risk it will and a chance 

it will not. It is hard to tell. Until recently, regulatory restraints 

prevented all carriers from taking certain actions so there is little 

experience from which to forecast how carriers would behave in the 

absence of restraint. 

One central concern arises due to commercial activities in one 

line of business, for example, broadband service, affecting the prospects in another, for example, video entertainment. If carriers act 

on their economic incentives, we would expect carriers to help all 

of their businesses, deliberately becoming less transparent to rivals, blocking some content of rivals, or giving lower priority to 

traffic from erstwhile competitors. Concentrated supply of access in 

some locations in the United States also heightens the incentives 

to act this way. 

A balanced view would also note that there are other factors 

pushing in the other direction. National standardization processes 

generate transparency. User tendencies to substitute to alternative 

carriers in some markets also reduce incentives to block traffic. 

Reasonable people can differ on the relative importance of these 

forces and that is an additional reason why forecasting is hard to 

make. 

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duces hassles and delays for entrepreneurs, software innovators, 

server companies around the globe, even juniors at Harvard with 

ambitions to unseat Mark Zuckerberg. 

Overall, taking away regulatory oversight risks the emergence of 

a very desirable consequence, less commercial innovation, and its 

child, less economic growth. Policies that tend towards continuity 

are the most desirable. Continuity here is the regime of continued 

regulatory presence with occasional inconsistent action. 

It is my view, as it is among many others, that the FCC’s policy 

represents continuity. Frankly, I think broadband firms can live 

with this rule because it really does not change much of what they 

do. Entrepreneurs can live with this rule because it lets them innovate and start businesses as easily tomorrow as they did in the 

past, and raises the certainty that no additional hassles will 

emerge in the near term. Moreover, the rule includes important 

and appropriate exceptions for reasonable network management, 

and for the complications of wireless applications. 

In sum, the potential risks of disproving the rule are great, and 

the gains from continuity are high, and the order looks like good 

innovation policy, and good economic policy. 

Thank you for your attention, and thank you for allowing me to 

testify. 

[The prepared statement of Mr. Greenstein follows:] 

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Mr. WALDEN. Doctor, thank you for being here. We appreciate 

your testimony. 

Now our final witness this afternoon, Tom DeReggi, President, 

RapidDSL and Wireless from Boyds, Maryland. We welcome you. 

You probably came maybe the least distance. I don’t know, but certainly not from overseas. Mr. DeReggi, thank you for being here. 

STATEMENT OF TOM DEREGGI 

Mr. DEREGGI. Thank you. Chairman Walden, Ranking Member 

Eshoo, and members of the committee, thank you very much for 

the opportunity to testify. It is a great honor to be here today. 

Quickly about myself, I started selling—reselling DSL—started 

outselling DSL. In 2000, I formed RapidDSL and Wireless. My 

company is a grass-roots, independently owned and financed fixed 

wireless broadband access provider. We cover a 30-mile radius 

around Washington, D.C., serving businesses and residences in 

urban and rural communities. I have sat on advisory boards of 

ISPCON and until last year, I served on the Board of WISPA as 

legislative committee chairman. 

Quickly a bit about WISPA. The WISP industry is primarily 

made up of small independent companies serving both competitive 

markets and rural markets, many of which would otherwise have 

no access to broadband at all. The combined services of all WISPs 

nationwide cover more than 75 million households, 71 percent of 

the entire population of the United States. 

The speed of wireless is determined by topography. In heavily 

treed areas, a connection may be limited to as little as three megabits shared by 50 households, whereas in areas with direct line of 

sight between towers and customers, speeds as high as 80 megabits 

are possible. In short, WISPs are real and relevant competition for 

AT&T, Verizon, Comcast, and can reach means—can reach areas 

others are unlikely to cover without substantial government subsidies. 

I am here today to show my industry’s support for H.J. Res. 37, 

and ask Congress to vote to reverse the FCC’s Open—recent Open 

Internet rules which are not open, and are not neutral. It is my belief that the FCC has overstepped their authority to address a 

problem that didn’t exist at the detriment of our industry and the 

consumers. 

If the rules take effect, it will destroy jobs, stifle innovation, 

deter investment, create uncertainty, distract WISPs from building 

networks to all Americans, increase government spending, create 

liability, increase legal costs, degrade broadband performance and 

increase consumer’s price, and possibly put some small WISPs and 

ISPs out of business. These are facts that would be contrary to the 

goals of the FCC’s National Broadband Plan. 

Rules and regulations create jobs only for lawyers instead of putting more jobs to expand broadband access to all Americans, community based jobs that lead to life-long careers, locally owned 

WISPs create that. We don’t need regulated band-aids, we need 

true competitive environments that give consumers choice. Foster 

competition between access providers and the consequences will be 

open Internet content. Net neutrality regulation is a foundation for 

monopolies and unnecessary if we build competitive industries. 

128 

Internet providers need the support from policy makers, not regulatory roadblocks. Uncertainty and liability created by these regulations would be so great that even I, the business owner, have to 

reconsider whether to continue investing money in my company. 

The rules applied to broadband as a single uniform product, rather than recognize that two very different distinct generation 

broadband products exist, broadband and advanced broadband. It 

is inappropriate to expect first generation broadband network providers to allow the operation of second generation advanced 

broadband applications, such as HD streaming video, which minimum requirements may exceed the capability or acceptable use 

policies of the first generation basic networks. It is inappropriate 

to insist that broadband access products need to support a user application for which the product was not originally designed to support. I believe the term reasonable network management does not 

go far enough to guarantee that the rules properly match technology to the appropriate access technology. The rules give special 

consideration to mobile carriers but inappropriately bundle WISP 

fixed wireless providers. The rules intended for wireline and fiber 

providers, but failing to recognize that WISPs are subject to the 

same technical constraints as mobile providers, the Commission 

failed to fulfill its role as an expert agency, and instead, succumbed 

to political pressure to pick and choose winners. 

One size does not work and does not fit all. I wish I could say 

the Internet was simple, but it is not. The Internet is extremely 

complicated and is different in every community that it is deployed. 

The Internet is an ever-changing dynamic industry with many 

variables. I see no way static regulation could ever keep up. 

The FCC rules address what could happen, rather than what actually did happen. For example, ISPs have never censored legal 

content, but content providers have demonstrated actual anti-competitive behavior. For example, ESPN360/Disney prevents every 

one of its ISP customers from accessing its content unless the provider pays it a fixed fee for every customer it has, even though 

most will not watch the content. It gives favorable rates to large 

carriers than it gives small providers. This behavior is anything 

but neutral, but the FCC fails—rules failed to address the serious 

content neutrality issue. Certainly, if the rules are going to address 

prospective harms, they ought to address ones that actually already exist. In an environment where content providers can be discriminatory is not a neutral network. 

The rules unjustly entitle consumers and content providers to 

free reign of someone else’s private network at the access provider’s 

expense. Because the rules literally could render an Internet provider’s network inoperable, the rules may actually constitute a regulatory taking of Internet service provider’s networks in violation 

of the Fifth Amendment. The Commission attempts to justify the 

rules, proclaiming that they are necessary, because many areas are 

served by only one or two providers. Not only is this false in most 

cases, but also the rules themselves would make the problem worse 

by making it more difficult to competitive providers to expand their 

services. 

Are WISPs real competition for wired networks such as Comcast? 

The arithmetic says yes. Wimax actually delivers more capacity to 

129 

the end user than most widely deployed cable services, which are 

based on DOCSIS 2.0. A DOCSIS 2.0 hybrid fiber cable system has 

43 megabits in downstream direction, two megabits upstream at 

the equipment cabinet that serves a neighborhood. The network is 

usually engineered so that 500 to 2,000 subscribers are connected 

by coaxial cable to that cabinet and the bandwidth is divided 

among them. But in wireless systems using Wimax or Airmax technology, each radio has typical capacity of 24 megabits and serves 

60 or fewer users. So if all the bandwidth is in use and is divided 

evenly, each cable subscriber gets 86 kilobits per second, not much 

more than dial-up, while wireless users get up to 400 kilobits per 

second. 

Mr. WALDEN. Mr. DeReggi, you have exhausted your time. Can 

you just wrap it up? 

Mr. DEREGGI. Yes, let me wrap it up. 

I have pointed out many reasons why the FCC Open Internet 

rules are inappropriate and should be nullified; however, please do 

not misinterpret this testimony to mean that WISPs or ISPs ought 

to be unfair to their customers or in any way limit their ability to 

express themselves online. What we want is the freedom and the 

flexibility to compete, to innovate, and to design our networks to 

provide the services the customers really want. The FCC’s regulations should take effect would not only fail to do what the Commission claims, they will instead degrade harm, preventing us from 

competing to provide the best services to our customers. 

Thank you. 

[The prepared statement of Mr. DeReggi follows:] 

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Mr. WALDEN. Thank you, sir. Thank you to all of you who testified today. We will go into our questions now, and obviously we are 

on time constraints here. We each get about 5 minutes, so don’t 

take offense if we ask these in sort of a yes and no environment. 

Mr. Dingell probably pioneered that on the committee quite successfully. 

Mr. Turner, do you believe the FCC is on strong legal ground 

with this order and it will be upheld in the courts? 

Mr. TURNER. I believe they took an unnecessary risk by going 

down the Title I route. 

Mr. WALDEN. So you do not believe they are on strong legal 

ground? 

Mr. TURNER. I think they are on less firm legal ground than they 

could have been. 

Mr. WALDEN. Do you oppose the resolution of disapproval not because you like the FCC order, you have stated that, but because 

you think the FCC might lose in court when that happens? Won’t 

you push for a reclassification on Title II? Isn’t that your preference? 

Mr. TURNER. I oppose the resolution of disapproval because of 

the consequences once Congress disapproves of these rules, the 

FCC is then forbidden from enacting any similar rules in that 

space that could extend to things far beyond network neutrality, 

bill shock, lots of other issues. 

Mr. WALDEN. But the real issue is they can’t do Title II, right, 

with this disapproval resolution if it becomes law? 

Mr. TURNER. No, I don’t believe that. I believe the issue of reclassification is separate from the resolution of disapproval, and I do 

not think reclassification acts would fall under the CRA. 

Mr. WALDEN. Because in your own documents from Free Press, 

point number five, legal footing, it says ‘‘Genachowski reportedly is 

grounding these new rules in the same kind of legal arguments 

that were rejected by the courts last spring. This strategy presents 

an unnecessary risk in the shortsighted attempt to avoid reclassifying broadband under Title II of the Communications Act. Such a 

move doesn’t just put net neutrality on shaky ground, it places the 

FCC’s entire broadband agenda in jeopardy.’’ 

Mr. TURNER. That is exactly right. 

Mr. WALDEN. So essentially a vote against this resolution is a 

vote for reclassification, something that more than 300 members of 

Congress have opposed in a bipartisan basis. 

Mr. DeReggi, is it your sense that the larger broadband providers 

cut a deal that they could live with because it was better than Title 

II reclassification, but that ultimately you will be the one having 

to pay the price, companies like yours? Can you turn on your 

microphone, sir? 

Mr. DEREGGI. That is correct. The smaller providers and the 

more competitive providers are the ones that will pay the price for 

the rules. I agree. I would say that all of us could probably live 

with the rules if we had to, if they stayed there. The question is 

they don’t necessarily stay there and the rules don’t really give all 

the protections that are needed for the access providers. You know, 

content providers are not the only person on the table to protect 

here. 

139 

Mr. WALDEN. And does it give you any concern that the FCC refuses to close its Title II rulemaking? They have that still open. 

They are taking information on it. Is it kind of like the little club 

hanging out there? 

Mr. DEREGGI. I think this is really an issue that needs to be 

solved by Congress. So I think the same thing applies to Title II, 

that Congress should stop that if that were to happen, and pass 

laws that are—do the right process. 

Mr. WALDEN. I would concur. We—some of us on this committee 

believe they don’t have the authority, the FCC. It has not been 

granted by this Congress or any other Congress. 

Ms. Kovacs, you explained in your statement that networks have 

a voracious and unending need for capital. Will the net neutrality 

order hurt the market for capital for network providers? Be sure 

to turn on your microphone there, ma’am. 

Ms. KOVACS. Yes, I think that this rule, if it is implemented at 

all the way it appears likely, is going to be detrimental because it 

is going to hit at the revenue sources. It is going to make it easier 

to cannibalize the network provider’s revenues. For example, Skype 

taking Frontier’s voice revenues, driving up the cost of broadband 

by forcing all of the cost on that. So short version yes, I think it 

is going to be a problem. 

Mr. WALDEN. For capital? 

Ms. KOVACS. For capital. 

Mr. WALDEN. Ms. Chase, again, thank you for coming, and I 

would just suggest the members that she does have to leave some 

time this afternoon to catch a flight back, so she may have to depart before we are done with our questions. 

Despite the fact that these rules have never existed previously 

and the companies you have been involved with and thousands of 

others have thrived, do I understand correctly that you support 

these rules because you believe they are needed to ensure that 

small companies can compete on the Internet? 

Ms. CHASE. These rules haven’t existed. If we think about the 

Internet and Internet innovation, it doesn’t have a very long life, 

so indeed, the power of the tel-co’s is becoming more and more obvious, and yes, I think it does need protection. And while I didn’t 

have to need that protection when I founded, today we definitely 

do. 

Mr. WALDEN. And you said that without these rules small companies will get squeezed out by larger companies that can pay for 

priority on the Internet, in effect, correct? 

Ms. CHASE. Priority is also classifying what constitutes the Internet, and if we don’t have a definition at the FCC, the telecommunications companies can decide what access actually looks like. So I 

think I could be separated from my market as well. 

Mr. WALDEN. The FCC order itself has said this is not going on 

today, but Ms. Chase, you are worried that that might go on in the 

future, right? 

Ms. CHASE. We typically try to protect small interest from duopolies, and I see this as a duopoly so it definitely needs some oversight. 

Mr. WALDEN. So would you be worried if web companies like 

Google charged Web sites for prioritized placement on the Internet? 

140 

Ms. CHASE. I think the FCC ruling doesn’t deal with Google right 

at this moment. I think it is more talking about infrastructure and 

access to the Internet. 

Mr. WALDEN. What would you be worried about that? Are you 

concerned about that, because somewhere on the end of the pipe 

somebody is prioritizing, right? 

Ms. CHASE. Yes, I could become worried about that. 

Mr. WALDEN. And in preparation for this hearing, I did a little 

search on carshare with Google to familiarize myself with the market, and I was pretty surprised to find that my search resulted in 

a paid place at the very top of the search list for Zipcar, the company that you founded and ran. So isn’t that exactly the kind of 

issue you are concerned about, in terms of a market leader paying 

an Internet giant for better access to consumers? 

Ms. CHASE. I would say exact opposite. If we think about the old 

days of newspapers where I, as a rich person, could buy a giant 

full-page ad on a newspaper and small companies could never afford that, I think that is the parallel that I would like to draw. 

Mr. WALDEN. My time is expired. I will give it to Mrs. Eshoo 

now. 

Ms. ESHOO. My thanks to all of the witnesses, an instructive 

hearing. 

First to Ms. Chase, again, thank you for traveling the distance 

that you have to be here with us. You are an American entrepreneur, an American businesswoman, an innovator. I don’t know 

if my colleagues know this, but Ms. Chase was named by Time 

magazine as one of the 100 most influential people. So you bring 

a lot to the table, and I am especially proud that a woman has 

achieved what you have. 

There is a difference at the table. You heard what Dr. Kovacs 

said, and while I am not going to—I guess I will be paraphrasing. 

She claims that the rules that the FCC adopted would hit revenue 

sources, damage capital for investment. Do you want to comment 

on that, and then I will ask Dr. Greenstein to comment on that, 

just very quickly because I have several questions. 

But would you go the heart of this whole issue of capital formation, businesses thriving or not thriving, whether the rules are 

helpful or hurtful, and this attempt to—I think there is a virus 

here in Congress, and it really is not about net neutrality. I think 

it is about any kind of regulation and whether government agencies have authority to carry out rules through their regulations. I 

think that is really what is at the heart of this thing. But at any 

rate, go ahead. 

Ms. CHASE. When we think about the core and whether we are 

protecting the core, the edges and—the core is a duopoly, and so 

their investment choices—they have no competitive reason to make 

good investment choices. I think they—we can invest in something 

or we can cut our costs. We can do more innovations from an operational perspective. There has been an argument that there is only 

one thing for them to do to improve their system and only one revenue source. There are lots of revenue sources, so I do not buy the 

argument that just because we are cutting off one particular revenue source that the whole thing crumbles. It doesn’t make any 

sense. 

141 

Ms. ESHOO. Thank you. Dr. Greenstein? 

Mr. GREENSTEIN. I disagree strongly with the assertion that all 

the ISPs in the United States have a problem covering the costs 

of data. First of all, we should recognize that there are different 

costs and there is a large variety. About 15 percent of the U.S. population lives in low-density areas where it is expensive to run an 

ISP. In the urban populations and the high density parts of the 

United States, we had a complete build-out, at least by two wire 

line providers. That was shown in the national broadband plan. 

Those firms are really very healthy. They get margins somewhere 

estimated between 70 and 90 percent; that is to say, of the dollar 

they collect, something like 70 cents to 90 cents on the dollar goes 

back to capital investment, the stockholders, the owners, and then 

the rest of it covers the cost of their data, the costs of customer 

maintenance, the cost of service. 

So given that is the situation, and for 15 years we have been 

watching the amount of data users ask for go up. I don’t really 

think there is any particular crisis in 85 percent of the population 

over how much data the ISPs can handle. It is a dollar a month 

on average—— 

Ms. ESHOO. I appreciate it. I am going to ask you to stop because 

I want to get a couple more questions. 

Mr. GREENSTEIN. You get the idea. 

Ms. ESHOO. To Mr. DeReggi, I mentioned in my opening statement about innovative companies, Netflix and Skype and eBay and 

how they have flourished. Other companies, thousands of jobs that 

have been created, not just in my district, my constituent’s companies, but across the country. 

In your written testimony, you suggest that appropriate network 

management might be to simply block Netflix altogether. I find 

that a little chilling, and so—— 

Mr. DEREGGI. I can explain why. I don’t believe—— 

Mr. WALDEN. Will you turn on your mic? 

Mr. DEREGGI. I don’t believe in blocking anything without—— 

Ms. ESHOO. But I mean to block anyone I think is part of the 

heart of all this, so why would you suggest that an appropriate network management is to block, and then fill in the blank. I mean, 

you said Netflix, but what—why do you find—— 

Mr. DEREGGI. If a spammer—— 

Ms. ESHOO. Wait a minute. Why do you find that to be appropriate, and just real quickly. 

Mr. DEREGGI. OK. It is appropriate because you blocked the 

source of a problem. If the person that is violating your acceptable 

use policy is Netflix, you block Netflix. It takes less system resources to block them—— 

Ms. ESHOO. I think this is—— 

Mr. DEREGGI [continuing]. Than to—— 

Ms. ESHOO. Frankly, I think this is an ineloquent statement 

about a school of thought. I just don’t agree with it, and I think 

it would be offensive to consumers across the country. But that is 

my view and you have yours, so thank you. 

Mr. TERRY. [Presiding] Thank you. Dr. Kovacs, do you have a response to Ms. Eshoo’s question? 

Ms. KOVACS. I would like to—— 

142 

Mr. TERRY. Microphone, please. 

Ms. KOVACS. Sorry about that. I would just like to—— 

Mr. TERRY. It is still not on. 

Ms. KOVACS. OK. I would just like to correct a fact. If you actually look at the margins of the carriers, that income margin is 10 

percent for AT&T and Verizon in 2009, 6 percent for Frontier, that 

is opposed to 28 percent for Google. So I am afraid Dr. Greenstein’s 

numbers are reversed of what he indicated. 

To go back to the issue of revenues, I think part of what is being 

missed is that not only are the companies not being allowed to 

charge for wholesale carriage, so Verizon or Frontier can’t charge 

Skype for carrying Skype. The revenues that are going to get lost 

are the revenues—voice revenues that Skype then takes away from 

Frontier or Verizon or AT&T or the others. The networks are supported by the core revenues. The cable networks are largely supported by video. The phone networks are largely supported by 

voice. Broadband right now is treated as incremental. If the core 

revenues go away, broadband will have to carry it all. 

Mr. TERRY. I appreciate—I just want to give you that opportunity, but Mr. Cicconi, there was a statement made during the 

opening statements that this rule is necessary because companies 

like Verizon and AT&T have hindered or blocked or somehow have 

interfered with the vibrancy of the Internet and the ingenuity. Can 

you tell me what policies exist with—have existed with AT&T and 

would you hinder or block the vibrancy of the Internet? 

Mr. CICCONI. Mr. Terry, I don’t believe anybody can point to a 

single instance where AT&T has really done anything of that nature. In fact, I think one can argue that probably no company has 

made available to consumers more innovations or more choices in 

the past 5 years than AT&T. The notion that somehow we would 

have any interest, economic or otherwise, in disadvantaging any 

businesses represented at this table or frankly any other. I 

think—— 

Mr. TERRY. How about blocking? That is a major issue here to 

put that blocking. How have you blocked access? 

Mr. CICCONI. We haven’t. 

Mr. TERRY. You haven’t? 

Mr. CICCONI. We have not. 

Mr. TERRY. You have not, all right. 

Ms. Chase, since you have come so far I want to make sure we 

use your time. In your statement, you had mentioned that there 

was an issue with wireless. Could you tell us with your previous 

company where there were problems with ISPs who were backed 

on or any part that hindered the ability of that company? 

Ms. CHASE. The anecdote I gave about starting in 2000, there is 

a lot of talk about wireless and it turned out that we were the second application for consumers outside of cell phones. I was very 

struck then, and as we make this—think about it today that the 

telecommunications industry was lagging behind innovation, yet 

they were the gatekeepers so how I could buy data packets. 

Mr. TERRY. Did they work with you to make sure that—— 

Ms. CHASE. No. No, we had to do a workaround for the first 3 

years until they offered a different data plan, and it was very arduous. I would also add that in a similar fact, we manipulate black 

143 

boxes as we put into cars, there is a permissions process for that, 

and that was a 3- or 4-month delay while the telecommunications 

carrier that we were working with—I think it was Verizon—gave 

us permission to manipulate the box as they saw fit, and that was 

also a significant delay for us. 

So it is better for innovators to not have to ask permission whenever possible. 

Mr. TERRY. Would you like to reply? She did say that Verizon 

and not AT&T, but is that a net neutrality issue? 

Mr. CICCONI. That would have been the point I would have 

made, Mr. Terry. First of all—— 

Mr. TERRY. Microphone, please. 

Mr. CICCONI. I think companies are certainly free to price their 

services in a competitive market. How they choose to price them, 

and that may certainly help some companies and hurt others, but 

that is within their purview in our system. 

The second point is none of the things cited with respect would 

be a net neutrality violation, frankly, under any of the proposals 

that were on the table, including the ones that we rejected pretty 

strenuously. 

Mr. TERRY. All right, my time is up. At this time I would like 

to recognize the ranking member of the full committee, Mr. Waxman. 

Mr. WAXMAN. Thank you very much, Mr. Chairman. 

Mr. Cicconi, I would like to thank you for agreeing to be here 

today to testify. I know that you and your company have been 

under pressure to repudiate your past statements about the FCC’s 

Open Internet order. I understand that AT&T would have preferred no rules in this area, but based on your public statements 

and conversations with my staff, it is my understanding that you 

think the FCC landed on a reasonable middle ground that removes 

the uncertainty that was impeding jobs and investment. Is that an 

accurate description of AT&T’s position? 

Mr. CICCONI. Yes, sir, it is. We do think it is a reasonable middle 

ground. I think provided the FCC, as it goes forward, interprets 

this rule in a narrow way and with appropriate regulatory humility, I think it could also provide the certainty we need in this industry. 

Mr. WAXMAN. Your position is very similar to that of the Cable 

Association. In a letter filed with the committee earlier this week, 

NCTA CEO Collin Pasquale stated that the cable industry supports 

the FCC order because, among other things, it ‘‘provides greater 

certainty about our ability to manage and invest in our broadband 

services today, and those we may deploy in the future.’’ 

Professor Greenstein, in looking at the question of whether the 

FCC should put in place rules to protect the open Internet, my 

staff reached out to a number of prominent economists. They spoke 

with professors at NYU, Wesleyan, Stanford, Wharton, and USC, 

all of the economists shared a common belief in competitive markets, and all suggested that unnecessary regulation can undermine 

efficient markets. But there was also a consensus around the idea 

that competition in the market for broadband Internet access services is limited. Most said this lack of competition made the FCC’s 

Open Internet rules necessary and appropriate. Do you agree? 

144 

Mr. GREENSTEIN. Yes, I do. 

Mr. WAXMAN. You said that the Open Internet rules are essential 

for growth and innovation of online services. Can you explain? 

Mr. GREENSTEIN. The access to the Internet goes back to the 

founding of the Internet. There has always been a question about 

who can use it and who has access to the transport level. It goes 

all the way back to when the NSF net was first prioritized. Congress has to pass an amendment to NSF charter in order to allow 

for multiple users, and in terms of the economics, there has always 

been a question of who can use it. The Internet is designed and it 

has always operated as a network for every user and every potential supplier doesn’t have to ask anyone for permission to use it. 

Mr. WAXMAN. That leads to growth and innovation in online 

services? 

Mr. GREENSTEIN. Yes. It is great for entrepreneurs, even college 

sophomores at Harvard. 

Mr. WAXMAN. I have heard of one, saw the movie. 

Ms. Chase, do you agree? Do you think that open Internet rules 

are essential for growth and innovation of services? 

Ms. CHASE. I absolutely agree, and I think you only have to look 

at the number of jobs and new companies created over the last 10 

years to realize an open innovation—open Internet is the key to 

our future in America. I think if we close that down and we don’t 

protect the status quo, which is an open Internet, we are putting 

ourselves in such an anti-competitive position relative to the rest 

of the world. 

Mr. WAXMAN. Thank you. In addition to reaching out to academics, my staff also spoke with economists at the Department of 

Justice, and we wanted to speak with DoJ to get their reaction to 

the argument often repeated here, that the issue of net neutrality 

is better addressed through anti-trust enforcement. DoJ told us 

that that is not the case, although anti-trust can be useful if a 

phone or cable company uses its market power to stop a competitor 

from entering the market, anti-trust law doesn’t stop a phone or 

cable company from blocking Web sites or applications that don’t 

pay for access. According to DoJ, favoring Web sites that they hide 

fees and degrading Web sites that don’t is perfectly legal under the 

anti-trust laws, as long as the phone or cable company isn’t in direct competition with the Web sites being degraded. I don’t know 

who to direct this to, but let me ask you, Mr. Greenstein. Do you 

agree that anti-trust laws are not sufficient to protect the public 

against attempts by the phone and cable companies to take advantage of their market power? 

Mr. GREENSTEIN. Anti-trust laws are very good for looking at 

mergers, but at very narrow questions in mergers. That is principally what they are about. 

Mr. WAXMAN. Does anybody on the panel disagree with the DoJ 

position? 

Mr. TURNER. Mr. Waxman, I very much agree with Justice on 

this. There are numerous problems in the marketplace that antitrust will not govern. Further, the limited selection of problems 

that anti-trust would govern has been weakened by the Supreme 

Court’s Trinko case, so therefore, anti-trust is really no remedy at 

all to consumers, or producers, in this case. 

145 

Mr. WAXMAN. Thank you very much. Yield back my time, Mr. 

Chairman. 

Mr. TERRY. Thank you very much. We will now go to the gentleman from California, Mr. Bilbray. Mr. Bilbray? 

Mr. BILBRAY. I would yield to the gentlewoman from Tennessee. 

Mr. TERRY. OK. The gentleman yields to the gentlewoman from 

Tennessee, Ms. Blackburn. 

Mrs. BLACKBURN. Thank you, Mr. Chairman, and I want to 

thank our witnesses for being here today. 

Ms. Chase, I wanted to come to you. Your testimony seems a little disconnected to me, and so I was hoping that you could help 

clear up a couple of things for me. Unless I am missing something, 

you set up a very successful company using the Internet as it was 

basically the status quo Internet. You did that without a whole lot 

of trouble, is that right? 

Ms. CHASE. I wouldn’t say without a whole lot of trouble at all, 

but yes. 

Mrs. BLACKBURN. Well, you didn’t have to overcome horrific odds 

or anything. You worked your business plan, set it up, and got it 

in place. So now I hear you saying that what you are wanting to 

do is to preserve the net neutrality rules that the FCC moved forward on, is that right? 

Ms. CHASE. Yes. 

Mrs. BLACKBURN. OK. And you are saying you want to do that 

so that edge companies like yours can innovate—like your current 

company can innovate. But see, I look at this and I think the Internet without net neutrality rules has worked great for innovators, 

and now you are wanting to change the rules. So why should the 

FCC’s rules allow you to innovate, and then not other entrepreneurial companies like Mr. DeReggi’s over here? 

Ms. CHASE. I would say that I would like to see the FCC’s rules 

preserve the status quo that existed when I was doing that innovation, and the—— 

Mrs. BLACKBURN. Ma’am, there was no federal governance of the 

Internet. 

Mr. DeReggi, do you have a comment on that? 

Mr. DEREGGI. Well yes, I think you pretty much summed it up 

with your statement. 

Mrs. BLACKBURN. OK, well then let me ask you this. I have a 

very rural part of my district, Perry, Wayne, Hickman County 

where I was last week, they are very concerned about broadband, 

so speak to me, what do you think is going to happen with 

broadband investment? These communities need it for education 

and for economic development, so what should their expectation be? 

Mr. DEREGGI. Most likely people aren’t going to spend their 

money if they are not going to get a return on it. I think what people need to realize is that the cost to deploy difficult areas to get 

broadband is much higher than the cost to deploy broadband to the 

mass easy areas. 

Mrs. BLACKBURN. Let me ask you this, then. Do you have any 

idea of what the magnitude of jobs loss would be for these areas 

that are underserved or sparsely populated and can’t get it? 

Mr. DEREGGI. Well, it is astronomical, but it is also going to lead 

to the population leaving to other areas. 

146 

Mrs. BLACKBURN. OK. Mr. Turner, I wanted to come to you for 

a minute. I was sitting here looking through everything. Now, Mr. 

Cicconi, we know he is with AT&T, Mr. DeReggi with RapidDSL, 

Ms. Chase with Buzzcar, so we know what interests that they are 

representing, and it is less clear to me whom you represent with 

Free Press. I think it might be instructive to us as we read your 

testimony and as we try to figure out, you know, the bias that you 

bring to the argument. If we—if you could detail to us where Free 

Press gets its funding. 

Mr. TURNER. Certainly, do you want me to do that now or in 

writing? 

Mrs. BLACKBURN. I would love to do it now, and if you want to 

submit for us the 10 largest supporters of Free Press, I think that 

would be great. It would be instructive. 

Mr. TURNER. Free Press takes zero corporate money. We are 

completely supported by our members and by foundation support. 

Mrs. BLACKBURN. OK, and then will you submit your funding? 

Mr. TURNER. Absolutely. I would pleased to, yes. 

Mrs. BLACKBURN. All right, that would be great. I would appreciate that, and with that, I am going to yield back the balance of 

my time. 

Mr. WALDEN. Gentlewoman yields back the balance of her time. 

The chair now recognizes the gentleman from Massachusetts for 5 

minutes. 

Mr. MARKEY. Thank you, Mr. Chairman, very much. 

Mr. Cicconi, thank you for being here and walking this tightrope 

that you are here today. 

Let me just begin. I heard you say that you feel that the regulations that were promulgated are a fair middle ground. Is that correct? 

Mr. CICCONI. Correct. 

Mr. MARKEY. And you also testified that as the rules have now 

been promulgated, that it is going to require no change in the business plans of AT&T, is that correct? 

Mr. CICCONI. That is correct. 

Mr. MARKEY. And you are also testifying that it is creating a 

longer-term predictable investment environment for AT&T, is that 

also correct? 

Mr. CICCONI. It is correct. Again, with—provided that the FCC 

continues to interpret the plain language of the rule in a narrow 

way, and again, I would hope with appropriate regulatory humility. 

Mr. MARKEY. But at this point, you identified that appropriate 

level of humility, is that correct? 

Mr. CICCONI. Yes, sir. 

Mr. MARKEY. Yes, and I think that is important for people to 

hear. Is there a problem? Is there something here that we are trying to cure that actually does not exist? Because obviously, before 

August of 2005 the non-discrimination principles were there and 

the Internet grew, expanded, for years until that ruling in 2005. So 

all these companies, Google, eBay, Hulu, YouTube, Facebook, whatever, all were able to be founded in that non-discriminatory era. 

Ms. Chase, from the entrepreneur’s perspective, you know, you 

are here representing thousands and thousands of smaller companies out there now looking at this decision—this potential resoluVerDate Nov 24 2008 10:07 Sep 27, 2011 Jkt 037690 PO 00000 Frm 00150 Fmt 6633 Sfmt 6633 F:\112-018 HJ RES 37-PDF MADE\112-018 PDF MADE WAYNE
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tion that the Republican Majority is thinking of promulgating. 

What do you think would be the impact in terms of how the venture capital industry, other investors will now view these thousands of companies that are in this space, trying to innovate using 

the Internet. 

Ms. CHASE. If the venture capitalists think that I can’t compete 

because I can’t pay for special access or I might be stymied by special rules, clearly they wouldn’t invest in us. 

Mr. MARKEY. OK, and how many companies are in this space? 

I don’t mean competing against Zipcar, but I am talking just the 

companies that are dependent as smaller startups? 

Ms. CHASE. If we think about innovation and job creation, we 

know that startups are the ones that created all the jobs in the last 

10 years, or 75 percent of them. So I would say a significant number of them. 

Mr. MARKEY. OK, now this hope that the anti-trust laws could 

be used, if you are a small—if you are Zipcar, how long would it 

take and how much would it cost Zipcar to use the anti-trust process, and what is the likelihood that your vindication would be posthumous from a corporate perspective if a court ultimately did 

render a favorable decision? 

Ms. CHASE. You have made a very good point, that without a 

body such as the FCC to whom I can turn to to protect me, as a 

small business, you never sue anybody. You can never enter into 

that at all. 

Mr. MARKEY. Right, and I agree with that. That is a false promise, false protection because the anti-trust laws clearly for smaller 

companies and 80 percent of all new jobs in America are created 

by smaller companies, and a disproportionate number of them are 

now created by companies dependent upon the Internet. So that is 

where our job creation comes from, and this is a huge decision that 

the Republicans are now making, intervening into a marketplace 

where AT&T says they can live with the rules, Comcast says they 

can live with the rules, and the smaller Internet companies are all 

saying that they can live with the rules. 

Mr. Turner, when you were just asked who do you represent, 

could a simple explanation of who you represent just be the consumer? 

Mr. TURNER. We are a public interest advocacy group concentrated on the interest of consumers, yes, sir. 

Mr. MARKEY. On the consumers, thank you. Now, why don’t you 

just expand a little bit on what the impact of a repeal of these nondiscriminatory principles could mean for our consumers in the 

United States? 

Mr. TURNER. It could be devastating. Right now I think through 

Mr. Cicconi’s testimony we have learned that there is really no 

problem the marketplace has with the FCC rules; however, if you 

remove that certainty, you then create potential discrimination 

against innovative companies like Ms. Chase. You potentially have 

companies that would block content, like Netflix, because it competes with their online video products. You potentially have the 

next Netflix, the next Zipcar not being able to start their business, 

and consumers ultimately are the losers in that. 

148 

Mr. MARKEY. Sir, if you are a kid in a dorm someplace and you 

have got an idea right now and your girlfriend is over at the business school, and she says maybe I can help you to raise some 

money right now, what is the difference in terms of the perspective 

of an investor if you have discrimination or non-discrimination 

principles on the books in terms of the startup of a small business 

that would ultimately provide consumers with more choice? 

Mr. TURNER. Well, it would create tremendous uncertainty, and 

I think—we keep hearing, you know, that there was never network 

neutrality to begin with, but I think that is really an inaccurate 

view of history. The Internet was born from the principle of nondiscrimination. It existed for the 30 years before it even became 

commercialized, and it existed, as you mentioned, until 2005. It 

wasn’t until that recent change that this got started. 

Mr. MARKEY. Thank you. Let me just finish on that point. That 

was the testimony that we had here from Tim Burners Lee, the 

creator of the world wide web. He made it quite clear that when 

he created the world wide web, he baked the principle of non-discrimination into the personality of the Internet. He invented the 

world wide web. He is still only 54 years old, and that was the first 

witness that we had 4 years ago before the committee. So we can 

either give some deference to the investor of the world wide web, 

which is the basis for all of this commercial activity, or we can just 

ignore it, but non-discrimination he testified was the central characteristic of the web. Thank you, Mr. Chairman. 

Mr. WALDEN. Gentleman’s time is expired. Chair recognizes the 

gentleman from Louisiana, Mr. Scalise. 

Mr. SCALISE. Thank you, Mr. Chairman. I appreciate the opportunity to ask some questions of the panel, and especially to have 

us focusing on this issue, this new government regulation of the 

Internet, net neutrality, and especially as we deal with the legislation later on today, you know, I am kind of amazed at some of the 

comments I am hearing not only from some people on the panel, 

but some of my colleagues on the other side. You know, I am a 

computer science major and I have watched as this industry has 

thrived, probably more than any other industry in the world, and 

it has thrived because the government hasn’t figured out how to 

regulate it, how to mess it up. And yet you have got now a rule 

coming in by the FCC, this new net neutrality, where the government is coming in and saying we are going to fix the Internet. We 

are going to come in with regulations to fix the Internet, because 

boy, if you look all across this country, all the problems our country 

is facing, if the President really was focused on what the real problems of the country are, he would be focused on creating jobs. If 

you want to go and find a good template of how to create jobs, go 

look at the Internet. Go look at these great innovative companies. 

Go look at these great innovators who dropped out of college and 

are now billionaires because the federal government hadn’t figured 

out how to regulate in a way that somebody can do just that, can 

innovate in a way that Ms. Chase and so many others have innovated. 

And so now you have got the FCC coming in and saying we are 

going to regulate, and people are actually saying it is good that the 

FCC is regulating it to keep the status quo. Well first of all, it is 

149 

the other format, the non-regulated format that allowed all of this 

innovation, that still to this day—by the way, it is not over. Unfortunately with the FCC coming in, there is a big concern in industry 

of the people who actually invest billions of dollars. 

I want to ask you, starting off with Mr. Cicconi, your company 

is one of the many companies who has invested tremendously. We 

had testimony a few weeks ago from the FCC, all five FCC commissioners came before us, talking about this new regulation of the 

Internet, net neutrality. We heard testimony from one commissioner, and nobody disputed it, that over $500 billion of investment 

has been made to build the broadband infrastructure that exists 

today that allows all this innovation, and none of that was taxpayer money, by the way. Maybe that is one of the things that this 

administration doesn’t like. It all happened with private investment. 

How much money has your company invested in allowing this innovation and creating and building this network infrastructure? 

Mr. CICCONI. I don’t have an exact figure in front of me, Mr. Scalise, but last year we invested approximately $19 billion in capital. I think—— 

Mr. SCALISE. How much was that? Can you say that again? 

Mr. CICCONI. Nineteen billion dollars in capital in the United 

States, nearly all of that was in the United States, and I think that 

was more than any other American company invested in the 

United States last year. 

Mr. SCALISE. And that was under non-net neutrality rules? 

Mr. CICCONI. Correct, and this year we will invest roughly between 17 and 19 billion dollars in capital again. 

Mr. SCALISE. And let me ask you this, because in your statement—I listened to your testimony and you used a number of comments that I thought were interesting. You know, some people act 

as if you are really thrilled about net neutrality, and maybe some 

people are thrilled about it, but in your statement you said ‘‘all of 

this, without any real evidence of a problem. It is still AT&T’s 

strong preference to have no regulation. The proposal was extreme 

and upset the financial markets. You are talking about earlier proposals,’’ and then ultimately you said ‘‘the only proposals before us 

were either bad or worse.’’ So here you have got the government 

coming in and saying OK, first of all, there is no problem. The innovation has never been greater and no industry in the history of 

the world has seen this much innovation, and so now the government is going to come in and regulate it. But they are going to give 

you some options and we are going to give you a bad option and 

a worse option. Well, anybody would say well, I guess I will take 

the bad option instead of the worse option, and that to some people 

on the other side constitutes you supporting this new regulation of 

the Internet. 

So I just want to put it in that context, but I ask you, because 

you expressed this as a concern. There is an assumption by some 

that the FCC is going to interpret these rules in a very narrow 

way. What if the FCC does not interpret these rules in a narrow 

way, which if we are not able to pass our legislation to block the 

regulation, the FCC would be free to interpret it as broadly as they 

like. What if they don’t interpret the rules narrowly? 

150 

Mr. CICCONI. I think it depends on the circumstance, sir. Clearly 

we would reserve the right to challenge that in court, if something 

were to occur that we feel is inconsistent with the plain language 

of the rule. 

Mr. SCALISE. And I am sure some people would think that is good to have now, companies that innovate that add $17 billion of 

their own capital to build out the infrastructure are now concerned 

about maybe having to go to court to be able to continue innovating. 

Let me ask you, Ms. Chase, you know, I appreciate you coming 

here from France to participate in this. When I did, as the chairman of the subcommittee did, a Google search on carsharing, your 

company that you founded, Zipcar, came up. Is there anything in 

this FCC ruling that prohibits you from being able to buy that premiere placement under net neutrality where a startup wouldn’t 

have that same advantage? 

Ms. CHASE. I feel like that is not the question at hand. 

Mr. SCALISE. Well, that is the question at hand. The bottom line 

is, you know, maybe you don’t want to answer it because you are 

given now a monopoly. You are now given an advantage over the 

new startup. I am not as concerned about the companies that are 

already successful today, being able to innovate as much as the 

new company, the new idea that we will be blocking from innovating and maybe you would like the idea because under net neutrality, Google is still able to give you preference over the new 

startup that now is at a competitive disadvantage because of net 

neutrality. 

So I would hope you would not only be concerned about your 

company’s success—— 

Mr. WALDEN. The gentleman’s time is expired. 

Mr. SCALISE [continuing]. But also the new startup company that 

is going to be as innovative as yours. 

Mr. WALDEN. Gentleman’s time is expired. 

Mr. SCALISE. And I yield back my time. 

Mr. WALDEN. Chair recognizes the gentleman from Pennsylvania, 

Mr. Doyle. 

Mr. DOYLE. Thank you, Mr. Chairman, and thank you to all the 

witnesses today. 

It is amazing. Maybe sometimes we just don’t speak clearly 

enough, but you know, up until 2005, the transmission component 

of DSL service was regulated as a telecommunications service. In 

the dial-up world, companies provided data transmission. They 

were obviously regulated as a telecommunications service, because 

the data traveled over phone lines. So you know, to keep hearing 

statements that there was never any regulation of the Internet and 

it worked just peachy keen, it just isn’t based in any reality. 

Dr. Kovacs, I was interested in your testimony. I hear you say 

that we can’t take care of the edge at the expense of the core, and 

that you feel that these rules that the FCC has put forward would 

stifle investment in this. Are you aware of the analysis done by the 

Bank of America and Merrill Lynch? 

Ms. KOVACS. I am not, no. 

Mr. DOYLE. They came to a different conclusion. How about 

Citibank that called this FCC ruling balanced? They came to a difVerDate Nov 24 2008 10:07 Sep 27, 2011 Jkt 037690 PO 00000 Frm 00154 Fmt 6633 Sfmt 6633 F:\112-018 HJ RES 37-PDF MADE\112-018 PDF MADE WAYNE
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ferent conclusion to you. Do you know that Wells Fargo in their 

analysis of these rules called it a light touch, and that Raymond 

James also disagrees with your analysis? It seems to me that you 

are somewhat of an outlier in the field with regards to whether or 

not this stifles investment in the field. 

Let me ask Dr. Greenstein. You have looked at the literature on 

this and did a literature review. What did you find was, in your 

review of the literature, was the consensus on the FCC order and 

its impact on investment? 

Mr. GREENSTEIN. It largely doesn’t change the practices at most 

ISPs. We all went home tomorrow. The business—it looked the 

same as it did a year ago. 

Mr. DOYLE. Mr. DeReggi, first of all, I want to say I appreciate 

your company and the competition that it provides in areas that 

need it, and I know it is hard for entrepreneurs to come up to this 

committee and provide testimony and engage in policy matters, so 

I appreciate the fact that you are here. 

But I am a little confused by some of the things that you have 

said. On prior occasions, you have expressed support for open 

Internet principles. Specifically in comments that you made to the 

NTIA and RUS in response to the second round of BTOP funding, 

you stated that RapidDSL fully endorsed the comments of the 

Wireless Internet Service Providers Association, and among those 

associations’ comments, it argued that the agency should make 

clear to any funding recipient that they will agree to abide by the 

rules the FCC adopts in its ongoing network neutrality proceedings. 

So I guess my question is since you agree with applying the 

FCC’s rules to funding recipients, why would you support a wholesale rejection of the rules through a resolution like this? 

Mr. DEREGGI. Great question, because the government was paying for the network, not me. Also, I do support an open Internet. 

The net neutrality rules passed by the FCC is not an open neutral 

policy. It is a policy that favors content providers and gives it discriminative rights and does not allow those same—— 

Mr. DOYLE. Let me ask you this. Also you sent an e-mail to thenFCC Chairman Kevin Martin regarding Comcast blocking your 

traffic, and your quote was ‘‘Comcast is a necessary war. It sets the 

precedent that these net neutrality blocking won’t expand as a 

strategic advantage to harm competitors.’’ You have also expressed 

support for RapidDSL being subject to rules related to truth in advertising or disclosure of your network management practices. You 

said that in an ex parte letter to Chairman Genachowski. I guess 

what confuses me is, if you are in support of some of these FCC 

rules, such as transparency requirements, why do you want to see 

the Congressional Review Act be used to invalidate all of the FCC’s 

rule? Wouldn’t you—— 

Mr. DEREGGI. Because they—— 

Mr. DOYLE [continuing] Prefer Congress to take a more surgical 

approach to, you know, deal with those things that trouble you but 

not throw the entire rules out? 

Mr. DEREGGI. They don’t deal with any of the things that troubled us, so we are a provider too. We are there. Just protecting our 

competition doesn’t help us. 

152 

Mr. DOYLE. Thank you. 

Mr. DEREGGI. All the claims that I have asked help for, we 

haven’t got that help. The rules don’t give us protection—— 

Mr. DOYLE. But you are here to support a practice that is going 

to throw all of this up, that which you agree with as well as those 

things that you have a problem with. 

Mr. Turner, your testimony—you don’t support this resolution. 

You basically think that the FCC didn’t go far enough. Would that 

be an accurate statement? 

Mr. TURNER. Yes, sir. 

Mr. DOYLE. And Ms. Chase, I just want to say, I see Zipcars all 

over Pittsburgh. That is the area that I represent, and I think it 

is really a fantastic service and people use it a lot in Pittsburgh. 

Just as an entrepreneur and an innovator and a job creator, you 

know, you are here and you have come a long way to do that. We 

are policy makers up here, so what is the one thing that you would 

like to share with all the policy makers up here with regards to the 

Internet? What do you think Congress should be doing? 

Ms. CHASE. We have talked a lot about the stymieing this promoting and will prevent investment for the core, and we—there is 

a figure here that was thrown out of $19 billion that was—that 

Verizon is—AT&T is intending to invest. I would like to point out 

that the small business contribution to the economy is vastly, vastly larger than any of that, and we are talking about throwing out 

rules that protect those small businesses from lawsuits that we 

can’t have anti-trust suits that we can’t go after. I would also like 

to suggest that Mr. DeReggi’s fears, as he represents a small business and he is also being crushed by the duopoly, and their advantages. So it comes back to this duopoly control of access to the 

Internet, and not about what happens on the Internet. The Internet itself is inherently open, if we can get there. 

Mr. WALDEN. Gentleman’s time is expired. 

Mr. DOYLE. Thank you, Mr. Chair. 

Mr. WALDEN. Chair recognizes the gentleman from Illinois, Mr. 

Shimkus. 

Mr. SHIMKUS. Thank you, Mr. Chairman. It is great to have the 

panel. We appreciate all the effort to be here. 

This is what I have always struggled with, and I think I am 

going to open up with really Ms. Chase, because I think all of us 

appreciate a business model that people have an idea of a service 

that is not being rendered, it is an idea. You all have to develop 

a business plan and then you go to the markets to raise money. 

You are assuming risk. Hopefully somewhere down the road there 

is a return. That is the way the business works. That is the capitalist system. It is great, it is thriving. It is why we have one of 

the greatest economies in the world, even in a down time. 

Why doesn’t this work for—let me ask the question this way. If 

the FCC can control the pipeline by picking winners and losers in 

intervention, what is the market signal to build out more pipes? 

Ms. CHASE. I don’t think the FCC is controlling the pipeline to 

pick winners and losers. 

Mr. SHIMKUS. OK, let me ask this question again, and I am not 

trying to pick a fight. I am saying I want to—where is the market 

signal if we want to build out more pipes? If there is a government 

153 

agency that then can say bad boy, bad girl, usually there is a constrained supply, the market would say you can pay a premium for 

access. Eventually, the market signal would be what? Build out another pipe, just like—and you have made these decisions in your 

whole business plan, and that is the way the system—my question 

is what is the market signal that would encourage build out of 

more pipes? Because what is a better answer, instead of government regulation, the better answer is build more pipes. 

Ms. CHASE. I think there is a variety of answers. Build more 

pipes might be one of those answers, but I also think it only—— 

Mr. SHIMKUS. It is the only market answer. I mean, it is the only 

answer in a competitive market that then private capital would 

flow to build it. Now, we have an example of government trying to 

intervene in building this and the stimulus, and we found out that 

we overbuilt, we incentivize, government-run. We have unserved, 

underserved areas. The stimulus is a perfect example of how we 

failed by providing government money to do what the market 

should do. So let me go—I have got 2 minutes left, and I want to 

ask Mr. Cicconi—I hope I pronounced that right—— 

Mr. CICCONI. Yes, sir. 

Mr. SHIMKUS. The FCC says that these rules bring certainty to 

the broadband economy, and certainty in the business model is 

very, very important. If you have got certainty, you have got lower 

risk, you can borrow more capital or the cost of capital is less. That 

is true, right? 

Mr. CICCONI. Right. 

Mr. SHIMKUS. Isn’t the uncertainty that the FCC cure is originally caused by the FCC? 

Mr. CICCONI. I couldn’t—— 

Mr. SHIMKUS. Was that unfair? 

Mr. CICCONI. No, I don’t think so, Mr. Shimkus. I clearly—and 

I think I reflected this in my opening statement, that you know, 

I think this rule is a fair and middle ground, but certainly that is 

fair in comparison with the alternatives that we were facing. 

Mr. SHIMKUS. That is great. 

I want to end up with Mr. DeReggi, and I appreciate your testimony and to highlight your background, and again, I see a segue 

to market principles is the best way to provide goods and services 

to individuals. 

But do you believe it is equitable that these rules apply to you 

but not web companies? 

Mr. DEREGGI. I find that to be a tragedy that they apply solely 

to us and not web companies. 

Mr. SHIMKUS. Do you agree with the letter we received from the 

NCTA, other cable folks that drawing these types of distinctions 

between broadband providers and web companies no longer makes 

sense? 

Mr. DEREGGI. I would agree. 

Mr. SHIMKUS. Great. Mr. Chairman, I am finished. Thank you 

for the time, and I yield back. 

Mr. WALDEN. Gentleman yields back the balance of his time. 

Chair recognizes the gentlewoman from California, Ms. Matsui, for 

5 minutes. 

154 

Ms. MATSUI. Thank you very much, and I thank the witnesses 

for being here today. Mr. Chairman, I thank you for holding this 

hearing prior to any markup on such an important issue, although 

I still have reservations regarding the process in which this resolution is moving. 

There are far too many unanswered questions to resolve that 

would undoubtedly lead to unintended consequences on the market. 

That being said, I strongly oppose this resolution because it undermines market certainty, harms consumers, discourages innovation, 

investment, and job creation in this country, and does nothing to 

move our Nation’s economy forward. 

Mr. Cicconi, it is no secret that over the years AT&T has raised 

concerns over proposed net neutrality rules. Yet, AT&T took a 

stance in support of the FCC’s order as a CEO and chairman earlier this year that the Open Internet order ended at a place where 

we have a line of sight and we know we can commit to investments. What are the specific factors that lead you to supporting the 

FCC’s order? 

Mr. CICCONI. As I said earlier, Ms. Matsui, I think we are comfortable with the order primarily because it locks this line, we feel, 

in a more balanced way than the other proposals that were in front 

of the FCC. I think keep in mind that the two proposals that were 

there, one was an NPRM that frankly had a discrimination standard in it that we felt was probably a violation of the Telecom Act 

and certainly didn’t have support in the Act. It would have inevitably led to legal challenge. The other was to impose common carriage regulation on these services, again which would have been, 

I think, a very extreme proposal. We were pleased that the FCC 

was willing to work with us to try and deal with our concerns, and 

frankly, deal with the concerns of stakeholders to see if there is a 

middle ground. Like any middle ground, we are not happy with 

every part of it. We would have preferred some different language 

and different standards. We would have preferred nothing on wireless. 

Ms. MATSUI. Right, I understand that. We heard from a great 

number of leading economists in support of the FCC’s order. Assuming that the FCC moves forward with the order to ensure rules 

of the road are in place to protect innovators and consumers, what 

impact does CRA have on Wall Street. 

Mr. CICCONI. I think that is tough to predict, Ms. Matsui, primarily because I think if the CRA were to pass, I think the ball 

then passes to the FCC, and I think the market reaction would depend heavily on how the FCC then reacted. If the FCC, for example, reacted by deciding that it didn’t want to move forward with 

any further regulations in this area, obviously I think the market 

would be pleased and that would provide a high degree of certainty. If, on the other hand, the FCC reacted by going back to the 

still-open Title II proceeding and began that process all over again 

that we went through this past year, I think it would create a great 

deal of uncertainty. 

So I think the answer to that really rests with the FCC. It 

doesn’t really—it is not really a product of the CRA and what the 

Congress decides to do on that. It is really more a product of what 

the FCC decides to do in the wake of that. 

155 

Ms. MATSUI. OK, but you are still dealing with uncertainty, 

though? 

Mr. CICCONI. Potentially, but again, depending on what the FCC 

decides to do. 

Ms. MATSUI. OK. The FCC Open Internet order includes a meaningful transparency requirement so that consumers and innovators 

have information they need to make informed choices. I should 

mention that this transparency rule is widely supported by all industry stakeholders and deemed non-controversial. If this resolution becomes law, the FCC’s transparency rule, which simply states 

that broadband providers must disclose their network management 

practices, performance characteristics, and terms and conditions of 

the broadband service to consumers will be eliminated. That would 

be bad for consumers, bad for business, and bad for the Internet 

economy. 

I have a question for the panel and I would like a yes or no answer, just a yes or no answer. Do you support the FCC’s sixth principle on transparency, which would provide consumers, small businesses, and innovators with the information they need to make informed choices? I will start with you, Mr. Turner. 

Mr. TURNER. Yes. 

Ms. CHASE. Yes. 

Mr. CICCONI. Yes. 

Ms. KOVACS. Yes. 

Mr. GREENSTEIN. Yes. 

Mr. DEREGGI. Yes. 

Ms. MATSUI. OK, thank you for your answer. The FCC order includes a meaningful transparency requirement, which this whole 

panel seems to agree should be in place. 

As our economy continues to evolve, and new emerging economic 

sectors are growing, a free and open Internet would be vital, one 

that acts as a framework for industry to follow to ensure that all 

stakeholders are playing by one rule. 

Ms. Chase, you are a leading entrepreneur who relies on the 

Internet to conduct business. Using your experience, how would the 

FCC Open Internet order impact emerging new economic sectors 

like smart grid and health IT, among others? 

Ms. CHASE. I think it will have an enormous impact, and that 

is one of the things I am concerned about. 

Ms. MATSUI. OK, thank you. Yield back the balance of my time. 

Mr. WALDEN. Gentlelady’s time has expired. I now recognize the 

chairman of the Oversight Committee and the former chairman of 

this committee, Mr. Stearns, for 5 minutes. 

Mr. STEARNS. Thank you, Mr. Chairman. I listened to the testimony of Mr. Waxman and Mr. Markey, and Mr. Cicconi, they have 

praised you as supporting the FCC approach to rulemaking, and 

Mr. Markey has phrased you and Mr. Waxman I think are the 

Democrats. I know that must put you in a little awkward position, 

having been the ranking member of this committee and working 

with you and all the consumer groups, as well as others, trying for 

months to try and work this out and realizing how difficult it was. 

In reading through your testimony, I think maybe this will clear 

it up for Mr. Waxman and Mr. Markey a little bit. The chairman 

of your company, Randall Stevenson, summed up his reaction to 

156 

the FCC—this is in your opening statement—his decision, and I 

thought I would read it because it really, I think, goes to the point 

and perhaps gets you off the hot seat here, because he is speaking 

for your company and he said ‘‘We would be lying if we said we 

were pleased with the approach, but it is a place we know we have. 

We didn’t get everything we would like to have, but I would like 

to have had no regulation.’’ That was his point. ‘‘I would have liked 

to have had no regulations, to be candid.’’ 

So Mr. Waxman and Mr. Markey are saying that you folks are 

just out there touting this approach. I think your chairman has 

pointed out that if he had his druthers, he would like to have no 

regulation. Is that still accurate, in your opinion? 

Mr. CICCONI. That is absolutely accurate, Mr. Stearns. I think 

this entire debate for many years, but certainly for the past 2 

years, has revolved around very difficult questions, which is should 

one regulate to deal with hypothetical problem, because by and 

large, that is what we are dealing with, are these hypothetical. It 

is the hardest thing, I think, for policymakers to decide. If you 

move into this space, it is very, very hard to draw lines, and this 

is one of the things that worries us the most about moving into this 

area. It was stated earlier that, you know, different members of the 

Internet ecosphere might be regulated in a different fashion, some 

regulated, some not. Inevitably, the danger there is of course the 

government gets into picking winners and losers. Our concern, of 

course, is not only with that but with the fact that the government 

doesn’t do this very well. 

Mr. STEARNS. Dr. Kovacs, in looking through your testimony, the 

aspect about your opening statement where you talked about the 

transfer of wealth from broadband Internet access providers to application providers is accurate, but you say it does not seem to 

grasp the problem for both parties. So you say it provides those 

who ride the network with a strategically vital financial weapon to 

use against broadband Internet access who in many cases are their 

competitors. To put it another way, it takes all bargaining power 

away from the BIA. You might just confirm that, what you mean? 

Ms. KOVACS. A couple of different things. For example, one of the 

things the FCC did not look at is a situation in which Google might 

decide to withhold its services from Verizon in Boston, but continue 

to provide them to Comcast, which would, I think, become a huge 

problem for Verizon retaining customers. The revenues that are 

taken away from the voice provider who is also a broadband provider, like Frontier, like Google Voice, Skype, Vonage, all of those 

represent a transfer of wealth, and they become problematic for 

Google and et cetera. That means that the network cannot continue 

to innovate, and I think to me, the really troubling piece of this discussion is the assumption that only the companies at the edge, like 

Robin’s, need to innovate, but that Mr. DeReggi doesn’t. And in 

fact, she won’t be able to do her business unless he keeps investing. 

Mr. STEARNS. Mr. DeReggi, have you actually read the FCC’s approach to this net neutrality? I mean, have you actually—you or 

your staff actually taken time to read it? 

Mr. DEREGGI. Yes. 

157 

Mr. STEARNS. What specifically is in there that you don’t like? I 

mean, can you tell the committee maybe some specifics about it, 

just briefly? 

Mr. DEREGGI. Yes, the thing that I don’t like about it most is 

that it is—everything is a double standard. It does half the problem. For example, I want consumers to have their choice of content, 

but it doesn’t really give that, you know. 

Mr. STEARNS. So it is vague in areas you think it should be precise, would that be—— 

Mr. DEREGGI. Right, exactly. It is also very vague, so because of 

it, it allows the—it to be interpreted by the person who just happens to be in the office at that specific time who could have a completely different viewpoint of what those terms mean. 

Mr. STEARNS. And because it is vague at this point, does it create 

uncertainty to you in terms of investment? 

Mr. DEREGGI. A tremendous amount of uncertainty. I just don’t 

know what to expect. 

Mr. STEARNS. Thank you, Mr. Chairman. 

Mr. WALDEN. Gentleman’s time is expired. Chair recognizes the 

gentleman from Michigan, Mr. Rogers, for 5 minutes. 

Mr. ROGERS. Ms. Kovacs, the FCC claims that the order brings 

certainty to the market. I am having a hard time finding where the 

uncertainty was, except for the fact that the FCC was talking 

about intervening in the market. Doesn’t a lawsuit over the FCC’s 

lack of authority bring even more uncertainty into the market? 

Ms. KOVACS. The issue is definitely not settled at this point, because of the possibility for litigation and because of the point that 

Mr. Cicconi made, that we are not going to know what the rules 

mean until the FCC interprets them one by one. So companies 

right now really have no idea of what they can do in terms of pricing, in terms of the kind of products they can develop as part of 

their business plan on the carrier’s side, until sort of case law develops at the FCC. 

Mr. ROGERS. And that never happens in a hurry. 

Ms. KOVACS. Well—no. The whole—I mean, that is—— 

Mr. ROGERS. So now we have added another layer of uncertainty 

to the definitive uncertainty that the FCC put into the market in 

the first place. A little confusing to me. We are just a small construction company back in Michigan. We don’t—maybe a little beyond our intellectual prowess to understand how we got to the uncertainty in the first place. 

Ms. Chase, thank you for being here today. I am really interested 

in your business model. When you negotiate a parking space, say, 

in Washington D.C. or Philadelphia, is that something the company pays for, is that something that the city gives you? How does 

that work? 

Ms. CHASE. That is a jurisdiction by jurisdiction thing. It is typically done through an RFP. 

Mr. ROGERS. All right, so there is—you compensate on most 

cases or are they given to you in most cases? 

Ms. CHASE. I can’t speak for what is happening today and I 

couldn’t give that count, but I have paid for municipal parking 

spaces. 

158 

Mr. ROGERS. And so you took advantage, basically, it was a good 

business model, I think it is a smart business model, but you took 

advantage of the concrete and the per paid for by taxpayers. You 

negotiate a much lower rate, and the only reason I say that, I have 

driven by those spaces and looked with envy as I went around the 

block 16 times, trying to park my car. 

So what you have done is you have utilized taxpayer-funded support networks, the infrastructure, you have utilized that part, 

taken it off the market for the rest of the taxpayers who paid for 

it, and for the service business model—I think it is clever, don’t get 

me wrong, but you can clearly see that you are taking advantage 

of that particular spot, based on someone else’s investment, mainly 

the taxpayer. I find it interesting, because I know you have got several millions of dollars to help you start your company from the 

federal government. The argument being—I think we found $6.5 

million to date on earmarks to Zipcar. I do believe the figure is 

larger that that at the end of the day. 

So let me make my point, and I will certainly get your response. 

So you understand why I think advocacy is important and why we 

should understand advocacy and why people take position. I mean, 

your company did well, it was certainly helped—financed by the 

federal government, you are taking advantage of taxpayers buy 

using their infrastructure and making money off of it. If you get 

away with that, God bless you. It is capitalism. I am all for it. 

But now you are saying we want to do the same thing to the 

Internet. We want the government to come in to protect me so I 

don’t have to pay for the expansion of the Internet that we know 

should happen, based on hopefully what we would see as increased 

volume and more businesses coming into the Internet. 

And so that is the part that I find confusing about your advocacy 

is that—I mean, clearly your business model heavily weighted on 

subsidies, especially by taxpayers. 

Ms. CHASE. Let me just correct a couple of things. I was CEO for 

the first 3 years. In the first 3 years we took absolutely zero government dollars. As to parking spaces, parking is grotesquely 

underpriced everywhere. People—citizens park for free on street 

generally, and if you were to rent that parking space, it would be 

$3,000 a month. So it is certainly by no means—I would feel it is 

uncompetitive that we had to compete with free on-street parking 

given to residents and we could not access that. 

Mr. ROGERS. I am not sure where the free on street parking has 

begun. Try putting the quarters in. You better bring about 8,000 

pounds of quarters to Washington, D.C. But I will just tell you—— 

Ms. CHASE. Well, so this is not the argument, but to this other 

piece, sir, I do not think at all that we have sucked at the corporate—at the government tit, in any case. I would say, though, 

that when I look at market—I have written here that market signals are driven by demand and by competitive pressures, and we 

can look to the—what we are talking about, which is that the access to an open Internet is gated by two major companies. They 

may be responding, the market signals might be working for demand but they are not responding to—— 

Mr. ROGERS. OK, I hear your point. I am running out of time. 

I hear your point, but you said something interesting. You said if 

159 

you can get there, and I completely agree with you. On-ramps and 

off-ramps are incredibly important. My fear is, and Mr. DeReggi, 

if you can follow up on this, we have now purposely—because the 

government now comes in and makes everything nice in theory, 

and they decide who wins and who loses. Why on God’s green earth 

would you invent—invest in new on-ramps and off-ramps for the 

Internet. 

Mr. WALDEN. Gentleman’s time is expired. 

Mr. STEARNS. Mr. DeReggi, could you just answer that? I see my 

time is almost up. 

Mr. WALDEN. Very quickly. 

Mr. DEREGGI. I pretty much fully agree with you. I am not quite 

sure how to answer it because I agree with what you have said. 

Mr. STEARNS. On-ramps and off-ramps are important to companies like yours, are they not? 

Mr. WALDEN. Gentleman’s time—— 

Mr. DEREGGI. On-ramps and off-ramps are definitely important 

to our company. 

Mr. STEARNS. Does this not stifle—— 

Mr. WALDEN. Gentleman’s time—— 

Mr. STEARNS [continuing]. AT&T and Verizon from investing in 

new on-ramps—— 

Mr. WALDEN. Gentleman’s time is expired. 

Mr. DEREGGI. It definitely does, yes. 

Mr. STEARNS. Thank you, Mr. Chairman. 

Mr. WALDEN. Gentleman’s time is expired. Recognize Mr. Barrow 

for 5 minutes. 

Mr. BARROW. I thank the chairman. I would like to yield my time 

to the gentlelady from California, Ms. Eshoo. 

Ms. ESHOO. I thank the gentleman for yielding his time to me 

very, very much. 

First, Mr. Chairman, I would like to ask unanimous consent request that the following items be entered into the record: a letter 

to the committee from numerous faith-based organizations, a letter 

to the committee from Consumers Union, a letter to the committee 

from Consumer Federation of America, a survey conducted by Consumers Union and Consumer Federation of America, a letter to the 

committee from the Mountain Area Information Network, known 

as MAIN, an editorial from the LA Times, an editorial from the 

New York Times, and an editorial from USA Today. 

Mr. WALDEN. Without objection, each of those items have been 

reviewed by the Majority and are—they will be entered into the 

record. 

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Ms. ESHOO. Thank you very, very much. 

It has been said that there isn’t any reason for a—for the FCC 

to have developed these rules of the road and that we are operating 

in theory. That is not correct, and I don’t think that can stand on 

the record. The Open Internet order was a reaction to specific 

abuses designed to prevent future problems. Those are the facts. 

This is not theory; this isn’t something that we made up. In 2005, 

Madison River Communications blocked VoiP on its DSL network. 

It was settled by FCC’s consent decree that included a $15,000 payment. In 2006, Cingular blocked Paypal after contracting with another online payment service. In 2007, Comcast initially denied and 

then admitted, after an FCC complaint was filed, that it blocked 

peer-to-peer traffic. Comcast subsequently changed its practices 

and the FCC directed Comcast to disclose its network management 

practices and enjoined it from blocking VoiP. In 2008, Max Plank 

Institute released a study finding significant blocking of bit torrent 

in the United States, including efforts by Comcast and Cox. In 

2009, RCN entered in the class action settlement agreement in 

which it acknowledged it blocked degraded or slowed P to P apps. 

In 2009, AT&T blocked use of iPhone VoiP applications that used 

2G or 3G, and in 2010, AT&T blocked use of the slingbox iPhone 

application on a 3G network. 

So we are not operating out in the ether somewhere, and neither 

is the FCC. So I think it is important to set those things down for 

the record. 

I would also like to make an observation, and again, thank the 

chairman for having this legislative hearing. What I have heard 

today is consumers believe that we should not be proceeding with 

the CRA, and that there is a very important set of standards—light 

by standard by the FCC that really should be put into place. We 

have heard from one of the 100 of Time magazine’s most influential 

persons in our country, maybe in the world, Ms. Chase, say that 

this is not menacing to innovators, that this is helpful and that it 

is important. 

Dr. Kovacs, you are the only one that I really don’t get here, in 

terms of your theory of economics. But Mr. Cicconi, I appreciate the 

fact that you would come, that you would accept our invitation and 

say what you have said, and stand where you are standing. I have 

had disagreements, policy disagreements with AT&T, but we see 

where Comcast, where AT&T, where small entrepreneurial businesses as well as consumer organizations, as well as economists all 

weighing in and saying that these rules are not menacing. In fact, 

what is menacing is this CRA. 

So I am glad that we have had this legislative hearing, because 

it has cast even a brighter light on what the committee is considering doing, following this legislative hearing. I am grateful to all 

of you, even those whose views I don’t entirely either understand 

or embrace, but that is what makes for a great hearing, and I think 

that this has been, and I will—oh, right there, almost on the 

money, used my time. 

Thank you, Mr. Chairman. 

Mr. WALDEN. Thank you, and I appreciate your comments. For 

the witnesses’ edification and for the committee, we are in the middle of a vote right now so we will recess now and resume the hearVerDate Nov 24 2008 10:07 Sep 27, 2011 Jkt 037690 PO 00000 Frm 00205 Fmt 6633 Sfmt 6633 F:\112-018 HJ RES 37-PDF MADE\112-018 PDF MADE WAYNE
202 

ing immediately thereafter. Now I know some of you may have to 

depart, I understand that. Our committee members will probably 

submit some questions for the record then for those of you that 

have to leave. Those who don’t, we will reconvene, and then after 

we are done with the round of questions, the final round here, we 

will then recess briefly so the room can be reset and we will go 

right into the markup. 

And so I would welcome you all to stay around who can, and we 

will be back after the vote. With that, the committee stands in recess. 

[Recess.] 

Mr. WALDEN. We are going to call the committee back to order, 

so if you would like to take your seats, and maybe we can close the 

doors out to the hallway there. Excellent. 

I will call the Subcommittee on Communications and Technology 

back to order. We are under a hearing on H.J. Res. 37, a resolution 

disapproving the rule submitted by the Federal Communications 

Commission with respect to regulating the Internet and broadband 

industry practices. 

We have a couple more members who have been here for the duration who want to ask some questions of our remaining panelists. 

I appreciate our panelists, by the way, for staying and continuing 

to participate. 

With that, I would recognize the gentleman from Georgia, Mr. 

Gingrey. 

Mr. GINGREY. Mr. Chairman, I want to thank you, first of all, for 

calling today’s actually second hearing on the FCC order on net 

neutrality. I know that my time is limited, so let me—I would like 

to proceed with my questions to these industry stakeholders that 

are present today, and thank you also for your patience. 

Dr. Kovacs, before we broke for votes, the distinguished ranking 

member of the subcommittee had kind of questioned your economic 

logic in your testimony, but you really weren’t given an opportunity 

to respond to that, so I am going to go to you first and maybe you 

would want to expound on that and my own questions. 

Is there currently some sort of network neutrality crisis warranting government intervention, or do you think we are better off 

letting the technology and the relationships between and among 

broadband providers and web companies just continue to evolve? 

Ms. KOVACS. Let me try and address those and a whole bunch 

of questions that came up earlier and went away. I think one of 

the best ways to answer that question is to look at the last few 

years and say that both the vast investment in fiber, that is, FiOS, 

most of the wireless broadband investment has come since the triennial review and since the classification of broadband as an information service. 

So to me, it clearly shows that giving the companies flexibility 

to run their businesses the way they need to run them makes it 

a lot easier for them to raise capital. It is not clear to me that at 

this point there is any kind of crisis. Certainly the incidents that 

have come up that the ranking member referred to were dealt with 

one-by-one under the old regime. 

Mr. GINGREY. Well, if you will let me comment, and I agree. I 

don’t know that there is a crisis. Do you see any market power 

203 

analysis in this FCC order demonstrating that there truly is an actual problem and it is not just some speculation that there could 

be some future harm? 

Ms. KOVACS. The FCC looked at an enormous record, and I think 

we do have to give them credit for having looked at an enormous 

record in reaching their decision. Having said that, there is not 

anything like the kind of analysis that you would have an HHI 

index, that kind of thing, that would be looking even at the transport layer at the broadband access providers, and there is no recognition that wireless actually, in some markets, does serve—and 

for some market segments does serve as a competitor. So I would 

disagree pretty strenuously with Ms. Chase’s earlier repeated comments about the duopoly. 

There is also no analysis at all of anything above the transport 

layer, so the kind of market power, if there is market power, that 

Google, for example, has—— 

Mr. GINGREY. Let me reclaim my time, and I thank you for your 

answer. 

Ms. KOVACS. Sure. 

Mr. GINGREY. I mean, it is certainly nothing that I would think 

rises to the level of what the President said in his Executive Order 

recently in regard to rulemaking and what standards need to be 

met in regard to cost benefit analysis. 

Mr. DeReggi, the testimony delivered earlier by Ms. Chase—I am 

sorry she had to leave—but she stated that eliminating the FCC’s 

network neutrality rules will put future entrepreneurs and small 

businesses at a significant disadvantage. Based on your testimony, 

I can tell that you are in disagreement with that characterization. 

In fact, you go as far to say that the FCC order will—and I think 

I will quote you—‘‘result in fewer jobs and indeed stifle innovation.’’ 

So in addressing Ms. Chase’s testimony, can you describe why 

the FCC order will do just the opposite of what she characterized? 

Mr. DEREGGI. Let me share my hometown of Bernardsville, 70 

out of the 300 homes operate home-based businesses. That was 

made possible because of three megabit broadband shared by 50 

homes, which we provided. Broadband provides jobs, not HD video. 

When Netflix started streaming across that network, it compromised the businesses in our town. I had no choice but to slow 

Netflix. That is it. 

Mr. GINGREY. Well, has there been a lack of innovation in the absence of government regulation over the Internet during the past 

decade? 

Mr. DEREGGI. Repeat the question? 

Mr. GINGREY. Has there been a lack of innovation in the absence 

of government regulation over the Internet during this past decade? 

Mr. DEREGGI. Absolutely not. 

Mr. GINGREY. Is this a hammer looking for a nail? 

Mr. DEREGGI. Exactly. 

Mr. GINGREY. Mr. Chairman, I realize my time is expired and I 

yield back. 

204 

Mr. WALDEN. I appreciate the gentleman’s participation. Now 

recognize the gentleman from Kentucky, Mr. Guthrie for 5 minutes. 

Mr. GUTHRIE. Thank you, Mr. Chairman. 

Mr. Turner, Mr. Markey’s questioning established that you are 

here on behalf of the consumer. Do you think that the web content 

should also be regulated, or do you think it is sufficient that just 

the Internet providers are regulated? 

Mr. TURNER. Well, we come at this from the perspective of economics. I am sure Dr. Greenstein can speak to this. There are tremendous fixed costs to providing broadband networks. There are 

very high switching costs for consumers in those markets. There is 

nothing preventing this consumer going one click away to another 

Web site, so think they exist in different markets. 

That is not to say there isn’t problems with market power in 

those markets, but I don’t think that the FCC in the context of its 

authority over communication by wire or radio should really be the 

ones looking at that. But certainly, we would welcome—— 

Mr. GUTHRIE. So they should address that market power in that 

place that the one has more than the other? 

Mr. TURNER. Well again, there is—there potentially is market 

power in the search markets, but it is not the same from a consumer perspective in terms of switching costs, nor from the barriers to entry for other competitors to come in. If you have a good 

idea for a search algorithm, it is very easy for you to start a search 

engine today. It is not the same for someone to go build a network 

next to AT&T. 

Mr. GUTHRIE. OK, thanks. 

Mr. Cicconi—Dr. Kovacs, you said it was going to be more difficult for capital for people to enter the market because of this rule. 

Now, would that affect AT&T and Mr. Cicconi more, or would that 

affect Mr. DeReggi and his smaller business more? 

Ms. KOVACS. It would affect smaller businesses more, obviously, 

and—— 

Mr. GUTHRIE. I knew that too, I just wanted to get the answer—— 

Ms. KOVACS. I also, if you will allow me just to comment on 

switching costs. If it is that easy for anyone to enter the search 

business, why have companies like Microsoft, for example, not been 

able—or Yahoo not been able to very effectively challenge Google? 

Mr. GUTHRIE. That is a fair point. That is what I was getting at 

as well. Thank you so much. 

Mr. Cicconi, I know Mr. Shimkus asked—we have used the word 

uncertainty I don’t know how many times here today. I still haven’t 

figured out in the marketplace, and you said this brought certainty 

to a business. What in the marketplace was there uncertainty 

about? I know in general there is uncertainty in the marketplace, 

but what in the marketplace did this rule—may bring certainty to 

your business? 

Mr. CICCONI. Well, I think, Mr. Guthrie, the uncertainty that 

was roiling these markets was largely the result of the prospect of 

pretty heavy-handed regulation by the FCC to implement net neutrality. They had a notice of proposed rulemaking out there in the 

fall of 2009 that was very specific and very onerous, and that was 

205 

followed by a proposal that was laid out in spring of last year that 

was even more onerous and heavy-handed. 

Mr. GUTHRIE. But there wasn’t something in the marketplace 

they were trying to solve that is real—a real problem in the marketplace today they were trying to solve? 

Mr. CICCONI. Well—— 

Mr. GUTHRIE. If you don’t want to go there, that is OK. 

Mr. CICCONI. I think it is fair to say that, you know, that the uncertainty that has been created over the years in this debate, and 

I think we should stress that the debate over net neutrality and 

the authority the FCC should have in this area didn’t just start in 

January of 2009. It has been going on for 5 or 6 years. It got worse 

in 2009 and 2010, but we do feel that this rule, you know, addresses much of the uncertainty that that debate helped cause. 

Mr. GUTHRIE. Unless the new FCC wants to go further, which is 

unsettled. 

Mr. Greenstein, you said—what is the number you said, 70 to 90 

cents of every dollar, is that the gross profit is what you were—— 

Mr. GREENSTEIN. That’s the gross margin. 

Mr. GUTHRIE. Gross profit in typical Internet service providers? 

Mr. GREENSTEIN. Gross, so that doesn’t account for—— 

Mr. GUTHRIE. Gross profit. Now when you said that, Mr. 

DeReggi, you were shaking your head no. Why were you shaking 

your head no? 

Mr. DEREGGI. I just wish and dream that I could have those type 

of profit margins. 

Mr. GUTHRIE. Gross profit. Your gross profit is not that right? 

Mr. DEREGGI. No, gross profit is not that high. That would barely—revenue barely covers the antenna co-location costs, let alone a 

profit. If we are lucky, we can get legal and pay permit fees. No, 

I don’t think so. Some business models may have those costs, but 

all WISPs aren’t uniform. There are different costs to provide service to different places in the country. 

Mr. GUTHRIE. Thank you. 

Mr. Greenstein, that number—— 

Mr. GREENSTEIN. Yes, I just got this from UBS and from Craig 

Moffett at Bernstein. These are authorities. I am just quoting 

somebody else. 

Mr. GUTHRIE. OK. 

Mr. GREENSTEIN. And I think it is largely for wire line ISPs, so 

that is quite different than his business. 

Mr. GUTHRIE. OK, I just wanted to establish that. 

Ms. Kovacs—Dr. Kovacs, I am sorry. 

Ms. KOVACS. Not to get arcane, but he is talking about gross 

margin, which is when you removed only some part of the—and 

then there is a huge amount of other costs that have to be covered. 

So again, net income is in the 5 to 10 percent range. 

Mr. GUTHRIE. So—— 

Ms. KOVACS. Which is what goes back to the shareholder. 

Mr. GUTHRIE. Net income is what you have to go to your investors with, isn’t it? 

Ms. KOVACS. That is what goes back to your investors, exactly. 

Mr. GUTHRIE. I yield back. 

Mr. WALDEN. Thank you, gentleman’s time is expired. 

206 

I recognize the gentleman from California, Mr. Bilbray, for 5 

minutes. 

Mr. BILBRAY. Thank you, Mr. Chairman. 

Mr. Turner, you indicated in your testimony that you really don’t 

think the FCC has gone far enough on this, and I assume that 

means that you would prefer the FCC to have gone and reclassified 

into Title 2? 

Mr. TURNER. Well look, I recognize that net neutrality appears 

messy, and it is really because it is a band-aid to what the earlier 

FCC—— 

Mr. BILBRAY. OK, well I am just wondering about this. I am trying to find the line. In your opinion, would the Title 2 be a better 

option for us to be going down, rather than stopping at this level? 

Mr. TURNER. You may not be aware, but much of the large business enterprise market for broadband is today regulated lightly 

under Title II. Mr. Cicconi’s business—— 

Mr. BILBRAY. My point is that you would like to expand that and 

bring it into this field? 

Mr. TURNER. Well, I think by doing that, the WISP Association 

which Mr. DeReggi was a member of, they would actually probably 

prefer that because it takes away the regulation on the Internet 

service provider layers and—— 

Mr. BILBRAY. So your support for going to Title 2 is because the 

business—some in the business community would like that? 

Mr. TURNER. My support for Title II is because that is what Congress adopted in the 1996 Telecommunications Act. It is the law of 

the land. 

Mr. BILBRAY. Well, I don’t normally associate with someone who 

was on the committee at that time that some of this is an interpretation. 

I got to say one thing. Let me just say one thing. I know—I just 

think that I want to clarify something. There was a comment made 

earlier—Mr. Turner, have you ever run for elected office? 

Mr. TURNER. I have not, no. 

Mr. BILBRAY. You have never gotten a vote? OK. Mr. Chairman, 

I just want to clarify. There are statements made here that Mr. 

Turner represents consumers. Now people around the world are 

standing up and demanding the right to elect their representatives. 

And it is not just on Mr. Turner, we do this all the time. I am 

sorry, in this country, you elect your representatives. I really think 

it is quite inappropriate from this gentleman’s point of view for us 

to be in this institution and basically assume that people represent 

someone without that person being—having the right to choose 

who represents them. Self-declared representatives is what Libya 

is fighting against right now. 

So I just want to say in all fairness, nothing personal. It is something we do in this institution that is quite inappropriate, I think, 

seeing the makeup of this institution. 

So that—— 

Mr. TURNER. I meant no offense, sir. We do have 550,000 members that I do represent that are consumers. 

Mr. BILBRAY. Right. OK, and you say that, but the fact is that 

when it comes down to it, the choices you make, we try to open 

them up. I just think that we have got to remember that we elect 

207 

people in our system, and that—I just worry about how many people are identified as representatives without having gone through 

a due process that I would assume would be a minimum standard 

in our society. 

That aside, I wish Ms. Chase was here because I had a question, 

but Mr. DeReggi, interesting thing on Ms. Chase’s situation. She 

was at Zipcar and if I remember right, normally if she wanted to 

get basically rated somewhere on—through the system, it would either be alphabetical, which would put her at the bottom, or it 

would be based on how many hits she gets. 

Now, if you are little guy going up against a big guy, that system 

kind of puts you at a major disadvantage, wouldn’t it? 

Mr. DEREGGI. It certainly does. 

Mr. BILBRAY. Now, so she now actually—her company or former 

company had the option of paying into an advertising mode that 

moved her up to the front and made it big. 

So by having the ability to sort of pay to play, that gave her the 

ability to compete on a much more even footing than somebody who 

was an established big guy, right? 

Mr. DEREGGI. That is correct. 

Mr. BILBRAY. Now, what would happen if the FCC said no, that 

is not an option either, that somebody can’t buy their way onto the 

front page by paying for advertisement. What would that do to little guy’s ability to take on the big established operations in this 

kind of business that Zipcar was in? 

Mr. DEREGGI. Yes, that would let the little guy have an equal opportunity. 

Mr. BILBRAY. OK. I just think that as we go down here, there is 

one—you know, we forget that a lot of times what we perceive to 

be a big advantage of the big guy is really the only vehicle that a 

little guy has to compete in the system. And I always get kind of 

frustrated if somebody comes from a blue collar background, and 

that is why, you know, Mr. Turner, I bring this up all the time because everybody says they represent the poor and the working 

class, and some of us never got to elect these guys. 

But I think that when it comes down to the system of who gets 

to participate, the fact is big government favors big business. Little 

business is the one who keeps big business honest, and allowing 

the little guy to compete, get access, that is what keeps the big guy 

honest. Traditionally when we think we are helping with big government, we actually end up creating more protection for the big 

guy. 

Mr. WALDEN. Gentleman’s time—— 

Mr. BILBRAY. Is that fair to say? 

Mr. TURNER. The concern for small businesses is why we are 

strong supporters of network neutrality, sir. 

Mr. WALDEN. Gentleman’s time has expired. Now recognize the 

gentleman from Illinois, Mr. Kinzinger, for 5 minutes. 

Mr. KINZINGER. Thank you, Mr. Chairman. Thank you for spending your morning, afternoon, and forever with us. I appreciate it. 

I have said this before. One of my concerns with this whole thing 

is, you know, we can argue the merits for or against net neutrality, 

and I have my position, but one of the biggest concerns is—and you 

five now, but six weren’t necessary privy to this discussion, but to 

208 

me, it is just amazing, the whole idea that we are sitting here talking about something that I don’t even think the FCC had a right 

really to do. That was outside of the venue, outside of the will of 

the body of the American people. I mean, last year, last Congress 

over 300 members of this body signed something opposing these 

rules. I heard the FCC commissioners talk about they are pretty 

doggone sure, basically, that this is going to hold up in court. Well, 

if you are not positive why don’t you come talk to us and we can 

talk about it. 

So that is—I think with this whole discussion—again, talking 

about the merits, where it’s good, where it’s bad. The 10,000 foot 

overview I have is just the fact that we have regulatory bodies that 

are operating outside of the will of the House of Representatives, 

and that, to me, is unbelievable. That is not what was ever intended to happen. 

I had to get that off my chest. 

Let me say to Dr. Kovacs. I hope I am saying your name correctly. 

Ms. KOVACS. You are. 

Mr. KINZINGER. The current order, and I know you have discussed this, but I want to ask it in this way: If the current order 

from the FCC were to be implemented, with the current lack of 

complete definitions in a lot of areas in many of these aspects, do 

you believe that that lack of definitions and this current order 

would create the necessary certainty that broadband Internet access providers will need to determine that long-term strategy? 

Ms. KOVACS. I think it is going to take a long time to get to the 

point where we know what the definitions are, because it is going 

to be case by case, as protests are filed and the FCC deals with 

them. So we have quite a while to go before we have certainty 

about what the rules are actually going to—— 

Mr. KINZINGER. Well we don’t even know in, you know, 5, 10, 

whatever—I am just pulling those numbers out. We don’t even necessarily know what this is all going to look like, anyway, so this 

is all still—— 

Ms. KOVACS. It is going to be a multi-year process. 

Mr. KINZINGER. Right. 

Mr. DeReggi, I hope I am saying that right. You guys have difficult names. You need an easier one, like Kinzinger. I currently 

represent a rural district that is fairly rural, and it is served by 

a lot of small companies like your own. One of the things that I 

tend to know with consumers in these kinds of areas is that they 

choose, in many cases, small companies like yours so that they are 

able to pay for the services that they want to have in that area. 

The FCC order has a provision that mandates that every consumer 

be able to access every service on every device, regardless of cost. 

Could you expound a bit on how that particular provision would 

impact your pricing plans as well as what you think it would do 

to your ability to serve customers in areas like that? 

Mr. DEREGGI. It would definitely force us to raise our prices in 

order to be able to do that, but it is also not physically capable of 

happening because a spectrum is not available to be able to fulfill 

that request. 

209 

Mr. KINZINGER. So we basically are creating something or something is being created that is just not even possible to follow 

through on anyway? 

Mr. DEREGGI. You are basically making the operators a criminal 

because I can’t comply. 

Mr. KINZINGER. Right, OK. And you know, finally Mr. Turner, 

just to be clear, yes or no is fine on this. Please, just yes or no. If 

the FCC loses in court, will you support Title II regulation of the 

Internet. 

Mr. TURNER. I support Title II regulation of Internet access—the 

transport segment of Internet access services today. 

Mr. KINZINGER. So the answer is yes? 

Mr. TURNER. The answer to—you didn’t ask the question the way 

I would answer, but yes, the answer on the connectivity side, not 

the access service side, yes, sir. 

Mr. KINZINGER. OK. So basically a vote against this resolution is 

a vote for Title 2 regulation. 

I yield back. Thank you. 

Mr. WALDEN. Gentleman yields back his time. 

We have now entertained the unanimous consent request to 

allow Mr. Inslee to sit at the subcommittee level. Without objection, 

so ordered, and he will be our final questioner before we go into 

the markup. So I will yield now 5 minutes to the gentleman from 

Washington State, Mr. Inslee. 

Mr. INSLEE. Thank you, Mr. Chair. Thank you for your courtesy 

in letting me participate. I appreciate it. These are very important 

things. I want to thank all the panel for being here. These issues 

and the constellation of issues this represents, with all the problems we have got in the world, from Libya to—for gas prices, this 

one I hear more about. I mean, not necessarily more than some of 

those others, but a lot about, and I have almost come to think that 

when people in my district think about life, liberty, and the pursuit 

of happiness, they think about free access to the Internet as either 

life or liberty or the pursuit of happiness, or maybe all three of 

them, and they really do perceive a threat to that because certain 

business plans could result in the loss of their decision-making 

about what they look at on the Internet, and losing that ability and 

that going to some commercial entity instead. We are imposing 

costs on them that are not necessarily in their benefit. 

So it is a huge issue in my district. People are very, very concerned it and I am as well. I don’t believe the FCC actually went 

far enough to guard against the life of that life, liberty, and the 

pursuit of happiness. Interests in part because it didn’t deal with 

the wireless spectrum, which is the future. We are really talking 

about the past or the present here in wired, but wireless is the future and the fact that we haven’t considered protections on that is 

very disturbing to me. 

So I just have a couple questions. First off for Mr. Cicconi. Do 

you think that consumers are the ones that ought to have final say 

in deciding what content and services they have when they access 

the Internet, and in what ways, if any, does the present order restrict those consumers, if any? 

Mr. CICCONI. I think by and large we are—the objective of our 

business is to provide that very access and it is not our position or 

210 

policy to hinder it in any way. I—as I have said before, I don’t 

think we have done that in any way, and I think it is in the interest of our business to make it as broadly available as possible. 

Mr. INSLEE. And do you think that the FCC’s present net neutrality order restricts access of consumers to access they would 

want in any way? 

Mr. CICCONI. I don’t think so, Mr. Inslee. I am not sure I am getting the import of your question. There are provisions in the rule 

that provide for and allow for reasonable network management, 

which you know—I mean, there are certain things you have to do 

to make sure a network runs properly, and then on shared networks such as cable or wireless, your objective is to ensure the 

most access for the most people at any given time. And so there 

could be policies or terms and conditions on the service that are related to the ability—to management of that network that could impede that. But I think the Commission has recognized that and I 

don’t think there is any disagreement that we have with the Commission about the importance of that. 

Mr. INSLEE. Thank you. 

Mr. Turner, I want to talk if I can about previous frameworks. 

Isn’t it true that non-discrimination really was the agreed-upon 

rule of the game, if you can call it that, during the past few decades, and including during much of this explosive growth through 

the Internet? And AT&T really agreed to it—that principle of net 

neutrality in FCC merger approvals. If that is the truth, and I 

think it is, what is the reason that the American people should be 

asked to abide by jettisoning that framework? 

Mr. TURNER. Well I don’t think they should, and you raise a 

great point. I always turn back to the ’96 Act, because that is the 

governing law here. The focus of the Act was keeping Internet companies like AOL, CompuServe, Prodigy viable. They were dependent on the infrastructure. We had great ISP choice there. We had— 

any consumer could choose dozens of ISPs. There was no way I 

think Congress would have said the FCC should be not allowed to 

invent words like inextricably intertwined to basically take away 

that choice. I don’t think Congress would have wanted in ’96 to 

look out at the world of ISP choice and say 15 years later, I only 

want consumers to have choice of two, and I don’t want them to 

be able to choose the content that they would like to access on the 

Internet. I wish this body could return to first principles, return to 

the principle of non-discrimination. The FCC may have not done it 

the right way. Let us talk about the right way to do it. 

Mr. WALDEN. Thank you. Gentleman concludes his questioning 

and returns his time. 

We have concluded now the hearing phase today—or actually the 

hearing today, our second hearing on this topic. We have a document that has been shared with the Minority that we will put in 

the record, National Broadband Plan for our Future. This is from 

Solicitor General Seth P. Waxman, former solicitor general, as 

counsel for the United States Telecom Association. I assume not 

necessarily a relative of the former Chairman Waxman. And in it 

he makes the case that the Internet was never regulated at the retail level. Without objection, this will be entered in the record. 

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Mr. WALDEN. And with that, the subcommittee will be adjourned. 

Thank you again for testifying, it has been most helpful to our 

process. 

For our committee members who are watching, listening, or 

somewhere out there in telecommunication land, we will reconvene 

as the subcommittee and for purposes of the markup on this legislation at, let us say, 3:30, so 15 minutes. We will reconvene for the 

markup. 

We stand adjourned as the Subcommittee on Communications. 

[Whereupon, at 3:15 p.m., the subcommittee proceeded to other 

business.] 

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